ATS Reports Dramatic Growth in Fourth Quarter

  • May 27, 2005
  • ATS Automation Tooling Systems
  • News
CAMBRIDGE, ON, May 26 /CNW/ - ATS Automation Tooling Systems Inc. todayreported net earnings from continuing operations of $14.6 million (24 centsper share basic and diluted) for the three months ended March 31, 2005 -compared to a net loss from continuing operations of $0.8 million (loss of 1 cent per share basic and diluted) a year ago. Automation Systems Group (ASG) and Solar Group both reported asignificant acceleration in operating earnings in the fourth quarter, with ASGoperating margins increasing to 8.4% from 5.5% in the fourth quarter a yearago and Solar operating margins increasing to a record high of 14.6% from 8.0%in the comparable quarter a year ago. Fourth Quarter Financial Highlights
  • Consolidated revenue increased 14% to $208.7 million from $182.9 million in the fourth quarter a year ago. ASG revenue grew 9% to $146.1 million reflecting strong growth in the healthcare market. Solar Group revenue increased 57% to $41.0 million. These increases more than offset a 16% decrease in Precision Components Group (PCG) revenue, which totaled $25.5 million.
  • ASG operating earnings were up 67% to $12.3 million from $7.4 million in the fourth quarter of fiscal 2004 on much stronger operating margins.
  • ASG operating earnings of $12.3 million include unusual costs of $3.5 million related to an allowance for two customer credit-related matters. Excluding these unusual costs, ASG operating margins would have been 10.8%.
  • Solar Group operating earnings were a record $6.0 million, compared to $2.1 million a year ago on the strength of continued demand for solar products and better than anticipated production improvements in the quarter.
  • PCG continuing operations were breakeven in the fourth quarter compared to a loss of $0.9 million in the same period a year ago. The results for the fourth quarter of fiscal 2005 included a charge of $0.5 million as a result of a program that will be terminated due to management's rationalization initiatives in fiscal 2005.
  • During fiscal 2005 and in early fiscal 2006, the Company has rationalized PCG to improve its focus and prospects. Part of this initiative includes the planned divesture of its precision metals division. Accordingly, the precision metals results have been treated as a discontinued operation.
  • The total loss in the quarter from discontinued operations was $14.1 million (23 cents per share), including a $12.8 million after tax, non-cash charge to write-down the value of the precision metals assets to their estimated net realizable value. The actual value realized on disposition of these assets will be determined upon negotiation and completion of the planned sale and may vary from this estimate.
  • A non-cash goodwill impairment charge of $22.2 million ($20.7 million after-tax, or 34 cents per share) was taken in the fourth quarter to write-down the value of PCG's goodwill, reflecting broad based challenges in the automotive industry and the decline in the value of the Canadian dollar over the past two years.
  • The Company recorded a gain of $27 million (44 cents per share) from key-man life insurance proceeds. Subsequent to quarter end, $25 million of these proceeds were used to exercise and complete an option to repurchase and cancel 1,974,723 ATS common shares at a price of $12.66 per share.
  • Net earnings were $0.5 million (1 cent per share basic and diluted) compared to a net loss of $3.1 million (loss of 5 cents per share basic and diluted) a year ago.
  • New automation systems Order Bookings were $87 million, compared to $184 million a year ago.
  • Automation systems Order Backlog was $169 million compared to $227 million at March 31, 2004 and $232 million at December 31, 2004. Fiscal 2005 Annual Financial Highlights ATS also made substantial improvements during the twelve months endedMarch 31, 2005.
  • Consolidated revenue from continuing operations increased 25% to a record $770.9 million from $616.9 million in fiscal 2004. In fiscal 2005, ASG revenue increased 17% to a record $547.4 million from $466.7 million, while Solar Group's revenue was a record $143.8 million, or 62% higher than in fiscal 2004. PCG revenue declined 3% to $98.1 million from $101.3 million in fiscal 2004.
  • ASG operating earnings increased 73% to $38.8 million (operating margin of 7.1%) compared to $22.5 million (4.8% operating margin) in the same period of fiscal 2004. Solar Group operating earnings increased more than three fold to $13.1 million from $4.2 million while operating margin increased to 9.1% from 4.8%.
  • PCG's operating loss from continuing operations was $0.4 million compared to an operating loss of $1.7 million in fiscal 2004.
  • Net earnings from continuing operations were $30.5 million (50 cents per share basic and diluted) compared to $1.7 million (3 cents per share basic and diluted) a year ago.
  • Net earnings were $9.3 million (15 cents per share basic and diluted) compared to a net loss of $2.3 million (loss of 4 cents per share basic and diluted) in the prior year. "ATS achieved dramatically improved operating results in AutomationSystems Group in the fourth quarter by capitalizing on revenue growth and moreeffectively managing and utilizing our resources to deliver higher operatingmargins," said Ron Jutras, ATS President and Chief Executive Officer. "Infact, Group operating margins advanced to 8.4% in the quarter - and would havebeen 10.8% had it not been for an allowance taken for two customersexperiencing financial difficulty. We're also very pleased with the progresswe've made in healthcare and pharmaceuticals where revenue more than doubledin both the fourth quarter and for the full fiscal year compared to a yearago. We continue to strategically target growth in the most attractivesegments of our markets and on balance, ASG's revenue and margins in thefourth quarter and for all of fiscal 2005 reflected this focus." In commenting on Solar Group results, Mr. Jutras said: "Our secondlargest operating group continued to set new performance records in the fourthquarter - surpassing the previous record highs for revenue, margins andoperating earnings. In fact, operating margins were 14.6%, clearlydemonstrating the value being created within our solar operations as a resultof the significant strides made through the continuous optimization ofPhotowatt's highly automated factory in France, strong market demand, and to alesser degree higher selling prices. Strong market demand for solar furtherreinforces the potential of our new Spheral Solar Power technology. In Aprilwe achieved a critical milestone by producing our first factory functionalcells and shipping initial SuperFlex modules. As a result we have now startedthe first phases of our factory optimization plan." With respect to the continuing Precision Components Group, Mr. Jutrassaid: "As expected, PCG continued to progress towards returning toprofitability and achieved breakeven results in spite of the charge werecorded to recognize the upcoming termination of an underperforming customerprogram. This turnaround was delivered despite the 16% decrease in PCGrevenue. We believe the stronger focus of PCG over the past year as shown byasset and program rationalizations - notably the sale of its thermal productsbusiness last fall, the previously announced closure of a manufacturing plantin Texas, and the recently announced decision to divest the precision metalsdivision - are necessary steps on our path back to sustainable profitability.The transfer of customer programs from Texas is on schedule to be completednext month. Negotiations to sell the metals division are ongoing. All of thesesteps are important in creating a healthy platform for PCG going forward." Looking Forward "We made significant progress in our operating margin performance in thefourth quarter showing that the initiatives we have taken are beginning to payoff," said Mr. Jutras. "Our near-term concern is the delays in customer orderplacement experienced in the past couple of months within the ASG business.These delays are frustrating because quotation activity is extremely robust.But in context, the flow of sales orders is seldom ideal in the automationindustry and we have seen delays like this in the past. This is why thediversification we've achieved in recent years is so vital. We engage inactive, ongoing discussions with our customers and from our vantage point, weare confident these delays are temporary. As a result, it's criticallyimportant that we retain our valued productive resources while we workaggressively to convert prospects into firm orders. It's obvious that thesales cycle for our automation systems has lengthened over the past few monthsfor a variety of customer specific reasons. What's important to us is that ourorder prospects have not disappeared - we think they have gotten stronger. Webelieve our competitive advantages are greater than ever and ATS is betterpositioned to secure new business globally than ever before." ATS continues to introduce new services and new technologies to meet theneeds of the Company's broadening customer base. In April, ASG successfullyintroduced three new platforms at Interphex, the pharmaceutical industry'slargest trade show. ATS Compliant Solutions(TM), the Company's consultingservice for healthcare and pharmaceuticals, achieved its first year financialgoals for consulting revenue and earnings and helped ATS establishrelationships with several significant new customers in the sector. Theoutlook for the Company's contract healthcare equipment manufacturinginitiative is also very positive and in fiscal 2005, this activity producedrevenue of $30.6 million, 87% more than the year before. With respect to Solar Group, Mr. Jutras said: "Demand for solar productsis expected to remain robust well into fiscal 2006 and our manufacturingefficiency and throughput at Photowatt have shown additional majorimprovements this year. We continue to actively manage the tight supply andrising prices of silicon feedstock. While the effects of tight silicon supplyare uncertain, we believe Photowatt has secured sources for a significantamount of its capacity for fiscal 2006. As a result we expect Photowatt'soperating performance to remain strong. " "Significant solar market demand makes a great environment for us tolaunch our SSP technology," said Mr. Jutras, "and we reached an importanttechnical milestone in April by shipping our first fully functional SuperFlexproducts produced on SSP factory systems. As expected production volumes arevery modest but we have now reached the next stage of our plan that will putthe SSP factory through a deliberate and focused program of optimization. Thisis the normal course of commissioning a manufacturing facility of thismagnitude. Our first optimization cycle is well underway and in June we willgo into an intensive improvement stage which is expected to last approximatelyone month. We will then restart production, assess performance and begin a newround of optimization, each time gaining throughput and capacity improvements.Each stage of this optimization process should be shorter in duration. We'reexcited about all of our prospects for SSP and especially delighted with thecommitment being made to our integrated roofing system technology by ElkCorporation." The outlook for PCG is "cautious but improving," said Mr. Jutras."Realistically, it is unlikely that the Group will achieve satisfactory levelsof profitability until the second half of fiscal 2006 due to the costs ofconsolidating the McAllen business, the traditional summer shut-downs and thecontinued volatility in the automotive market. Our near-term goal is tocomplete the strategic initiatives taken over the past few months which webelieve will further improve profitability at PCG." Management Appointments ATS also today announced the recruitment of Syl Ghirardi to the newlycreated position of President and Chief Executive Officer of the ATS SolarGroup and the appointment of ATS veteran Joe Aikins to the position of VicePresident of Systems Operations, ASG East. "Our entire team has a strong mandate to achieve the financial andoperational goals that will enhance shareholder and customer value," said Mr.Jutras. "We intend to realize improvements in all Groups and build on theindustry leadership established so effectively under our founder KlausWoerner. I've spent a great deal of time over the past four months meetingwith customers and I'm delighted with the universal support for the directionwe are taking." 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 visitwww.atsautomation.com. Note to Readers The fourth quarter MD&A and consolidated financial statementsaccompanying this news release contain detailed information of quarterlyperformance, financial condition and the Company's outlook. Readers shouldreview the Company's MD&A for the full fiscal year ended March 31, 2005 whichwill be contained in the Fiscal 2005 annual report when it becomes available. Certain forward-looking statements are made in this news release andaccompanying MD&A, including statements regarding possible future results andbusiness. Investors are cautioned that such forward-looking statements involverisks and uncertainties. The Company's results could differ materially fromthose currently anticipated due to a number of factors including, but notlimited to, the risks and uncertainties contained in the Company's fiscal 2004Annual Report and other risks detailed from time to time in ATS's periodicreports filed with Canadian regulatory authorities. Readers should consult theCompany's fiscal 2005 annual report, MD&A, and audited financial statements,and other regulatory documents, as they become available. Corporate Description ATS Automation Tooling Systems Inc. (www.atsautomation.com) is theindustry's leading designer and producer of turn-key automated manufacturingand test systems, which are used primarily by multinational corporationsoperating in a variety of industries including: automotive,computer/electronics, healthcare, and consumer products. ATS is also anemerging leader in the rapidly growing market for solar energy cells andmodules. The Company also makes precision components and subassemblies usingits own custom-built manufacturing systems, process knowledge and automationtechnology. ATS employs approximately 4,200 people at 26 manufacturingfacilities in Canada, the United States, Europe and Asia-Pacific. TheCompany's shares are traded on The Toronto Stock Exchange under the symbolATA.

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