Results are now out for the June 2011 quarter. And what a quarter!
The final upgrade to the production line began in March (I suspect). Whilst this was going on, production was moved to a temporary factory (no idea where).
Consequently, Sales have fallen 41% from last quarter, itself a mediocre result. The September quarter will be similar, as the new factory is expected to be completed in September. Sales are only 2% down on last year, but this decrease will be much greater next quarter, as September 2010 was a good quarter.
Nothing has been spent on R&D so far this year. Other Admin expenses are 66% up on last quarter, hardly surprising considering the factory move. None of these expenses were paid in shares this quarter.
Operational Profits are up 5% on last year, but 53% down from last quarter. Interest costs have increased 83% on 2010. About 20% of Plant & Machinery was scrapped during the move, giving rise to a hefty Fixed Asset Impairment. The Share Warranty Liability has risen in compensation for the crash in the share price. Excluding Share Placement and Warranty costs, the Net Profit to date is 75% down on last year.
$5.7m Capital Expenditure has been incurred so far and a further $1m is required to complete the construction of the new production line. I would expect at least another $2m will be needed for new machinery once the production line is ready.
Poor profits and high capital expenditure has lead to a massive cash crisis, Net Working Capital is $-3.5m, down from $-1.5m in the previous quarter. Accounts Receivable and Inventories are at a record low, Accounts Payable has gone back up to a more normal level. Both are still very low compared to Sales and Purchases.
The drain on cash flow has been made up with $2m in Short Term Loans. The management have stated that they expect the liquidity demand can be met for the next 12 months. This is a critical statement, as $6.8m loans could become payable over that period, though I expect $1.7 of this, owed to related parties, to be repaid over a much longer period. The management appear to have taken a gamble that with full production after October, they can generate enough cash in a year to repay these loans when they fall due. A very tight calculation in my opinion. Possibility the loans falling due in 2012 and 2013 have forced their hand.
And then what next? The presentation states that the market for their product is thought to be 300,000 tons. So they could soon be constructing another 120,000 production line, but this time with money from a share placement, courtesy of their new investment advisors. The presentation indicates that the State is their main customer, what happens when their support is withdrawn?
AI
