AMG reports second quarter results

Key Highlights

  • Revenue increased 13% to $243.5 million in Q2 2010 from $214.9 million in Q2 2009; H1 2010 revenue was $479.3 million
  • EBITDA[1] increased 8% to $23.9 million in Q2 2010 from $22.2 million in Q2 2009; H1 2010 EBITDA was $45.9 million
  • EPS on a fully diluted basis increased to $0.04 compared to Q2 2009 EPS of ($0.36)
  • The Advanced Materials Division generated revenue of $152.0 million and EBITDA of $14.2 million in Q2 2010
  • The Engineering Systems Division generated revenue of $59.5 million and EBITDA of $8.0 million in Q2 2010
  • Graphit Kropfmühl generated revenue of $32.1 million and EBITDA of $1.7 million in Q2 2010
  • As of June 30, 2010 cash on hand was $84.6 million, net debt was $119.7 million; Q2 2010 free cash flow[2] was $23.8 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, 11 August 2010 (Regulated Information) AMG Advanced Metallurgical Group N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) reported second quarter 2010 revenue increased 13% to $243.5 million from $214.9 million in the second quarter 2009.

 

Net income attributable to shareholders for the second quarter 2010 was $1.2 million, or $0.04 per fully diluted share, compared to net loss of ($9.7) million or ($0.36) per fully diluted share for the second quarter 2009.  EBITDA increased 8% to $23.9 million in the second quarter 2010 from $22.2 million in the second quarter 2009.

 

In commenting on results, Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, “The stabilization that began in late 2009 has continued through the first half of 2010.  This has resulted in mixed results between our Advanced Materials division and our Engineering Systems division.  During the second quarter 2010, most Advanced Materials’ end market prices increased over the first quarter 2010.  Engineering Systems order intake did improve during the quarter; however, the lower order backlog in the beginning of the quarter negatively affected the operational performance.  Graphit Kropfmühl has seen an increase in demand and pricing in natural graphite, however production costs for silicon metal also increased mitigating the overall improvement in the business.” 

 

 

Key Figures

 

In 000’s US Dollar      
  Q2’10 Q2’09 [3] Change
       
Revenue $243,545 $214,933 13%
Gross profit 44,490 45,424 (2%)
Gross margin 18.3% 21.1%  
       
Operating income 14,713 12,522 17%
Operating margin 6.0% 5.8%  
       
Net income (loss) attributable to shareholders  

1,164
 

(9,718)
 

N/A
       
EPS- Fully diluted 0.04 (0.36) N/A
Adjusted EPS-Fully diluted [1] 0.20 0.07 186%
       
EBITDA [2]         23,902 22,202 8%
EBITDA margin 9.8% 10.3%  

Notes:

[1] Adjusted to exclude all Timminco results including equity losses
[2] EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items
[3] 2009 figures are restated for discontinued operations treatment of Timminco investment

 

 

 

Operational Review

 

 

Advanced Materials Division

 

  Q2’10 Q2’09 Change
Revenue $151,983 $96,473 58%
Gross profit
Operating income (loss)
27,350
10,452
8,412
(8,014)
225%
N/A
EBITDA 14,165 (2,008) N/A
Capital expenditures 4,247 2,170 96%

 

 

The Advanced Materials division’s second quarter 2010 financial results were driven by a rebound in alloys and coatings for the aerospace and energy industries.  Revenue increased by $55.5 million or 58% to $152.0 million. 

 

Gross margin percentage increased from 9% of revenue in the second quarter of 2009 to 18% in the second quarter of 2010.  AMG benefitted from the continued rebound in end market product prices, particularly in ferrovanadium, from the second quarter of 2009.  The increase in revenue and margins was driven by ferrovanadium and ferronickel-molybdenum, with reference prices increasing by 83% and over 70%, respectively.  In addition, titanium master alloys, vanadium chemicals, and coatings for aerospace and energy, and antimony products were also positively impacted by increasing end market prices.  While prices improved across most products, volume growth was uneven, with master alloys and antimony volumes increasing by 63% and 17%, respectively, while volumes for ferrovanadium and ferronickel-molybdenum decreased by 28% and 44%, respectively during the second quarter 2010 compared to the second quarter 2009. 

 

The second quarter 2010 EBITDA increased by $16.2 million, due to the increase in revenue and gross margin, which was slightly offset by a 4% increase in SG&A. 

 

Capital expenditures were $4.2 million for the quarter, 96% more than the comparable period in 2009.  The primary growth capital investment made in the second quarter was for the expansion of the ferrovanadium logistics facility and the MIBRA mine expansion in Brazil.

 

 

Engineering Systems Division

 

  Q2’10 Q2’09 Change
Revenue $59,507 $91,179 (35%)
Gross profit
Operating income             
13,942
3,578
34,129
19,929
(59%)
(82%)
EBITDA
Capital expenditures
8,047
1,301
22,511
1,731
(64%)
(25%)

 

 

The Engineering Systems division continues to be impacted by the global economic slowdown.  Order-backlog was $121 million on June 30, 2010, down 5% from $127 million on March 31, 2010.  Despite these challenges, the division generated order intake of $65 million in the second quarter 2010, a 16% increase compared to the same period in 2009.   Order intake for the solar industry continues to be challenging, while encouraging signs were seen in the titanium – aerospace markets.  The backlog consists primarily of melting and remelting systems for the titanium and specialty steel industries.

 

Second quarter 2010 revenue decreased by $31.7 million or 35% primarily because of a $120 million decrease in the opening backlog level from the same quarter in 2009.  Sales of solar silicon DSS melting furnaces for the photovoltaic industry decreased 67% in the second quarter 2010 compared to the same period in 2009.  During the second quarter 2010, 31% of revenue was generated from sales of solar silicon and melting furnaces, down from 61% in the same period 2009.  Revenue from remelting systems, primarily for the aerospace and specialty steel industries, increased by 54% in the second quarter 2010.

 

Gross margin decreased 14% to 23% of revenue in the second quarter 2010 from the second quarter 2009.  The decrease was due to changes in product mix and substantially lower capacity utilization. The decrease is also due to a 2009 release of a warranty provision for $4.5 million.

 

Second quarter 2010 EBITDA was $8.0 million, a 64% decrease over the same period in 2009.  The EBITDA margin decreased to 14% in the second quarter 2010 compared to 25% for the same period in 2009.  The EBITDA margin decrease was primarily attributable to the lower revenue, slightly offset by a 32% decrease in SG&A.

 

In the quarter ended June 30, 2010, capital expenditures were $1.3 million, 25% less than the second quarter of 2009.  The division continued to focus on minimizing capital investment during the quarter.

 

 

Graphit Kropfmühl

  Q2’10 Q2’09 Change
Revenue $32,055 $27,281 17%
Gross profit
Operating income
3,198
683
2,883
607
11%
13%
EBITDA 1,690 1,699 (1%)
Capital expenditures 1,259 1,376 (9%)

 

 

Graphit Kropfmühl’s (“GK”) second quarter 2010 revenue increased by 17% primarily due to a 56% increase in natural graphite revenue as both prices and volumes improved over the second quarter 2009.

 

Gross margin decreased slightly to 10% of revenue in the second quarter 2010 from 11% of revenue in the second quarter 2009.  The second quarter 2010 gross margin was impacted by higher silicon metal production costs and lower silicon metal contract prices.

 

Second quarter 2010 EBITDA was $1.7 million, essentially flat compared to the second quarter 2009.  The EBITDA margin decreased to 5% during the second quarter 2010 compared to 6% in the same period 2009.  The EBITDA margin decrease was largely attributable to the decrease in silicon metal gross margin and a 5% increase in SG&A. 

 

Capital expenditures decreased to $1.3 million for the second quarter 2010, 9% less than the same period in 2009.  The decrease in capital expenditures was a result of the completion of the expansion of the silicon metal facilities in 2009.

 

 

Timminco

 

AMG owned 42.5% of Timminco’s common equity as of June 30, 2010.  AMG accounts for its investment in Timminco via the equity accounting method.  Timminco’s net loss for the second quarter 2010 is included in share of loss from associates on AMG’s income statement and the carrying value of AMG’s investment in Timminco of $21.8 million is listed as an asset on AMG’s balance sheet. 

 

Timminco has entered into an agreement to sell 49% equity interest in Timminco’s silicon metal manufacturing facility in Bécancour, Quebec to Dow Corning Corporation.  In exchange, Bécancour Silicon Inc. (“BSI”), a 100% owned subsidiary of Timminco, will receive net cash proceeds of $39.7 million at closing, and up to an additional $10.0 million after closing upon the occurrence of certain performance objectives.  To complete the transaction, Dow Corning and Timminco will form a joint venture that will consist of BSI’s existing silicon metal operations.  Timminco will retain a 51% equity stake in the joint venture.

 

The joint venture will have the capacity to produce 47,000 mt of silicon metal per annum, which will be split between Timminco and Dow Corning proportional to their ownership interests.  All solar grade silicon purification operations and facilities at the Bécancour site will remain with Timminco.  The transaction is expected to close on or about September 30, 2010.

 

Additional information on Timminco and its second quarter 2010 financial statements can be found at www.Timminco.com.

 

 

Financial Review

 

Tax

 

AMG recorded a tax expense of $7.1 million in the quarter ended June 30, 2010 as compared to a tax expense of $4.0 million in the quarter ended June 30, 2009.  For the quarter ended June 30, 2010, AMG has approximately $10 million of losses in jurisdictions where no tax benefit can be booked for net operating losses.  The Company is starting to see the benefits of the tax restructuring which it started to implement in 2010, with year-to-date savings of approximately $3 million. 

 

 

Liquidity

 

  June 30, 2010 December 31, 2009 Change
Total debt 204,271 $203,796            0%
Cash & cash equivalents 84,574 117,016           (28%)
Net debt 119,697 86,780          38%

 

AMG had a net debt position of $119.7 million as of June 30, 2010. AMG’s net debt position increased $32.9 million since December 31, 2009 due to $21.4 million of cash tax payments, $9.7 million investment in Timminco, $12.0 million in capital investments and a $35.6 million increase in working capital and provisions, slightly offset by EBITDA of $45.9 million.

 

 

Cash Flow

 

  H1’10 H1’09
     
Operating cash flows (used in) from continuing operations ($20,295) 274
Operating cash flows used in discontinued operations (1,412)
Net cash flows used in operations ($20,295) ($1,138)
Capital expenditures (11,953) (17,245)
Investment in associates (10,322) (23,832)
Cash flows used in discontinued operations (26,453)
Cash flows from other investing 246 1,152
Net cash flows used in investing activities (22,029) (66,378)
Financing cash flows from continuing operations 21,207 7,934
Financing cash flows from discontinued operations 24,070
Cash flows generated from financing activities 21,207 32,004

 

 

Cash flows used in operations were ($20.3) million for the first half of 2010 as compared to ($1.1) million in the same period in 2009.  First half 2010 cash flows used in operations are a result of $21.4 million in tax payments made as well as a $35.6 million increase in working capital, offset by $45.9 million in EBITDA.

 

Cash used in investing activities was $22.0 million during the first half 2010.  This decrease of $44.3 million from 2009 primarily relates to the $5.3 million decrease in capital investments, a $13.5 million decrease in investments in associates and a $26.5 million decrease in cash flows used by Timminco, which is classified as a discontinued operation in 2009.

 

First half 2010 cash generated from financing activities was $21.2 million, a decrease of $10.8 million from the same period in 2009.  This decrease was most notably attributable to cash flows from discontinued operations recognized in 2009 that are not applicable in 2010 offset by $12.9 million in draws on revolving lines of credit.

 

 

Shareholder Matters

 

Further to AMG’s announcement on March 17, 2010, Safeguard International Fund, L.P., owner of 26.6% of AMG’s common shares outstanding, has confirmed to AMG that an orderly transition process regarding Safeguard’s International Fund’s shareholding in AMG is expected to be completed prior to September 30, 2010.

 

 

Outlook

 

The market situation has improved from the recession of 2008-2009, but it still remains volatile.  The Advanced Materials division has benefitted from rebounding prices for many specialty materials.  Demand from the aerospace and energy industries continue to improve while the global infrastructure and steel industries have reached a plateau.  New order intake in Engineering Systems is increasing; however, this will not be reflected in revenue until 2011.  AMG expects improvement in order backlog in the second half of 2010.  Graphit Kropfmühl’s end markets have also stabilized, particularly natural graphite demand.  AMG’s focus on its core markets of aerospace, energy, infrastructure and specialty metals and chemicals will drive long-term growth.  In 2010, AMG expects that its portfolio of metals based technologies, through continued vertical integration and structural changes in its business model will produce EBITDA slightly above 2009 levels.

 

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

For the three  months ended June 30      
In thousands of US Dollars   2010 2009
    Unaudited Unaudited
Continuing operations     *Restated
Revenue   243,544 214,933
Cost of sales   199,054 169,509
Gross profit   44,490 45,424
         
Selling, general and administrative expenses   29,874 34,017
Restructuring expense   195
Environmental expense   249 82
Other income, net   (346) (1,392)
Operating profit   14,713 12,522
         
Finance expense   4,600 5,231
Finance income   (1,082) (1,387)
Foreign exchange (gain) loss   (1,592) 948
Net finance costs   1,926 4,792
       
Share of loss of associates   5,024 613
Profit before income tax   7,763 7,117
       
Income tax expense   7,126 4,009
Profit for the period from continuing operations   637 3,108
       
Loss after tax for the period from discontinued operations   (21,853)
Profit (loss) for the period   637 (18,745)
       
Attributable to:      
     Shareholders of the Company   1,164 (9,718)
     Minority interests   (527) (9,027)
Profit (loss) for the year   637 (18,745)
       
Earnings (loss) per share      
Basic earnings (loss) per share   0.04 (0.36)
Diluted earnings (loss) per share   0.04 (0.36)
       
Earnings (loss) per share for continuing operations      
Basic earnings per share from continuing operations   0.04 0.07
Diluted earnings per share from continuing operations   0.04 0.07
       

*The prior year comparative information in the consolidated income statement and consolidated cash flows has been restated to reflect a change in ownership of Timminco. See AMG’s annual financial statements for more information.

 

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

For the six months ended June 30      
In thousands of US Dollars   2010 2009
    Unaudited Unaudited
Continuing operations     *Restated
Revenue   479,338 430,652
Cost of sales   392,264 351,367
Gross profit   87,074 79,285
         
Selling, general and administrative expenses   60,487 63,056
Restructuring expense   7 393
Environmental expense   506 87
Other income, net   (427) (3,083)
Operating profit   26,501 18,832
         
Finance expense   10,921 9,772
Finance income   (1,629) (2,000)
Foreign exchange (gain)   (3,756) (150)
Net finance costs   5,536 7,622
       
Share of loss of associates   9,420 1,400
Profit before income tax   11,545 9,810
       
Income tax expense   10,993 11,948
Profit (loss) for the period from continuing operations   552 (2,138)
       
Loss after tax for the period from discontinued operations   (40,340)
Profit (loss) for the period   552 (42,478)
       
Attributable to:      
     Shareholders of the Company   1,099 (25,112)
     Minority interests   (547) (17,366)
Profit (loss) for the year   552 (42,478)
       
Earnings (loss) per share      
Basic earnings (loss) per share   0.04 (0.93)
Diluted earnings (loss) per share   0.04 (0.93)
       
Earnings (loss) per share for continuing operations      
Basic earnings (loss) per share from continuing operations   0.04 (0.15)
Diluted earnings (loss) per share from continuing operations   0.04 (0.15)
       

*The prior year comparative information in the consolidated income statement and consolidated cash flows has been restated to reflect a change in ownership of Timminco. See AMG’s annual financial statements for more information.


 

AMG Advanced Metallurgical Group N.V.    
Condensed interim consolidated statement of financial position
In thousands of US Dollars
     
    June 30, 2010 December 31, 2009
    Unaudited Audited
Assets      
  Property, plant and equipment   196,004 211,022
  Intangible assets   24,055 28,253
  Investments in associates   33,880 34,794
  Derivative financial instruments   138 1,718
  Deferred tax assets   9,084 10,912
  Restricted cash   12,267 13,263
  Notes receivable   1,900 5,542
  Other assets   13,022 11,980
Total non-current assets   290,350 317,484
         
  Inventories   180,859 193,378
  Trade and other receivables   173,735 147,787
  Derivative financial instruments   5,564 4,954
  Other assets   36,425 30,359
  Cash and cash equivalents   84,574 117,016
Total current assets   481,157 493,494
Total assets   771,507 810,978
         
Equity      
  Issued capital   725 725
  Share premium   379,518 379,518
  Other reserves   21,752 31,284
  Retained earnings (deficit)   (197,797) (198,897)
Equity attributable to shareholders of the Company 204,198 212,630
Minority interests 13,067 15,793
Total equity   217,265 228,423
         
Liabilities      
  Loans and borrowings   156,227 168,319
  Employee benefits   80,347 91,358
  Provisions   14,072 14,862
  Government grants   498 669
  Other liabilities   7,195 7,984
  Derivative financial instruments   1,229 1,339
  Deferred tax liabilities   9,682 26,395
Total non-current liabilities   269,250 310,926
         
  Loans and borrowings   3,427 3,464
  Short term bank debt   44,617 32,013
  Government grants   171 234
  Other liabilities   40,204 46,179
  Trade and other payables   86,651 69,791
  Derivative financial instruments   6,088 6,048
  Advance payments   35,748 54,764
  Current taxes payable   41,464 36,050
  Provisions   26,622 23,086
Total current liabilities   284,992 271,629
Total liabilities   554,242 582,555
Total equity and liabilities   771,507 810,978

 

 

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

For the six months ended June 2010      
In thousands of US Dollars   2010 2009
    Unaudited Unaudited
Cash flows from (used in) operating activities      
Profit (loss) for the period from continuing operations   552 (2,138)
Loss for the period from discontinued operations   (40,340)
Profit (loss) for the period   552 (42,478)
Adjustments to reconcile profit (loss) to net cash flows:      
Non-cash:      
   Depreciation and amortization   12,096 11,369
   Restructuring expense   7 393
   Environmental expense   506 87
   Net finance costs   5,536 7,622
   Share of loss of associates   9,420 1,400
   Equity-settled share-based payment transactions   3,081 7,263
   Cash-settled share-based payment transactions   (123)
   Income tax expense   10,993 11,948
Change in working capital and provisions   (35,596) (34,663)
Other   2,119 5,857
Finance costs paid, net   (7,449) (5,317)
Income tax paid, net   (21,437) (3,547)
Cash flows from discontinued operations   38,928
Net cash flows used in operating activities   (20,295) (1,138)
       
Cash flows used in investing activities      
Proceeds from sale of property, plant and equipment   439 3
Acquisition of property, plant and equipment and intangibles   (11,953) (17,245)
Investments in associates   (10,322) (23,832)
Change in restricted cash   (181) 1,133
Other   (12) 16
Cash flows used in discontinued operations   (26,453)
Net cash flows used in investing activities   (22,029) (66,378)
       
Cash flows from financing activities      
Net proceeds from issuance of debt   21,092 8,155
Other   115 (221)
Cash flows from discontinued operations   24,070
Net cash flows from financing activities   21,207 32,004
       
Net decrease in cash and cash equivalents   (21,117) (35,512)
Cash and cash equivalents at January 1   117,016 143,473
Effect of exchange rate fluctuations on cash   (11,325) 2,119
Cash and cash equivalents at June 30   84,574 110,080

*The prior year comparative information in the consolidated income statement and consolidated statement of cash flows has been restated to reflect a change in ownership of Timminco. See AMG’s annual financial statements for more information.

 

 

 

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, 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. 

 

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 2,300 employees, AMG operates globally with production facilities in Germany, the United Kingdom, France, Czech Republic, the United States, Canada, Mexico, Brazil, and Sri Lanka and also has sales and customer service offices in Belgium, Russia, China 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 revenue 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.

 

 

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

AMG reports second quarter results