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AMG Advanced Metallurgical Group N.V. (AMS:AMG) Key Highlights
* Revenue increased 49% in the third quarter 2008 compared to the third quarter 2007; year to date increase 40% * EBITDA increased 121% in the third quarter 2008 when compared to the third quarter 2007; year to date increase 99% * EPS on a fully diluted basis increased to $0.75 compared to the third quarter 2007 to ($0.94), EPS, excluding non-recurring charges, increased to $1.19 * Advanced Materials' third quarter revenue and EBITDA improved by 17% and 120% compared to the third quarter of 2007 * Engineering Systems' third quarter revenue and EBITDA improved by 70% and 54% compared to the third quarter of 2007 * Timminco's third quarter revenue increased by 56% to $66.6 million and EBITDA increased to $7.4 million in the third quarter of 2007 * Graphit Kropfmühl contributed $36.4 million to revenue and $4.1 million to EBITDA during Q3 2008 * Strong balance sheet; cash on hand of $154.2 million, net debt of $79.6 million with no significant debt maturities until 2012; $114.8 million year to date free cash flow [1]
[1] Free cash flow is defined as EBITDA less change in working capital and maintenance capital expenditures
Amsterdam, 12 November 2008 --- AMG Advanced Metallurgical Group N.V. ("AMG", EURONEXT AMSTERDAM: "AMG") reported third quarter 2008 revenue increased to $437.6 million in the quarter ended 30 September 2008, from $292.9 million in the third quarter 2007, a 49% increase.
Net income attributable to shareholders for the third quarter 2008 was $20.8 million, or $0.75 per fully diluted share. Excluding the non-recurring asset impairment expenses at AMG's 50.4% owned subsidiary, Timminco, and non-recurring acquisition purchase accounting at Graphit Kropfmühl, net income attributable to shareholders for the third quarter 2008 was $32.8 million, or $1.19 per fully diluted share. Adjusted net income was $9.4 million or $0.35 per fully diluted share for the third quarter 2007. EBITDA rose 121% to $71.1 million in the third quarter 2008 compared with $32.1 million in the third quarter 2007.
Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, commented: "I am pleased to report our best quarter to date. Both the Advanced Materials and Engineering Systems divisions increased revenue and earnings driven by the solar, energy and superalloy end markets. AMG's majority owned subsidiary, Timminco Limited, continued to increase production of the solar grade silicon ramp up during the third quarter, shipping 300 metric tonnes, a 36% improvement over the second quarter 2008. Through AMG's diversified business model, conservative balance sheet and significant cash position, AMG is well positioned to endure the economic fallout from the global credit crisis. Demand and pricing for some of our major products are clearly being impacted by the growing uncertainties in the global economy. We are responding to these uncertainties by adjusting production levels on some of our products and increasing our cost containment measures. AMG is focused on protecting free cash flow in 2009."
Notes: [1] Q3 2007 Revenue has been restated due to an adjustment at Timminco [2] In 2008, adjusted for non-recurring, restructuring and impairment charges at Timminco and non-recurring purchase accounting at GK. In Q3 2007 adjusted for debt extinguishment [3] EBITDA is defined as earnings before interest, tax, depreciation and amortization and excludes nonrecurring items
The Advanced Materials division's third quarter 2008 financial results were driven by continued strong pricing and solid volumes in ferrovanadium and certain other key products. Revenue increased by $28.4 million or 17% to $199.4 million. Gross profit improved by $19.3 million or 82% to $42.7 million. As a percentage of sales, SG&A expenses decreased despite additional corporate infrastructure. EBITDA increased by $13.9 million, a 120% improvement over the third quarter 2007 to $25.4 million.
Gross margins expanded from 14% in the third quarter of 2007 to 21% in third quarter of 2008. The division's secure raw material supply, particularly in ferrovanadium, enabled it to increase gross margins at a faster pace than revenue. The increase in revenue and margins was primarily driven by ferrovanadium, with reference prices increasing by 68% and volumes by 6% over third quarter 2007. Coating materials for thin film solar applications, vanadium chemicals and antimony products also delivered strong margins in the period. Ferronickel-molybdenum and chromium metal suffered significant declines in volumes during the quarter as weakness in the stainless and specialty steel markets impacted demand.
Operating income for the third quarter 2008 improved 238% to $22.6 million, up from $6.7 million for the comparable period in 2007. This was primarily due to the increase in gross profit offset by a marginal increase in selling, general and administrative expenses that was attributable to a build-up in corporate infrastructure.
Capital expenditures were $7.6 million for the quarter, 34% higher than the comparable period in 2007, as previously announced capacity expansion initiatives in ferrovanadium, tantalum and hydropower continued during the quarter.
The Engineering Systems division continued its dynamic growth during the third quarter 2008. Order backlog of $393 (€279) million as of 30 September 2008 increased 56% compared to order backlog of $252 million as of 31 December 2007. The backlog consists primarily of solar silicon DSS furnaces and melting and remelting systems for the materials industry. Adjusting for the decrease in the value of the Euro, in which most contracts are denominated, vis-a-vis the U.S. Dollar, the backlog at 30 September is consistent as compared to 30 June 2008 backlog of €282 million.
Third quarter 2008 revenue and EBITDA increased $55.8 million, or 70%, and $12.0 million, or 54%, respectively, over the same period in 2007.
Sales of solar silicon melting and crystallization furnaces for the photovoltaic industry increased 147% in the third quarter 2008 compared to the same period a year ago. Significant capacity expansion in the Berlin production facility was essential to meet the growing global demand for solar silicon DSS furnaces. As of the end of the third quarter 2008, 6 furnaces per week were produced, compared to one furnace per week at the end of the fourth quarter 2007.
Revenue from remelting systems primarily for the aerospace, materials, and specialty steel industries remained on a similar steady growth trajectory as during the second quarter. Geographically, sales to the Asia Pacific region and Europe accounted for a majority of total revenues. Almost all product lines achieved strong margins on increased volumes.
The EBITDA margin decreased to 25% during the third quarter 2008 compared to 28% for the same period in 2007. Excluding a onetime gain in the third quarter of 2007, EBITDA margin increased from 22% in the third quarter 2007 to 25% in the third quarter 2008. The one-time $5 million gain recorded during the third quarter 2007 related to the grants earned in connection with the acquisition of the Berlin production facility. The EBITDA margin increased due to economies of scale resulting from additional sales of DSS vacuum furnace systems. The division continues to proactively address the market changes and is adjusting production capacity to reflect those changes.
In the quarter ended 30 September 2008, capital expenditures increased to $4.4 million from $1.8 million for the third quarter of 2007. This increase was a result of the expansion of the Berlin facility.
Timminco's revenue for the third quarter 2008 was $66.6 million compared with $42.6 million in the third quarter 2007, an increase of 56%. The increase is primarily attributable to the record sales of Timminco's solar grade silicon and silicon metal products. Gross profit also achieved record levels within the silicon product line due to the increased volume of solar grade silicon and higher average selling prices for silicon metal. Silicon gross profit for the third quarter 2008 was $8.6 million or 17% of sales compared to a gross profit of $0.2 million in the third quarter of 2007. Timminco sold 300 metric tons of solar grade silicon during the third quarter 2008 at an average price of $53kg. The main contributor to the increase in margin was the 36% increase in solar grade silicon volumes and a decrease of the unit production costs of solar grade silicon to $30. Magnesium gross profit for the third quarter 2008 was $3.2 million or 18.7% of sales compared to $1.8 million or 11% of sales in the third quarter of 2007.
Timminco had operating income in the quarter of $2.1 million compared to ($2.6) million loss in the third quarter 2007, due to higher gross profit which was partially offset by increased selling, general and administrative expenses. Higher professional fees and travel related to various strategic initiatives resulted in an increase in SG&A.
During the quarter ended 30 September 2008, Timminco continued the expansion of its solar grade silicon production capacity. This expansion is expected to bring the installed annual solar grade silicon production capacity to 14,400 metric tons, although the ramp up of this capacity will continue for six to twelve months after installation. Capital expenditures increased to $25.0 million for the quarter from $7.4 million in the same period 2007, as the previously announced solar grade silicon capacity expansion continued during the quarter. Sources of funding for this expansion include cash flow from operations, the Company's existing credit facilities, customer deposits and cash on hand. Customer deposits totalled $30.1 million in the third quarter of 2008. Continued growth in solar silicon revenues and gross margin improvement are expected for the balance of 2008.
* Gross profit and operating income include purchase accounting adjustments in the amount of $10.2 million and $11.0 million, respectively.
Graphit Kropfmühl ("GK") generated $36.4 million in revenue and $4.2 million in gross losses during the quarter ended 30 September 2008. The gross loss was caused by the $10.2 million in purchase accounting related to the acquisition of GK by AMG. Excluding these charges, GK generated $3.2 million in operating income. The EBITDA for the quarter was $4.1 million or 11% of revenue, reflecting the higher average selling prices for silicon metal sales than in the second quarter 2008. GK spent $1.7 million in capital expenditures during the quarter, primarily to begin a project that will expand the production capacity of the silicon metal operations from 30,000 tonnes to 31,000 tonnes.
AMG had a net debt position of $79.6 million as of 30 September 2008. The increase in the Company's net debt is primarily a result of the acquisition of Graphit Kropfmühl, which used $62.9 million of cash and included the assumption of $27.3 million of debt. In addition, Timminco's year-to-date $48.3 million investment in a solar grade silicon expansion and an increased investment in working capital across all segments of the business also impacted liquidity. AMG's term debt and revolving credit facility do not mature until August 2012.
Cash Flow
Nine months ended 30 September 2008 30 September 2007
Cash flows from operations $76,038 $65,840 Capital expenditures (95,262) (33,079) Acquisitions, net of cash (66,484) (49,321) Cash flows from other 2,991 4,927 investing Cash flows used in investing (158,755) (77,473) activities Cash flows generated from 73,124 186,419 (used in) financing activities Effect of exchange rates on (8,803) 14,789 cash held Net (decrease) increase in (18,396) 189,575 cash and cash equivalents
Cash flows from operations were $76.0 million in the year-to-date period ended 30 September 2008 as compared to $65.8 million for the comparable period in 2007. Year to date 2008 cash flows from operations were up slightly year over year, as a result of an $88.3 million increase in EBITDA which was offset by an $88.4 million increase in working capital, as compared to the same period in 2007. The working capital increase is the result of higher raw material prices and inventory volumes for the Advanced Materials division's products, increased work in process inventory of solar silicon DSS furnaces in the Engineering Systems division and a build-up of silicon metal inventory at Timminco to support the ramp-up of solar silicon production.
Cash used in investing activities was $158.8 million for the nine months ended 30 September 2008. This increase of $81.3 million over the comparable period in 2007 is primarily related to two items; $48.3 million in costs related to the expansion of the solar silicon production facility at Timminco and $62.9 million for the purchase of approximately 79.5% of Graphit Kropfmühl.
Cash from financing activities was $73.1 million, a decrease of $113.3 million from the same period in 2007. This decrease was primarily the result of two factors, $287.1 million generated from the AMG initial public offering in 2007, offset by the net repayment of $183.6 million debt as compared to the 2008 borrowings on the credit facility for the acquisition of approximately 79.5% of Graphit Kropfmühl and borrowings to fund the working capital increases in Advanced Materials and Timminco.
Outlook
Despite the challenging economic conditions, AMG remains positive on long term growth prospects for the core markets of solar, fuel economy, nuclear and recycling that it serves. In the near term, however, AMG is taking cost containment steps, delaying non-essential capital projects and focusing on reducing working capital to maximize profitability and free cash flow through the current economic downturn and uncertain global markets. The impact of the current volatile economic situation makes visibility for 2009 difficult at this point; however AMG expects to substantially exceed its full year 2008 EBITDA target of 65% growth over 2007.
AMG Advanced Metallurgical Group N.V. Interim consolidated balance sheet at 30 September 2008 In thousands of US Dollars 30 September 31 December 2008 2007 Unaudited Audited Property, plant and equipment 297,807 155,763 Intangible assets 69,863 50,291 Investments in associates 9,646 15,145 Derivative financial instruments 176 194 Deferred tax assets 31,449 34,537 Restricted cash 17,816 14,582 Notes receivable 7,397 7,068 Other assets 10,074 5,087 Total non-current assets 444,228 282,667 Inventories 330,997 186,410 Trade and other receivables 235,055 187,243 Derivative financial instruments 8,948 3,582 Prepayments and other current assets 66,197 48,754 Short term investments - 15,333 Cash and cash equivalents 154,162 172,558 Total current assets 795,359 613,880 Total assets 1,239,587 896,547 Equity Issued capital 724 722 Share premium 379,325 392,304 Other reserves (40) (9,923) Retained earnings (deficit) (69,007) (137,439) Equity attributable to shareholders of the 311,002 245,664 Company
Minority interests 67,430 64,133
Total equity 378,432 309,797 Liabilities Loans and borrowin gs 157,296 115,726 Employee benefits 119,014 102,809 Provisions 13,356 12,011 Government grants 2,408 8,585 Other liabilities 8,780 9,087 Derivative financial instruments 148 77 Deferred tax liabilities 57,380 32,112 Total non-current liabilities 358,382 280,407 Loans and borrowings 6,481 1,102 Short-term bank debt 63,147 16,202 Related party debt 6,873 7,752 Government grants 8,457 7,927 Other liabilities 54,264 42,356 Trade and other payables 186,333 126,827 Derivative financial instruments 7,182 4,994 Advance payments 100,312 74,731 Unearned revenue 37,512 - Current taxes payable 15,589 11,496 Provisions 16,623 12,956 Total current liabilities 502,773 306,343 Total liabilities 861,155 586,750 Total equity and liabilities 1,239,587 896,547
AMG Advanced Metallurgical Group N.V. Interim consolidated income statement for the nine months ended 30 September 2008
For the nine months ended 30 September In thousands of US Dollars 2008 2007 Unaudited Unaudited Continuing operations Revenue 1,176,714 838,734 Cost of sales 922,901 690,968 Gross profit 253,813 147,766
Selling, general and administrative expenses 116,998 85,306 Restructuring expense 13,912 51 Asset impairment expense 3,65 2 - Environmental expense 197 244 Other expenses 46 312 Other income (4,944) (7,773) Operating profit 123,952 69,626
Loss on early extinguishment of debt - 35,069 Interest expense 15,920 23,929 Interest income (5,027) (4,983) Foreign exchange loss (gain) 3,643 (2,748) Net finance costs 14,536 51,267
Share of loss of associates (10,999) (1,963) Profit before income tax 98,417 16,396
Income tax expense 36,767 22,854 Profit (loss) for the period 61,650 (6,458)
Attributable to: Shareholders of the Company 68,548 (6,473) Minority interests (6,898) 15 61,650 (6,458)
Earnings per share Basic earnings (loss) per share 2.56 (0.24) Diluted earnings (loss) per share 2.49 (0.24)
AMG Advanced Metallurgical Group N.V. Interim consolidated income statement for the three months ended 30 September 2008
For the three months ended 30 September In thousands of US Dollars 2008 2007 Unaudited Unaudited Continuing operations Revenue 437,561 292,897 Cost of sales 342,960 243,312 Gross profit 94,601 49,585
Selling, general and administrative 44,397 31,900 expenses Restructuring expense 666 21 Asset impairment expense 3,652 - Environmental expense 104 42 Other expenses - 25 Other income (1,883) (6,305) Operating profit 47,665 23,902
Loss on early extinguishment of debt - 35,069 Interest expense 6,156 6,003 Interest income (1,611) (2,954) Foreign exchange loss (gain) 2,105 (1,217) Net finance costs 6,650 36,901
Share of loss of associates (11,717) (877) Profit (loss) before income tax 29,298 (13,876)
Income tax expense 13,974 11,215 Profit (loss) for the period 15,324 (25,091)
Attributable to: Shareholders of the Company 20,769 (25,630) Minority interests (5,445) 539 15,324 (25,091)
Earnings per share Basic earnings (loss) per share 0.77 (0.96) Diluted earnings (loss) per share 0.75 (0.94)
AMG Advanced Metallurgical Group N.V. Interim condensed consolidated cash flow statement for the nine months ended 30 September
For the nine months ended 30 September In thousands of US Dollars 2008 2007 Unaudited Unaudited Cash flows from operating activities Profit (loss) for the period 61,650 (6,458) Adjustments to reconcile profit (loss) to net cash flows: Non-cash Depreciation and amortization 30,884 13,579 Restructuring expense 13,912 51 Asset impairment expense 3,652 - Environmental expense 197 124 Net finance costs 14,536 51,267 Share of loss of associates 10,999 1,96 3 Equity-settled share-based payment transactions 8,189 2,635 Income tax expense 36,767 22,854 Change in working capital (71,376) 17,014 Other (11,351) (12,488) Interest paid, net (4,707) (15,080) Income tax paid (17,582) (9,621) Cash received from dividends 268 - Net cash flows from operating activities 76,038 65,840
Cash flows used in investing activities Proceeds from sale of property, plant and 469 730 equipment Acquisitions of property, plant and equipment and (95,262) (33,079) intangibles Acquisitions, net of cash (66,484) (49,321) Related party loans (5,848) (26) Change in short-term investments 14,884 - Change in restricted cash (3,866) - Other (2,648) 4,223 Net cash flows used in investing activities (158,755) (77,473)
Cash flows from financing activities Proceeds from issuance of debt 79,951 91,470 Repayment of borrowings (7,140) (275,083) Issuance of shares and related transaction costs - 264,005 Capital infusion - 106,076 Other 313 (49) Net cash flows from financing activities 73,124 186,419
Net (decrease) increase in cash and cash (9,593) 174,786 equivalents Cash and cash equivalents at 1 January 172,558 54,610 Effect of exchange rate fluctuations on cash held (8,803) 14,789 Cash and cash equival ents at 30 September 154,162 244,185
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, aluminium master alloys and additives, chromium metal and ferrotitanium, used by steel, aluminium, 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 and magnesium products 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 Director of Corporate Communications jcostello@amg-nv.com
Disclaimer
Certain statements in this press release are not historical facts and are "forward looking". Forward looking statements include statements concerning AMG's plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans and intentions relating to acquisitions, AMG's competitive strengths and weaknesses, plans or goals relating to forecasted production, reserves, financial position and future operations and development, AMG's business strategy and the trends AMG anticipates in the industries and the political and legal environment in which it operates and other information that is not historical information. When used in this press release, the words "expects," "believes," "anticipates," "plans," "may," "will," "should," and similar expressions, and the negatives thereof, are intended to identify forward looking statements. By their very nature, forward looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward looking statements will not be achieved. These forward looking statements speak only as of the date of this press release. AMG expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statement contained herein to reflect any change in AMG's expectations with regard thereto or any change in events, conditions or circumstances on which any forward looking statement is based.
The full press release including tables can be downloaded from the following link: AMG Reports Strong Third Quarter in Face of Challenging Economic Conditions
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