AMG Advanced Metallurgical Group N.V. Reports Third Quarter 2018 Results

Key Highlights

  • Revenue increased by 27% to $328.1 million in the third quarter 2018 from $258.9 million in the third quarter 2017
  • Gross profit was $79.6 million in the third quarter 2018, an increase of $28.3 million, or 55%, over the same period in 2017
  • EBITDA(2) was $59.1 million in the third quarter 2018, a 114% increase over the same period in 2017
  • Net income attributable to shareholders increased by 115% to $29.9 million in the third quarter 2018 from $14.0 million in the third quarter 2017
  • EPS, on a fully diluted basis, increased by 111% to $0.93 in the third quarter 2018 from $0.44 in the third quarter 2017
  • Annualized return on capital employed increased to 32.8% in the third quarter 2018, as compared to 21.5% in the third quarter 2017

Amsterdam, 1 November 2018 (Regulated Information) AMG Advanced Metallurgical Group N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) reported third quarter 2018 revenue of $328.1 million, a 27% increase from $258.9 million in the third quarter of 2017. EBITDA for the third quarter of 2018 was $59.1 million, a 114% increase from $27.6 million in the third quarter of 2017.

Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, “As demonstrated through our third quarter results, our business portfolio continues to perform exceptionally well. Thanks to strong end market fundamentals and our relentless pursuit of improvements in productivity and efficiency, AMG’s EBITDA in the third quarter 2018 is the highest reported quarterly EBITDA in 10 years.

AMG Critical Materials generated EBITDA of $52.1 million during the third quarter of 2018, an increase of 122% from $23.5 million in the third quarter of 2017, thanks to increased vanadium prices and strong financial performance in chrome metal and aluminum products.

AMG Engineering achieved EBITDA of $7.0 million during the third quarter of 2018, an increase of 69% from the third quarter of 2017, driven by higher profitability generated from the delivery of turbine blade coating furnaces and increased after-sales services during the quarter.

On a year to date basis, AMG Engineering signed $248.1 million in new orders in the current year, representing a 1.32x book to bill ratio. Order backlog was $251.2 million as of September 30, 2018, an increase of 21% from December 31, 2017.”

Key Figures

In 000’s US dollar      
  Q3 ’18 Q3 ’17 Change
Revenue $328,071 $258,941 27%
Gross profit 79,555 51,273 55%
Gross margin 24.2% 19.8%  
       
Operating profit 44,202 17,756 149%
Operating margin 13.5% 6.9%  
       
Net income attributable to shareholders 29,938 13,953 115%
       
EPS – Fully diluted 0.93 0.44 111%
       
EBIT (1) 50,765 19,879 155%
EBITDA (2)  59,116 27,638 114%
EBITDA margin 18.0% 10.7%  
       
Cash from operating activities 23,136 16,790 38%

Note: 

  1. EBIT is defined as earnings before interest and income taxes. EBIT excludes restructuring and equity-settled share-based payments and includes foreign currency gains or losses.
  2. EBITDA is defined as EBIT adjusted for depreciation and amortization.

Operational Review

AMG Critical Materials

  Q3 ’18 Q3 ’17 Change
Revenue $261,957 $203,352 29%
Gross profit  61,455  36,695 67%
Operating profit 38,917 15,752 147%
EBITDA 52,139 23,509 122%
       

AMG Critical Materials revenue in the third quarter increased by $58.6 million, or 29%, to $262.0 million, driven mainly by improved vanadium, aluminum, and chrome metal prices, as well as higher sales volumes of tantalum and aluminum products.

Gross profit in the third quarter increased by $24.8 million, or 67%, to $61.5 million. Strong financial performances in vanadium, chrome metal, and aluminum were partially offset by lower gross profit in silicon metal. This strong performance was driven by higher vanadium prices, improved chrome metal product mix effects and strong sales volumes of aluminum products. The reduction in gross profit in silicon metal was primarily driven by an additional accrual for the repayment of a subsidy granted by the German government in 2012 and 2013, following the completion of negotiations. Furthermore, AMG Silicon quarterly gross profit was adversely affected by additional furnace maintenance due to residual production issues associated with low quality graphite electrodes.

SG&A expenses in the third quarter of 2018 increased by $1.6 million, or 8%, compared to the same period in the prior year due to higher personnel costs, an increase in research and development expenses, and foreign exchange effects related to the strengthening of the euro relative to the US dollar.

Third quarter 2018 EBITDA margin increased to 20%, compared to 12% in the third quarter of 2017, due to the substantial improvement in gross profit.

AMG Engineering

  Q3 ’18 Q3 ’17 Change
Revenue $66,114 $55,589 19%
Gross profit 18,100 14,578 24%
Operating profit 5,285 2,004 164%
EBITDA 6,977 4,129 69%
       

AMG Engineering signed $57.1 million in new orders during the third quarter 2018, representing a 0.86x book to bill ratio. Order intake in the quarter was driven by sales of turbine blade coating furnaces, powder metallurgy furnaces and induction furnaces for the aerospace market.

On a year to date basis, AMG Engineering signed $248.1 million in new orders in the current year, representing a 1.32x book to bill ratio. Order backlog was $251.2 million as of September 30, 2018, an increase of 21% from December 31, 2017.

AMG Engineering’s third quarter 2018 revenue increased $10.5 million, or 19%, to $66.1 million, due to higher revenue generated from the delivery of turbine blade coating furnaces and higher after-sales service revenues.

Third quarter 2018 gross profit increased by $3.5 million, or 24%, to $18.1 million and gross margin increased slightly to 27% from 26% in the third quarter of 2017, driven by higher revenues generated during the quarter.

SG&A expenses increased by $0.2 million, from $12.6 million in the third quarter of 2017 to $12.8 million in the third quarter of 2018.

EBITDA increased by $2.8 million to $7.0 million in the third quarter of 2018 due to higher profitability generated from the delivery of vacuum furnaces during the quarter.

Financial Review

Tax

AMG recorded an income tax expense of $10.0 million in the third quarter of 2018 as compared to a tax expense of $1.7 million in the same period in 2017, driven by higher levels of profitability, the full recognition of AMG’s US operating loss carryforwards in 2017, and the revaluation of AMG’s Brazilian tax balances.

AMG continues to benefit from net operating loss carryforward balances, primarily in the United States, to offset taxes payable. As a result, despite high pre-tax profitability, AMG paid taxes of $6.3 million in the third quarter of 2018 as compared to tax payments of $3.2 million in the same period in 2017. For the third quarter of 2018, AMG’s effective cash tax rate dropped to 16% in comparison to 21% for the same period in the prior year.

Due to the volatile nature of the company’s Brazilian deferred tax balances, AMG believes that the cash tax rate is a more meaningful metric.

Non-Recurring Items

AMG’s third quarter 2018 gross profit of $79.6 million includes non-recurring items, which are not included in the calculation of EBITDA.

A summary of non-recurring items included in gross profit in the third quarters of 2018 and 2017 are below:

Non-recurring items included in gross profit

  Q3 ’18 Q3 ’17 Change
Gross profit $79,555 $51,273 55%
Restructuring expense 349 353 (1%)
Asset impairment expense (recovery) 4,232 (101) N/A
Gross profit before non-
  recurring items
84,136 51,525 63%

Gross profit before non-recurring items by reporting segment

  Q3 ’18 Q3 ’17 Change
AMG Critical Materials $66,036 $36,873 79%
AMG Engineering 18,100 14,652 24%
Gross profit before non-
  recurring items
84,136 51,525 63%

AMG Critical Materials incurred a non-recurring non-cash asset impairment expense of $4.1 million in the third quarter due to the early termination of a customer contract. AMG is in negotiations with the customer in question to fully recover the impairment costs incurred and expects these negotiations to be finalized in the fourth quarter of 2018.

Liquidity

  September 30,
2018
December 31,
2017
Change
Total debt $382,148 $189,108 102%
Cash and cash equivalents 349,889 178,800 96%
Net debt 32,259 10,308 213%

AMG had a net debt position of $32.3 million as of September 30, 2018. Net debt increased by $22.0 million and total debt increased by $193.0 million from December 31, 2017.

Cash from operating activities increased by $6.3 million, or 38%, in the third quarter of 2018 compared to the same period in the prior year, primarily due to improved profitability in AMG Critical Materials and AMG Engineering.

Capital expenditures decreased to $14.0 million in the third quarter of 2018 compared to $23.2 million in the same period in 2017. Capital spending in the third quarter of 2018 included $5.6 million of maintenance capital. The largest expansion capital project was AMG’s lithium project in Brazil.

AMG had $519.5 million of total liquidity as of September 30, 2018, following the successful refinancing of AMG’s credit facilities during the first quarter of 2018.

Net Finance Costs

AMG’s third quarter 2018 net finance costs increased to $4.7 million compared to $2.3 million in the third quarter 2017, due to higher levels of gross debt and higher interest rates associated with AMG’s new, long term credit facility.

SG&A

AMG’s third quarter 2018 SG&A expenses increased by 5% to $35.6 million in the third quarter of 2017, primarily due to higher personnel costs, an increase in research and development expenses, and foreign exchange effects related to the strengthening of the euro relative to the US dollar.

Outlook

Based on improving market conditions across AMG’s Critical Materials portfolio, AMG expects full year 2018 EBITDA to exceed $200 million.

In 2019, AMG expects to continue its strong financial performance and improve profitability relative to 2018.

 

AMG Advanced Metallurgical Group N.V.
   
Condensed Interim Consolidated Income Statement    
     
For the quarter ended September 30    
In thousands of US dollars 2018 2017
  Unaudited Unaudited
Continuing operations    
Revenue 328,071 258,941
Cost of sales 248,516 207,668
Gross profit 79,555 51,273
     
Selling, general and administrative expenses 35,645 33,787
     
Net other operating income (292) (270)
     
Operating profit 44,202 17,756
     
Finance income (930) (229)
Finance cost 5,619 2,495
Net finance cost 4,689 2,266
     
Profit before income tax 39,513 15,490
     
Income tax expense  9,961 1,731
     
Profit for the period 29,552 13,759
     
Attributable to:    
Shareholders of the Company 29,938 13,953
Non-controlling interests (386) (194)
Profit for the period 29,552 13,759
     
Earnings per share    
Basic earnings per share 0.98 0.47
Diluted earnings per share 0.93 0.44
     


 

 

 

 

AMG Advanced Metallurgical Group N.V.
   
Condensed Interim Consolidated Income Statement    
     
For the nine months ended September 30    
In thousands of US dollars 2018 2017
  Unaudited Unaudited
Continuing operations    
Revenue 965,840 778,952
Cost of sales 737,006 620,832
Gross profit 228,834 158,120
     
Selling, general and administrative expenses 108,450 97,339
     
Net other operating income (416) (580)
     
Operating profit 120,800 61,361
     
Finance income (2,212) (650)
Finance cost 18,780 6,716
Net finance cost 16,568 6,066
     
Profit before income tax 104,232 55,295
     
Income tax expense  39,122 12,925
     
Profit for the period 65,110 42,370
     
Attributable to:    
Shareholders of the Company 65,636 42,634
Non-controlling interests (526) (264)
Profit for the period 65,110 42,370
     
Earnings per share    
Basic earnings per share 2.17 1.47
Diluted earnings per share 2.05 1.34
     

  

 

AMG Advanced Metallurgical Group N.V.
   
Condensed Interim Consolidated Statement of Financial Position     
     
     
In thousands of US dollars    September 30, 2018
Unaudited
December 31, 2017

 
Assets    
Property, plant and equipment 318,550 298,540
Goodwill and other intangible assets 35,515 38,110
Derivative financial instruments 6,080 636
Other investments 30,463 30,562
Deferred tax assets 34,195 40,108
Restricted cash 804 829
Non-current tax asset 2,488
Other assets 15,942 17,729
Total non-current assets 441,549 429,002
Inventories 271,087 162,505
Derivative financial instruments 1,306 6,372
Trade and other receivables 166,731 137,174
Other assets 44,621 37,547
Current tax assets 7,852 3,147
Cash and cash equivalents 349,889 178,800
Assets held for sale 139 2,056
Total current assets 841,625 527,601
Total assets 1,283,174 956,603


 

AMG Advanced Metallurgical Group N.V.
   
Condensed Interim Consolidated Statement of Financial Position     
(continued)    
     
     
In thousands of US dollars    September 30, 2018
Unaudited
December 31, 2017

 
Equity    
Issued capital 812 796
Share premium 462,891 432,844
Treasury shares (596) (3,461)
Other reserves (93,967) (72,880)
Retained earnings (deficit) (72,061) (99,343)
Equity attributable to shareholders of the Company 297,079 257,956
     
Non-controlling interests 23,781 24,633
Total equity 320,860 282,589
     
Liabilities    
Loans and borrowings 365,519 164,788
Employee benefits 152,878 156,193
Provisions 31,266 35,887
Other liabilities 4,464 4,011
Derivative financial instruments 6,989
Deferred tax liabilities 7,609 7,888
Total non-current liabilities 568,725 368,767
     
Loans and borrowings 896 8,820
Short term bank debt 15,733 15,500
Other liabilities 58,882 61,836
Trade and other payables 192,349 155,115
Derivative financial instruments 12,108 1,415
Advance payments 63,132 33,025
Current taxes payable 21,930 9,155
Provisions 28,559 20,381
Total current liabilities 393,589 305,247
Total liabilities 962,314 674,014
Total equity and liabilities 1,283,174 956,603


 

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

For the nine months ended September 30
   
In thousands of US dollars 2018 2017
  Unaudited Unaudited
Cash from operating activities    
Profit for the year 65,110 42,370
Adjustments to reconcile net profit to net cash flows:    
Non-cash:    
Income tax expense 39,122 12,925
Depreciation and amortization 24,573 22,501
Asset impairment 3,200 811
Net finance costs 16,568 6,066
Gain on sale or disposal of property, plant and equipment (1,065) (43)
Equity-settled share-based payment transactions 4,610 6,624
Movement in provisions, pensions and government grants 7,002 (4,718)
Working capital and deferred revenue adjustments (84,955) (27,318)
Cash generated from operating activities 74,165 59,218
Finance costs paid, net (11,949) (5,813)
Income tax paid, net (15,469) (8,152)
Net cash from operating activities 46,747 45,253
     
Cash used in investing activities    
Proceeds from sale of property, plant and equipment 1,489 183
Insurance proceeds on property, plant and equipment 1,300 1,516
Acquisition of property, plant and equipment and intangibles (55,043) (52,677)
Change in restricted cash 1,883
Other (31) (11)
Net cash used in investing activities (52,285) (49,106)


 

AMG Advanced Metallurgical Group N.V.
   
Condensed Interim Consolidated Statement of Cash Flows    
(continued)    
For the nine months ended September 30    
In thousands of US dollars 2018 2017
  Unaudited Unaudited
Cash from financing activities    
Proceeds from issuance of debt 351,172 19,500
Payment of transaction costs related to the issuance of debt (9,238)
Repayment of borrowings (155,195) (7,909)
Proceeds from issuance of common shares 15,923 14,370
Net repurchase of common shares (9,558) (12,434)
Dividends paid (12,092) (9,310)
Net cash from financing activities 181,012 4,217
     
Net increase in cash and cash equivalents 175,474 364
     
Cash and cash equivalents at January 1 178,800 160,744
Effect of exchange rate fluctuations on cash held (4,385) 10,681
Cash and cash equivalents at September 30 349,889 171,789

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, titanium alloys and coatings, ferrovanadium, natural graphite, chromium metal, antimony, lithium, tantalum, niobium and silicon metal. AMG Engineering designs, engineers, and produces advanced vacuum furnace systems and operates vacuum heat treatment facilities, primarily for the transportation and energy industries.

With approximately 3,300 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.         +1 610 293 5804
Steve Daniels
Senior Vice President
sdaniels@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.

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