Wednesday 8 March 2000

Spectra warns of profit drop

Computer problems more severe than earlier reported

FRANCOIS SHALOM

The Gazette

The nightmarish computer problems encountered by Boucherville fuel-tank specialist Spectra Premium Industries will drag profits down even more than previously estimated, the company said yesterday.

The company's radiator division has so far posted an operational loss of about $2 million as a result of the problem-plagued new order-taking, shipping and invoicing computerized system it tried to install starting last fall.

But Denis Poirier, Spectra's vice-president (finance), said in an interview that the manufacturer of gas tanks and radiators for the automotive after-market should resume normal operations by March 27, when a new computer server is installed.

The debacle had a serious impact on the company's performance for the year ended Jan. 31.

Despite sales doubling to $190 million from $97.5 million a year earlier, earnings dropped to about $8 million, down from $14.9 million.

In the fourth quarter, when the glitches started to affect orders, deliveries and invoicing, Spectra lost $4 million.

Spectra president and chief executive officer Paul Neiderer said that "while the first quarter of fiscal 2000-2001 will remain difficult, we are confident that the balance of the year will see a marked improvement in each of our three divisions (gas tanks, radiators and oil pans)."

Adding to the problem was the late start to the winter, which meant lower sales of fuel tanks as a result of the lack of corrosive salt on the roads.

Final audited financial figures will be available in early April.

Poirier related a tale of woe concerning the attempted introduction of a new IBM server and J.D. Edwards Canada Ltd. software to run on the IBM platform.

The introduction encountered a significant problem: the software and the hardware were not compatible, at least not for the volume Spectra had specified the system would need to process, said Poirier.

A simple order would crash the system for hours at a time, he said. Some customers had to wait hours to place an order, or days to receive one, and others would receive two sets of items they had not ordered.

Still others were billed twice for one order.

The IBM server will be scrapped entirely, and the software will be run at a much faster speed on the replacement Microsoft NT system the company is introducing. Poirier would not comment on possible lawsuits, but hinted that once the integration of the new system is completed, lawyers will take a critical look at the role played by the consultants who recommended the IBM and J.D. Edwards combination.

The hardware and software firms were "reasonably receptive" to Spectra's complaints, he said.

"But I think if we had been advised well beforehand, taking into account the volumes we had disclosed, something else could have been done.

"At this time, we're not holding anyone responsible, but we will definitely look more deeply into the situation in the near future. When we have integrated the NT server, it will give us a greater base to actually blame people."

Poirier said he doesn't expect the problems to have a lasting effect.

Spectra has developed an enviable reputation, he added, and although it's true some customers have been buying from competitors, they tell the company that they'll return to the fold once its problems are sorted out.

The problems affected only the radiator division, a much smaller unit than the fuel-tank arm.

But that's misleading, since the radiator division also accounts for the sale of 15 per cent of Spectra's gas tanks, or about $6 million a year.

Analyst Richard Morrow of CIBC World Markets agreed with Poirier that the computer problems would have little or no lasting effect on the company.

"Some ground was lost, but it won't be permanent," said Morrow.

"The fundamentals of a better product at a lower price, and delivered in good time, will prevail."

But he did downgrade his earnings forecast to 45 cents a share this year, from his previous 65 cents.

The company's stock has plummeted in the last few months, from a high of $13.05 in September to yesterday's close of $5.15, down 25 cents for the day.

"What's been embarrassing and frustrating for them is to explain to the markets the situation. I guess their shareholders and the markets in general will need the assurance of a couple of good quarters to be confident again."

But the company is "still a very attractive one," said Morrow

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-- Carl Jenkins (Somewherepress@aol.com), March 08, 2000