Summary
• As expected, Danionics reported a loss for the first half-year of DKK 1.6
million before recognition of a DKK 2.9 million value adjustment in Danionics
Asia.
• The company reiterates its full-year forecast of a loss of DKK 2-3 million
before recognition of the share of the profit/loss or value adjustment in
Danionics Asia.
• Danionics contributed DKK 2.9 million to Danionics Asia in the first
half-year. Danionics has not made any commitment to provide any additional
capital to Danionics Asia.
Management's report
H1 2009 financial performance
As expected, Danionics reported a loss for the first half-year of DKK 1.6
million before recognition of a DKK 2.9 million writedown of the loan capital
to Danionics Asia. The writedown equals the amount which Danionics contributed
to Danionics Asia as loan capital in the first half-year. Apart from the
writedown, the H1 financial performance was on a level with the results
achieved in H1 2008.
The loan capital to Danionics Asia is recognised in the amount of DKK 0, which
is unchanged compared to the end of H1 2008. The capital contribution made
during the period has been written down over the income statement.
Cash amounted to DKK 7.8 million. Equity amounted to DKK 8.7 million at 30 June
2009, down from DKK 13.2 million at 31 December 2008. The reduction in equity
corresponds to the net loss for the period.
The joint venture
Following the disappointing performance in the first quarter of 2009, we had
greater expectations for the second quarter. These expectations were only
partly met, however.
Ahead of the Danionics A/S AGM in April, the Shenzhen factory indicated that
they believed they would be able to supply 165,000 batteries per month, or
almost as many as they shipped in the entire first quarter.
Unfortunately, the projection did not hold. Once again, the factory reported
quality problems, primarily with respect to the quality of electrodes delivered
by a subcontractor. In the final pre-shipping tests to measure internal battery
resistance and capacity, 80% of the batteries produced had to be scrapped.
The issues were solved in May, as new requirements were introduced for testing
to be made at an earlier stage, both at the supplier's site and in the control
of incoming shipments at Danionics Shenzhen. In April and May, the monthly
battery production was at around 40,000 units, and the volume was increased in
May through the sale of around 100,000 additional batteries from our
inventories.
In June, production stabilised, and the factory reached an output volume of
111,500 new batteries. The positive performance was repeated in July, when
136,000 new batteries were produced and shipped, and the production output in
August is estimated at about 140,000 batteries. The factory has orders for
200,000 batteries for September.
At the end of July, the scrap rate had dropped from 80% to less than 10% and it
is still falling, which is also positive.
The new management has successfully stabilised production, but the big
challenge this autumn will be to increase output volumes using the existing
production apparatus and to retain battery quality. These efforts will be
strengthened further this autumn, when Michael Ho of GP Batteries takes over
the day-to-day management of Danionics Shenzhen. Simon Norst, who remains the
chief executive of Danionics Asia, will focus especially on international sales
in the upcoming period.
The future of the company
GP Batteries, Danionics A/S' joint venture partner, has applied very
substantial resources to optimise the factory operations.
When the factory comes closer to a break even situation with stable sales of
quality products, Danionics A/S intends to exercise its authority granted by
the shareholders in general meeting to place new shares in the market for up to
10% of the share capital with a view to raising funds needed to invest in
additional growth.
When presenting Annual Report 2008 at 31 March 2009, the company's Board of
Directors resolved to convert all of the joint venture partners' subordinated
loan capital into share capital with a view to strengthening the equity of
Danionics Asia Ltd. The conversion has no financial effects on Danionics A/S,
because the loan capital is recognised at DKK 0 in the financial statements.
Outlook for 2009
Danionics retains the guidance for 2009 presented in Annual Report 2008
released on 24 March 2009. The profit/loss for 2009 will be affected by
marketing and selling costs related to the joint venture and administrative
expenses of about DKK 2.5 million. Overall, Danionics expects a loss in the
range of DKK 2-3 million after interest income but before recognition of the
share of the profit/loss for the year or value adjustment in Danionics Asia
Ltd.
Moreover, the company may still generate sales revenue if the sales efforts
undertaken by Danionics A/S continue to result in new orders.
Danionics A/S expects to have sufficient capital to stay in business for at
least the next 12 months.
For additional information, please contact:
Henning O. Jensen, Chief Executive Officer, tel. +45 70 23 81 30
