AMG Advanced Metallurgical Group N.V. Reports Third Quarter 2016 Results

3 november 2016

Key Highlights

• AMG ended the third quarter 2016 net debt free, with net cash of $1.9 million
• EBITDA ⁽²⁾ was $23.4 million in the third quarter 2016, a 15% increase over the same period in 2015
• Net income attributable to shareholders increased by 5% to $5.2 million in the third quarter 2016 from $4.9 million in the third quarter 2015
• EPS, on a fully diluted basis, was $0.18 in the third quarter 2016, unchanged from third quarter 2015
• Annualized return on capital employed increased to 18.0% in the third quarter 2016, as compared to 14.7% in the third quarter 2015

Amsterdam, 3 November 2016 (Regulated Information) --- AMG Advanced Metallurgical Group N.V. ("AMG", EURONEXT AMSTERDAM: "AMG") reported third quarter 2016 revenue of $247.5 million, a 2% increase from $241.9 million in the third quarter 2015. EBITDA for the third quarter 2016 was $23.4 million, a 15% increase from $20.4 million in the third quarter 2015. Net income attributable to shareholders increased to $5.2 million in the third quarter 2016 from $4.9 million in the third quarter 2015. On a year to date basis, EBITDA increased by 7% to $70.6 million, from $65.9 million in the prior year, despite an increase in AMG's Performance Share Unit ("PSU") plan costs of $8.7 million, compared to the same period in 2015, driven by AMG's strong share price performance.

Dr. Heinz Schimmelbusch, Chairman of the Management Board and CEO, said, "AMG's focus on operational excellence and price risk management resulted in solid financial results in the third quarter 2016. We are particularly pleased with the impact new innovations have had on the results of AMG Engineering, such as: our industry leading SyncroTherm® heat treatment furnaces; powder metallurgy furnaces related to additive manufacturing; titanium re-melting furnaces; and turbine blade coating plants. These innovative product offerings drove a significant portion of third quarter 2016 sales.

AMG Engineering achieved EBITDA of $8.9 million during the third quarter 2016, an 83% increase from $4.9 million in the third quarter of 2015. AMG Engineering signed $68.1 million in new orders during the third quarter of 2016, representing a 0.97x book to bill ratio. The Engineering division continues to experience strong demand for plasma remelting and induction furnaces for the aerospace market and heat treatment furnaces for the automotive market. Order backlog was $158.1 million as of September 30, 2016, consistent with June 30, 2016.

AMG Critical Materials generated EBITDA of $14.5 million during the third quarter 2016. Year-over-year double-digit declines in average quarterly prices of Chrome, Graphite, and Silicon negatively affected revenue in the third quarter of 2016 compared to the third quarter of 2015.

On a year to date basis, AMG generated cash flows from operating activities of $40.7 million, a decrease of 5% from $42.8 million in the same period in 2015. The year to date operating cash flows of $40.7 million includes voluntary cash contributions to the Company's pension plans of $20.6 million made in the second quarter of 2016. This strong cash flow generation enabled AMG to end the third quarter net debt free, with net cash of $1.9 million."

Key Figures

In 000's US Dollar
	Q3 '16	Q3 '15	Change
Revenue	$247,526	$241,867	2%
Gross profit	46,532	39,660	17%
Gross margin	18.8%	16.4%
Operating profit	16,110	8,297	94%
Operating margin	6.5%	3.4%
Net income attributable to shareholders	5,181	4,933	5%
EPS - Fully diluted	0.18	0.18	-
EBIT (1)	16,231	12,751	27%
EBITDA (2)	23,403	20,416	15%
EBITDA margin	9.5%	8.4%
Cash flows from operating activities	20,677	27,697	(25%)

Note: 

1. EBIT is defined as earnings before interest and income taxes. EBIT excludes restructuring and equity-settled share-based payments and includes foreign currency gains or losses.
2. EBITDA is defined as EBIT adjusted for depreciation and amortization.

Operational Review

AMG Critical Materials

	Q3 '16	Q3 '15	Change
Revenue	$177,490	$187,741	(5%)
Gross profit	32,025	* 27,102	18%
Operating profit	9,106	6,143	48%
EBITDA	14,467	15,531	(7%)

* Includes $2.1 million non-cash expense related to vanadium, nickel and molybdenum inventory adjustments in the third quarter 2015

AMG Critical Materials continues to be impacted by weak metal prices, and as a result, revenue decreased by 5%, to $177.5 million.

Double-digit declines in average quarterly prices of Chrome, Graphite and Silicon negatively affected revenue in the third quarter of 2016 compared to the third quarter of 2015.

Gross profit in the third quarter increased by $4.9 million, or 18%, to $32.0 million, due to the strong performance of Aluminum Master Alloys and Tantalum. In addition, AMG Vanadium incurred a non-cash inventory adjustment expense of $2.1 million in the prior year due to rapidly falling vanadium, nickel and molybdenum prices.

SG&A expenses increased by $4.4 million, or 23%, compared to the prior year due to higher PSU plan costs.

Third quarter 2016 EBITDA margin remained steady at 8% compared to the third quarter 2015.

AMG Engineering

	Q3 '16	Q3 '15	Change
Revenue	$70,036	$54,126	29%
Gross profit	14,507	12,558	16%
Operating profit	7,004	2,154	225%
EBITDA	8,936	4,885	83%

AMG Engineering signed $68.1 million in new orders during the third quarter of 2016, representing a 0.97x book to bill ratio. Order backlog was $158.1 million as of September 30, 2016, consistent with June 30, 2016. Year to date, AMG Engineering signed $211.4 million in new orders, representing a 1.07x book to bill ratio.

AMG Engineering's third quarter 2016 revenue increased $15.9 million, or 29%, to $70.0 million, due to strong sales of plasma remelting and induction furnaces for the aerospace market.

Third quarter 2016 gross profit increased by $1.9 million, or 16%, to $14.5 million, due to higher revenues. Gross Margin decreased slightly to 21% from 23% in the third quarter of 2015 due to product mix effects.

SG&A expenses increased by $1.4 million, or 14%, compared to the prior year, due to higher PSU plan costs.

EBITDA increased by $4.1 million to $8.9 million in the third quarter of 2016, the highest quarterly EBITDA in nineteen quarters. The increase in EBITDA was driven by higher gross profit and the sale of an unused production facility in Berlin, which contributed $4.3 million to EBITDA during the quarter, offset by higher SG&A expenses.

Financial Review

Tax

AMG recorded an income tax expense of $4.1 million in the third quarter of 2016 as compared to a tax expense of $4.7 million in the same period in 2015. AMG paid taxes of $1.1 million in the third quarter of 2016 as compared to tax payments of $1.5 million in the same period in 2015. For the third quarter of 2016, AMG's effective cash tax rate was 12%, compared to 15% in the same period in 2015.

Liquidity

	September 30, 2016	December 31, 2015	Change
Total debt	$172,222	$126,743	36%
Cash and cash equivalents	174,077	127,778	36%
Net debt (cash)	(1,855)	(1,035)	79%

AMG had a net cash position of $1.9 million as of September 30, 2016. Net debt decreased by $0.8 million from December 31, 2015, while gross debt increased by $45.5 million, driven by the increased term loan associated with the new debt facility.

Cash flows from operating activities decreased to $20.7 million in the third quarter 2016 from $27.7 million in the third quarter 2015.

Capital expenditures increased to $8.3 million in the third quarter of 2016 compared to $5.2 million in the same period in 2015. Capital spending in the third quarter of 2016 included $4.2 million of maintenance capital. The largest expansion capital project was for AMG's Ancuabe graphite mine project.

Including the $174 million of cash, AMG had $350 million of total liquidity as of September 30, 2016. AMG successfully enlarged and extended its syndicated credit facility during the quarter. AMG incurred additional one-time financing costs of $4.0 million related to the new facility.

Net Finance Costs

AMG's third quarter 2016 net finance costs were $6.8 million compared to net finance income of $1.5 million in the third quarter of 2015. The increase was primarily due to the write-off of $4.0 million of costs associated with the previous credit facility, following the refinancing exercise completed in July 2016. Furthermore, in the third quarter 2015, net finance expenses benefited from the reversal of $2.1 million of accrued finance expenses.

SG&A

AMG's third quarter 2016 SG&A expenses were $34.7 million compared to $28.9 million in the third quarter of 2015, an increase of 20%. This increase was primarily due to higher costs associated with the PSU plan as a result of recent increases in the Company's share price compared to the defined peer group.

On a year to date basis, the PSU plan costs increased by $8.7 million, compared to the same period in 2015.

Outlook

Without exception, throughout 2016, AMG has delivered quarter-over-quarter improvements in EBITDA relative to the prior year. We expect to continue this performance in the fourth quarter 2016.

In 2017, AMG expects to continue its strong financial performance.

While we remain focused on operating cash flow and return on capital employed, management's priority in 2017 is to execute our transformational lithium project.

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated income statement
For the quarter ended September 30
In thousands of US Dollars	2016	2015
	Unaudited	Unaudited
Continuing operations
Revenue	247,526	241,867
Cost of sales	200,994	202,207
Gross profit	46,532	39,660
Selling, general and administrative expenses	34,701	28,925
Restructuring expense	234	2,455
Environmental	45	-
Other income, net	(4,558)	(17)
Operating profit	16,110	8,297
Finance income	(165)	(70)
Finance expense	6,293	52
Foreign exchange loss (gain)	708	(1,460)
Net finance costs	6,836	(1,478)
Share of profit of associates and joint ventures	368	53
Profit before income tax	9,642	9,828
Income tax expense	4,132	4,679
Profit for the period	5,510	5,149
Attributable to:
Shareholders of the Company	5,181	4,933
Non-controlling interests	329	216
Profit for the period	5,510	5,149
Earnings per share
Basic earnings per share	0.19	0.18
Diluted earnings per share	0.18	0.18

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated income statement
For the nine months ended September 30
In thousands of US Dollars	2016	2015
	Unaudited	Unaudited
Continuing operations
Revenue	733,274	756,301
Cost of sales	588,695	628,726
Gross profit	144,579	127,575
Selling, general and administrative expenses	100,761	91,931
Restructuring expense	756	6,114
Environmental	45	(2,286)
Other income, net	(4,993)	(156)
Operating profit	48,010	31,972
Finance income	(459)	(542)
Finance expense	10,806	9,048
Foreign exchange loss (gain)	1,644	(2,577)
Net finance costs	11,991	5,929
Share of profit of associates and joint ventures	1,804	250
Profit before income tax	37,823	26,293
Income tax expense	7,217	14,235
Profit for the period	30,606	12,058
Attributable to:
Shareholders of the Company	30,602	11,417
Non-controlling interests	4	641
Profit for the period	30,606	12,058
Earnings per share
Basic earnings per share	1.10	0.41
Diluted earnings per share	1.04	0.41

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of financial position
In thousands of US Dollars	September 30, 2016 Unaudited	December 31, 2015
Assets
Property, plant and equipment	213,444	215,833
Goodwill	23,723	18,676
Intangible assets	10,260	10,246
Investments in associates and joint ventures	-	2,230
Other investments	15,000	14,000
Deferred tax assets	31,212	31,551
Restricted cash	2,474	2,527
Other assets	20,750	19,883
Total non-current assets	316,863	314,946
Inventories	144,541	126,389
Trade and other receivables	137,084	124,270
Derivative financial instruments	1,972	978
Other assets	32,509	27,648
Assets held for sale	-	673
Cash and cash equivalents	174,077	127,778
Total current assets	490,183	407,736
Total assets	807,046	722,682

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of financial position
(continued)
In thousands of US Dollars	September 30, 2016 Unaudited	December 31, 2015
Equity
Issued capital	760	745
Share premium	389,466	382,978
Treasury shares	(1,612)	-
Other reserves	(66,545)	(49,500)
Retained earnings (deficit)	(184,554)	(205,662)
Equity attributable to shareholders of the Company	137,515	128,561
Non-controlling interests	22,015	25,006
Total equity	159,530	153,567
Liabilities
Loans and borrowings	160,542	112,217
Employee benefits	141,024	137,853
Provisions	29,985	29,617
Deferred revenue	4,615	13,539
Government grants	449	536
Other liabilities	20,167	8,821
Derivative financial instruments	890	5,642
Deferred tax liabilities	12,327	11,691
Total non-current liabilities	369,999	319,916
Loans and borrowings	2,566	3,222
Short term bank debt	9,114	11,304
Government grants	101	99
Liabilities associated with assets held for sale	-	423
Other liabilities	48,412	42,872
Trade and other payables	137,762	108,019
Derivative financial instruments	3,841	8,379
Advance payments	40,546	44,184
Deferred revenue	11,915	16,124
Current taxes payable	7,942	3,093
Provisions	15,318	11,480
Total current liabilities	277,517	249,199
Total liabilities	647,516	569,115
Total equity and liabilities	807,046	722,682

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	2016	2015
	Unaudited	Unaudited
Cash flows from operating activities
Profit for the year	30,606	12,058
Adjustments to reconcile net profit to net cash flows:
Non-cash:
Income tax expense	7,217	14,235
Depreciation and amortization	22,010	21,957
Net finance costs	11,991	5,929
Share of profit of associates and joint ventures	(1,804)	(250)
Gain on sale or disposal of property, plant and equipment	(4,193)	(179)
Equity-settled share-based payment transactions	1,509	3,326
Movement in provisions, pensions and government grants	(14,834)	1,340
Working capital and deferred revenue adjustments	(2,043)	(2,049)
Cash flows from operating activities	50,459	56,367
Finance costs paid, net	(4,994)	(9,935)
Income tax paid, net	(4,793)	(3,674)
Net cash flows from operating activities	40,672	42,758
Cash flows used in investing activities
Proceeds from sale of property, plant and equipment	522	951
Proceeds from sale of subsidiaries (net of cash divested of $1,820 and $1,347, respectively)	6,512	(1,567)
Acquisition of property, plant and equipment and intangibles	(22,738)	(12,260)
Acquisition of subsidiaries (net of cash acquired of $35 in 2016)	(4,961)	-
Acquisition of other non-current investments	(1,000)	-
Change in restricted cash	116	4,861
Other	(46)	(10)
Net cash flows used in investing activities	(21,595)	(8,025)

AMG Advanced Metallurgical Group N.V.
Condensed interim consolidated statement of cash flows
(continued)
For the nine months ended September 30
In thousands of US Dollars	2016	2015
	Unaudited	Unaudited
Cash flows from (used in) financing activities
Proceeds from issuance of debt	163,755	177,205
Payment of transaction costs related to debt issuance	(3,267)	(5,199)
Repayment of borrowings	(121,640)	(230,780)
Change in non-controlling interests	(2,695)	37,530
Repurchase of common stock	(1,705)	-
Dividends paid	(7,558)	(2,669)
Other	(68)	(167)
Net cash flows from (used in) financing activities	26,822	(24,080)
Net increase in cash and cash equivalents	45,899	10,653
Cash and cash equivalents at January 1	127,778	108,029
Effect of exchange rate fluctuations on cash held	400	(4,612)
Cash and cash equivalents at September 30	174,077	114,070

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

This press release contains regulated information as defined in the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).

About AMG

AMG is a global critical materials company at the forefront of CO ₂ reduction trends. AMG produces highly engineered specialty metals and mineral products and provides related vacuum furnace systems and services to the transportation, infrastructure, energy, and specialty metals & chemicals end markets.

AMG Critical Materials produces aluminum master alloys and powders, titanium alloys and coatings, ferrovanadium, natural graphite, chromium metal, antimony, tantalum, niobium and silicon metal. AMG Engineering designs, engineers, and produces advanced vacuum furnace systems and operates vacuum heat treatment facilities, primarily for the transportation and energy industries.

With approximately 3,000 employees, AMG operates globally with production facilities in Germany, the United Kingdom, France, Czech Republic, the United States, China, Mexico, Brazil and Sri Lanka, and has sales and customer service offices in Russia and Japan ( www.amg-nv.com ).  

For further information, please contact:
AMG Advanced Metallurgical Group N.V.          +1 610 293 5804
Steve Daniels
Senior Vice President
sdaniels@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.

---