AMG reports second quarter results

Key Highlights

  • Revenue decreased 43% from $413.0 million in Q2 2008 to $233.4 million in Q2 2009; H1 2009 revenue was $479.5 million
  • EBITDA[1] decreased 79% from $63.4 million in Q2 2008 to $13.0 million in Q2 2009; excluding Timminco, EBITDA was $22.2 million in Q2 2009; H1 2009 EBITDA excluding Timminco was $38.0 million
  • EPS on a fully diluted basis decreased to ($0.36) compared to Q2 2008 of $0.92 EPS.  EPS, adjusted for non-recurring items was ($0.35) in Q2 2009
  • Advanced Materials Division was particularly impacted by the global economic slowdown, generating revenue of $96.5 million and EBITDA of ($2.0) million, in Q2 2009
  • Engineering Systems Division’s produced solid results, generating revenue of $91.2 million and EBITDA of $22.5 million, in Q2 2009
  • Timminco generated $18.4 million in revenue and EBITDA of ($9.2) million as prices and volumes declined for most products during Q2 2009
  • Graphit Kropfmühl contributed revenue and EBITDA of $27.3 million and $1.7 million, respectively in Q2 2009
  • As of June 30, 2009 cash on hand was $110.1 million, net debt was $139.2 million, of which $54.1 million related to Timminco; Q2 2009 free cash flow[2] was ($12.9) million, of which Timminco comprised ($4.3) million

[1] EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items
[2] Free cash flow is defined as EBITDA less change in working capital and maintenance capital expenditures
 
 
Amsterdam, 12 August 2009 (Regulated Information) AMG Advanced Metallurgical Group N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) reported second quarter 2009 revenue decreased 43% to $233.4 million from $413.0 million in the second quarter 2008.
 
Net loss attributable to shareholders for the second quarter 2009 was ($9.7) million, or ($0.36) per fully diluted share, compared to net income of $25.3 million or $0.92 per fully diluted share for the second quarter 2008.  EBITDA declined 79% to $13.0 million in the second quarter 2009 from $63.4 million in the second quarter 2008.  Excluding Timminco, AMG’s EBITDA was $22.2 million for the second quarter 2009. 
 
In commenting on results, Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, “The difficult operating environment experienced during late 2008 and early 2009 continued during the second quarter of 2009.  During the second quarter 2009, Advanced Materials, volumes increased slightly over the first quarter 2009, but both volumes and prices remain significantly affected by the unprecedented slowdown in global industrial activity.  Engineering Systems backlog enabled it to deliver solid results during the quarter despite low levels of order intake.  Despite some signs of a bottoming of economic activity, it is still early to declare that the markets are turning around, and AMG continues to limit capital investment and is reducing costs to preserve free cash flow.” 
 
He added, “AMG’s majority owned subsidiary, Timminco Limited, continued to face multiple market and operating challenges during the quarter.  Timminco is addressing those issues.  Despite the ongoing decline in the transportation market, Graphit Kropfmühl delivered marginally profitable operations through its silicon metal division.”  
 
 
Key Figures
 
Notes:
[1] Adjusted for non-recurring, restructuring charges at Timminco
[2] EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items
 
 
Operational Review
 
Advanced Materials Division
 
 
 
The Advanced Materials division’s second quarter 2009 financial results were impacted by continued weak demand for the majority of its products, most notably in the steel, superalloy and titanium markets.  Revenue decreased by $130.0 million or 57% to $96.5 million. 
 
Gross margin percentage decreased from 21% of revenue in the second quarter of 2008 to 9% in second quarter of 2009.  This was caused by a sharp decline in end product prices and lower volumes, particularly in ferrovanadium from the second quarter of 2008.  The decrease in revenue and margins was primarily caused by ferrovanadium, with reference prices decreasing by 74% and volumes declining by 5% over the second quarter 2008.  Titanium master alloys, vanadium chemicals, ferronickel-molybdenum, ferrotitanium and antimony products were also impacted by falling end market prices.  Even more significant were the decreased volumes as the result of inventory destocking and decreased global demand.  Aluminium master alloys volumes decreased 57% and titanium master alloys volumes declined by 68% during the second quarter 2009 compared to the second quarter 2008.  The global recession continued to impact industrial production across all markets.
 
The Advanced Materials division incurred $0.5 million in inventory write-downs related to ferrovanadium.  The Division’s working capital remained relatively constant during the second quarter 2009, after decreasing by over $23 million since December 31, 2008.  Advanced Materials also reduced full time equivalent (FTEs) headcount by approximately 20% since September 30, 2008.  These and other cost saving measures reduced SG&A expenses by approximately 19% from the second quarter 2008.
 
The second quarter 2009 EBITDA decreased by $32.5 million to negative $2.0 million, compared to the same period in 2008.  This was the result of the decrease in revenue and gross margin, which were slightly offset by a decline in SG&A and conversion expenses.  Sequentially, second quarter 2009 EBITDA improved by $6.4 million over the first quarter 2009 driven by cost saving measures and lower inventory write-downs. 
 
Capital expenditures were $2.1 million for the second quarter 2009, 65% less than the comparable period in 2008.  The Division was only performing maintenance capital investment during the quarter because of the cost containment measures.
 
 
Engineering Systems Division
 
 
The Engineering Systems division continued to deliver good results in the second quarter 2009.  Order-backlog was at $223 million on June 30, 2009, down 10% from $247 million on March 31, 2009.  The decrease was primarily due to a significant reduction in orders for solar furnace systems to $4.5 million.  Overall, order intake was $53.5 million during the second quarter 2009, up from $29.4 in the first quarter 2009.  The backlog consists primarily of melting and remelting systems for the titanium and specialty steel industries and solar silicon DSS furnaces.
 
Second quarter 2009 revenue decreased by $8.0 million or 8%.  Sales of solar silicon DSS melting furnaces for the photovoltaic industry increased 64% in the second quarter 2009 compared to the same period a year ago.  During the second quarter 2009, 61% of revenue was generated by sales of solar silicon and melting furnaces, up from 34% in the same period 2008.  Revenue from remelting systems, primarily for the aerospace and specialty steel industries, decreased by 50% during the second quarter 2009.
 
Gross margin increased 6% to 37% of revenue in the second quarter 2009 from 31% of revenue in the same period in 2008.  The increase was due to changes in product mix, elimination of reserves related furnace warranties, raw material price decreases and cost reduction measures in the vacuum furnace production process.   
 
Second quarter 2009 EBITDA was $22.5 million, a 4% decrease over the same period in 2008.  The EBITDA margin increased to 25% during the second quarter 2009 compared to 24% for the same period in 2008.  The EBITDA margin increase was attributable to the improvement in gross margin and the 11% reduction in FTEs since September 30, 2008, slightly offset by an increase in R&D expense.
 
Capital expenditures decreased to $1.7 million for the second quarter 2009, 75% less than the comparable period in 2008.  This decrease was a result of the completion of the expansion of the Berlin facility during 2008 and the focus on minimizing capital investment during the second quarter 2009.
 
 
Timminco
 
 
Timminco continued to be significnatly impacted by the global slowdown in the solar and industrial silicon markets.  Second quarter 2009 revenue decreased by $44.3 million or 71% to $18.4 million over the same period in 2008.  The decrease is primarily attributable to the sharp decline in sales volumes and prices of UMG Si and silicon metal products.  Timminco sold 34 metric tons of UMG Si during the second quarter 2009 at an average price of C$39/kg.    
 
Gross profit decreased to negative $11.9 million in the second quarter 2009 due to the increased costs related to solar grade silicon production and decreased volumes of other silicon metal products.  The solar grade silicon production costs were relatively high due to low volumes and operating inefficiencies.  All three silicon metal production furnaces were temporarily shut down during the quarter, with one furnace coming back on line in June resulting in lower absorption of fixed costs and lower gross margins.
 
Timminco incurred negative EBITDA of $9.2 million during the second quarter 2009 compared to EBITDA of $6.5 million in the second quarter 2008, due to lower gross profit and higher selling, general and administrative expenses.  The increase in SG&A is primarily a result of the increase in the non-cash stock option expense.
 
During the quarter ended June 30, 2009, capital investment declined 47% to $6.7 million from $12.7 million in the comparable period 2008.  Timminco deferred further capital expenditures other than those that were committed prior to the beginning of the quarter.
 
Many of Timminco’s customers are experiencing low revenues, are demanding a higher quality of Timminco’s UMG Si due to the availability and favourable pricing of polysilicon on the spot market, and have reduced or deferred their purchases of silicon metal and solar grade silicon.  Timminco has reached agreements with two of its solar grade silicon customers, to terminate or materially reduce contracted volumes under supply contracts and to repay customer advances, and is in negotiations with other customers to materially amend or terminate supply agreements which would also involve repayment of advances and reducing or eliminating contracted future volumes.  These repayments, and the slowdown in the economic environment combined with substantially reduced UMG Si shipments, could continue to have a material adverse effect on Timminco’s liquidity and ongoing compliance with its debt covenants.   These and the other risks identified above create uncertainty about Timminco’s ability to realize its assets and discharge its liabilities in the normal course of business.  The consolidated financial statements for the second quarter, when filed, will not give effect to any adjustments to recorded amounts and their classification, which could be necessary should Timminco be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different than those reflected in the consolidated financial statements.
 
 
Graphit Kropfmühl
 
Notes:
[1]Includes results from the acquisition of Graphit Kropfmühl on April 22, 2008
 
 
Graphit Kropfmühl (“GK”) was significantly impacted by the decline in global economic activity during the second quarter 2009.  Second quarter 2009 revenue increased by $2.7 million or 11% primarily due to the timing of the GK acquisition in 2008.  The second quarter of 2009 represents three months of revenue while the second quarter of 2008 only included two months of revenue.  This timing difference is offset by a decline in both silicon metal and graphite revenue.    
 
Gross margin decreased to 11% of revenue in the second quarter 2009 from 16% of revenue in the period April 22 through June 30 2008.  The decrease was due to a decline in the average selling price for silicon metal as well as significantly reduced volumes for graphite, which is substantially impacted by the transportation industry.   
 
Second quarter 2009 EBITDA was $1.7 million, a 43% decrease compared to the period of April 22 through June 30 2008.  The EBITDA margin decreased to 6% during the second quarter 2009 compared to 12% in the period of April 22 through June 30 2008.  The EBITDA margin decrease was attributable to lower selling prices and volumes in both silicon and graphite.
 
Capital expenditures decreased to $1.4 million for the second quarter 2009, 30% less than the period of April 22 through June 30 2008.    
 
 
Financial Review
 
Tax
 
AMG recorded a tax expense of $9.4 million in the quarter ended June 30, 2009 as compared to a tax expense of $14.1 million in the quarter ended June 30, 2008.  A tax benefit for the pre-tax losses was not booked in the second quarter 2009 due to the losses being generated in jurisdictions where AMG already has significant net operating losses.
 
 
Liquidity
 
 
AMG had a net debt position of $139.2 million as of June 30, 2009, of which $54.1 million was attributable to Timminco.  The Company’s liquidity position decreased due to $33.3 million in capital investments, partially offset by Timminco’s equity offering which netted $7.9 million of external proceeds.  Timminco made $15.4 million in capital investments for the build out of the solar silicon production line during the first half of 2009. 
 
 
Cash Flow
 
 
 
The significant decline in net income was largely offset by lower investments in working capital and lower tax payments made during the six months ended June 30, 2009 resulting in negative cash flows from operations totaling $1.1 million, down from positive operating cash flows of $8.3 million in the first six months 2008.  The lower level of cash flows from operations is primarily due to the net losses from the Advanced Materials Division and Timminco, and a decrease in advanced payments of $47.1 million at the Engineering Systems Division offset by improvements in inventory and accounts receivable balances of approximately $69.8 million.
 
Cash flows used in investing activities of $42.5 million for the six months ended June 30, 2009 decreased from $116.3 million in the first six months of 2008.  This is due to the $23.2 million decrease in capital investments, primarily in Advanced Materials and Engineering Systems, and the $62.9 million cost for the purchase of approximately 79.5% of Graphit Kropfmühl in April 2008. 
 
Cash flows from financing activities were $8.2 million, a decrease of $35.3 million in the same period of 2008.  This decrease was primarily the result of two factors, $20.0 million borrowed on the credit facility for the acquisition of approximately 79.5% of Graphit Kropfmühl in April 2008 and borrowings to fund the working capital increases in Advanced Materials and Timminco during 2008, offset in the first six months 2009 by $7.9 million of proceeds from the Timminco equity offering and a net draw down from various credit facilities.
 
 
Outlook
 
Demand continues to be low across most of AMG’s end markets.  Despite an increase in Engineering Systems’ second quarter 2009 order intake over the first quarter 2009, the second half of 2009 will be challenging for that division.  In Advanced Materials, the first signs of stabilization have appeared in recent weeks in a number of specialty metals, including ferrovanadium.  As declines in demand and pricing have been significant during the first half of 2009, it will take some time until markets return to pre-financial crisis levels.  AMG will continue to proactively address this reality and focus on cash preservation, and maintaining a conservative balance sheet through reductions in capital investment and cost containment programs.

 
About AMG
AMG, incorporated in the Netherlands, is a global leader in the production of highly engineered specialty metal products and advanced vacuum furnace systems.  AMG serves growing industries worldwide with its unique combination of metallurgical engineering expertise and production know-how.  AMG is a market leader in many of its products and systems, which are critical to the production of key components for the aerospace, energy (including solar and nuclear), electronics, optics, chemicals, construction and transportation industries.  AMG has two operating divisions of businesses, Advanced Materials and Engineering Systems, and owns majority interests in publicly-listed companies Timminco Limited (TSX: “TIM”) and Graphit Kropfmühl AG (Deutsche Börse: GKR.DE).
 
The Advanced Materials Division develops and produces niche specialty metals and complex metals products, many of which are used in demanding, safety-critical, high-stress environments.  AMG is one of a limited number of significant producers globally of niche specialty metals, such as ferrovanadium, ferronickel-molybdenum, aluminum master alloys and additives, chromium metal and ferrotitanium, used by steel, aluminum, chemical and superalloy producers for aerospace, automotive, energy, electronics, optics, chemicals, construction and other applications.  Other key products produced by AMG 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.  AMG is a global leader in supplying technologically-advanced vacuum furnace systems to customers in the aerospace, energy (including solar and nuclear), transportation, electronics, superalloys and specialty steel industries.  Examples of furnace systems produced by AMG include vacuum remelting, solar silicon melting and crystallization, vacuum induction melting, vacuum heat treatment and high pressure gas quenching, vacuum precision casting, turbine blade coating and sintering.  AMG also provides vacuum case-hardening heat treatment services on a tolling basis to customers through facilities equipped with vacuum heat treatment furnaces.
 
Timminco Limited is a majority controlled, publicly listed subsidiary of AMG. Timminco is a leader in the production of upgraded metallurgical silicon for the rapidly growing solar photovoltaic energy industry.  Timminco also produces silicon metal for use in a broad range of industrial applications.
 
Graphit Kropfmühl AG is a majority controlled, publicly listed subsidiary of AMG.  Based on its secure raw material sources in Africa, China 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. 
 
AMG operates globally with production facilities in Germany, the United Kingdom, France, Czech Republic, the United States, Canada, Mexico, Brazil, Sri Lanka and Australia and also has sales and customer service offices in Belgium, Russia, China and Japan (website: 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
 
 
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.  Finally, statements of fact contained herein reflect the facts as of the date of this press release.

 

                                                                            

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of income
 
 
 
AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of cash flows 
                                                                                      
The full press release including tables can be downloaded from the following link:
Download PDF