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AGY Asia operating results up in first quarter

16 May '12

6 min read

AGY Holding Corp announced consolidated results for the three months ended March 31, 2012.

“First quarter results reflect strong demand in several of our key markets and a stabilized operating platform for our AGY US business segment,” said Richard Jenkins, interim CEO, AGY Holding Corp.

“The team worked very hard during the quarter to leverage the favorable market conditions, to stabilize the manufacturing environment and to enhance the management of our working capital. We successfully implemented production efficiency improvements, rigorous quality controls, aggressive cost controls and liquidity management measures. Although we are encouraged by the positive start to the year, we know that our operational enhancements are not yet complete, and we remain driven and focused on achieving our business plan goals.”

Consolidated net sales in first quarter 2012 of $47.1 million increased $2.2 million, or 4.7% from the first quarter of 2011, which consists of $40.1 million of sales reported by the AGY US business segment (“AGY US”) and $7.0 million of sales reported by the AGY Asia business segment (“AGY Asia”). AGY US net sales in the first quarter of 2012 increased $2.1 million, or 5.5%, compared to the first quarter of 2011. AGY Asia net sales in the first quarter of 2012 were essentially flat with the first quarter of 2011 level (after accounting for the elimination of intercompany sales).

This increase in net sales was primarily driven by higher volumes in the aerospace, CFM and industrial markets, and some favorable mix gains, particularly in the construction market. The aerospace market remains robust and performed stronger than expected, with an on-going bias toward lighter-weight interior materials. Demand for CFM heavy truck and automotive applications and for industrial applications in oil and gas drilling and fire retardant mattresses resulted in year-over-year volume growth in the CFM and industrial markets.

In the construction market, a mix shift towards more technically-advanced materials for architectural roofing applications helped partially offset volume declines. Additionally, sales into the defense market decreased due to the completion of some U.S. and international programs, and competitive pressure related to certain specialty electronics fibers caused a decline in sales to the electronics market.

Consolidated loss from operations was $2.6 million for the first quarter of 2012 compared to $1.4 million for the same period in 2011, a decline of $1.2 million. AGY US operating results decreased by $1.7 million as operating profit gains at the U.S. subsidiaries' level were more than offset by $2.9 million of restructuring charges. AGY Asia operating results increased by $0.5 million.

Operating results for AGY US improved year-over-year primarily due to higher sales volumes and a more profitable product mix. Manufacturing costs at AGY US improved in the first quarter due to cost control initiatives and operational improvements that stabilized the manufacturing environment; however, those gains were offset by higher metal operating losses resulting from the advanced sale of 2012 metal recoveries in late 2011, and by an increase of cost of goods sold from the sale of inventory with lower gross margins in 2012 due to the change in absorption of manufacturing variances capitalized in prior periods and standard costs revaluations occurring during the first quarter of 2012 .

AGY Asia operating results improved year-over-year primarily due to lower depreciation expense resulting from a lower carrying value after the impairment charge recorded against the AGY Asia long-lived assets last year. Partially offsetting this gain was inflation in labor and energy costs at the Chinese operations.

Adjusted EBITDA attributable to AGY Holding Corp. (which excludes the portion of Adjusted EBITDA attributable to the 30% non-controlling interest in AGY Asia) was $6.5 million for the first quarter of 2012, compared to $4.1 million in the first quarter 2011. AGY US first quarter 2012 Adjusted EBITDA of $5.7 million increased $2.7 million as compared to first quarter 2011 and AGY Asia first quarter 2012 Adjusted EBITDA of $0.8 million decreased $0.3 million as compared to the same period.