Pacific Safety Products projects continued stability

Pacific Safety Products Inc. (PSP) hopes its shaky years are in the past, as it presents  growing revenue in its most recent quarterly report and a strong forecast for the remainder of fiscal 2016.

Revenues for the first quarter ended Sept 30 were $5.0 million, an increase of 32.9 per cent compared to revenues of $3.7 million during the first quarter of fiscal 2015. PSP’s net income for the first quarter was $276,253 compared to a net income of $37,521 million during the first quarter of the prior year.

“PSP had a solid first quarter of fiscal 2016 and we have identified a number of revenue opportunities that we believe will underpin the success we had in fiscal 2015,” CEO Terry Vaudry states in a news release released on November 25, 2015.

Vaudry took over PSP management when Doug Lucky resigned during the financially rocky summer of 2010. At that time, the company warned shareholders it “may have insufficient cash to continue its operations.”

“My mandate was really to bring us back to our roots: making better products, doing lots of research and development on the products we have and bringing those products to market in a quick period of time,” Vaudry says.

Past  distractions

In the years leading up to 2012, Vaudry explains PSP was distracted with research and development projects that could not be monetized.

“Everything it seemed to invest in wasn’t creating a return for the business,” he says.

For instance, in the early 2000s the company researched and developed a new army helmet. While the average army helmet currently costs $350 in Canada, this new model was going to sell for $2000.

“We looked at the millions the company had spent doing that and really it was in vain. There was never going to be a return on the investment,” Vaudry says. “Everything we do today is to move the business forward, making the products better and less expensive.”

PSP has a significant position in the Canadian safety industry, holding 70 per cent of the market. It also caters to customers across the border in an entirely different market.

“Every decade or so the US is often buying newer and better versions of bulletproof vests, whereas Canada sort of makes large purchases and then they make them last,” explains Vaudry.

Canadian contracts

Last November, PSP secured one of these substantial Canadian contracts with a large federal agency for ballistic vests and related products. The four-year contract began early this year and has a firm value of $6.8 million.

“What we have been seeing since 2013 is gradually now the company has been coming back to financial heath and has been able to make some decent returns for the business,” Vaudry says.

PSP claims it will continue to protect its balance sheet and strategically invest in product development aimed at bidding on more contract opportunities as they present themselves in the future.

Fortified vehicles

A large opportunity PSP hopes to seize relates to vehicle fortification. Vaudry notes the lessons taken away from Afghanistan and Iraq about how to better defend vehicles. The durable lining devised by PSP offers protection for vehicle occupants from roadside bombs.

“We have been building the program with very large clients and we think that is going to add some significant value in 2016,”  Vaudry explains.“It should be a bit of a Cinderella year for us,” he says comparing it to the company’s prosperity in 2004.

Cathy Hume, CEO of CHF Investor Relations, considers the new product to be a breakthrough in terms of safety and business.

“Once they get some big orders it could be very transformational because there will be remarkable gross margins on such a large product,” she says.

Hume discussed PSP in the CHF Investor Relations April Newsletter. She predicts Ottawa’s 10 year defence plan, budgeted to spend an additional $11.8 billion on the Canadian military, will be a huge tailwind for PSP. She argues it will provide PSP with continued growth and opportunities in years to come.

“As the government distributes its defence spending, agencies will expand budgets accordingly and look to sign extension orders with standing providers,” Hume states in the newsletter. “We are confident that PSP, being the provider of protection products will receive several contract extensions.”

Riding the wave of defence spending

In particular Hume expects the increased budget to result in large purchases of ballistic vests as many currently in the system are past their five-year expiry date.

“The governments know a lot of the vests their people are wearing must be replaced, but working under budgets they have to do it at a pace they can manage rather than the pace they are expiring,” Hume explains. “That is where they will certainly have very big orders.”

Hume says this is a good time for Canadian investors to buy shares in PSP. Not only will the company have government funding to support revenue growth, but it will also have an advantage over U.S. competition in foreign markets because of the declining loonie.

PSP’s advanced armour and personal protection products are used by law enforcement, security and defence personnel across North America. The company strives to “bring everyday heroes home safely,” with its extensive product line including bulletproof vests and protective blankets. All of the goods are made in Arnprior, Ont.

“The products we make save lives,” Vaudry says. “PSP is important to the community, to the people that have been involved with this company and it is important to me because it represents a business that should not have been broken.”