AMG reports third quarter 2009 results

Amsterdam, 11 November 2009 (Regulated Information) — AMG Advanced Metallurgical Group N.V. (« AMG », EURONEXT AMSTERDAM: « AMG ») reported third quarter 2009 revenue of $205.4 million, a decrease 45% from $371.0 million in the third quarter 2008.

 

Net loss attributable to shareholders for the third quarter 2009 was ($20.3) million, or ($0.76) per fully diluted share, compared to net income of $20.8 million or $0.75 per fully diluted share for the third quarter 2008.  EBITDA declined 71% to $18.6 million in the third quarter 2009 from $63.7 million in the third quarter 2008. 

 

In commenting on results, Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, « The decline in market conditions moderated during the third quarter 2009.  During the quarter, Advanced Materials prices and volumes increased slightly from the lows of the second quarter 2009, but both volumes and prices remain adversely affected by the unprecedented slowdown in global industrial activity.  The Engineering Systems Division’s financial performance was significantly impacted by the low levels of order intake and seasonal slowdowns.  Graphit Kropfmühl improved profitability during the quarter due to a slight rebound in silicon metal prices.  Despite the apparent bottoming of economic activity, the recovery process may be slow and uneven.  AMG continues to limit capital investment and is reducing costs to preserve free cash flow. » 

 

 

 

AMG owned less than 50% (47.9%) of Timminco as of September 30, 2009, and therefore going forward AMG will account for Timminco under the IFRS equity method of accounting.  For purposes of this release, this accounting treatment requires AMG to deconsolidate its investment in Timminco and include Timminco’s quarterly and year to date financial results as one line item – « discontinued operations » on the profit and loss statement.  The carrying value of AMG’s investment in Timminco is included as an « Investment in Associate » on the asset portion of AMG’s balance sheet.  As such, the Key Figures below except for net income attributable to shareholders exclude the financial performance of Timminco during the period and all prior year figures have been restated to exclude Timminco. 

 

While AMG no longer owns more than 50% of Timminco, Timminco remains a strategic asset of AMG.

 

 

 

In 000’s US Dollar
	Q3’09	Q3’08	Change
Revenue	$205,406	$370,982	(45%)
Gross profit	39,949	82,805	(52%)
Gross margin	19.4%	22.3%
Operating income	(110)	45,609	N/A
Operating margin	(0.0%)	12.3%
Net Income attributable to shareholders	(20,302)	20,769	N/A
EPS- Fully diluted	(0.76)	0.75	N/A
Adjusted EPS- Continuing Operations Fully diluted  (1)	(0.30)	0.99	N/A
EBITDA (2)	18,602	63,725	(71%)
EBITDA margin	9.1%	17.2%

Notes:

(1) Adjusted for non-recurring, restructuring charges and equity accounting treatment for AMG’s investment in Timminco

(2) EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items

 

 

 

 

	Q3’09	Q3’08	Change
Revenue	$110,143	$199,396	(45%)
Gross profit Operating income	15,736 (8,444)	42,702 22,620	(63%) N/A
EBITDA	5,012	25,427	(80%)
Capital expenditures	1,937	7,643	(75%)

 

 

The Advanced Materials division’s third 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.  Third quarter revenue decreased 45% to $110.1 million from the third quarter 2008. 

 

Gross margin percentage decreased from 21% of revenue in the third quarter of 2008 to 14% in the third quarter of 2009.  This was caused by a sharp decline in end product prices and lower volumes, particularly in ferrovanadium, from the third quarter of 2008.  The decrease in revenue and margins was primarily caused by ferrovanadium, with reference prices decreasing by 59% and volumes declining by 42% over the third quarter 2008.  Titanium master alloys, vanadium chemicals, ferronickel-molybdenum and ferrotitanium products were also impacted by falling end market prices.  Even more significant were the decreased volumes as the result of decreased global demand.  Aluminium master alloys volumes decreased 43% and titanium master alloys volumes declined by 77% during the third quarter 2009 compared to the third quarter 2008.  The global recession continued to impact industrial production across all markets, although less so than in the second quarter of 2009.

 

The Division’s working capital increased slightly during the third quarter 2009, after decreasing by over $18 million since December 31, 2008.  To mitigate the decrease in revenue, the Advanced Materials Division has reduced SG&A expenses by approximately 21% from the third quarter 2008.

 

The third quarter 2009 EBITDA decreased by $20.4 million to $5.0 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.  Sequentially, third quarter 2009 EBITDA improved by $7.0 million over the second quarter 2009 driven by cost saving measures.

 

Capital expenditures were $1.9 million for the third quarter 2009, 75% less than the comparable period in 2008.  The Division was only performing maintenance capital investment during the quarter because of the cost containment measures.

 

 

 

	Q3’09	Q3’08	Change
Revenue	$61,598	$135,155	(54%)
Gross profit Operating income	20,637 7,132	44,326 30,836	(53%) (77%)
EBITDA Capital expenditures	11,036 1,239	34,241 4,392	(68%) (72%)

 

The Engineering Systems division’s order intake was significantly affected by the global economic slowdown as customers continued to defer investment decisions during third quarter 2009 because of the weak credit markets and a slow recovery in their end market demand.  Order backlog was at $204 million on September 30, 2009, down 9% from $223 million on June 30, 2009.  The decrease was primarily due to a significant reduction in orders for solar furnace systems to $16.7 million during the quarter.  Overall, order intake was $44.2 million during the third quarter 2009, down from $53.5 in the second quarter 2009.  The backlog consists primarily of melting and remelting systems for the titanium and specialty steel industries and solar silicon DSS furnaces.

 

Third quarter 2009 revenue decreased by $73.6 million or 54%.  Sales of solar silicon DSS melting furnaces for the photovoltaic industry decreased 66% in the third quarter 2009 compared to the same period a year ago.  During the third quarter 2009, 39% of revenue was generated by sales of solar silicon and melting furnaces, down from 51% in the same period 2008.  Revenue from remelting systems, primarily for the aerospace and specialty steel industries, decreased by 59% during the third quarter 2009.  The recently implemented nuclear business contributed $1.8 million in revenue during the third quarter.

 

Despite these challenging markets, the Engineering Systems division was able to stabilize gross margin at 34% of revenue in the third quarter 2009 up from 33% in the same period in 2008.  The stable gross margin was due to constant prices per unit and a slight decrease in raw material prices.   

 

Third quarter 2009 EBITDA was $11.0 million, a 68% decrease over the same period in 2008.  The EBITDA margin decreased to 18% during the third quarter 2009 compared to 25% for the same period in 2008.  The EBITDA margin decrease was attributable to the economy of scale impact of lower revenue as well as one-time research and development expenses.

 

Capital expenditures decreased to $1.2 million for the third quarter 2009, 72% 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 third quarter 2009.

 

 

	Q3’09	Q3’08	Change
Revenue	$33,665	$36,431	(8%)
Gross profit Operating income	3,576 1,202	(4,223) (7,847)	N/A N/A
EBITDA	2,554	4,057	(37%)
Capital expenditures	385	1,727	(78%)

 

 

Graphit Kropfmühl (« GK ») was impacted by the decline in global economic activity during the third quarter 2009, particularly in the natural graphite division.  Third quarter 2009 revenue decreased by $2.8 million or 8% primarily due to a 30% reduction in natural graphite revenues.   

 

Gross margin improved to 11% of revenue in the third quarter 2009.  The third quarter 2008 gross profit of negative $4.2 million was a result of purchase accounting adjustments related to the acquisition of GK by AMG.

 

Third quarter 2009 EBITDA was $2.6 million, a 37% decrease compared to the third quarter 2008.  The EBITDA margin decreased to 8% during the third quarter 2009 compared to 11% in the same period 2008.  The EBITDA margin decrease was attributable to lower selling prices and volumes in both silicon and graphite, which were slightly offset by a decrease in SG&A expenses.

 

Capital expenditures decreased to $0.4 million for the third quarter 2009, 78% less than the same period 2008.  The decrease in capital expenditures was a result of the completion of the expansion of the silicon metal facilities in 2008. 

 

 

 

AMG’s ownership in Timminco decreased as the result of issuance of shares by Timminco.  Following the decrease in AMG’s common equity ownership of Timminco to 47.9% as of Septermber 30, 2009, AMG now accounts for its investment in Timminco via the equity accounting method.  Timminco’s net loss is included on its own line item on AMG’s income statement and the carrying value of AMG’s investment in Timminco of $41.8 million is listed as an asset on AMG’s balance sheet.  Additional information on Timminco and its third quarter 2009 financial statements can be found at www.Timminco.com.   

 

 

 

 

AMG recorded a tax expense of $5.7 million in the quarter ended September 30, 2009 as compared to a tax expense of $11.9 million in the quarter ended September 30, 2008.  A tax benefit for the pre-tax losses was not booked in the third quarter 2009 due to the losses being generated in jurisdictions where AMG already has significant net operating losses.

 

 

 

	Q3’09	Q4’08 (1)	Change
Total debt	$202,332	$183,352	10%
Cash & cash equivalents	124,391	139,786	(11%)
Net debt	77,941	43,566	79%

 

Notes:

(1) Restated to account for Timminco under IFRS equity accounting method.

 

AMG had a net debt position of $77.9 million as of September 30, 2009.  The Company’s liquidity position decreased by $34.4 million, due to $20.8 million of capital investments and $23.8 million of capital infusions in Timminco, offset by positive operating cash flows from continuing operations.

 

 

	Nine Months Ended
	September ’09	September ’08
Cash Flows (used in) / from Operations	$(6,033)	$76,038
Capital expenditures	(20,755)	(42,060)
Acquisitions, net of cash	–	(66,484)
Other investing	(31,964)	(50,211)
Cash Flows used in Investing Activities	(52,719)	(158,755)
Cash Flows generated from Financing Activities	35,415	73,124

 

 

The significant decline in net income was partially offset by lower investments in working capital and lower tax payments during the nine months ended September 30, 2009 resulting in negative cash flows from operations totaling $6.0 million, down from positive operating cash flows of $76.0 million in the first nine months 2008.  The lower level of cash flows from operations is primarily due to the operating loss from the Advanced Materials Division, and a decline in the operating income from the Engineering Systems Division offset by improvements in inventory and accounts receivable balances of approximately $40.0 million.

 

Cash flows used in investing activities of $52.7 million for the nine months ended September 30, 2009 decreased from $158.8 million in the first nine months of 2008.  This is due to the $21.3 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 $35.4 million, a decrease of $37.7 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 during 2008, offset in the first nine months 2009 by a net draw down from various credit facilities.

 

 

 

The markets continue to be challenging.  Although signs of an ongoing bottoming of the severe drop in demand are evident, it is still undetermined if the markets are improving.  Demand and prices remain fragile and are both subject to near term economic swings.  Engineering Systems’ order intake continues to be sluggish as companies delay investment decisions into the new year.  Advanced Materials prices have rebounded from historic lows, but demand and pricing increases have moderated and they continue to be far below normal market conditions.  AMG continues to address this situation by adjusting production levels, limiting capital investment and cost reduction programs.  These actions position AMG to take advantage of opportunities as markets improve.

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, 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 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.

 

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 associate 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.

 

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). 

 

 

 

 

 

 

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 Advanced Metallurgical Group N.V.

Condensed interim consolidated statement of income

 

*Restated

AMG Advanced Metallurgical Group N.V.

Condensed interim consolidated statement of income

 

For the nine months ended September 30
In thousands of US Dollars		2009	2008
		Unaudited	Unaudited*
Continuing operations
Revenue		636,059	1,000,045
Cost of sales		516,825	773,347
Gross profit		119,234	226,698
Selling, general and administrative expenses		94,932	101,473
Restructuring expense		5,696	129
Environmental expense		4,162	31
Other income, net		(4,277)	(4,896)
Operating profit		18,721	129,961
Interest expense		15,880	16,376
Interest income		(2,617)	(5,027)
Foreign exchange (gain) / loss		(176)	2,095
Net finance costs		13,087	13,444
Share of loss of associates		(2,685)	581
Profit before income tax		2,949	117,098
Income tax expense		17,642	33,092
(Loss) profit for the period from continuing operations		(14,693)	84,006
Loss after tax for the period from discontinued operations		(54,580)	(22,356)
(Loss) profit for the period		(69,273)	61,650
Attributable to:
Shareholders of the Company		(45,415)	68,548
Minority interests		(23,858)	(6,898)
		(69,273)	61,650
(Loss)/Earnings per share
Basic (loss) earnings per share		(1.69)	2.56
Diluted (loss) earnings per share		(1.69)	2.49
(Loss)/Earnings per share from continuing operations
Basic (loss) earnings per share from continuing operations		(0.65)	2.98
Diluted (loss) earnings per share from continuing operations		(0.65)	2.90

*Restated

 

AMG Advanced Metallurgical Group N.V.

Condensed interim consolidated statement of cash flows                                                                                      

*Restated