AMG Advanced Metallurgical Group N.V. Reports First Quarter 2020 Results

 Coronavirus Update

  • As of today, we are grateful to report that we have no active confirmed coronavirus cases globally. AMG had one of its employees test positive for COVID-19. The employee fully recovered and has since returned to work. This event did not result in a facility closure or operational interruption. To protect the health and safety of its employees, AMG continues to implement preventive measures such as practicing social distancing, remote working when possible, and restrictions on travel.
  • The majority of our production facilities are operating and our major expansion projects in vanadium and lithium are continuing on schedule.

Strategic Highlights

  • AMG and Shell Catalysts & Technologies received all regulatory consents necessary for the formation of the Shell and AMG Recycling B.V. joint venture, and has commenced operations.
  • AMG continued basic engineering for its lithium project in Zeitz, Germany, and in Zanesville, Ohio, AMG has committed $140 million as of March 31, 2020 in construction and engineering contracts for investment in a second ferrovanadium plant.
  • AMG Engineering successfully completed the installation of the first ceramic matrix composite (“CMC”) vacuum furnace and passed the Final Acceptance Test at its customer’s location; this customer acceptance represents a significant milestone in AMG Engineering’s ongoing new product development program.
  • In light of ongoing demand uncertainty in the global aerospace market due to the effect of COVID-19, AMG has put the IPO of AMG Technologies on hold.

Financial Highlights

  • EBITDA(2) was $22.3 million in the first quarter of 2020 as the Company’s segments provided balanced earnings
  • SG&A declined 7% in the first quarter of 2020 to $34.9 million compared to $37.4 million in the first quarter of 2019 due to lower personnel costs and initial steps on cost reduction
  • AMG Technologies’ order backlog increased 9% to $242.2 million as of March 31, 2020, compared to $222.6 million as of December 31, 2019
  • AMG’s liquidity as of March 31, 2020 was $372.2 million and the Company has maintained its final 2019 declared dividend of €0.20 to be paid in the second quarter 2020

Amsterdam, 5 May 2020 (Regulated Information) AMG Advanced Metallurgical Group N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) reported first quarter 2020 revenue of $278.3 million, a 20% decrease from $346.5 million in the first quarter of 2019. EBITDA for the first quarter of 2020 was $22.3 million, a 56% decrease from $50.4 million in the first quarter of 2019, largely due to lower ferrovanadium prices and lower titanium alloy sales versus the first quarter of last year. EBIT decreased 71% to $11.9 million in the first quarter of 2020 from $40.4 million in the first quarter of 2019.

Revenue dropped 20% in the first quarter of 2020, driven by a significant metal price decline across AMG’s entire portfolio. The 56% decrease in EBITDA to $22.3 million was largely due to the Critical Materials segment, which achieved an EBITDA of $9.7 million in the first quarter of 2020. The decline was primarily driven by lower prices for ferrovanadium and chrome metal. AMG Technologies achieved an EBITDA of $12.7 million, a 34% decrease from the first quarter of 2019, due to lower titanium alloy sales and lower profitability associated with metal price declines for the Titanium Alloys and Coatings business.

Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, “I am pleased to report that out of our 3,200 total AMG employees in 33 sites in 15 countries, AMG has only had one employee test positive for COVID-19. The employee has since fully recovered and has returned to work.
  
However, as a result of the Coronavirus crisis, some of our production facilities are operating below capacity, reflecting reduced demand levels. Our financial results reflect the “lowest price” environment we are experiencing, and we continue to operate in an austerity mode and focus on things we can control, such as operational efficiency, capital expenditures and overhead costs. This focus on expenditures will help to preserve our solid liquidity position.

Despite our intense focus on cash flow, we continue to progress our key strategic programs: the construction of the plant in Zanesville, Ohio, which will essentially double our recycling capacity for refinery residues, is proceeding as planned, utilizing the funds raised from our municipal bond. Basic engineering of the new lithium hydroxide production facility in Germany is expected to be completed by year end. Shell & AMG Recycling B.V. has started to operate and will pursue refinery residue recycling opportunities globally.

Despite our excellent order intake in 2019 of $249 million and of $104 million in the first quarter of 2020, representing a strong 1.3x book to bill ratio, foreseeable depressed conditions in the aerospace industry has forced us to postpone the pursuit of a public offering of AMG Technologies.”

Key Figures

In 000’s US dollars      
  Q1 ‘20 Q1 ‘19 Change
Revenue $278,290 $346,523 (20%)
Gross profit 43,160 67,120 (36%)
Gross margin 15.5% 19.4%  
       
Operating profit 8,326 29,796 (72%)
Operating margin 3.0% 8.6%  
       
Net (loss) income attributable to shareholders (13,568) 14,827 N/A
       
EPS – Fully diluted (0.48) 0.47 N/A
       
EBIT (1) 11,851 40,388 (71%)
EBITDA (2)  22,329 50,423 (56%)
EBITDA margin 8.0% 14.6%  
       
Cash (used in) from operating activities (3,679) 6,935 N/A

Note: 

  1. EBIT is defined as earnings before interest and income taxes. EBIT excludes restructuring, asset impairment, inventory cost adjustments, environmental provisions, exceptional legal expenses, equity-settled share-based payments, strategic expenses and includes foreign currency gains or losses.
  2. EBITDA is defined as EBIT adjusted for depreciation and amortization.

 

Operational Review

AMG Critical Materials

  Q1 ‘20 Q1 ‘19 Change
Revenue $159,191 $228,591 (30%)
Gross profit 20,646  37,638 (45%)
Gross profit excluding exceptional items   20,043 45,672 (56%)
Operating profit 1,909 16,192 (88%)
EBITDA 9,656 31,152 (69%)

AMG Critical Materials’ revenue in the first quarter decreased by $69.4 million, or 30%, to $159.2 million, driven largely by lower average prices across all seven business units during the quarter, partially offset by higher sales volumes of ferrovanadium, graphite and silicon metal.

Gross profit in the first quarter decreased by $17.0 million to $20.6 million. The reduction in gross profit was primarily driven by decreased profitability in our vanadium business offset by increased profitability in graphite and silicon.

SG&A expenses in the first quarter of 2020 were $18.8 million, $2.7 million lower than the first quarter 2019, primarily due to lower personnel costs, lower professional fees, and initial cost reduction efforts across the business.

The first quarter 2020 EBITDA margin was 6% due to lower profitability in the quarter noted above.

AMG Technologies

  Q1 ‘20 Q1 ‘19 Change
Revenue $119,099 $117,932 1%
Gross profit 22,514 29,482 (24%)
Gross profit excluding exceptional items 23,056 31,278 (26%)
Operating profit 6,417 13,604 (53%)
EBITDA 12,673 19,271 (34%)

Order backlog increased 9% versus December 31, 2019, resulting in a robust level of $242.2 million as of March 31, 2020 as the Company signed $104.4 million in new orders during the first quarter of 2020. This represents a 1.3x book to bill ratio. This higher book to bill ratio was largely driven by strong orders of turbine blade coating and remelting furnaces for the aerospace market.

AMG Technologies’ first quarter 2020 revenue increased due to the completion of Engineering’s first CMC vacuum furnace, which was offset by lower prices and volumes in the Titanium Alloys and Coatings business driven by lower metals prices as well as a decline in volume due to a slowdown in the aerospace sector. As a result, first quarter 2020 gross profit decreased by $7.0 million, or 24%, to $22.5 million, primarily driven by lower results from the Titanium Alloys and Coatings business.

SG&A expenses were essentially flat at $16.1 million in the first quarter, compared to $15.9 million in the same period in 2019 as initial cost reductions were offset by higher insurance costs and professional fees.

AMG Technologies’ first quarter EBITDA decreased by 34%, or $6.6 million, to $12.7 million from $19.3 million in the first quarter of 2019 due to lower profitability of the Titanium Alloys and Coatings business noted above.

Financial Review

Tax

AMG recorded an income tax expense of $16.5 million in the first quarter 2020, compared to $5.9 million in the same period in 2019. The increase was primarily due to significant devaluation of the Brazilian currency. Movements in the Brazilian real exchange rate impact the valuation of the Company’s net deferred tax assets. The devaluation of the real during the first quarter of 2020 resulted in an additional non-cash tax expense of $11.7 million. The appreciation of the real in the first quarter of 2019 resulted in a $1.9 million tax benefit.

AMG paid taxes of $0.9 million in the first quarter 2020, compared to tax payments of $3.9 million in the same period in 2019. The current quarter benefited from tax refunds from 2019 as well as the extensive relief due to international COVID-19 tax measures which enabled AMG to delay most of its of tax payments during the quarter.

Exceptional Items

AMG’s first quarter 2020 gross profit of $43.2 million includes exceptional items, which are not included in the calculation of EBITDA.

A summary of exceptional items included in gross profit in the first quarters of 2020 and 2019 are below:

Exceptional items included in gross profit

  Q1 ‘20 Q1 ‘19 Change
Gross profit $43,160  $67,120 (36%)
Inventory cost (reversal) adjustment (1,901)  9,883 N/A
Restructuring expense (reversal) 428 (53) N/A
Asset impairment expense 17 N/A
Strategic project expense 1,395 N/A
Gross profit excluding exceptional items  43,099 76,950 (44%)

As a result of an improvement in vanadium prices versus the fourth quarter of 2019, AMG had a $1.9 million reversal of an exceptional non-cash charge for vanadium inventory cost adjustments during the first quarter which has been adjusted in EBITDA. The Company is in the ramp-up phase for three significant strategic expansion projects, including the Zanesville vanadium expansion, the vanadium joint venture with Shell, and the lithium expansion in Germany, which incurred $1.4 million of project expenses during the quarter but are not yet operational. AMG is adjusting EBITDA for these exceptional charges.

Liquidity

  March 31, 2020 December 31, 2019 Change
Senior secured debt $366,168 $366,682
Cash & equivalents 208,944 226,218 (8%)
Senior secured net debt 157,224 140,464 12%
Other debt 10,784 12,144 (11%)
Net debt excluding municipal bond 168,008 152,608 10%
Municipal bond debt 319,860 319,911
Restricted cash 295,495 309,581 (5%)
Net debt 192,373 162,938 18%

AMG had a net debt position of $192.4 million as of March 31, 2020. This increase was mainly due to the significant investment in growth initiatives during the quarter, especially the vanadium expansion.

Cash used in operating activities of ($3.7) million in the first quarter of 2020 decreased by $10.6 million compared to the same period in 2019, primarily due to lower profitability.

Capital expenditures, including capitalized borrowing costs, increased to $21.9 million in the first quarter of 2020 compared to $12.8 million in the same period in 2019. Capital spending in the first quarter of 2020 included $5.5 million of maintenance capital. The remaining $16.4 million of capital spending is attributable to expansion projects at AMG’s vanadium, titanium aluminide, lithium and heat treatment service facilities.

As of March 31, 2020, AMG had $208.9 million of unrestricted cash and equivalents and total liquidity of $372.2 million.

Net Finance Costs

AMG’s first quarter 2020 net finance costs decreased to $5.4 million from $9.2 million in the first quarter of 2019. This decline is mainly driven by lower borrowing rates versus the prior period and favorable foreign exchange movements. Additionally, AMG capitalized $2.8 million of borrowing costs in the first quarter of 2020 driven by interest associated with the Company’s tax-exempt municipal bond supporting the vanadium expansion in Ohio.

SG&A

AMG’s first quarter 2020 SG&A expenses were $34.9 million compared to $37.4 million in the first quarter of 2019, primarily due to lower personnel costs, lower professional fees and initial cost reduction efforts across the business.

Outlook

AMG operates with practiced business resilience and we are acutely focused on safeguarding against the potential for future pandemic-related disruptions. Management continues to drive operational efficiency and manage for cash preservation in 2020 to ensure ongoing financial health and stability.

However, due to the speed with which the COVID-19 situation is developing, there is uncertainty around its ultimate impact; therefore, as previously announced, AMG has decided to withdraw its earnings guidance for 2020. A new target will be announced once the global industrial economy begins to stabilize.

 

Net (loss) income to EBITDA reconciliation

  Q1 ‘20 Q1 ‘19
Net (loss) income ($13,597) $14,703
Income tax expense 16,515 5,876
Net finance cost* 6,335 8,852
Equity-settled share-based payment transactions 1,490 1,118
Restructuring expense 428 (53)
Inventory cost adjustment (1,901) 9,883
Strategic project expense 1,395
Exceptional legal expense 1,049
Others 137 9
EBIT 11,851 40,388
Depreciation and amortization 10,478 10,035
EBITDA 22,329 50,423

*Excludes foreign exchange expense (income).

AMG incurred $1.1 million of non-recurring legal expense related to a dispute with a former customer. This dispute was settled in the first quarter 2020 and will not impact the Company’s financial results going forward.

 

AMG Advanced Metallurgical Group N.V.    
Condensed Interim Consolidated Income Statement    
     
For the quarter ended March 31    
In thousands of US dollars 2020 2019
  Unaudited Unaudited
Continuing operations    
Revenue 278,290 346,523
Cost of sales 235,130 279,403
Gross profit 43,160 67,120
     
Selling, general and administrative expenses 34,887 37,357
     
Net other operating income 53 33
     
Operating profit 8,326 29,796
     
Finance income (1,399) (971)
Finance cost 6,807 10,188
Net finance cost 5,408 9,217
     
Profit before income tax 2,918 20,579
     
Income tax expense  16,515 5,876
     
(Loss) profit for the period (13,597) 14,703
     
Attributable to:    
Shareholders of the Company (13,568) 14,827
Non-controlling interests (29) (124)
(Loss) profit for the period (13,597) 14,703
     
(Loss) earnings per share    
Basic (loss) earnings per share (0.48) 0.48
Diluted (loss) earnings per share (0.48) 0.47
     

 

     
AMG Advanced Metallurgical Group N.V.    
Condensed Interim Consolidated Statement of Financial Position     
     
     
In thousands of US dollars  March 31, 2020
Unaudited
 

December 31,
2019

 

Assets    
Property, plant and equipment 443,861 429,993
Goodwill and other intangible assets 41,305 41,923
Derivative financial instruments 922
Other investments 21,932 23,565
Deferred tax assets 51,320 60,945
Restricted cash 295,495 309,581
Other assets 9,389 11,072
Total non-current assets 863,302 878,001
Inventories 174,686 204,152
Derivative financial instruments 313 2,693
Trade and other receivables 144,503 119,052
Other assets 34,128 33,860
Current tax assets 6,756 7,980
Cash and cash equivalents 208,944 226,218
Total current assets 569,330 593,955
Total assets 1,432,632 1,471,956

 

 

AMG Advanced Metallurgical Group N.V.

   
Condensed Interim Consolidated Statement of Financial Position     
(continued)    
     
     
In thousands of US dollars  March 31, 2020
Unaudited
 

December 31,
2019

 

Equity    
Issued capital 831 831
Share premium 489,546 489,546
Treasury shares (80,584) (83,880)
Other reserves (138,997) (116,358)
Retained earnings (deficit) (146,001) (129,626)
Equity attributable to shareholders of the Company 124,795 160,513
     
Non-controlling interests 23,275 23,893
Total equity 148,070 184,406
 

Liabilities
  Loans and borrowings

667,850 669,497
Lease liabilities 44,929 46,490
Employee benefits 172,657 175,870
Provisions 24,525 28,984
Other liabilities 7,692 3,629
Derivative financial instruments 7,959 4,289
Deferred tax liabilities 5,293 4,300
Total non-current liabilities 930,905 933,059
 
  Loans and borrowings
21,462 21,740
Lease liabilities 4,227 4,227
Short-term bank debt 7,500 7,500
Other liabilities 59,356 61,479
Trade and other payables 166,344 157,108
Derivative financial instruments 17,589 4,037
Advance payments 36,023 57,650
Current tax liability 19,194 18,299
Provisions 21,962 22,451
Total current liabilities 353,657 354,491
Total liabilities 1,284,562 1,287,550
Total equity and liabilities 1,432,632 1,471,956

 

AMG Advanced Metallurgical Group N.V.    
Condensed Interim Consolidated Statement of Cash Flows    
 

For the quarter ended March 31

   
In thousands of US dollars 2020 2019
  Unaudited Unaudited
Cash (used) from operating activities    
(Loss) profit for the period (13,597) 14,703
Adjustments to reconcile net (loss) profit to net cash flows:    
Non-cash:    
Income tax expense 16,515 5,876
Depreciation and amortization 10,478 10,035
Asset impairments 17
Net finance cost 5,408 9,217
Loss (gain) on sale or disposal of property, plant and equipment 112 (168)
Equity-settled share-based payment transactions 1,490 1,118
Movement in provisions, pensions, and government grants (2,761) 1,708
Working capital and deferred revenue adjustments (15,468) (26,017)
Cash generated from operating activities 2,194 16,472
Finance costs paid, net (4,951) (5,680)
Income tax paid, net (922) (3,857)
Net cash (used) from operating activities (3,679) 6,935
     
Cash used in investing activities    
Proceeds from sale of property, plant and equipment 237
Acquisition of property, plant and equipment and intangibles (15,500) (12,759)
Change in restricted cash 14,086 334
Capitalized borrowing cost (6,395)
Other 8
Net cash used in investing activities (7,801) (12,188)

 

 

AMG Advanced Metallurgical Group N.V.

   
Condensed Interim Consolidated Statement of Cash Flows    
(continued)    
 

For the quarter ended March 31

   
In thousands of US dollars 2020 2019
  Unaudited Unaudited
Cash from used in financing activities    
Repayment of borrowings (1,257) (875)
Net repurchase of common shares (592) (7,351)
Payment of lease liabilities (1,057) (936)
Net cash used in financing activities (2,906) (9,162)
     
Net decrease in cash and cash equivalents (14,386) (14,415)
     
Cash and cash equivalents at January 1 226,218 381,900
Effect of exchange rate fluctuations on cash held (2,888) (1,189)
Cash and cash equivalents at March 31 208,944 366,296

 

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

This press release contains regulated information as defined in the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).

About AMG

AMG is a global critical materials company at the forefront of CO2 reduction trends. AMG produces highly engineered specialty metals and mineral products and provides related vacuum furnace systems and services to the transportation, infrastructure, energy, and specialty metals & chemicals end markets.

AMG Critical Materials produces aluminum master alloys and powders, ferrovanadium, natural graphite, chromium metal, antimony, lithium, tantalum, niobium and silicon metal.  AMG Technologies produces titanium aluminides and titanium alloys for the aerospace market; designs, engineers, and produces advanced vacuum furnace systems; and operates vacuum heat treatment facilities, primarily for the transportation and energy industries.

With approximately 3,200 employees, AMG operates globally with production facilities in Germany, the United Kingdom, France, the Czech Republic, the United States, China, Mexico, Brazil, India, Sri Lanka and Mozambique, and has sales and customer service offices in Russia and Japan (www.amg-nv.com).

For further information, please contact:
AMG Advanced Metallurgical Group N.V.         +1 610 975 4979
Michele Fischer
mfischer@amg-nv.com

Disclaimer

Certain statements in this press release are not historical facts and are “forward looking.”  Forward looking statements include statements concerning AMG’s plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans and intentions relating to acquisitions, AMG’s competitive strengths and weaknesses, plans or goals relating to forecasted production, reserves, financial position and future operations and development, AMG’s business strategy and the trends AMG anticipates in the industries and the political and legal environment in which it operates and other information that is not historical information.  When used in this press release, the words “expects,” “believes,” “anticipates,” “plans,” “may,” “will,” “should,” and similar expressions, and the negatives thereof, are intended to identify forward looking statements.  By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved.  These forward-looking statements speak only as of the date of this press release.  AMG expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in AMG’s expectations with regard thereto or any change in events, conditions, or circumstances on which any forward-looking statement is based.

 

Attachment

Download PDF