15.8.2005: Meldung: ATS Automation Tooling Systems Inc.: strong first quarter earnings growth on modest advance in revenue
Friday August 12, 8:02 am ET
CAMBRIDGE, ON, Aug. 12 / ATS Automation Tooling Systems Inc. today reported substantial earnings growth in the first quarter of fiscal 2006 (three months ended June 30, 2005) on the strength of a record performance by its Solar Group and an increase in operating earnings by its Automation Systems Group.
- Earnings from operations grew 45% to $9.2 million from $6.3 million in
the first quarter a year ago.
- Net earnings from continuing operations advanced 46% to $5.8 million
(10 cents per share) from $3.9 million (7 cents per share) a year ago.
- Net earnings increased 95% to $5.4 million (9 cents per share) compared
to $2.8 million (5 cents per share) a year ago.
- Revenue increased 5% to $190.5 million from $181.5 million in the first
quarter a year ago, due to a 16% increase in Solar Group revenue and a
3% increase in Automation Systems Group revenue, which more than offset
a 9% decline in Precision Components Group revenue.
- New order bookings in the first quarter were $111 million compared to
$87 million in the fourth quarter and $117 million a year ago.
- Period end automation systems order backlog was $155 million compared
to $169 million at March 31, 2005 and $231 million a year ago.
- Order Bookings to date in the second quarter are $43 million.
"ATS generated higher earnings in the first quarter, despite only a small advance in consolidated revenue," said Ron Jutras, President and CEO. "These positive results primarily reflect record revenue and operating earnings within our rapidly growing Solar Group. Automation Systems Group also contributed positively with an 8% increase in operating earnings. These improved results were generated on a very modest increase in revenue and in spite of lower backlog at our largest facility. ASG also incurred one-time severance and other related costs of $0.8 million related to management changes following the death of Klaus Woerner in February. As expected, primarily due to costs associated with closing and transferring work from our plant in McAllen, Texas, Precision Components Group incurred an operating loss in the quarter. However, the McAllen facility closed on schedule and we look forward to the benefits of better utilization from PCG operations."
"In assessing ASG"s outlook, it"s important to consider that order bookings and backlog do not include approximately $86 million of expected automation orders where ATS has already been awarded a firm advance order to initiate engineering and in some cases procure long lead-time items," said Mr. Jutras. "For each of these programs, we"re very confident that the full assignments will proceed and, we"re expecting purchase orders shortly for the full value of each of these programs. Based on new order bookings to date in the quarter, combined with the $86 million of expected follow-on orders and the strong pipeline of other potential new orders, we expect markedly improved performance in our Cambridge facilities in the second half of the fiscal year.
"We also expect Photowatt"s performance to remain relatively consistent, although the current industry wide silicon supply challenges remain an uncertainty and Photowatt will experience its seasonal decline in second quarter revenue and operating earnings due to its traditional one month summer plant shutdown in France. SSP completed its planned improvement modifications during the process optimization shutdown that began in June and is now beginning to ramp up its processes and equipment. The new President and CEO of the Solar Group is currently working through the Spheral Solar Power launch strategy and developing the overall Solar Group strategic direction."
Quarterly Conference Call
ATS will hold its quarterly conference call at 10 am eastern time today. To listen to a live audio webcast of the call please visit www.atsautomation.com.
Note to Readers
The first quarter MD&A and consolidated interim financial statements accompanying this news release contain detailed information of quarterly performance, financial condition and the Company"s outlook. Readers should review the Company"s MD&A, audited financial statements and annual report for the full fiscal year ended March 31, 2005 which are available on SEDAR at www.sedar.com. Certain forward-looking statements are made in this news release and accompanying MD&A, including statements regarding possible future results and business. Investors are cautioned that such forward-looking statements involve risks and uncertainties. The Company"s results could differ materially from those currently anticipated due to a number of factors including, but not limited to, the risks and uncertainties contained in the Company"s fiscal 2005 MD&A and annual report and other risks detailed from time to time in ATS"s periodic reports filed with Canadian regulatory authorities.
ATS Automation Tooling Systems Inc. (www.atsautomation.com) is the industry"s leading designer and producer of turn-key automated manufacturing and test systems, which are used primarily by multinational corporations operating in a variety of industries including: automotive, computer/electronics, healthcare, and consumer products. ATS is also an emerging leader in the rapidly growing market for solar energy cells and modules. The Company also makes precision components and subassemblies using its own custom-built manufacturing systems, process knowledge and automation technology. ATS employs approximately 4,200 people at 26 manufacturing facilities in Canada, the United States, Europe and Asia-Pacific. The Company"s shares are traded on The Toronto Stock Exchange under the symbol ATA.
Management"s Discussion and Analysis
This MD&A for the three months ended June 30, 2005 (first quarter of fiscal 2006) provides detailed information on the Company"s operating activities of the first quarter and should be read in conjunction with the unaudited interim consolidated financial statements for the three months ended June 30, 2005. The Company assumes that the reader of this MD&A has access to, and has read, the Company"s fiscal 2005 MD&A and audited financial statements and, accordingly, the purpose of this document is to provide a first quarter update to the information contained in the fiscal 2005 MD&A. These documents and other information relating to the Company, including the Annual Information Form, may be found on SEDAR at www.sedar.com.
Notice to Readers
The Company has three reportable segments: Automation Systems Group (ASG), Solar Group (Solar) and Precision Components Group (PCG). The terms operating income, operating earnings, earnings from operations, operating loss, operating results, operating margin, Order Backlog and Order Bookings used in this MD&A have no standardized meanings prescribed within GAAP and therefore may not be comparable to similar measures presented by other companies.
Consolidated Results of Operations
Consolidated revenue from continuing operations for the three months ended June 30, 2005 was $190.5 million, $9.0 million or 5% higher than a year earlier. This reflected 16% and 3% increases in Solar and ASG segment revenues respectively, which more than offset a 9% decline in PCG revenue. Changes in effective foreign exchange rates reduced consolidated revenue for the three months ended June 30, 2005 compared to the same period of fiscal 2005 by an estimated $11.9 million.
Consolidated earnings from operations for the three months ended June 30, 2005 were $9.2 million, $2.8 million higher than in the first quarter of fiscal 2005. Higher earnings from operations were largely the result of a record performance by Solar. Solar earnings from operations doubled to $6.6 million, from $3.3 million in the same period of fiscal 2005. ASG earnings from operations improved 8% compared to the first quarter of fiscal 2005. Growth in Solar and ASG earnings more than offset the $1.1 million decline in year-over-year PCG earnings from operations which reflected $1.0 million of costs related to ongoing PCG restructuring initiatives, the negative impact of foreign currency and volatile automotive market conditions. The negative impact of the change in foreign exchange rates on consolidated earnings from operations for the three months ended June 30, 2005 was an estimated $2.2 million compared to the same period of the prior year.
Consolidated selling, general and administrative (SG&A) costs increased 7% in the first quarter compared to the same quarter of fiscal 2005. Contributing to the increase in SG&A were: increased selling costs; the $1.0 million of expenditures incurred in the quarter to consolidate the McAllen, Texas operation into the Canadian PCG operations, and, higher profit sharing expenses largely related to the increased profitability of Solar. Also included in SG&A in the first quarter was $0.8 million of severance and other costs associated with management changes that were made following the death of Mr. Woerner, the Company"s founder and former President and CEO, in February. These costs were funded by $2 million of insurance proceeds that were received and recorded in earnings in the fourth quarter of fiscal 2005. Partially offsetting these higher SG&A costs in ASG was a $0.4 million gain on the sale of equipment that was disposed of to reduce costs and streamline operations. The SG&A costs of the comparable first quarter of fiscal 2005 included a loss on disposal of an aging corporate aircraft that was not replaced.
Stock-based compensation cost increased $0.6 million over the first quarter of fiscal 2005. The increase reflected the issuance of employee stock options during the quarter, the increased use of deferred stock units under the directors" compensation plan, and the revaluation of the outstanding deferred stock units.
Interest expense in the first quarter reflected higher interest rates compared to a year ago.
During the fourth quarter of fiscal 2005 the Company committed to a plan to sell PCG"s precision metals division ("Precision Metals"). Accordingly, the results and financial position of Precision Metals have been segregated and presented separately as "discontinued operations" and "assets held for sale" in the accompanying interim financial statements. As further described in Note 2 to the interim consolidated financial statements, the loss from discontinued operations incurred during the quarter was $0.4 million compared with $0.6 million in the first quarter of fiscal 2005. The Company is in discussions with potential acquirers of these assets with the intention to conclude a sale during fiscal 2006. As the assets have not yet been sold, the actual net realizable value of the Precision Metals assets could differ materially from management"s current estimate.
See Note 2 to the Consolidated Interim Financial Statements for further details on the net loss from discontinued operations.
Net earnings from continuing operations for the first quarter of fiscal 2006 increased 46% to $5.8 million compared to $3.9 million in the first quarter of fiscal 2005. On a per share basis, net earnings from continuing operations for the quarter increased to $0.10 per share basic and diluted, from $0.07 per share basic and diluted in the same period a year ago. The negative impact of changes in foreign exchange rates for the three months ended June 30, 2005 reduced net earnings from continuing operations by an estimated $2.2 million ($0.03 per share) compared to the same period of last year.
Net earnings for the first quarter of fiscal 2006 were $5.4 million ($0.09 per share basic and diluted) compared to $2.8 million ($0.05 per share basic and diluted) a year ago.
Automation Systems Group
ASG revenue increased 3% in the first quarter compared to the first
quarter a year ago primarily as a result of a 39% increase in healthcare
revenue and a 34% increase in automotive revenue, partially offset by a 40%
decline in computer-electronics revenue. Changes in revenue quarter to quarter
in any given market reflect normal fluctuations, the level of work in progress
and the backlog in that market entering the quarter. ATS"s market
diversification strategy and focus on healthcare, automotive and computer-
electronics continued to provide benefits to ASG in the first quarter. The
weakened financial condition of many North American based automotive companies
has further increased the strategic importance of the Company"s industry
diversification strategy. For the three months ended June 30, 2005, the
estimated negative foreign exchange impact on ASG revenue was $8.3 million
compared to the same period of the prior year.
Compared to the first quarter of last year, the overall ASG increase in
revenue was the result of revenue growth in European, Asian and Contract
Equipment Manufacturing operations. The North American operations experienced
a decline in revenue primarily in ASG"s Cambridge, Ontario facilities due to
reduced order backlog at the start of the quarter.
ASG first quarter operating earnings were $7.0 million, a $0.5 million or
8% improvement over the first quarter a year ago, reflecting higher revenues
and improved operating margins at 5.5% in the first quarter compared to 5.2%
in the same quarter a year ago.
Despite competitive market conditions, improved earnings performance was
experienced by all regions compared to the first quarter of fiscal 2005, with
the exception of Eastern North America. Lower operating earnings produced by
ASG"s Cambridge facilities were due to a number of factors including: lower
revenues as a result of lower backlog levels, costs associated with
maintaining capacity to support significant expected future orders and higher
selling and product development costs in support of the strategic drive into
healthcare and other important markets. ASG"s earnings from operations and
operating margins in the first quarter were also negatively impacted by
severance costs for changes in management, and higher selling costs to support
the higher levels of sales activities. Compared to the same period of fiscal
2005, the estimated negative impact of foreign currency on ASG operating
earnings for the three months ended June 30, 2005 was $1.6 million.
ASG earnings from operations and operating margins declined sequentially
over the fourth quarter of fiscal 2005, largely due to the effects of the 13%
sequential decline in revenue that management believes resulted mainly from
delays in placement of orders by customers in North America. The Company used
this period of lower activity to further develop its standard technology
platforms for customers and to provide additional technical support to secure
orders and build prospects with existing and new customers.
The Contract Equipment Manufacturing business, which primarily serves the
healthcare industry, generated record performance. Revenue from this activity
in the first quarter was $11.4 million compared to $6.3 million in the first
quarter last year and $7.1 million in the fourth quarter of last year - 80%
and 60% respective increases in revenue. During the first quarter this
business expanded its factory space within PCG facilities reflecting the
current and anticipated further growth of this business. This expanding
business leverages PCG"s repetitive manufacturing capabilities, procurement
expertise, infrastructure, attractive labour structure, and facilities to
successfully supply standardized sophisticated equipment and work cells to
customers on a repetitive basis.
Automation Systems Backlog
At June 30, 2005, ASG Order Backlog was $155 million, $76 million (33%)
lower than a year ago and $14 million (8%) lower than at the end of the fourth
quarter. New ASG Order Bookings totaled $111 million in the first quarter,
compared to $117 million in the same period a year ago and $87 million in the
immediately preceding quarter. Order Bookings to date in the second quarter
are $43 million.
Automation Systems Outlook
Management believes that near term order prospects are strong and
management is confident of ASG"s potential. Order Bookings to date in the
second quarter do not include approximately $86 million of expected automation
follow-on orders where ATS has already been awarded a firm advance order to
initiate engineering and in some cases procure materials for the programs.
With respect to these expected orders, management is highly confident that the
full programs will proceed given the commitment customers have demonstrated by
providing ASG with advance orders as a means to preserve delivery times and
production schedules. ATS is expecting purchase orders shortly for the balance
of the programs and is basing factory planning and resource loading on receipt
of these assignments. Based on Order Backlog entering the second quarter,
management believes ASG"s revenue and manufacturing efficiency improvements
will be held back in the second quarter.
Management continues to believe the significant order delays entering the
period reflect a variety of customer-related factors including the fact that
customers in all markets may be cautious toward capital spending in the
current environment. Management also believes delays may reflect the longer
sales cycle in the healthcare industry. Based on ongoing and active
communications with customers, management believes that potential orders have
been only temporarily delayed and that it must retain its current productive
resources to secure orders and drive revenue while it works aggressively with
customers to rapidly translate quotations into firm orders.
Solar Group first quarter revenue, which is currently derived from
Photowatt, was $42.9 million, 16% higher than the first quarter of last year.
Solar surpassed expectations and its previous record for revenue set in the
fourth quarter of fiscal 2005. Revenue in the first quarter reflected strong
demand for solar products driven by attractive government incentive programs.
Improvements in capacity utilization and production throughput gained in the
fourth quarter of fiscal 2005 provided higher unit sales and revenues in the
first quarter compared to the same period a year ago.
Photowatt operating earnings doubled to $6.6 million (15.5% operating
margin), compared to $3.3 million (8.9% operating margin) a year ago. This
strong performance reflects the benefits of significant improvements in
production yields, throughput gains, cost reduction initiatives and the
continued optimization of capital investments that began to be realized in
fiscal 2005. Also contributing to increased earnings from operations were the
economies of scale from increased revenues, the benefits of Photowatt"s active
silicon supply management activities, higher selling prices and increasing
solar cell efficiencies.
Solar product demand is expected to remain strong well into fiscal 2006
based upon ongoing European subsidy programs, newly introduced US subsidy
programs and growing demand for clean renewable energy products. However,
Solar performance in the second quarter will be negatively affected by the
customary month long summer plant shutdown at the Photowatt facility in
Availability of silicon supply, a primary raw material in most solar cell
manufacturing, is an industry-wide concern and prices have continued to
increase. Management continues to believe that it has secured sources of
silicon for a significant amount of its capacity for fiscal 2006 and is
continuing to devote resources to secure additional supply in order to ensure
that its operations are able to grow without major disruption due to silicon
availability. During fiscal 2005 and into fiscal 2006 Photowatt mitigated some
of the potential impact of silicon supply shortages and increases in the
market prices for silicon; however, Photowatt"s silicon costs are expected to
increase during fiscal 2006 as its inventory of lower-priced silicon is
consumed and new silicon purchases are made at higher prices. Photowatt has
secured price increases with some of its customers to help offset the increase
in cost of silicon but there remains a risk that selling price increases and
improvements in production efficiencies may not be able to fully offset higher
silicon costs. Management is currently exploring longer term alternatives to
secure further silicon supply and plans to reinvest the strong cash flow
generation of Photowatt to fund Photowatt"s near-term capacity expansion and
silicon supply initiatives.
A six week shutdown period, that began in late June as part of an ongoing
optimization program at the Company"s Spheral Solar Power (SSP) facility, has
now been completed. The SSP production processes are now being brought back on
line and SSP is currently validating the improvements made to the SSP
processes and equipment during the recent shutdown. Management is quite
encouraged by the results of the validation testing work completed to date and
expects that SSP will realize significant improvements in manufacturing
capability as a result of the work completed during the shutdown. Furthermore,
management expects to produce modest quantities of saleable SSP product during
the second quarter. This methodical and deliberate approach to factory ramp up
is intended to ensure the factory can achieve intended yields at full
capacity. The new Solar President and CEO is currently developing a business
strategy that will entail both technical and commercial aspects, including the
SSP launch schedule and the funding strategy for the Solar Group.
Market demand for clean, renewable solar energy continues to create
substantial interest in SSP"s products among wholesalers, distributors and
retailers. Management believes the strong market demand, combined with the
flexible nature of the SSP product continues to provide SSP with significant
competitive advantages. As discussed in the fiscal 2005 MD&A, the SSP
initiative involves certain inherent risks which are significantly greater
than those associated with the Company"s more established businesses.
Precision Components Group
First quarter PCG revenue from continuing operations decreased 9% or
$2.5 million to $23.8 million compared to the first quarter of fiscal 2005 as
a result of lower US-Canadian exchange rates, the previously announced
discontinuation of an unprofitable customer program as well as weakness in
North American automotive markets for PCG. The estimated negative foreign
exchange impact on revenue in the quarter was $1.2 million compared to the
first quarter of fiscal 2005. Comparative figures for fiscal 2005 have been
restated to reflect the PCG discontinued operations.
During the fourth quarter of fiscal 2005, as a result of requesting price
increases on a program that had become unprofitable due to changes in foreign
currency exchange rates, PCG received notice that this customer program would
be terminated in the first quarter of fiscal 2006. This discontinuation
reduced revenue by approximately $1.0 million in the first quarter compared to
the first quarter a year ago.
PCG"s loss from continuing operations was $1.0 million in the first
quarter, compared to operating earnings of $0.1 million in the first quarter a
year ago. Loss from operations for the first quarter included approximately
$1.0 million of incremental cash expenditures associated with the
consolidation of the McAllen, Texas operations into the Cambridge operations
(see further description below). Excluding this cost, PCG operated at
breakeven levels. PCG operating performance continues to be affected by:
overhead costs related to the McAllen, Texas operation, fluctuating customer
demand (often on short notice) which creates production inefficiencies; higher
raw material costs; and the negative impact of a weak US dollar. The estimated
negative impact of foreign currency on Group operating earnings was
$0.3 million for the three months ended June 30, 2005 compared to the same
quarter of fiscal 2005.
Sequentially, excluding the impact of the $0.5 million non-cash write-
down taken in the fourth quarter of fiscal 2005 and the McAllen closure costs,
PCG"s operating earnings decreased by $0.6 million largely due to the
$1.7 million decrease in revenues which occurred for the reasons outlined
above. This lower revenue reduced PCG"s economies of scale and overhead
During the fourth quarter of fiscal 2005, the Company announced that as
part of its continuing strategic initiative to drive an earnings recovery for
PCG, it would close PCG"s manufacturing facility in McAllen, Texas in June,
2005. This closure was completed on schedule and during the quarter PCG
completed the transfer of McAllen"s production into existing PCG facilities.
This consolidation of McAllen"s production is now largely complete, and all
customer programs have been transferred. The benefits of this consolidation
will begin to be realized in the second quarter in the form of reduced overall
operating costs and improved PCG asset utilization. Further gains are expected
in the third and fourth quarters. The total expenses in the first quarter
associated with closing McAllen and transferring this business, including
relocating equipment, employee severance and other related costs were
approximately $1.0 million. The majority of the expenditures associated with
the transfer of business have now been incurred. The remaining equipment and
building are currently classified as assets held for sale in the balance sheet
as there are ongoing active discussions with potential buyers.
Precision Components Outlook
PCG has streamlined its operations in pursuit of an earnings recovery and
continues to work toward improving its performance. PCG continues to
aggressively pursue new profitable business that will utilize existing
capacity. As expected, the effect of some of these more significant
initiatives will require time before the benefits will begin to be realized in
the form of improved operating results. Gains are expected to accrue from its
ongoing enhancement initiatives resulting from the application of Six Sigma,
improved equipment utilization, and other cost savings measures. PCG continues
to progress towards improved profitability; however, the potential for
continued volatile North American automotive market conditions is a
significant factor in achieving planned results. Although market conditions
subsequent to the end of June appear to have at least temporarily improved due
to "employee discount" promotions offered to consumers by the "Big Three"
automakers, the second quarter will be affected by the expected negative
impact of summer shutdowns.
Impact of Foreign Exchange
The sustained strength of the Canadian dollar against the US dollar
continued to have a significant negative impact on the Company"s revenue and
earnings in the first quarter compared to the first quarter of the prior year.
The Company"s estimated effective rate of exchange on US currency transactions
declined 6% while average market rates were 8% lower in the first quarter
compared to the first quarter of last year.
At June 30, 2005 the Company had, on hand, unrealized forward exchange
contracts for the future sale of US dollars totaling US $65 million at an
average exchange rate of Cdn $1.2531. The unrecognized gain on these forward
contracts totaled approximately $2 million at June 30, 2005.
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness, at June 30, 2005 decreased
$56 million during the first quarter of fiscal 2006. The decrease in cash was
largely as a result of the $25 million consumed to exercise an option to
repurchase ATS shares (see Share Repurchase below), and higher investments in
working capital and the Company"s investment in property, plant and equipment.
The increased investment in working capital was mainly the result of ASG
working capital requirements which fluctuate significantly from quarter to
quarter due to the project nature of the business. Cash consumed from
operating activities was $13.6 million, an improvement of $25.5 million
compared to the first quarter of fiscal 2005.
The Company invested $19 million in property, plant and equipment and
other investments, including deferred development, in the first quarter of
fiscal 2006. Investments made in SSP in the first quarter of fiscal 2006, net
of government funding, were $4 million and $6 million for capital assets and
deferred development, respectively. Total investment in the SSP initiative,
net of government funding, was $112 million at June 30, 2005, including the
costs of the development program announced by ATS in July, 2002 and the
acquisition costs for the initial technology and related assets. To date, all
significant costs of the development program, including the costs of acquiring
the initial technology, have been capitalized on the Company"s balance sheet.
The deferred development period will end for the SSP initiative on
September 30, 2005 and SSP"s revenue, expenses and operating results will be
included in the consolidated statements of earnings commencing in the third
quarter of fiscal 2006.
During the first quarter, 0.2 million stock options were exercised for
total proceeds of $2.2 million. At June 30, 2005 the total number of shares
outstanding was 59,061,870.
Management believes the Company"s cash flow from operations, sound
balance sheet and access to unutilized credit provide ATS with the financial
resources to employ its business plans and pursue strategic opportunities. The
Company"s debt to equity ratio at June 30, 2005 was 0.1:1 unchanged from
June 30, 2004 and March 31, 2005. At June 30, 2005 the Company had $63 million
of unutilized credit available under existing operating and term credit
facilities. The Company is in compliance with its loan covenants.
Under an agreement entered into in 1998, the Company was granted the
option by 566226 Ontario Ltd., a corporation at that time controlled by the
Company"s founder, Mr. Klaus Woerner, to repurchase all or a portion of the
ATS shares held by 566226 Ontario Ltd. upon the death of Mr. Woerner, subject
to certain limits and restrictions. This agreement was entered into to provide
the Company with the ability to ensure an orderly disposition of shares
controlled by Mr. Woerner"s estate.
In April, 2005 the Company exercised its option to purchase for
cancellation 1,974,723 ATS common shares at a price of $12.66 per share. The
total purchase price of $25 million was funded by the life insurance proceeds
of $25 million received by the Corporation under a life insurance policy that
had been maintained in respect of Mr. Woerner and which was established in
conjunction with the execution of the option agreement. The share repurchase
reduced share capital by $11.2 million and retained earnings by $13.8 million
as further described in Note 4 to the consolidated interim financial
For further information
Ron Jutras, President and CEO, Carl Galloway, VP Treasurer, Gerry Beard, VP, CFO, (519) 653-6500
Source: ATS Automation Tooling Systems Inc.