These sales for the fourth quarter of Zoltek's fiscal 2009 were up $3.5 million, or 11.6%, from the third quarter of fiscal 2009.
Zoltek reports an operating loss of $1.9 million for the fourth quarter fiscal 2009, which includes the negative effect of $3.0 million in available unused capacity costs. In the fourth quarter of the 2008 fiscal year, Zoltek reported an operating loss of $0.4 million.
For fiscal 2009 as a whole, Zoltek’s net sales were $138.8 million, down 25.5% on fiscal 2008. Operating income for the year was $3.4 million, compared to $20.0 million in fiscal 2008.
Disappointed, but not discouraged
“We entered the year riding the crest of a wave of four consecutive years of rapidly increasing sales and improving operating results,” states Zsolt Rumy, Zoltek Chairman and CEO. “We had expected that our sales and earnings would continue to grow in fiscal 2009, and we are disappointed that the severity of the global economic slowdown, combined with a number of other adverse circumstances, prevented that from happening. We are disappointed, but not at all discouraged. We believe that the current downturn in carbon fibre markets represents only a temporary departure from a long-term trend line of rapid growth. We remain as confident as ever of the future of our business as the world leader in the commercialisation of carbon fibres.”
Applications: wind and automotive
“To put our recent results into perspective,” Rumy continued, “it is worth noting that although our sales volume in dollar terms was down approximately one-quarter from the previous year, our fiscal 2009 sales were still up more than four times compared to our total sales of five years ago. Almost all of the growth that we have achieved over the past half decade has come as a direct result of the establishment of wind energy as the first large-scale commercial application for carbon fibres. We still see considerable upside potential for resumed rapid growth in wind energy, and we see even greater and more exciting potential for other application areas, most especially the automotive industry.”
Rumy referred to car maker BMW's recent announcement that it intends to proceed into series production of a new high-performance car using carbon fibres as the principal material for the car’s structural framework.
“The BMW project defines a timeline for the large-scale introduction of carbon fibres for structural automotive applications and we are sure that other car builders will follow," says Rumy. "Even one series production car employing about 120 lbs of carbon fibres per vehicle in a yearly production run of 250 000 cars would require about 30 million lbs of carbon fibres, which is equal to one-third of current total global demand for all applications.”
At the same time, Rumy said that Zoltek was disappointed that BMW had teamed up with SGL Group of Germany to supply materials for this new car.
“In our view – this development, like Zoltek’s ascendancy in wind energy applications – validates our carbon fibres commercialisation strategy. A critical element of that strategy is targeting high volume, cost-sensitive applications. For many years we placed considerable value on our relationships with BMW as a joint development partner and customer for our carbon fiber products. We believe that our industry-leading capacity and successful track record of rapidly installing new low-cost carbon fiber and precursor production, position Zoltek as the most cost-effective and reliable solution for large scale automotive applications.”
Rumy added that Zoltek was already in discussions with other major automotive companies that may decide to compete with BMW in developing carbon fibre-based cars. Zoltek believes that with its support, car manufacturers could introduce a carbon fibre-based car at the same time or, even before, BMW’s announced timetable.
Financial factors
In discussing Zoltek’s financial results for the quarter and the year, Rumy noted three key factors affecting revenues, margins and operating results.
First, Zoltek essentially doubled its capacity over the past two years, adding new carbon fibre lines in Hungary and Mexico late in fiscal 2008. That capacity came on line just as the global economy went into recession. The cost of the start-up and subsequent maintenance of this new capacity has been significant. The now-idled new lines were responsible for $3.0 million in carrying costs in the fourth quarter and were a major factor in causing Zoltek’s gross profit margin to decline from 25.1% in the fourth quarter of fiscal 2008 to 15.1% in the fourth quarter of fiscal 2009. Zoltek believes that this excess capacity will be quickly absorbed when the wind energy business returns to a more robust growth rate and provide new customers the assurance of long-term supply to encourage them to commit to emerging applications.
Second, after years of growing at a 20-25% annual rate, worldwide growth in electricity generation from wind energy has slowed to an estimated 10%. Ironically, in the USA, anticipation of increased government spending aimed at stimulating wind energy production appears to be having the opposite effect in the short term. Many wind generation developers delayed the initiation of new projects, as they wait to see what benefits will be available from new government programmes. Other projects are delayed for lack of financing in the current difficult credit markets. Many of these projects will not be cancelled, merely postponed.
Third, price decreases and currency fluctuations have been responsible for much of the reported revenue declines. The volumes of Zoltek’s carbon fibre shipments have declined, but by considerably smaller percentages than net sales, as Zoltek has passed along falling raw material and energy costs to its customers. These price and cost decreases, while affecting the top line, have had proportionately less impact on gross margins and earnings.
Zoltek (Nasdaq: ZOLT) is headquartered in St Louis, Missouri, USA.