Key Highlights
Revenue was $368.3 million in the second quarter 2011, a 51% increase over the same period in 2010
Operating profit was $22.8 million in the second quarter 2011, a 55% increase over the same period in 2010
EBITDA[1] was $31.4 million in the second quarter 2011, a 32% increase over the same period in 2010
EPS on a fully diluted basis was $0.12 compared to $0.04 in the second quarter 2010; excluding Timminco and loss on extinguishment of debt, EPS was $0.29 in the second quarter 2011, compared to $0.20 in the second quarter 2010
The Advanced Materials Division generated revenue of $235.6 million and EBITDA of $17.5 million in the second quarter 2011
The Engineering Systems Division generated revenue of $89.8 million and EBITDA of $7.7 million in the second quarter 2011
Graphit Kropfmühl generated revenue of $42.9 million and EBITDA of $6.2 million in the second quarter 2011
As of June 30, 2011 cash on hand was $61.1 million; net debt was $217.3 million
Amsterdam, 10 August 2011 (Regulated Information) --- AMG Advanced Metallurgical Group N.V. ("AMG", EURONEXT AMSTERDAM: "AMG") reported second quarter 2011 revenue of $368.3 million, a 51% increase from $243.5 million in the second quarter 2010.
EBITDA increased 32% to $31.4 million in the second quarter 2011 from $23.9 million in the second quarter 2010. Net profit attributable to shareholders for the second quarter 2011 was $3.4 million, or $0.12 per fully diluted share. This was up from $1.2 million, or $0.04 per fully diluted share, in the second quarter 2010. Excluding AMG's share of Timminco's net loss in the second quarter and loss on extinguishment of debt, AMG's net profit attributable to shareholders for the second quarter 2011 was $8.0 million, or $0.29 per fully diluted share compared to $0.20 in the second quarter 2010.
Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, "The business performed well in the second quarter 2011. Demand, particularly in critical materials for the aerospace and energy markets, remained high during the quarter. Pricing materials remained strong including antimony trioxide, chromium metal and tantalum. The integration of KB Alloys is proceeding on plan. The Engineering Systems' order intake increased 35% from the first quarter 2011, despite the challenging solar 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 Q2'11 Q2'10 Change
Revenue
$368,318
$243,544
51%
Gross profit
68,993
44,490
55%
Gross margin
18.7%
18.3%
Operating profit
22,787
14,713
55%
Operating margin
6.2%
6.0%
Net profit attributable to
shareholders
3,351
1,164
188%
EPS- Fully diluted
0.12
0.04
200%
Adjusted EPS- Fully diluted (1)
0.29
0.20
45%
EBIT (2)
24,592
17,986
37%
EBITDA (3)
31,447
23,902
32%
EBITDA margin
8.5%
9.8%
Note:
(1) Adjusted to exclude equity losses from Timminco, and the loss on extinguishment of debt of $0.07 and $0.10, respectively, in Q2 2011
(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
Q2'11(1) Q2'10 Change
Revenue
$235,580
$151,982
55%
Gross profit
37,747
27,350
38%
Operating profit
12,865
10,452
23%
EBITDA
17,534
14,165
24%
Capital expenditures
6,194
4,247
46%
(1) 2011 includes the KB Alloys LLC acquisition
The Advanced Materials Division's second quarter 2011 financial results were positively impacted by the acquisition of KB Alloys LLC, improvements in aerospace alloys volumes and increases in chromium metal, tantalum and antimony prices. Revenue increased by $83.6 million or 55% to $235.6 million. The increase in revenue was specifically the result of $25.0 million of revenue from KB Alloys LLC, which was acquired in February 2011, and 55%, 53%, and 38% increase in aerospace master alloys and chemicals, tantalum and antimony revenue, respectively.
The second quarter 2011 gross margin of 16% of revenue, declined from 18% of revenue from the second quarter of 2010. Increased economies of scale were more than offset by unfavourable changes in product mix, specifically an 87% increase in lower margin aluminium products revenue and higher raw materials costs, resulting in lower gross margins.
The second quarter 2011 EBITDA increased by $3.4 million to 7% of revenue from 9% of revenue in 2010 due to the increase in gross profit, but this was offset by a 42% increase in SG&A due to the acquisition of KB Alloys and long-term incentive expenses of $1.6 million.
Capital expenditures were $6.2 million for the quarter, 46% more than the second quarter 2010. Significant growth capital investments made in the second quarter include $1.6 million in the Brazilian tantalum mine and $1.0 million to expand aerospace master alloy production.
Engineering Systems Division
Q2'11 Q2'10 Change
Revenue
$89,812
$59,507
51%
Gross profit
22,661
13,942
63%
Operating profit
5,047
3,578
41%
EBITDA
7,671
8,047
(5%)
Capital expenditures
2,984
1,301
129%
The Engineering Systems Division's second quarter 2011 revenue increased by $30.3 million, or 51%, to $89.8 million. Sales of solar silicon DSS furnaces increased 43% in the second quarter 2011 compared to the same period in 2010, accounting for 29% of revenue in the second quarter 2011. Own and Operate revenue increased by 55% to $10.8 million, more than offsetting the 28% decline to $12.4 million in revenue from remelting systems, primarily for the aerospace and specialty steel industries.
The order backlog increased 2% to $200.6 million as of June 30, 2011, from $195.9 million as of March 31, 2011. The division generated order intake of $88.6 million in the second quarter 2011, a 0.99x book to bill ratio and a 31% increase compared to the second quarter 2010. Order intake for heat treatment furnaces and nuclear sintering furnaces accounted for 45% and 15% of total order intake, respectively.
The second quarter 2011 gross margin of 25% of revenue increased from 23% of revenue in the second quarter 2010 due to increased economies of scale, lower costs in the MOX nuclear furnace business and increased capacity utilization at the Own and Operate business.
Second quarter 2011 EBITDA decreased by $0.4 million to 9% of revenue from 14% of revenue in the second quarter 2010. This was caused by a 62% increase in SG&A due to long-term incentive expenses, research and development expenses and costs associated with Mono2(TM) technology at AMG Idealcast Solar.
Capital expenditures were $3.0 million, 129% more than the second quarter of 2010. This increase in capital investments is primarily related to additional capacity for the U.S. Own and Operate facility.
Graphit Kropfmühl
Q2'11 Q2'10 Change
Revenue
$42,926
$32,055
34%
Gross profit
Operating profit
8,585
4,875
3,198
683
168%
614%
EBITDA
6,242
1,690
269%
Capital expenditures
2,486
1,259
97%
Graphit Kropfmühl's second quarter 2011 revenue increased by $10.9 million, or 34%, to $42.9 million. Natural graphite revenue increased $3.3 million, or 28%, driven by an increase in prices, despite lower volumes. Silicon metal revenue increased by $7.6 million or 37%, primarily as a result of higher silicon metal prices and increased volumes of silicon by products.
The second quarter 2011 gross margin increased to 20% of revenue from 10% of revenue in the second quarter of 2010. Increased economies of scale resulting in lower per unit production costs of natural graphite and higher sales prices for silicon metal resulted in a significant increase in gross margins.
Second quarter 2011 EBITDA was $6.2 million, a 269% increase compared to the second quarter 2010. The EBITDA margin increased to 15% in the second quarter 2011, up significantly from 5% in the same period 2010. The EBITDA margin increase was attributable to the increase gross margins for silicon metal and natural graphite, slightly offset by a 51% increase in SG&A due to increases in personnel costs.
Capital expenditures increased to $2.5 million in the second quarter 2011, 97% more than the second 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 June 30, 2011. AMG accounts for its investment in Timminco via the equity accounting method. Timminco's loss for the second quarter 2011 of $1.9 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 $11.4 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 $7.8 million in the second quarter 2011 compared to a tax expense of $7.1 million in the second 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 57% in the second quarter 2011. For the first half of 2011, excluding share of loss of associates, AMG's effective tax rate is 42%.
SG&A
AMG's SG&A expenses were $44.8 million in the second quarter 2011, compared to $29.9 million in the second quarter 2010. The $14.9 million change in SG&A expenses was primarily due to a $5.0 million increase in personnel costs, primarily at the operating level, $2.6 increase in long-term incentive expenses, $2.3 million in bad debt expense as well as the additional $1.6 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 decline in the value of the US dollar as of June 30, 2011 compared to March 31, 2011, resulted in an increase in the assets and liabilities on the balance sheet of $13.5 million and $9.9 million, respectively. The net result of the depreciation in the value of the US dollar quarter over quarter resulted in an increase in revenue and EBITDA of $23.6 million and $3.3 million, respectively in the second quarter 2011.
Liquidity June 30, 2011 December 31, 2010 Change
Total debt
$278,473
$237,089
17%
Cash & short-term investments
61,136
89,311
(32%)
Net debt
217,337
147,778
47%
AMG had a net debt position of $217.3 million as of June 30, 2011. AMG's net debt position increased $69.6 million since December 31, 2010 primarily due to $21.6 million of cash tax payments, $19.9 million in capital investments, the $24.3 million acquisition of KB Alloys LLC, and a $46.7 million increase in working capital due to increasing material costs, reduced by EBITDA of $57.6 million.
During the second quarter, AMG refinanced its primary credit facility and secured a $300 million credit facility composed of a Euro denominated, U.S. dollar equivalent, $100 million term loan and a $200 million revolving credit facility. This facility has a five-year term and matures in April 2016.
Cash Flow H1'11 H1'10
Net cash flows used in operations
$(12,080)
$(20,295)
Capital expenditures
(19,913)
(11,953)
Acquisitions, net of cash
(26,816)
-
Investment in associates
-
(10,322)
Cash flows used in other investing
2,844
246
Net cash flows used in investing activities
(43,885)
(22,029)
Cash flows generated from financing activities
23,899
21,207
Cash flows used in operations were $12.1 million in the first half of 2011 as compared to $20.3 million in the first half of 2010. The cash flows used in operations in the first half of 2011 are a result of $21.6 million in cash tax payments as well as a $46.7 million increase in working capital and provisions, offset by $57.6 million in EBITDA. 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 $43.9 million in the first half of 2011. This increase of $21.9 million from the first half of 2010 is composed of a $26.8 million increase in acquisitions, primarily for KB Alloys LLC, and an $8.0 million increase in capital investments, slightly offset by a $10.3 million decrease in cash flows for investment in associates. In Q2 2010, AMG made an investment in Timminco as part of an equity offering.
Cash generated from financing activities was $23.9 million in the first half of 2011, a $2.7 million increase from the first half of 2010. This increase was primarily attributable to $34.4 million in net draws on new and existing revolving lines of credit, offset by $10.5 million in transaction costs related to debt issuance. The draws on the revolving lines of credit were used to fund the acquisition of KB Alloys LLC and the related transaction costs.
Outlook
The Advanced Materials Division should continue to generate strong revenues, albeit at levels slightly below the second quarter 2011, for many of its products including antimony trioxide, tantalum, titanium aerospace alloys and chromium metal. In the second half of 2011, Advanced Materials' conversion businesses will be impacted by higher raw material prices as lower cost inventory stocks are depleted. As AMG enters the seasonally slow period in its business, due to planned summer plant shutdowns of customers' and certain AMG operations, AMG's is continuing to ramp up the tantalum and antimony mining operations. Order Intake in Engineering Systems is stable but continues to be adversely impacted by the current economic environment, with solar particularly affected. Demand and pricing for Graphit Kropfmühl's natural graphite and silicon metal products should remain strong for the balance of 2011. Management will focus on reducing working capital and lowering net debt through cash from operations in the second half of 2011. Provided the current macroeconomic environment remains stable, AMG expects to generate in excess of 25% EBITDA growth in 2011.
AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated income statement
For the three months ended June 30
In thousands of US Dollars 2011 2010Unaudited Unaudited
Continuing operations
Revenue
368,318
243,544
Cost of sales
299,325
199,054
Gross profit
68,993
44,490
Selling, general and administrative expenses
44,765
29,874
Restructuring expense
2,174
-
Environmental expense
141
249
Other income, net
(874)
(346)
Operating profit
22,787
14,713
Loss on early extinguishment of debt
3,902
-
Finance expense
5,013
4,600
Finance income
(1,158)
(1,082)
Foreign exchange loss (gain)
1,302
(1,592)
Net finance costs
9,059
1,926
Share of loss of associates
1,694
5,024
Profit before income tax
12,034
7,763
Income tax expense
7,828
7,126
Profit for the period
4,206
637
Attributable to:
Shareholders of the Company
3,351
1,164
Non-controlling interests
855
(527)
4,206
637
Earnings per share
Basic earnings per share 0.12 0.04
Diluted earnings per share 0.12 0.04
