AGY Asia operating results up in first quarter
May 16, 2012 - United States Of America
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.
As of March 31, 2012, AGY US cash balance and total debt, net of cash were $1.2 million and $190.8 million, respectively. Compared to December 31, 2011, the $5.7 million decrease in net debt was primarily attributable to a decreased reliance on the borrowing facilities for operating cash needs in our AGY US business segment. As of March 31, 2012, AGY US had total liquidity of approximately $22.1 million.
AGY US liquidity improved during the first quarter of 2012 due primarily to increased operating cash flow. Additionally, higher platinum and rhodium market prices impacted positively the AGY US borrowing base under the $50 million Senior Secured Revolving Credit Facility compared to December 31, 2011.
As of March 31, 2012, AGY Asia cash balance and total debt, net of cash were $2.0 million and $38.1 million, respectively, or a $0.6 million decrease compared to December 31, 2011. As of March 31, 2012, AGY Asia had total liquidity of approximately $4.5 million. AGY Asia liquidity remained essentially flat during the quarter compared to December 31, 2011 but was subsequently reduced in April 2012 by approximately $2.5 million as the AGY Asia lender terminated access to undrawn borrowing availability under the AGY Asia financing agreements.
As previously discussed, the AGY Asia reporting segment has experienced declining operating profits, has significant debt service obligations coming due in 2012 and may require funding for the rebuilding of the furnace, located in the People’s Republic of China. As a result, in April 2012, we retained an advisory firm to provide certain investment banking services to evaluate and assist with a possible combination of AGY Asia with another party, a recapitalization of a significant portion of AGY Asia’s indebtedness or a change of control of AGY Asia in a transaction involving the primary lender for the Asian operation.
We do not expect any possible transaction resulting from this engagement to impact the AGY US business segment as only approximately 1% of the reported revenue for AGY US was derived from products produced by AGY Asia over the last 12 months. Additionally, AGY US expects to maintain its commercial presence and sales channels for glass fibers produced in North America but sold to the Asian market, primarily for specialty electronics applications. While the Company has reported the need to complete a rebuild of the furnace in Asia, it is evaluating alternatives to extend the life of the furnace.
Our AGY US business segment has recently increased production output of its S-2 Glass fiber by 20% with the capability to further increase its output as market demand dictates. This expansion is expected to enable AGY to meet growth in both the aerospace and industrial markets for high-performance glass fibers used for composite reinforcement.
In late March 2012, AGY US entered into a long-term agreement with CTG/Taishan Fiberglass of Shandong Province, China to manufacture under AGY’s license the new S-1 HMTM high-performance glass rovings for wind energy turbine applications.
“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.
As of March 31, 2012, AGY US cash balance and total debt, net of cash were $1.2 million and $190.8 million, respectively. Compared to December 31, 2011, the $5.7 million decrease in net debt was primarily attributable to a decreased reliance on the borrowing facilities for operating cash needs in our AGY US business segment. As of March 31, 2012, AGY US had total liquidity of approximately $22.1 million.
AGY US liquidity improved during the first quarter of 2012 due primarily to increased operating cash flow. Additionally, higher platinum and rhodium market prices impacted positively the AGY US borrowing base under the $50 million Senior Secured Revolving Credit Facility compared to December 31, 2011.
As of March 31, 2012, AGY Asia cash balance and total debt, net of cash were $2.0 million and $38.1 million, respectively, or a $0.6 million decrease compared to December 31, 2011. As of March 31, 2012, AGY Asia had total liquidity of approximately $4.5 million. AGY Asia liquidity remained essentially flat during the quarter compared to December 31, 2011 but was subsequently reduced in April 2012 by approximately $2.5 million as the AGY Asia lender terminated access to undrawn borrowing availability under the AGY Asia financing agreements.
As previously discussed, the AGY Asia reporting segment has experienced declining operating profits, has significant debt service obligations coming due in 2012 and may require funding for the rebuilding of the furnace, located in the People’s Republic of China. As a result, in April 2012, we retained an advisory firm to provide certain investment banking services to evaluate and assist with a possible combination of AGY Asia with another party, a recapitalization of a significant portion of AGY Asia’s indebtedness or a change of control of AGY Asia in a transaction involving the primary lender for the Asian operation.
We do not expect any possible transaction resulting from this engagement to impact the AGY US business segment as only approximately 1% of the reported revenue for AGY US was derived from products produced by AGY Asia over the last 12 months. Additionally, AGY US expects to maintain its commercial presence and sales channels for glass fibers produced in North America but sold to the Asian market, primarily for specialty electronics applications. While the Company has reported the need to complete a rebuild of the furnace in Asia, it is evaluating alternatives to extend the life of the furnace.
Our AGY US business segment has recently increased production output of its S-2 Glass fiber by 20% with the capability to further increase its output as market demand dictates. This expansion is expected to enable AGY to meet growth in both the aerospace and industrial markets for high-performance glass fibers used for composite reinforcement.
In late March 2012, AGY US entered into a long-term agreement with CTG/Taishan Fiberglass of Shandong Province, China to manufacture under AGY’s license the new S-1 HMTM high-performance glass rovings for wind energy turbine applications.