Pure Wafer has now released its final results for the year ended 2015.
Revenues from the remaining North American facility increased by just $175K year on year but with a smaller increase in cost of sales, gross profit came in £75K ahead. We then see a $322K increase in admin expenses and growth in depreciation and share based payments to give an underlying operating profit $324K lower than last year. There were also some exceptional costs – $80K worth of redundancy costs and $221K relating to the Swansea fire as costs were incurred transferring some customer activities to Prescott, and after an increase in “other similar losses” the pre-tax profit was $1.4M, a decline of $716K year on year. This was dwarfed by the gain from the insurance pay-out following the fire, however, so the actual profit for the year was $60.8M, an increase of $57.1M!
When compared to the end point of last year, total assets increased by $55.8M driven by an $80.1M increase in cash partially offset by a $15.7M fall in property, plant and equipment; a $4.5M decline in receivables; a $2.4M decrease in deferred tax assets and a $1.4M fall in inventories. Total liabilities fell during the year as a $2M decline in the deferred grant income and a $3.6M fall in loans and borrowings was partially offset by a $3.7M increase in payables and a $1.7M growth in income tax liabilities. The end result is a net tangible asset level of $88.1M, an increase of $57.8M year on year but much of this cash will be returned to shareholders.
Before movements in working capital, cash profits increased by $73.1M to $79.1M, although this is clearly misleading as it is including the insurance pay-out in this and the underlying cash performance is a little harder to ascertain. We also had large cash inflows from working capital so despite a small tax payment as opposed to the rebate last time, the net cash from operations, at $88.3M was $82.9M up year on year. The group only spent $1.3M on capex with the rest of the cash going on bank loan repayments with a hefty $3.4M also spent on the cancellation of the RBS warrants. The end result is a cash inflow of $80.1M to give a cash level of $85.2M at the year-end.
The group are now rather dependent on a small number of large customers with the largest accounting for 27% of revenues and the second largest accounting for 16%.
Following a fire at the Swansea facility the group decided not to reinstate the UK manufacturing facility hence the UK results have been recorded as discontinued operations. In addition the decision to cease to trade the solar business was also made at this time. Overall the group made a £60.3M profit on the discontinued operations. This is as a result of a $1.9M grant releases arising from the impairment of property, plant and equipment along with the £90.6M proceeds from the insurance settlement being partially offset by a $3.4M operating loss from the business, a $15.5M impairment of property, plant and equipment, a $2.2M redundancy cost, a $2.5M site exit and closure costs, a $2.5M insurance settlement incentive, a $1.3M fire related exceptional item, a $129K solar intangible impairment, $3.2M of other losses and some $1.7M in tax charges.
Investigations have indicated that the fire was caused by an electrical fault with a heating element contained within a chemical storage tank. It was contained to the external service and plant areas of the facility and was prevented from entering the production areas by the installed fire prevention systems but subsequent metallurgic testing determined that elements of the building had been compromised by the fire and acid smoke from the fire had contaminated manufacturing areas including highly sensitive clean rooms and equipment. As a result of the fire it was determined that the building would require extensive and costly repairs. The board decided not to reinstate the facility. In addition to the costs involved, some of the reasons included the fact that the majority of Swansea’s customers had declined the company’s offer to qualify and switch production to Prescott and had already migrated to competitors and the fact that the reinstatement of the facility would likely result in overcapacity within the market. The excess funds from the insurance pay-out will therefore mostly be returned to shareholders and it is expected that this will be in the region of 140p to 145p per share.
The Prescott facility continued to fortify its position as the leading wafer reclaim company in the US. Following the Swansea fire, a few customers have started with the qualification of Prescott so that production can be switched. Due to the time consuming nature of the qualification process, no incremental volume will materialise until the end of the year, however. The Prescott facility enjoyed record levels of productivity which together with close management of costs, resulted in its cost per wafer continuing to run at a historic low despite suppliers seeking to increase prices for the majority of consumable items.
Demand for the group’s wafer reclaim services has remained strong since the end of the year. The board are confident that these levels of demand will continue throughout the current year. Industry analysts are forecasting continued growth in the semiconductor market. Confidence in the industry means that the group’s customers continue to invest heavily in additional capacity and technology advancements, giving rise to further wafer reclaim opportunities for them in the US.
There is not really any point looking at PE ratios at the moment as the share price in pretty much entirely anticipating the shareholder returns available following the insurance pay-out. Also, after the pay-out the group doesn’t hold any debt so net funds at the end of the year were $85.2M.
Overall then it is very difficult to value this company. Pre-tax profits did fall but it is pointless having a look at the net assets and cash flow as they both include the total received from the insurers – it is a shame that underlying items were not included too but I suspect they were not that good. All that we really need to know if that the company is paying between 140 to 145p to shareholders with the shares now trading at about 177p, leaving 37p for the rest of the business. I think these are probably now priced about right.
On the 24th November the group announced that it had agreed terms for the sale of the US operation to Wafer Holding Company. It will result in the disposal of all of the trading business and assets of the company so they will be treated as an investing company. The total price payable is $16M which will be satisfied by the payment in cash of $14.4M on closing with $1.6M held by an escrow agent to account for any claims arising under the terms of the disposal and providing no such claims are outstanding, the balance will be released to the company at the end of August next year.
Upon completion of the disposal the company intends to wind up and de-list from AIM. I guess this is not really surprising, but nonetheless I think I would be a little disappointed by this if I was a shareholder.