Automotive Performance Group Outlines Growth Strategy
29 April 1999
Automotive Performance Group Outlines Growth Strategy; Expects 1999 Pro-Forma Sales To More Than Double by 2003
NEW YORK--April 28, 1999--Automotive Performance Group, Inc.'s (OTCBB: RACG) Chairman and Chief Executive Officer Dean M. Willard today outlined the Company's major financial goals and strategies in his Letter To Shareholders.His comments are reproduced in their entirety in the following release.
TO OUR SHAREHOLDERS:
Automotive Performance Group, or APG, was incorporated in March 1998 with the merger of Klein Engines & Competition Components and International Motor Sports Group. These companies were principally engaged in the race and race promotion businesses.
Since then, the Company has aggressively pursued a refocused strategy: the creation of a fast-growing, high value-added producer and marketer of specialty products and services in two rapidly expanding markets - the automotive aftermarket for chemicals and aerospace/aircraft adhesives, coatings, and sealants. The North American market for these products and services is approaching $5 billion annually. The "apparent" market opportunity for our Company in these sectors approaches $1 billion per year.
A casual look at our financial performance in 1998 would not provide a true reflection of our progress in shifting our focus and/or the significant potential management envisions. Our revenues from continuing operations increased significantly, from roughly $0.5 million in 1997 to $2.7 million in 1998. However, the Company reported a net loss of $13.9 million, or ($2.80 per share), in 1998, compared with a net loss of $16.0 million, or ($12.96 per share), in 1997. (The wide disparity in the earnings-per-share losses in 1997-1998, reflect the significant change in the number of shares outstanding used in this calculation.) Our loss from continuing operations in 1998 was $7.9 million versus a loss from continuing operations of $4.3 million in the year-earlier period.
A major portion of the increased operating losses in 1998 resulted from several significant one-time charges and write-offs we took as part of our corporate refocus and restructuring initiatives. These up-front costs associated with our changing profile are principally behind us as we move into the consolidation phase of our strategy in 1999.
Where Do We Go From Here?
The company aggressively implemented several core strategic moves last fall. Some of these initiatives were finalized in the first quarter of 1999. Specifically:
1. APG signed a letter of intent to acquire Advanced Chemistry & Technology (AC Tech) last November. In conjunction with this acquisition, I was appointed Chief Executive Officer of APG. AC Tech is a developer and manufacturer of advanced proprietary sealants and coatings for the aerospace industry. It will serve as the backbone of APG's entry into the aerospace/aircraft specialty products and services industry. Our initial goal is to attain a material share of the $100 million North American market for aerospace/aircraft sealants. We are off to a good start; AC Tech reported a threefold increase in its revenues in 1998 (to $4.4 million), and expects to more than double its size in 1999.
2. In mid and late 1998 Team Scandia, which had fielded teams in the Indy Racing League and the National Hot Rod Association Top Fuel Dragster segments, stopped competing. In a series of moves APG completed the sale of Team Scandia by the end of the year, thereby completing its program to exit certain auto racing operations and racing team sponsorship.
3. In January, 1999, APG received verbal approval to proceed with the reorganization of Boyds Wheels and Hot Rods by Boyds. This reorganization was completed in April. Boyds is building hot rods again, as well as a full line of wheels and accessories.
4. In February of this year APG announced it had entered into a letter of intent to acquire the automotive aftermarket business of Loctite Inc., following several months of negotiations. The transaction is expected to be completed during the second quarter of 1999. We are excited about acquiring Loctite's operations. The company has a well-regarded product portfolio of automotive aftermarket chemical products and services and has achieved dramatic brand recognition. Consummation of the acquisition of the Loctite business places APG in several segments of the fast-growing (more than 5% annually), $3-billion-plus North American market for automotive aftermarket chemicals, which include the following: maintenance chemicals (e.g., additives); functional chemicals (e.g., fluids, greases, sealers); and appearance chemicals (e.g., waxes, polishes, protectants).
5. In April, the company completed, in a private placement, the sale of approximately $8 million of Series A Preferred Shares. During the third quarter of 1998 APG completed a $3.3 million private placement of preferred stock. Roughly two-thirds of the proceeds of the recently completed private placement were used for acquisition-related activities, including a $2 million deposit associated with the proposed acquisition of the Loctite business and $1 million related to APG's option agreement to acquire AC Tech.
As of this writing, APG is in negotiations to finance our proposed acquisition of the Loctite automotive aftermarket business. These operations are expected to generate annual revenues in excess of $100 million, with well-above-average EBITDA margins. The successful completion of the Loctite and AC Tech acquisitions, coupled with the Company's existing base operations of Royal Purple Motor Oil and Klein Engines, are expected to propel APG into 2000 as a fast-growing, high-margin $150-million-plus chemical specialties enterprise.
BEYOND 1999
Automotive Performance Group's strategy is to become a broad-based producer and marketer of chemical specialty products and services. Our goal is to more than double our revenues between 1999(pro-forma) and 2003 and to widen our EBITDA margins to more than 20% during this time frame. To achieve our internal hurdle rates we will aggressively integrate and streamline the new dimensions of the Company. A professional senior management team is being established and we will be restructuring the makeup of our board of directors to reflect our orientation to specialty products and services.
Another goal is to become a more market-driven enterprise. The new APG will rapidly develop new markets for our automotive and aerospace product portfolios and we will further penetrate existing markets and expand our already-strong market share positions. There are numerous cross-marketing opportunities between the "new" APG and the "old" APG. And we expect to maximize our brand-name franchises.
Our first year of operations was exciting and challenging. We thank our employees for their effort and understanding during a trying period of transition. In 1999, we will be focused on implementing and integrating the various components of our Company. Our pro-forma financial performance could provide even casual viewers with some eye-popping results.
For 1999 and beyond, we are dedicated to creating wealth for our shareholders and outperforming our peer groups.
Thank you for your interest and your support.
Dean M. Willard Chairman and Chief Executive Officer
Except for historical matters contained herein, the matters discussed in this press release are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect assumptions and involve risks and uncertainties which may affect Automotive Performance Group, Inc.'s business and prospects and cause actual results to differ materially from these forward-looking statements.
Automotive Performance Group Inc. is a full-service owner and operator of high-performance automotive businesses, including Royal Purple Motor Oil, which produces synthetic oil and chemical products favored by many racing teams and manufacturers, and Klein Engines and Competition Components Inc., a leading manufacturer of high-performance engines.