AMG reports third quarter 2011 results

Key Highlights

  • Revenue was $356.4 million in the third quarter 2011, a 48% increase over the same period in 2010
  • Operating profit was $19.6 million in the third quarter 2011, an 88% increase over the same period in 2010
  • EBITDA[1] was $27.7 million in the third quarter 2011, a 48% increase over the same period in 2010
  • EPS on a fully diluted basis was $0.29 compared to ($0.41) in the third quarter 2010; excluding Timminco and loss on extinguishment of debt, EPS was $0.33 in the third quarter 2011, compared to $0.11 in the third quarter 2010
  • The Advanced Materials Division generated revenue of $226.8 million and EBITDA of $12.3 million in the third quarter 2011
  • The Engineering Systems Division generated revenue of $86.3 million and EBITDA of $9.3 million in the third quarter 2011
  • Graphit Kropfmühl generated revenue of $43.3 million and EBITDA of $6.2 million in the third quarter 2011
  • As of September 30, 2011 cash on hand was $71.3 million; net debt was $203.6 million

Amsterdam, 9 November 2011 (Regulated Information) AMG Advanced Metallurgical Group N.V. (“AMG”, EURONEXT AMSTERDAM: “AMG”) reported third quarter 2011 revenue of $356.4 million, a 48% increase from $240.4 million in the third quarter 2010.
   
EBITDA increased 48% to $27.7 million in the third quarter 2011 from $18.8 million in the third quarter 2010.  Net profit attributable to shareholders for the third quarter 2011 was $8.0 million, or $0.29 per fully diluted share.  This was up from a loss attributable to shareholders of $11.2 million, or ($0.41) per fully diluted share, in the third quarter 2010.  Excluding AMG’s share of Timminco’s net loss in the third quarter, AMG’s net profit attributable to shareholders for the third quarter 2011 was $9.2 million, or $0.33 per fully diluted share compared to $0.11 in the third quarter 2010.  

Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, “The business continued to perform well in the third quarter 2011.  Demand, particularly in critical materials for the aerospace and energy markets, remained high during the quarter.  Pricing also remained strong for products including antimony trioxide, chromium metal and tantalum.  The Engineering Systems’ revenues increased and it generated a slight improvement in order intake compared to third quarter 2010, despite the challenging 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
Q3’11 Q3’10 Change
Revenue $356,415 $240,427    48%
Gross profit 58,688 42,102 39%
Gross margin 16.5% 17.5%
Operating profit 19,565 10,433 88%
Operating margin 5.5% 4.3%
Net profit (loss) attributable to shareholders 8,034 (11,170) N/A
EPS- Fully diluted 0.29 (0.41) N/A
Adjusted EPS- Fully diluted [1] 0.33 0.11 200%
EBIT [2] 20,412 13,098 56%
EBITDA [3]        27,748 18,756 48%
EBITDA margin 7.8% 7.8%

Note:  
[1] Adjusted to exclude equity losses from Timminco, which accounted for ($0.52) and ($0.04) in Q3 2010 and Q3 2011, respectively
[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

Q3’11[1] Q3’10 Change
Revenue $226,800 $154,888 46%
Gross profit 29,603 21,999 35%
Operating profit 8,485   4,491 89%
EBITDA 12,254 9,424 30%
Capital expenditures 6,576 5,595     18%

[1] 2011 includes the KB Alloys LLC acquisition

The Advanced Materials Division’s third quarter 2011 financial results were positively impacted by the acquisition of KB Alloys LLC, improvements in titanium master alloys volumes and increases in chromium metal, tantalum and antimony prices.  Revenue increased by $71.9 million or 46% to $226.8 million.  The increase in revenue was specifically the result of $20.7 million of revenue from KB Alloys LLC, which was acquired in February 2011, and a 101%, 46%, and 41% increase in tantalum, antimony revenue and titanium master alloys and chemicals, respectively.

The third quarter 2011 gross margin of 13% of revenue, declined from 14% of revenue from the third quarter of 2010.  Increased economies of scale were more than offset by unfavourable changes in product mix, specifically a 69% increase in low margin aluminium products revenue and higher raw materials costs, resulting in lower gross margins.

The third quarter 2011 EBITDA increased by $2.8 million to 5% of revenue.  This was a slight decrease from 6% of revenue in the third quarter 2010.  The increase in EBITDA was the result of the $7.6 million increase in gross profit, slightly offset by a 30% increase in SG&A, primarily due to a $1.3 million of SG&A related to KB Alloys and an increase in compensation expenses of $2.0 million due to the increase in headcount.

Capital expenditures were $6.6 million for the quarter, 18% more than the third quarter 2010.  Significant growth capital investments made in the third quarter include $2.4 million in the Brazilian tantalum mine and $1.8 million to expand aerospace titanium master alloy production.

Engineering Systems Division

Q3’11 Q3’10 Change
Revenue $86,280 $53,155 62%
Gross profit 20,782 16,927 23%
Operating profit 6,379 5,128 24%
EBITDA 9,270 7,362 26%
Capital expenditures         2,569 819     214%

The Engineering Systems Division’s third quarter 2011 revenue increased by $33.1 million, or 62%, to $86.3 million.  Sales of solar silicon DSS furnaces increased 50% in the third quarter 2011 compared to the same period in 2010, accounting for 24% of revenue in the third quarter 2011.  Revenues from heat treatment furnaces for the production of light weight automotive components increased 132% to $19.6 million, while sales of remelting furnaces, primarily for the aerospace and specialty steel industries, increased 40% to $11.7 million.

The order backlog decreased 14% to $172.8 million as of September 30, 2011, from $200.6 million as of June 30, 2011.  The division generated order intake of $68.5 million in the third quarter 2011, a 0.79x book to bill ratio, and a 2% increase compared to the third quarter 2010.  Order intake for remelting and nuclear sintering furnaces accounted for 31% and 23% of total order intake, respectively.

The third quarter 2011 gross margin of 24% of revenue decreased from 32% of revenue in the third quarter 2010 as a result of increased end market pricing pressure and unfavourable product mix, slightly offset by increased economies of scale.  

Third quarter 2011 EBITDA increased by $1.9 million to 11% of revenue.   This declined from 14% of revenue in the third quarter 2010.  The $1.9 million increase in EBITDA was a result of the $3.9 million increase in gross profit, offset by a $2.6 million, or 22% increase in SG&A.  The increase in SG&A was primarily the result of $0.7 million increase in compensation expenses due to the increase in headcount at the growing Own and Operate business and AMG Idealcast Solar, and $0.4 million increase in research and development expenses

Capital expenditures were $2.6 million, 214% more than the third quarter of 2010.  The increase in capital investments is primarily related to additional capacity for the U.S. Own and Operate facility.

Graphit Kropfmühl

Q3’11 Q3’10 Change
Revenue $43,335 $32,384 34%
Gross profit
Operating profit
8,303
4,701
3,176
814
161%
478%
EBITDA 6,224 1,970 216%
Capital expenditures 2,683 687 291%

Graphit Kropfmühl’s third quarter 2011 revenue increased by $11.0 million, or 34%, to $43.3 million.  Natural graphite revenue increased $3.7 million, or 31%, driven by an increase in prices, despite lower volumes.  Silicon metal revenue increased by $7.3 million or 35%, primarily as a result of higher silicon metal prices and increased volumes of silicon by products.

The third quarter 2011 gross margin increased to 19% of revenue from 10% of revenue in the third quarter of 2010.  The increase in gross margin was primarily the result of higher sales prices for silicon metal and natural graphite products.

Third quarter 2011 EBITDA increased by $4.3 million to 14% of revenue. This improved from 6% of revenue in the third quarter 2010.  The EBITDA margin increase was attributable to the increased gross margins for silicon metal and natural graphite, slightly offset by a 42% increase in SG&A due to increases in personnel costs.

Capital expenditures increased to $2.7 million in the third quarter 2011, 291% more than the third 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 September 30, 2011. AMG accounts for its investment in Timminco via the equity accounting method.  Timminco’s loss for the third quarter 2011 of $1.1 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 $10.3 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 $3.8 million in the third quarter 2011 compared to a tax expense of $0.3 million in the third 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 29% in the third quarter 2011.  For the first nine months of 2011, excluding share of loss of associates, AMG’s effective tax rate is 38%.

SG&A

AMG’s SG&A expenses were $40.6 million in the third quarter 2011, compared to $31.7 million in the third quarter 2010.  The $8.9 million change in SG&A expenses was primarily due to a $2.4 million increase in personnel costs from growth based hiring, primarily at the operating level, $2.3 million in bad debt expense and an additional $1.6 million in 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 appreciation in the value of the US dollar as of September 30, 2011 compared to June 30, 2011, resulted in a decrease in the assets and liabilities on the balance sheet of $38.8 million and $27.2 million, respectively.  The net result of the depreciation in the value of the US dollar in the third quarter 2011 compared to the third quarter 2010, resulted in an increase in revenue and EBITDA of $18.3 million and $2.3 million, respectively in the third quarter 2011.

Liquidity

September 30, 2011 December 31, 2010 Change
Total debt $274,890 $237,089 16%
Cash & short-term investments 71,253 89,311 (20%)
Net debt 203,637 147,778 38%

AMG had a net debt position of $203.6 million as of September 30, 2011.  AMG’s net debt position increased $55.9 million since December 31, 2010 primarily the result of a $55.0 million increase in working capital due to increasing material costs, $31.7 million in capital investments, $25.9 million of cash tax payments,  the $24.3 million acquisition of KB Alloys LLC and $5.5 million of cash interest paid, reduced by EBITDA of $85.4 million.  Including the $71.3 million of cash, AMG had $115.9 million of total liquidity as of September 30, 2011.  

During the fourth quarter, AMG exercised the accordion feature of its primary credit facility and secured approximately $15 million in incremental credit from Fifth Third Bank.  The total credit facility is now approximately $315 million and it matures in April 2016.

Cash Flow

For the nine months ended
September 30
2011
September 30
2010
Net cash flows from (used in) operations $10,361 $(13,903)
Capital expenditures (31,741) (19,054)
Acquisitions, net of cash (24,703)                (17,287)
Investment in associates              – (10,755)
Cash flows (used in) from other investing  (1,569) 1,420
Net cash flows used in investing activities   (58,013) (45,676)
Cash flows generated from financing activities              28,013 36,812

Cash flows from operations were $10.4 million in the nine months ended September 30, 2011 compared to cash flows used in operations of $13.9 million in the same period 2010.  The cash flows from operations in the first nine months of 2011 are primarily the result of $85.4 million in EBITDA less $25.9 million in cash tax payments and a $55.0 million increase in working capital.  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 $58.0 million in the first nine months of 2011.  This $12.3 million increase compared to the first nine months 2010 is composed of a $12.7 million increase in capital investments and a $7.4 million increase in acquisitions, slightly offset by a $10.8 million decrease in cash flows due to investment in associates.  In 2011, AMG acquired KB Alloys LLC for $24.3 million while in 2010 AMG acquired an antimony mine in Turkey for $17.3 million.

Cash generated from financing activities was $28.0 million in the first nine months of 2011, an $8.8 million decrease from the first nine months of 2010.  This decrease was primarily attributable to $10.6 million in payments for transaction costs related to debt issuance, offset by $2.0 million increase in net draws on revolving lines of credit.  The draws on the revolving lines of credit were used to fund the acquisition of KB Alloys LLC and the related transaction costs.

Outlook

Despite the uncertainty in the financial markets, AMG’s business remains healthy.  The Advanced Materials Division continues to experience demand and reasonable pricing for antimony trioxide, tantalum, titanium aerospace alloys and chromium metal.  The Engineering Systems Division’s order intake remains adversely impacted by the current economic environment, with solar particularly affected, leading to potential delays in new orders.    Demand and pricing for Graphit Kropfmühl’s natural graphite and silicon metal products should remain stable for the balance of 2011.  AMG expects to generate approximately 30% EBITDA growth in 2011.

Given the potential spread of the financial turmoil to the general economy, as a cautionary measure, AMG is selectively limiting new capital investments and personnel expansion plans, and intends not to exceed current working capital levels in 2012.  We have started an initial mining and smelting operation on a commercial level at our antimony property in Turkey.  We are undertaking an extensive drilling program, which will be the basis for developing a mining plan for large-scale mining operations.

The current economic uncertainty makes providing specific guidance for 2012 difficult; however, AMG is well positioned to deliver revenue and EBITDA growth subject to general economic conditions which are extraordinarily difficult to predict.

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

For the three months ended September 30
In thousands of US Dollars           2011           2010
 Unaudited  Unaudited
Continuing operations
Revenue 356,415 240,427
Cost of sales 297,727 198,325
Gross profit 58,688 42,102
Selling, general and administrative expenses 40,613 31,682
Restructuring expense 37
Environmental expense 136 257
Other income, net (1,663) (270)
Operating profit 19,565 10,433
Finance expense 8,583 4,840
Finance income (1,335) (1,341)
Foreign exchange gain (757) (578)
Net finance costs 6,491 2,921
Share of loss of associates 680 17,554
Profit (loss) before income tax 12,394 (10,042)
Income tax expense 3,755 325
Profit (loss) for the period 8,639 (10,367)
Attributable to:
Shareholders of the Company 8,034        (11,170)
Non-controlling interests 605            803
8,639        (10,367)
Earnings  per share
Basic earnings per share 0.29 (0.41)
Diluted earnings per share 0.29 (0.41)

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

For the nine months ended September 30
In thousands of US Dollars           2011           2010
 Unaudited  Unaudited
Continuing operations
Revenue 1,042,732 719,764
Cost of sales 855,271 590,588
Gross profit 187,461 129,176
Selling, general and administrative expenses 128,315 92,169
Restructuring expense 2,496 6
Environmental expense 382 763
Other income, net (3,490) (698)
Operating profit 59,758 36,936
Loss on early extinguishment of debt 3,902
Finance expense 15,601 15,761
Finance income (3,993) (2,970)
Foreign exchange loss (gain) 528 (4,334)
Net finance costs 16,038 8,457
Share of loss of associates 6,751 26,974
Profit before income tax 36,969 1,505
Income tax expense 16,547 11,317
Profit (loss) for the period 20,422 (9,812)
Attributable to:
Shareholders of the Company 18,357        (10,067)
Non-controlling interests 2,065            255
20,422       (9,812)
Earnings  per share
Basic earnings per share 0.66 (0.37)
Diluted earnings per share 0.66 (0.37)


AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of financial position
In thousands of US Dollars
September 30,
2011
December 31,
2010
Unaudited Audited
Assets
Property, plant and equipment 257,172 228,612
Goodwill 25,014 21,704
Intangible assets 9,283 5,298
Investments in associates and joint ventures 18,779 25,186
Derivative financial instruments 1,475 5,199
Deferred tax assets 27,022 22,107
Restricted cash 11,167 12,528
Notes receivable 1,555 322
Other assets 15,283 15,372
Total non-current assets 366,750 336,328
Inventories 247,617 207,204
Trade and other receivables 219,087 175,421
Derivative financial instruments 3,459 5,731
Other assets 40,143 41,080
Cash and cash equivalents 71,253 89,311
Total current assets 581,559 518,747
Total assets 948,309 855,075


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


September 30, 2011 December 31, 2010
Unaudited Audited
Equity
Issued capital 741 741
Share premium 381,636 381,636
Other reserves 19,256 36,158
Retained earnings (deficit) (178,168) (196,481)
Equity attributable to shareholders of the Company 223,465          222,054
Non-controlling interests 14,896 11,911
Total equity 238,361 233,965
Liabilities
Loans and borrowings 223,529 187,813
Employee benefits 94,016 88,372
Provisions 19,951 20,607
Government grants 168 642
Other liabilities 8,373 5,517
Derivative financial instruments 1,069 698
Deferred tax liabilities 31,609 25,436
Total non-current liabilities 378,715 329,085
Loans and borrowings 4,793 4,254
Short term bank debt 46,568 45,022
Government grants 48 175
Other liabilities 61,342 43,287
Trade and other payables 129,635 102,253
Derivative financial instruments 17,519 1,754
Advance payments 33,584 49,597
Current taxes payable 16,030 24,979
Provisions 21,714 20,704
Total current liabilities 331,233 292,025
Total liabilities 709,948 621,110
Total equity and liabilities 948,309 855,075

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 2011 2010
Unaudited Unaudited
Cash flows used in operating activities
Profit for the period 20,422 (9,812)
Adjustments to reconcile profit to net cash flows:
Non-cash:
   Depreciation and amortization 21,504 17,755
   Restructuring expense 2,496 6
   Environmental expense 382 763
   Net finance costs 16,038 8,457
   Share of loss of associates 6,751 26,974
   Equity-settled share-based payment transactions 2,820 4,911
   Income tax expense 16,547 11,317
Change in working capital and provisions (53,993) (38,238)
Other 8,764 2,312
Finance costs paid, net (5,478) (9,191)
Income tax paid, net (25,892) (29,157)
Net cash flows from (used in) operating activities 10,361 (13,903)
Cash flows used in investing activities
Proceeds from sale of property, plant and equipment 87 1,046
Acquisition of associates and joint ventures (10,755)
Acquisition of subsidiaries (net of cash acquired of $3,860) (24,703) (17,287)
Acquisition of property, plant and equipment and intangibles (31,741) (19,054)
Related party loans (4,924)
Change in restricted cash 1,604 427
Other 1,664 (53)
Net cash flows used in investing activities (58,013) (45,676)
Cash flows from financing activities
Proceeds from the issuance of debt 227,526 36,636
Payment of transaction costs related to debt issuance (10,592)
Repayment of long term borrowings (188,931)
Other 10 176
Net cash flows from financing activities 28,013 36,812
Net decrease in cash and cash equivalents (19,639) (22,767)
Cash and cash equivalents at January 1 89,311 117,016
Effect of exchange rate fluctuations on cash 1,581 (4,036)
Cash and cash equivalents at September 30 71,253 90,213

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.

AMG reports third quarter 2011 results