I've got a copy of the S-3 for the 2 million shares.
Very interesting reading.
Key point:
For the six months ended 3/31/96
Zoltek US Sales $9.4MM
Hungarian Sales $30.2MM
Annual projection of $80MM in sales but only 25% is in carbon fiber.
Remember, the Hungarian sales were zero in 1995. This is where the revenue and earnings growth is coming from. If we project this to an annual basis, we get US sales of $20MM. If ZOLT truly has been "sold out" of carbon fiber and truly shipped 3.5 million pounds, the average carbon fiber selling price was 20/3.5 = $5.71/lb. As ZOLT states that his cost is around $8/lb, something doesn't add up. I think the real answer is that the true carbon fiber sales (after adjusting for oxidized PAN - my assumption is 2.5 million pounds of PANox equates to 0.75 million pounds of carbon fiber) are on the order of 1.75 million pounds for a selling price of $11.42/lb. This would mean an $8/lb cost would yield a 30% gross margin. The S-3 shows a 38% gross margin so my assumption is probably high for the amount of pounds. To make the margin right, the production output would have to be 1.55 million pounds.
$20MM / 1.55 million pounds = $12.90/lb average selling price
$8/lb cost
gross margin = 4.9 / 12.9 = 38% gross margin
Obviously, if the sales price drops to $8/lb or lower, significant reductions in costs AND significant increases in output will have to be made just to stay at current earnings.
Now lets look at the growth piece. Just for fun lets assume that ZOLT does install 3 carbon fiber lines (1 in St. Louis and 2 in Hungary) by mid 1997 (since they haven't even chosen the other US site, I don't see how the other 2 lines could possibly be operational until 1998). And they somehow sell this fiber. That would add 1.5 million pounds of fiber in 1997. At $10/lb (let's assume sales price higher than the $7.50 target just for fun) this would add a whole $15MM to 1997 sales.
1997 Projection
Carbon Fiber Sales $35MM
Hungary Acrylic $60MM
Total of $95MM or a growth of 20% year to year.
If new markets require $7.50/lb carbon fiber, the sales growth will slow in subsequent years as the added sales volume is counteracted by lower prices. The earnings impact will be even greater.
As I said above, the S-3 is very interesting, I suggest all should investigate.
Flyguy. |
