TSX: ATA
CAMBRIDGE, ON, Feb. 11, 2009 /CNW/ - ATS Automation Tooling Systems Inc.
today announced its financial results for the three and nine months ended
December 31, 2008.
Highlights
- Consolidated third quarter revenue increased 27% to $221.7 million
from $174.5 million a year ago;
- Consolidated third quarter earnings from operations were $18.5
million compared to earnings from operations of $24.4 million a year
ago, which included a $31.8 million gain on the sale of a portfolio
investment;
- Third quarter earnings were $0.16 per share (basic and diluted)
compared to a loss of $0.05 per share a year ago;
- Consolidated cash, net of debt improved by $17.8 million from the
beginning of the fiscal year to $45.8 million at December 31, 2008;
- A number of smaller ASG manufacturing operations were consolidated in
the United States, Europe and Asia;
- The key operating assets and liabilities of the Precision Components
Group were sold;
- Subsequent to the end of the quarter, the Company issued 10 million
common shares for gross proceeds of $50 million (net proceeds of
approximately $47 million).
"We have made significant progress and ATS is now performing within the
range of acceptable," said Anthony Caputo, Chief Executive Officer. "During
the quarter we experienced headwinds brought on by the global financial
crisis. In the quarter we were able to mitigate this impact with our revised
approach to market and defensive strategies."
Financial Results
In millions 3 months 3 months 9 months 9 months
of dollars, ended ended ended ended
except per Dec 31, Dec 31, Dec 31, Dec 31,
share data 2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue ASG $ 144.1 $ 122.8 $ 434.2 $ 339.7
from ------------------------------------------------------------
continuing Photowatt 79.7 51.7 221.6 137.3
operations ------------------------------------------------------------
Inter-segment (2.1) (0.0) (2.5) (0.2)
------------------------------------------------------------
Consolidated $ 221.7 $ 174.5 $ 653.3 $ 476.8
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EBITDA ASG $ 16.8 $ 4.1 $ 45.1 $ 11.2
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Photowatt
Technologies
- Photowatt France 12.2 (0.1) 31.3 (0.3)
- Other solar (0.5) (1.2) (1.3) (5.7)
- Gain on sale
of building - - 3.2 -
- Gain on silicon
sale - - 2.0 -
------------------------------------------------------------
Gain on sale of
investments - 31.8 - 31.8
------------------------------------------------------------
Corporate and
inter-segment
elimination (3.7) (4.7) (13.8) (20.0)
------------------------------------------------------------
Consolidated $ 24.8 $ 29.9 $ 66.5 $ 17.0
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Net income
from
continuing
operations Consolidated $ 15.8 $ 24.4 $ 43.5 $ 1.8
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From continuing
operations
Earnings (basic & diluted) $ 0.20 $ 0.32 $ 0.56 $ 0.03
(loss) ------------------------------------------------------------
per share After discontinued
operations
(basic & diluted) $ 0.16 $ (0.05) $ 0.45 $ (0.46)
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-------------------------------------------------------------------------
Automation Systems Group Third Quarter Results
- Revenue increased 17% to $144.1 million from $122.8 million a year
ago on higher Order Backlog entering the third quarter of fiscal 2009
compared to the prior year;
- EBITDA was $16.8 million compared to $4.1 million a year ago;
- Earnings from operations were $14.7 million, up from $2.1 million a
year ago;
- Period end Order Backlog increased 34% to $282 million from $211
million a year ago;
- Order Bookings of $157 million were 37% higher than last year and
included an approximate $50 million order from a new solar customer;
- Order Bookings were $40 million during the first six weeks of the
fourth quarter.
Earnings from operations, excluding $3.1 million of restructuring charges
incurred in the quarter, improved in all geographic areas due to revenue
growth, cost reductions and improved program management. Revenue increased
year over year by 247% in energy, 4% in automotive and 40% in "other" markets
(primarily consumer products), more than offsetting 13% and 45% reductions in
healthcare and computer-electronics revenue respectively. Management believes
that orders from ASG's traditional channels to market will decrease in the
current economic environment. In response, management is increasing its focus
on approach to market, cash management and credit terms. Consolidation of the
remaining underperforming operations and supply chain improvements are
expected to cost between $4 million and $6 million during the fourth quarter.
Photowatt Technologies Third Quarter Results
- Photowatt Technologies revenue increased 54% to $79.7 million from
$51.7 million a year ago;
- Photowatt France EBITDA was $12.2 million compared to negative EBITDA
of $0.1 million a year ago;
- Photowatt France operating earnings were $8.2 million (10% operating
margin) compared to an operating loss of $3.5 million a year ago
(7% negative operating margin);
- Total megawatts (MWs) sold at Photowatt France increased 41% to 16.4
from 11.6 in the third quarter of fiscal 2008 - with UMG-Si products
accounting for 72% of revenue;
- Average cell efficiency for UMG-Si cells improved to approximately
14.4% from 13.1% a year ago, while average cell efficiency for
polysilicon products remained stable.
The year over year improvement in operating results reflected growth in
MWs sold, improved cell efficiency and manufacturing yields, and utilization
of the supply chain to increase output. Photowatt France continued to utilize
its supply chain to supplement internal production. This added incremental
earnings to operations, but at lower direct operating margins than for
products manufactured using internally-produced wafers. The installation of
equipment to balance production and increase capacity in ingot and wafer
stages was completed. Plans to invest (euro)4 million in automation systems
designed and built by the Company's ASG segment moved forward. Management
expects improvements in cell efficiency, manufacturing yields and throughput,
along with action plans for the remainder of fiscal 2009, will reduce
Photowatt France's manufacturing cost per watt. The extent to which planned
reductions in cost per watt will offset significant declines in average
selling prices now being experienced in key markets is unknown.
Board of Directors Change
Neil D. Arnold, Chairman of the Board of Directors of ATS, today
announced the appointment of Daryl C. F. Wilson to the Board of Directors. Mr.
Wilson is the Chief Executive Officer of Hydrogenics Corporation, a Canadian
public company and hydrogen technology provider, and has a 25 year track
record of delivering performance in turnaround and rapid growth companies.
Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern today and can be
accessed over the Internet at www.atsautomation.com or on the phone at 416 644
3423.
About ATS
ATS Automation Tooling Systems Inc. provides innovative, custom designed,
built and installed manufacturing solutions to many of the world's most
successful companies. Founded in 1978, ATS uses its industry-leading knowledge
and global capabilities to serve the sophisticated automation systems' needs
of multinational customers in industries such as healthcare,
computer/electronics, energy, automotive and consumer products. It also
leverages its many years of experience and skills to fulfill the specialized
automation product manufacturing requirements of customers. Through Photowatt
Technologies, ATS participates in the growing solar energy industry as an
integrated manufacturer of ingots, wafers, cells and modules.
Photowatt-branded products and systems serve businesses, institutions and
homeowners in established and emerging markets. ATS employs approximately
3,000 people at 17 manufacturing facilities in Canada, the United States,
Europe, Southeast Asia and China. The Company's shares are traded on the
Toronto Stock Exchange under the symbol ATA. Visit the Company's website at
www.atsautomation.com.
Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") for the three and nine
months ended December 31, 2008 (third quarter of fiscal 2009) provides
detailed information on the operating activities, performance and financial
position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and
should be read in conjunction with the unaudited interim consolidated
financial statements of the Company for the third quarter of fiscal 2009. The
Company assumes that the reader of this MD&A has access to and has read the
audited consolidated financial statements and MD&A of the Company for fiscal
2008 and the unaudited interim consolidated financial statements and MD&A for
the first and second quarters of fiscal 2009 and, accordingly, the purpose of
this document is to provide a third quarter update to the information
contained in the fiscal 2008 MD&A. These documents and other information
relating to the Company, including the Company's fiscal 2008 audited
consolidated financial statements, MD&A and annual information form may be
found on SEDAR at www.sedar.com.
Notice to Reader
The Company has two reportable segments: Automation Systems Group ("ASG")
and Photowatt Technologies ("Photowatt") which includes Photowatt France (the
ongoing Photowatt Technologies operations), Photowatt U.S.A., a small module
assembly facility and sales operation closed during fiscal 2008 and Spheral
Solar, a halted development project that has been wound down. References to
Photowatt's cell "efficiency" means the percentage of incident energy that is
converted into electrical energy in a solar cell. Solar cells and modules are
sold based on wattage output. "Silicon" refers to a variety of silicon
feedstock, including polysilicon, upgraded metallurgical silicon ("UMG-Si")
and polysilicon powders and fines. As described in note 5 to the interim
consolidated financial statements, the Precision Components Group ("PCG") was
classified as held for sale as of March 31, 2008, and its results are reported
in discontinued operations.
Non-GAAP Measures
Throughout this document the term "operating earnings" is used to denote
earnings (loss) from operations. The term EBITDA is used and is defined as
earnings (loss) from operations excluding depreciation and amortization (which
includes amortization of intangible assets and impairment of goodwill). The
term "margin" refers to an amount as a percentage of revenue. The terms
"earnings (loss) from operations", "operating earnings", "margin", "operating
loss", "operating results", "operating margin", "EBITDA", "Order Bookings" and
"Order Backlog" do not have any standardized meaning prescribed within
Canadian generally accepted accounting principles ("GAAP") and therefore may
not be comparable to similar measures presented by other companies. Operating
earnings and EBITDA are some of the measures the Company uses to evaluate the
performance of its segments. Management believes that ATS shareholders and
potential investors in ATS use non-GAAP financial measures such as operating
earnings and EBITDA in making investment decisions about the Company and
measuring its operational results. A reconciliation of EBITDA to total Company
revenue and earnings from operations for the three and nine months ended
December 31, 2008 and the three and nine months ended December 31, 2007 is
contained in the MD&A. EBITDA should not be construed as a substitute for net
income determined in accordance with GAAP. Order Bookings represent new orders
for the supply of automation systems and products that management believes are
firm. Order Backlog is the estimated unearned portion of ASG revenue on
customer contracts that are in process and have not been completed at the
specified date.
Automation Systems Group Segment
ASG Revenue (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue by industry
Healthcare $ 32.4 $ 37.3 $ 104.6 $ 95.9
Computer-electronics 18.2 33.2 82.3 84.1
Energy 49.9 14.4 132.8 48.0
Automotive 27.5 26.4 74.2 80.2
Other 16.1 11.5 40.3 31.5
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Total ASG revenue $ 144.1 $ 122.8 $ 434.2 $ 339.7
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Third Quarter
ASG third quarter revenue was 17% higher than a year ago, primarily
reflecting a 12% increase in Order Backlog entering the third quarter compared
to a year ago.
By industrial market, healthcare revenue decreased by 13% reflecting 26%
lower Order Backlog entering the third quarter compared to a year ago.
Computer-electronics revenue decreased by 45% reflecting 40% lower Order
Backlog entering the third quarter compared to a year ago. Revenues from the
energy market increased by 247%, primarily reflecting solar industry Order
Bookings over the past 12 months. Revenues from the automotive market
increased 4% as North American and European revenues were positively impacted
by Order Bookings generated during the second quarter of fiscal 2009. "Other"
revenues increased 40% year over year due primarily to customer programs in
the consumer products industry.
Automation Products Group ("APG"), a division of ASG, contributed revenue
of $40.0 million in the third quarter of fiscal 2009, compared to $13.9
million in the third quarter last year. Growth in revenue reflects two
significant programs that are new to APG in fiscal 2009.
Foreign exchange positively impacted ASG revenues by an estimated $15.0
million compared to the third quarter of fiscal 2008, primarily reflecting a
stronger U.S. dollar and Euro relative to the Canadian dollar.
Year to date
ASG revenue for the nine months ended December 31, 2008 increased 28%
over the same period a year ago. This increase primarily reflects higher Order
Backlog entering fiscal 2009 compared to fiscal 2008 and higher Order Bookings
through the first three quarters of fiscal 2009 compared to the same period a
year ago. By industrial market, year to date revenues from healthcare, energy
and "other" markets have increased 9%, 177%, and 28% respectively compared to
the same period a year ago. These increases were partially offset by
computer-electronics and automotive revenue, which decreased by 2% and 7%
compared to the same period a year ago.
Foreign exchange positively impacted ASG revenues by an estimated $6.9
million compared to the first nine months of fiscal 2008, primarily reflecting
a stronger U.S. dollar and Euro relative to the Canadian dollar.
ASG Operating Results (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings from operations $ 14.7 $ 2.1 $ 38.9 $ 5.1
Depreciation and
amortization 2.1 2.0 6.2 6.1
-------------------------------------------------------------------------
EBITDA $ 16.8 $ 4.1 $ 45.1 $ 11.2
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Third Quarter
Fiscal 2009 third quarter earnings from operations were $14.7 million
(operating margin of 10%) compared to earnings from operations of $2.1 million
(operating margin of 2%) in the third quarter of fiscal 2008. Included in
third quarter fiscal 2009 earnings from operations was $3.1 million of
restructuring charges related to the consolidation of manufacturing facilities
in Tucson, U.S.A., Lyon, France, and Shanghai, China into existing operations.
The consolidation of these smaller, underperforming manufacturing operations
will reduce ASG's workforce by approximately 5% globally. The Company plans to
maintain a sales, service and support presence in these geographic regions.
Earnings from operations excluding restructuring charges improved in all
geographic locations and primarily reflect the 17% year over year increase in
revenue, cost reductions implemented over the past 12 months and improved
program management.
Foreign exchange positively impacted ASG third quarter earnings from
operations by an estimated $0.7 million compared to the third quarter of
fiscal 2008, primarily reflecting a stronger U.S. dollar and Euro relative to
the Canadian dollar.
Year to date
For the nine months ended December 31, 2008, earnings from operations
were $38.9 million (operating margin of 9%) compared to earnings from
operations of $5.1 million (operating margin of 2%) in the same period a year
ago. Included in year to date earnings from operations was $3.2 million of
restructuring charges related to the aforementioned operational consolidations
and the closures of the Michigan and Thailand facilities. The improvement in
operating earnings primarily reflects the 28% year over year growth in
revenue, cost reductions implemented during fiscal 2008 and fiscal 2009, and
improved program management.
Foreign exchange negatively impacted ASG year to date earnings from
operations by an estimated $3.9 million compared to the same period in fiscal
2008, primarily reflecting a stronger Canadian dollar relative to the U.S.
dollar in the first two quarters, offset by a stronger U.S. dollar relative to
the Canadian dollar in the third quarter and a stronger Euro relative to the
Canadian dollar in all three quarters.
ASG Order Bookings
Third quarter ASG Order Bookings were $157 million, 37% higher than the
third quarter of fiscal 2008, and included an approximate $50 million Order
Booking with a new customer in the solar industry. Order Bookings in the first
six weeks of the fourth quarter of fiscal 2009 were $40 million.
ASG Order Backlog Continuity (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Opening Order Backlog $ 247 $ 220 $ 232 $ 185
Revenue (144) (123) (434) (340)
Order Bookings 157 115 459 394
Order Backlog adjustments(1) 22 (1) 25 (28)
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Total $ 282 $ 211 $ 282 $ 211
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(1) Order Backlog adjustments include foreign exchange and cancellations.
Order Backlog by Industry (in millions of dollars)
Dec 31, Dec 31,
2008 2007
-------------------------------------------------------------------------
Healthcare $ 70 $ 73
Computer-electronics 21 42
Energy 136 23
Automotive 34 49
Other 21 24
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Total $ 282 $ 211
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At December 31, 2008, ASG Order Backlog was $282 million, 34% higher than
at December 31, 2007. Year over year, Order Backlog increased 491% in energy,
primarily reflecting high Order Bookings from the solar industry during fiscal
2009. This growth was partially offset by decreases of 4% in healthcare, 50%
in computer-electronics, 31% in automotive and 13% in "other" markets. The
decline in healthcare Order Backlog reflects lower Order Bookings in North
America during the first nine months compared to the prior year. Decreases in
Order Backlog from computer-electronics and "other" markets reflect lower
Order Bookings in North America and Asia during the first nine months compared
to the prior year. The decrease in automotive Order Backlog reflects a decline
in Order Bookings primarily in North America.
Automation Systems Group Outlook
Management continues to believe that the long-term fundamental market
demand for automation remains strong. However, the rapid global economic
downturn and tightening credit markets experienced in the past few months are
expected to present immediate challenges. Some ASG customers may experience
financial difficulties, reduce their capital spending, or delay programs to
varying degrees depending on the market segment. During the third quarter and
first six weeks of the fourth quarter, Order Bookings from ASG's traditional
approach to market were negatively impacted as some customers delayed or
cancelled new programs. Management believes that Order Bookings from the
traditional channels to market, which focuses on responding to requests for
proposals, will continue to decrease in the current economic environment.
Offsetting lower Order Bookings from ASG's traditional sales channels is
the Company's revised offering and approach to market. ASG is now developing
sales campaigns and targeting automation solutions for its customers based on
differentiating technological solutions, value of outcomes achieved by
customers and global capability. These strategies are beginning to gain
traction and resulted in an approximate $50 million Order Booking in the solar
industry during the third quarter. However, Order Bookings from ASG's revised
approach to market are sporadic in nature and may not repeat every quarter.
During the fourth quarter, ASG plans to begin strengthening the leadership of
the front end of the business, align by market segment, increase senior
management focus on all customer opportunities and proposals, and cautiously
manage cash and credit terms.
Operationally, ASG plans to continue consolidation and restructuring of
non-strategic manufacturing operations and to begin rationalizing its supply
chain. Management has launched initiatives to further standardize components
and sub-assemblies, consolidate the vendor base to reduce cost and improve
terms, increase outsourcing of machining and fabrication to low-cost
countries, and leverage global operations to deliver customer programs.
Completion of the restructuring and implementation of improvements to supply
chain are anticipated to cost between $4 million and $6 million during the
fourth quarter.
Management is uncertain to what extent the improvement initiatives will
offset current market conditions, and will continue to monitor the situation
and modify plans accordingly.
Management believes that ATS has a strong balance sheet and is in a
position to begin evaluating strategic and opportunistic ASG acquisitions.
Photowatt Technologies Segment
Photowatt Technologies Revenue (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue by operating facility
Photowatt France $ 79.7 $ 51.6 $ 221.6 $ 135.2
Other Solar - 0.1 - 2.1
-------------------------------------------------------------------------
Total revenue $ 79.7 $ 51.7 $ 221.6 $ 137.3
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Revenue by product
Polysilicon products $ 22.6 $ 22.9 $ 75.3 $ 77.2
UMG-Si products 57.1 28.8 146.3 60.1
-------------------------------------------------------------------------
Total Revenue $ 79.7 $ 51.7 $ 221.6 $ 137.3
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Third Quarter
Photowatt Technologies fiscal 2009 third quarter revenue was $79.7
million, 54% higher than in the third quarter of fiscal 2008. Higher revenue
reflected an increase in total megawatts ("MWs") sold at Photowatt France to
16.4 MWs from 11.6 MWs in the same period a year ago. Growth in MWs sold
resulted from increased cell efficiency and increased ingot, wafer and cell
production compared to the same period a year ago, particularly with UMG-Si
products. During the quarter, Photowatt France outsourced 2.6 MW of
polysilicon wafer and module production. Revenue from the sale of module
systems ("Systems") increased to $22.5 million from $12.8 million in the third
quarter of fiscal 2008. Systems include modules, combined with installation
kits, solar power system design and/or other value added services. Average
selling prices per watt in the third quarter of fiscal 2009 remained stable
with the prior year.
Foreign exchange positively impacted Photowatt France third quarter
revenues by an estimated $8.3 million on the translation of Photowatt France
revenues from Euros to Canadian dollars, reflecting the strengthening of the
Euro against the Canadian dollar on higher Euro revenues.
Year to date
Photowatt Technologies revenue for the first nine months of fiscal 2009
increased 61% compared to the same period a year ago. The increase in revenue
reflects an increase in MWs sold at Photowatt France from 30.5 MWs to 45.1
MWs. Revenues from System sales increased to $57.4 million from $22.2 million
in the same period a year ago. Average selling prices per watt remained stable
year over year.
Foreign exchange positively impacted Photowatt France year to date
revenues by an estimated $18.4 million on the translation of Photowatt France
revenues from Euros to Canadian dollars, reflecting the strengthening of the
Euro against the Canadian dollar on higher Euro revenues.
Photowatt Technologies Operating Results (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings (loss) from
operations:
Photowatt France $ 8.2 $ (3.5) $ 19.8 $ (10.1)
Other Solar (0.5) (1.2) 4.0 (6.0)
-------------------------------------------------------------------------
Earnings (loss) from
operations $ 7.7 $ (4.7) $ 23.8 $ (16.1)
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Photowatt France EBITDA
Photowatt France earnings
(loss) from operations $ 8.2 $ (3.5) $ 19.8 $ (10.1)
Depreciation and
amortization 4.0 3.4 11.5 9.8
-------------------------------------------------------------------------
Photowatt France EBITDA $ 12.2 $ (0.1) $ 31.3 $ (0.3)
-------------------------------------------------------------------------
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Third Quarter
Photowatt Technologies fiscal 2009 third quarter earnings from operations
were $7.7 million compared to a loss from operations of $4.7 million a year
ago.
Fiscal 2009 third quarter earnings from operations for Photowatt France
were $8.2 million (operating margin of 10%), compared to a loss from
operations of $3.5 million (negative operating margin of 7%) in the third
quarter of fiscal 2008. The year over year improvement in operating results
reflected higher MWs sold, improved cell efficiency and manufacturing yields,
and utilization of the supply chain to increase output. During the third
quarter, Photowatt France completed equipment installation in the ingot, wafer
and cell production stages.
Average cell efficiency for UMG-Si products increased to 14.4% compared
to 13.1% in the third quarter of fiscal 2008. Average cell efficiency for
polysilicon products remained stable at 15.2% compared to 15.3% in the third
quarter of fiscal 2008. Photowatt France outsourced some wafer and module
production to complement internal production. This added incremental earnings
to operations, but at lower direct operating margins than for products
manufactured using internally-produced wafers and cells.
Photowatt France's earnings from operations included approximately $0.3
million of costs related to the investment in the PV Alliance ("PVA"), a joint
venture involving Photowatt France, EDF ENR Reparties ("EDF"), a partially
owned subsidiary of Electricite de France, and CEA Valorisation ("CEA"). PVA
includes Lab-Fab, a research initiative to improve cell efficiency, and may
eventually include manufacturing operations in France - see "Photowatt France
Outlook".
Photowatt France's amortization expense was $4.0 million compared to $3.4
million in the third quarter of fiscal 2008 reflecting additional depreciation
and amortization from expansion and improvement initiatives.
Foreign exchange positively impacted Photowatt France's third quarter
earnings from operations by an estimated $0.5 million compared to the third
quarter of fiscal 2008, primarily reflecting a stronger Euro relative to the
Canadian dollar.
"Other Solar" includes Spheral Solar, Photowatt U.S.A. and inter-solar
eliminations. During the third quarter of fiscal 2009, costs were incurred
related to equipment decommissioning and preparing equipment for sale. A year
ago, loss from operations included costs associated with the wind-down of the
closed Photowatt U.S.A. division, the halted Spheral Solar research initiative
and solar corporate costs and inter-solar eliminations.
Year to Date
Photowatt Technologies earnings from operations for the nine months ended
December 31, 2008 were $23.8 million compared to a loss from operations of
$16.1 million a year ago.
Photowatt France earnings from operations for the nine months ended
December 31, 2008 were $19.8 million compared to a loss from operations of
$10.1 million a year ago. Operating profitability has increased during fiscal
2009 compared to a year ago on revenue growth and operational improvements to
increase cell efficiency, utilization of the supply chain to increase output
and improved manufacturing yields.
Foreign exchange positively impacted Photowatt France year to date
earnings from operations by an estimated $1.3 million compared to the same
period a year ago, primarily reflecting a stronger Euro relative to the
Canadian dollar.
Fiscal 2009 "Other Solar" earnings from operations included a gain of
$2.0 million on the sale of silicon (not usable by Photowatt France or Spheral
Solar) that had a nominal carrying value. This completed the sales transaction
initiated in the fourth quarter of fiscal 2008. Also included in year to date
fiscal 2009 earnings from operations was a gain of $3.2 million on the sale of
the redundant Spheral Solar building in Cambridge, Ontario. The remaining
expenses primarily related to the wind-down and closure of the Spheral Solar
facility and other clean-up and equipment decommissioning costs. Included in
fiscal 2008 loss from operations was the loss from operations from the now
closed Photowatt U.S.A. division, the loss from operations from the now halted
Spheral Solar research initiative and solar corporate costs and inter-solar
eliminations.
Photowatt France Outlook
With respect to fundamental demand, global electricity usage is expected
to increase, which management believes provides a positive long-term outlook
for solar energy businesses. Countries in which Photowatt France sells
products such as Germany, Spain, France and Portugal have significant
government subsidy programs for solar power. Certain jurisdictions, such as
Spain and Germany, have subsidy programs that are designed to decline over
time. Management believes Photowatt France will be impacted by these trends.
Subsequent to the third quarter of fiscal 2009, average selling prices
per watt have decreased and management believes that average selling prices
per watt may further decline in the remainder of this fiscal year and into
fiscal 2010. Reductions in Spanish feed-in tariffs were implemented in the
fourth quarter and have already had a negative impact on the average selling
price per watt in that market. Management also expects that tightening credit
markets may reduce global demand for solar installation projects, and
potentially lead to over-supply during fiscal 2010. Management is
investigating downstream alternatives to create an additional market for
Photowatt France's products and lock in average selling prices for a larger
portion of fiscal 2010 sales.
Operationally, UMG-Si products were developed by Photowatt France as an
alternative to polysilicon with the objective of creating a competitive
advantage, and now account for the majority of products being manufactured by
Photowatt France. The operational focus is to increase the cell efficiency and
reduce the cost per watt of manufacturing UMG-Si modules.
During the third quarter of fiscal 2009, management substantially
completed the previously announced (euro)20 million investment in
manufacturing equipment. The equipment will balance production, increase
capacity and reduce manufacturing costs in the ingot, wafer and cell stages of
production. In addition, Photowatt France has committed to invest a further
(euro)4 million in automation systems, which are being designed and built by
the Company's ASG segment to improve production processes and increase
manufacturing yields. The benefits of these investments are expected to begin
positively impacting cost per watt during the fourth quarter of fiscal 2009.
Photowatt France continues to advance the PVA with its partners.
Facilities are now ready for equipment installation for a 25 MW cell line to
research cell efficiency improvements. The cell line is expected to be
completed during the second half of fiscal 2010. Initial research activities
began during the third quarter of fiscal 2009 and are anticipated to be
largely funded by French government subsidies. Photowatt France's direct
investment in the PVA is expected to be approximately (euro)10 million, and
have a payback period of about two years.
