AMG reports second quarter 2011 results

Key Highlights

  • Revenue was $368.3 million in the second quarter 2011, a 51% increase over the same period in 2010
  • Operating profit was $22.8 million in the second quarter 2011, a 55% increase over the same period in 2010
  • EBITDA[1] was $31.4 million in the second quarter 2011, a 32% increase over the same period in 2010
  • EPS on a fully diluted basis was $0.12 compared to $0.04 in the second quarter 2010; excluding Timminco and loss on extinguishment of debt, EPS was $0.29 in the second quarter 2011, compared to $0.20 in the second quarter 2010
  • The Advanced Materials Division generated revenue of $235.6 million and EBITDA of $17.5 million in the second quarter 2011
  • The Engineering Systems Division generated revenue of $89.8 million and EBITDA of $7.7 million in the second quarter 2011
  • Graphit Kropfmühl generated revenue of $42.9 million and EBITDA of $6.2 million in the second quarter 2011
  • As of June 30, 2011 cash on hand was $61.1 million; net debt was $217.3 million

Amsterdam, 10 August 2011 (Regulated Information) — AMG Advanced Metallurgical Group N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) reported second quarter 2011 revenue of $368.3 million, a 51% increase from $243.5 million in the second quarter 2010.

EBITDA increased 32% to $31.4 million in the second quarter 2011 from $23.9 million in the second quarter 2010.  Net profit attributable to shareholders for the second quarter 2011 was $3.4 million, or $0.12 per fully diluted share.  This was up from $1.2 million, or $0.04 per fully diluted share, in the second quarter 2010.  Excluding AMG’s share of Timminco’s net loss in the second quarter and loss on extinguishment of debt, AMG’s net profit attributable to shareholders for the second quarter 2011 was $8.0 million, or $0.29 per fully diluted share compared to $0.20 in the second quarter 2010.

Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, “The business performed well in the second quarter 2011.  Demand, particularly in critical materials for the aerospace and energy markets, remained high during the quarter.  Pricing materials remained strong including antimony trioxide, chromium metal and tantalum.  The integration of KB Alloys is proceeding on plan.  The Engineering Systems’ order intake increased 35% from the first quarter 2011, despite the challenging solar capital goods market.  Graphit Kropfmühl’s silicon metal and natural graphite products continued to experience strong demand and pricing.”

[1] EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items

 

Key Figures

In 000’s US Dollar      
  Q2’11 Q2’10 Change
       
Revenue $368,318 $243,544 51%
Gross profit 68,993 44,490 55%
Gross margin 18.7% 18.3%  
       
Operating profit 22,787 14,713 55%
Operating margin 6.2% 6.0%  
       
Net profit attributable to
shareholders

3,351

1,164

188%
       
EPS- Fully diluted 0.12 0.04 200%
Adjusted EPS- Fully diluted (1) 0.29 0.20 45%
       
EBIT (2) 24,592 17,986 37%
EBITDA (3) 31,447 23,902 32%
EBITDA margin 8.5% 9.8%  

Note:

(1) Adjusted to exclude equity losses from Timminco, and the loss on extinguishment of debt of $0.07 and $0.10, respectively, in Q2 2011
(2) EBIT is defined as earnings before interest, tax and excludes nonrecurring items
(3) EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items


Operational Review

Advanced Materials Division

  Q2’11(1) Q2’10 Change
Revenue $235,580 $151,982 55%
Gross profit 37,747 27,350 38%
Operating profit 12,865 10,452 23%
EBITDA 17,534 14,165 24%
Capital expenditures 6,194 4,247 46%

(1) 2011 includes the KB Alloys LLC acquisition

The Advanced Materials Division’s second quarter 2011 financial results were positively impacted by the acquisition of KB Alloys LLC, improvements in aerospace alloys volumes and increases in chromium metal, tantalum and antimony prices.  Revenue increased by $83.6 million or 55% to $235.6 million.  The increase in revenue was specifically the result of $25.0 million of revenue from KB Alloys LLC, which was acquired in February 2011, and 55%, 53%, and 38% increase in aerospace master alloys and chemicals, tantalum and antimony revenue, respectively.

The second quarter 2011 gross margin of 16% of revenue, declined from 18% of revenue from the second quarter of 2010.  Increased economies of scale were more than offset by unfavourable changes in product mix, specifically an 87% increase in lower margin aluminium products revenue and higher raw materials costs, resulting in lower gross margins.

The second quarter 2011 EBITDA increased by $3.4 million to 7% of revenue from 9% of revenue in 2010 due to the increase in gross profit, but this was offset by a 42% increase in SG&A due to the acquisition of KB Alloys and long-term incentive expenses of $1.6 million.

Capital expenditures were $6.2 million for the quarter, 46% more than the second quarter 2010.  Significant growth capital investments made in the second quarter include $1.6 million in the Brazilian tantalum mine and $1.0 million to expand aerospace master alloy production.

Engineering Systems Division

  Q2’11 Q2’10 Change
Revenue $89,812 $59,507 51%
Gross profit 22,661 13,942 63%
Operating profit 5,047 3,578 41%
EBITDA 7,671 8,047 (5%)
Capital expenditures 2,984 1,301 129%

 

The Engineering Systems Division’s second quarter 2011 revenue increased by $30.3 million, or 51%, to $89.8 million.  Sales of solar silicon DSS furnaces increased 43% in the second quarter 2011 compared to the same period in 2010, accounting for 29% of revenue in the second quarter 2011.  Own and Operate revenue increased by 55% to $10.8 million, more than offsetting the 28% decline to $12.4 million in revenue from remelting systems, primarily for the aerospace and specialty steel industries.

The order backlog increased 2% to $200.6 million as of June 30, 2011, from $195.9 million as of March 31, 2011.  The division generated order intake of $88.6 million in the second quarter 2011, a 0.99x book to bill ratio and a 31% increase compared to the second quarter 2010.  Order intake for heat treatment furnaces and nuclear sintering furnaces accounted for 45% and 15% of total order intake, respectively.

The second quarter 2011 gross margin of 25% of revenue increased from 23% of revenue in the second quarter 2010 due to increased economies of scale, lower costs in the MOX nuclear furnace business and increased capacity utilization at the Own and Operate business.

Second quarter 2011 EBITDA decreased by $0.4 million to 9% of revenue from 14% of revenue in the second quarter 2010.  This was caused by a 62% increase in SG&A due to long-term incentive expenses, research and development expenses and costs associated with Mono2(TM) technology at AMG Idealcast Solar.

Capital expenditures were $3.0 million, 129% more than the second quarter of 2010.  This increase in capital investments is primarily related to additional capacity for the U.S. Own and Operate facility.

Graphit Kropfmühl

  Q2’11 Q2’10 Change
Revenue $42,926 $32,055 34%
Gross profit
Operating profit
8,585
4,875
3,198
683
168%
614%
EBITDA 6,242 1,690 269%
Capital expenditures 2,486 1,259 97%

 

Graphit Kropfmühl’s second quarter 2011 revenue increased by $10.9 million, or 34%, to $42.9 million.  Natural graphite revenue increased $3.3 million, or 28%, driven by an increase in prices, despite lower volumes.  Silicon metal revenue increased by $7.6 million or 37%, primarily as a result of higher silicon metal prices and increased volumes of silicon by products.

The second quarter 2011 gross margin increased to 20% of revenue from 10% of revenue in the second quarter of 2010.  Increased economies of scale resulting in lower per unit production costs of natural graphite and higher sales prices for silicon metal resulted in a significant increase in gross margins.

Second quarter 2011 EBITDA was $6.2 million, a 269% increase compared to the second quarter 2010.  The EBITDA margin increased to 15% in the second quarter 2011, up significantly from 5% in the same period 2010.  The EBITDA margin increase was attributable to the increase gross margins for silicon metal and natural graphite, slightly offset by a 51% increase in SG&A due to increases in personnel costs.

Capital expenditures increased to $2.5 million in the second quarter 2011, 97% more than the second quarter 2010.  The increase in capital expenditures was a result of upgrading the electrodes at the silicon metal operation and adding milling capacity in natural graphite.

 

Timminco

AMG’s ownership in Timminco Limited (“Timminco”) was 41.9% as of June 30, 2011. AMG accounts for its investment in Timminco via the equity accounting method.  Timminco’s loss for the second quarter 2011 of $1.9 million is included in share of loss of associates on AMG’s income statement and the carrying value of AMG’s investment in Timminco of $11.4 million is listed as an asset on AMG’s balance sheet. Additional information on Timminco can be found at www.Timminco.com.


Financial Review

Tax

AMG recorded a tax expense of $7.8 million in the second quarter 2011 compared to a tax expense of $7.1 million in the second quarter 2010.  Excluding share of loss of associates, for which AMG cannot recognize a tax benefit since these companies are not consolidated, AMG’s effective tax rate was 57% in the second quarter 2011.  For the first half of 2011, excluding share of loss of associates, AMG’s effective tax rate is 42%.

SG&A

AMG’s SG&A expenses were $44.8 million in the second quarter 2011, compared to $29.9 million in the second quarter 2010.  The $14.9 million change in SG&A expenses was primarily due to a $5.0 million increase in personnel costs, primarily at the operating level, $2.6 increase in long-term incentive expenses, $2.3 million in bad debt expense as well as the additional $1.6 SG&A expenses incurred by AMG Idealcast Solar, and KB Alloys LLC.

Currency Fluctuations

AMG transacts business in many currencies other than the US dollar, our reporting currency.  As our financial statements are prepared in US dollars, fluctuations in the exchange rates between the US dollar and other currencies have an effect both on our results of operations and on the reported value of our assets and liabilities as measured in US dollars.  The decline in the value of the US dollar as of June 30, 2011 compared to March 31, 2011, resulted in an increase in the assets and liabilities on the balance sheet of $13.5 million and $9.9 million, respectively.  The net result of the depreciation in the value of the US dollar quarter over quarter resulted in an increase in revenue and EBITDA of $23.6 million and $3.3 million, respectively in the second quarter 2011.

Liquidity

  June 30, 2011 December 31, 2010 Change
Total debt $278,473 $237,089 17%
Cash & short-term investments 61,136 89,311 (32%)
Net debt 217,337 147,778 47%

 

AMG had a net debt position of $217.3 million as of June 30, 2011.  AMG’s net debt position increased $69.6 million since December 31, 2010 primarily due to $21.6 million of cash tax payments, $19.9 million in capital investments, the $24.3 million acquisition of KB Alloys LLC, and a $46.7 million increase in working capital due to increasing material costs, reduced by EBITDA of $57.6 million.

During the second quarter, AMG refinanced its primary credit facility and secured a $300 million credit facility composed of a Euro denominated, U.S. dollar equivalent, $100 million term loan and a $200 million revolving credit facility.  This facility has a five-year term and matures in April 2016.

Cash Flow

  H1’11 H1’10
     
Net cash flows used in operations $(12,080) $(20,295)
Capital expenditures (19,913) (11,953)
Acquisitions, net of cash (26,816)
Investment in associates (10,322)
Cash flows used in other investing 2,844 246
Net cash flows used in investing activities (43,885) (22,029)
Cash flows generated from financing activities 23,899 21,207

 

Cash flows used in operations were $12.1 million in the first half of 2011 as compared to $20.3 million in the first half of 2010.  The cash flows used in operations in the first half of 2011 are a result of $21.6 million in cash tax payments as well as a $46.7 million increase in working capital and provisions, offset by $57.6 million in EBITDA.  The substantial cash tax payments are partially due to the difference between IFRS percentage of completion accounting as compared to completed contract methodology for tax payments in the Engineering Systems division. 

Cash used in investing activities was $43.9 million in the first half of 2011.  This increase of $21.9 million from the first half of 2010 is composed of a $26.8 million increase in acquisitions, primarily for KB Alloys LLC, and an $8.0 million increase in capital investments, slightly offset by a $10.3 million decrease in cash flows for investment in associates.  In Q2 2010, AMG made an investment in Timminco as part of an equity offering.

Cash generated from financing activities was $23.9 million in the first half of 2011, a $2.7 million increase from the first half of 2010.  This increase was primarily attributable to $34.4 million in net draws on new and existing revolving lines of credit, offset by $10.5 million in transaction costs related to debt issuance.  The draws on the revolving lines of credit were used to fund the acquisition of KB Alloys LLC and the related transaction costs.


Outlook

The Advanced Materials Division should continue to generate strong revenues, albeit at levels slightly below the second quarter 2011, for many of its products including antimony trioxide, tantalum, titanium aerospace alloys and chromium metal.  In the second half of 2011, Advanced Materials’ conversion businesses will be impacted by higher raw material prices as lower cost inventory stocks are depleted.  As AMG enters the seasonally slow period in its business, due to planned summer plant shutdowns of customers’ and certain AMG operations, AMG’s is continuing to ramp up the tantalum and antimony mining operations.  Order Intake in Engineering Systems is stable but continues to be adversely impacted by the current economic environment, with solar particularly affected.  Demand and pricing for Graphit Kropfmühl’s natural graphite and silicon metal products should remain strong for the balance of 2011.  Management will focus on reducing working capital and lowering net debt through cash from operations in the second half of 2011.  Provided the current macroeconomic environment remains stable, AMG expects to generate in excess of 25% EBITDA growth in 2011.

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated income statement

For the three months ended June 30
In thousands of US Dollars 2011 2010
Unaudited Unaudited
Continuing operations
Revenue 368,318 243,544
Cost of sales 299,325 199,054
Gross profit 68,993 44,490
Selling, general and administrative expenses 44,765 29,874
Restructuring expense 2,174
Environmental expense 141 249
Other income, net (874) (346)
Operating profit 22,787 14,713
Loss on early extinguishment of debt 3,902
Finance expense 5,013 4,600
Finance income (1,158) (1,082)
Foreign exchange loss (gain) 1,302 (1,592)
Net finance costs 9,059 1,926
Share of loss of associates 1,694 5,024
Profit before income tax 12,034 7,763
Income tax expense 7,828 7,126
Profit for the period 4,206 637
Attributable to:
Shareholders of the Company 3,351 1,164
Non-controlling interests 855 (527)
4,206 637
Earnings per share
Basic earnings per share 0.12 0.04
Diluted earnings per share 0.12 0.04

 

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated income statement

For the six months ended June 30
In thousands of US Dollars 2011 2010
Unaudited Unaudited
Continuing operations
Revenue 686,317 479,338
Cost of sales 557,544 392,264
Gross profit 128,773 87,074
Selling, general and administrative expenses 87,702 60,487
Restructuring expense 2,459 7
Environmental expense 246 506
Other income, net (1,827) (427)
Operating profit 40,193 26,501
Loss on early extinguishment of debt 3,902
Finance expense 7,018 10,921
Finance income (2,658) (1,629)
Foreign exchange loss (gain) 1,285 (3,756)
Net finance costs 9,547 5,536
Share of loss of associates 6,071 9,420
Profit before income tax 24,575 11,545
Income tax expense 12,792 10,993
Profit for the period 11,783 552
Attributable to:
Shareholders of the Company 10,323 1,099
Non-controlling interests 1,460 (547)
11,783 552
Earnings  per share
Basic earnings per share 0.37 0.04
Diluted earnings per share 0.37 0.04

 


AMG Advanced Metallurgical Group N.V.
   
Condensed interim consolidated statement of financial position
In thousands of US Dollars
     
  June 30, 2011 December 31,
2010
    Unaudited Audited
Assets      
  Property, plant and equipment   262,033 228,612
  Intangible assets   33,556 27,002
  Investments in associates and joint ventures   20,799 25,186
  Derivative financial instruments   5,139 5,199
  Deferred tax assets   26,552 22,107
  Restricted cash   11,261 12,528
  Notes receivable   1,144 322
  Other assets   15,827 15,372
Total non-current assets   376,311 336,328
         
  Inventories   258,198 207,204
  Trade and other receivables   216,929 175,421
  Derivative financial instruments   6,148 5,731
  Other assets   46,998 41,080
  Cash and cash equivalents   61,136 89,311
Total current assets   589,409 518,747
Total assets   965,720 855,075
         
       

 


AMG Advanced Metallurgical Group N.V.
   
Condensed interim consolidated statement of financial position (continued)
In thousands of US Dollars
     

 

  June 30, 2011 December 31,
2010
    Unaudited Audited
Equity      
  Issued capital   741 741
  Share premium   381,636 381,636
  Other reserves   44,291 36,158
  Retained earnings (deficit)   (186,205) (196,481)
Equity attributable to shareholders of the Company 240,463 222,054
Non-controlling interests 13,888 11,911
Total equity   254,351 233,965
         
Liabilities      
  Loans and borrowings   219,761 187,813
  Employee benefits   98,238 88,372
  Provisions   21,021 20,607
  Government grants   602 642
  Other liabilities   9,733 5,517
  Derivative financial instruments   548 698
  Deferred tax liabilities   33,630 25,436
Total non-current liabilities   383,533 329,085
         
  Loans and borrowings   4,981 4,254
  Short term bank debt   53,731 45,022
  Government grants   190 175
  Other liabilities   56,996 43,287
  Trade and other payables   117,472 102,253
  Derivative financial instruments   5,189 1,754
  Advance payments   45,715 49,597
  Current taxes payable   19,649 24,979
  Provisions   23,913 20,704
Total current liabilities   327,836 292,025
Total liabilities   711,369 621,110
Total equity and liabilities   965,720 855,075

 

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of cash flows

For the six months ended June 30      
In thousands of US Dollars   2011 2010
    Unaudited Unaudited
Cash flows used in operating activities      
Profit for the period   11,783 552
Adjustments to reconcile profit to net cash flows:      
Non-cash:      
   Depreciation and amortization   14,169 12,096
   Restructuring expense   2,459 7
   Environmental expense   246 506
   Net finance costs   9,547 5,536
   Share of loss of associates   6,071 9,420
   Equity-settled share-based payment transactions   1,833 3,081
   Income tax expense   12,791 10,993
Change in working capital and provisions   (46,736) (35,719)
Other   2,529 2,119
Finance costs paid, net   (5,136) (7,449)
Income tax paid, net   (21,636) (21,437)
Net cash flows used in operating activities   (12,080) (20,295)
       
Cash flows used in investing activities      
Proceeds from sale of property, plant and equipment   49 439
Acquisition of property, plant and equipment and intangibles   (19,913) (11,953)
Acquisition of associates and joint ventures   (10,322)
Acquisition of subsidiaries (net of cash acquired of $692)   (26,816)
Change in restricted cash   1,839 (181)
Other   956 (12)
Net cash flows used in investing activities   (43,885) (22,029)
       
Cash flows from financing activities      
Proceeds from the issuance of debt   221,626 22,512
Payment of transaction costs related to debt issuance   (10,457)
Repayment of long term borrowings   (187,276) (1,420)
Other   6 115
Net cash flows from financing activities   23,899 21,207
       
Net decrease in cash and cash equivalents   (32,066) (21,117)
Cash and cash equivalents at January 1   89,311 117,016
Effect of exchange rate fluctuations and consolidation changes on cash   3,891 (11,325)
Cash and cash equivalents at June 30   61,136 84,574

 

About AMG

AMG creates and applies innovative metallurgical solutions to the global trend of sustainable development of natural resources and CO2 reduction.  AMG produces highly engineered specialty metal products and advanced vacuum furnace systems for the Energy, Aerospace, Infrastructure and Specialty Metals and Chemicals end markets.  AMG consists of two operating divisions, Advanced Materials and Engineering Systems, and owns interests in publicly-listed companies Graphit Kropfmühl AG (Deutsche Börse: GKR.DE) and Timminco Limited (TSX: “TIM”).

The Advanced Materials Division develops and produces specialty metals, alloys and high performance materials. AMG is a significant producer of specialty metals, such as ferrovanadium, ferronickel-molybdenum, aluminum master alloys and additives, chromium metal and ferrotitanium, for Energy, Aerospace, Infrastructure and Specialty Metal and Chemicals applications.  Other key products include specialty alloys for titanium and superalloys, coating materials, tantalum and niobium oxides, vanadium chemicals and antimony trioxide.

The Engineering Systems Division designs, engineers and produces advanced vacuum furnace systems and operates vacuum heat treatment facilities, primarily for the Aerospace and Energy (including solar and nuclear) industries.  Furnace systems produced by AMG include vacuum remelting, solar silicon melting and crystallization, vacuum induction melting, vacuum heat treatment and high pressure gas quenching, turbine blade coating and sintering.  AMG also provides vacuum case-hardening heat treatment services on a tolling basis.

Graphit Kropfmühl AG is a majority controlled, publicly listed subsidiary of AMG.  Based on its secure raw material sources in Africa, Asia and Europe, Graphit Kropfmühl is a specialist in the production of silicon metal and the extraction, processing and refining of natural crystalline graphite for a wide range of energy saving industrial applications. 

Timminco Limited is a publicly listed affiliate of AMG. Timminco produces silicon metal for the chemical, aluminum, electronic and solar industries.  Timminco also produces solar grade silicon, using its proprietary technology for purifying silicon metal, for the solar energy industry.

With over 3,000 employees, AMG operates globally with production facilities in Germany, the United Kingdom, France, Czech Republic, United States, China, Canada, Mexico, Brazil, Turkey, Poland, India and Sri Lanka and also has sales and customer service offices in Belgium, Russia and Japan (www.amg-nv.com).

For further information please contact:
AMG Advanced Metallurgical Group N.V.   +1 610 975 4901
Jonathan Costello
Vice President of Corporate Communications
jcostello@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.

The full press release including tables can be downloaded from the following link:

AMG reports second quarter 2011 results