AMG reports drop in profits for fourth quarter 2019

February 27, 2020

AMG Advanced Metallurgical Group N.V., Amsterdam, the Netherlands, has reported fourth quarter 2019 revenue of $268.6 million, a 22% decrease from $344.4 million in the fourth quarter of 2018. EBITDA for the fourth quarter of 2019 was reported at $22.8 million, a 64% decrease from $62.8 million in the fourth quarter of 2018. In the fourth quarter of 2019, cash generated from operating activities was reported at $55.5 million, an increase of $4.8 million, or 10%, over the same period in 2018 despite the lower profitability.

AMG Critical Materials’ revenue for the fourth quarter decreased by $51.3 million, or 23%, to $170.2 million, said to be driven largely by lower average prices across all seven business units during the quarter, partially offset by higher sales volumes of vanadium and chrome metal. Gross profit before non-recurring items in the fourth quarter decreased by $28.6 million, or 57%, to $21.7 million. 

The reduction in gross profit was said to be driven primarily by decreased profitability in the division’s vanadium business, exacerbated by lower profitability across all seven business units. The fourth quarter 2019 EBITDA margin declined to 8% due to the lower price environment experienced in the quarter.

AMG Technologies’ fourth quarter 2019 revenue decreased by $24.6 million, or 20%, to $98.4 million, reportedly due to lower heat treatment services sales, lower metal prices impacting the Titanium Alloys and Coatings business, and a $7.5 million customer payment related to the early termination of a customer contract recorded in the fourth quarter of 2018. These declines were said to be offset by higher revenue from aftersales services as well as higher sales of vacuum furnaces, such as turbine blade coaters and remelting furnaces.

Gross profit for the division before non-recurring items in the fourth quarter was said to have decreased $14.6 million, or 40%, to $22.2 million, and gross margin was 23%, compared to 29% in the fourth quarter 2018, due to the revenue effects noted above, in particular the $7.5 million customer payment received in the fourth quarter of 2018.

AMG Technologies’ fourth quarter EBITDA decreased by 54% to $9.7 million from $21.3 million in the fourth quarter of 2018 due to the decline in gross profit. However, due to strong orders of remelting, turbine blade coating, engineering services and induction furnaces, the company signed $80.5 million in new orders during the fourth quarter of 2019. 

Looking ahead to the 2020 financial year, the company stated that it would be “extremely difficult” to provide firm guidance, citing temporary disruptions in the aerospace supply chain resulting from issues facing the Boeing 737 MAX and the uncertain impact of the coronavirus (Covid-19), which continue to pose unpredictable variables for the current market. 

However, it was noted that AMG Technologies’ backlog at the end of January 2020 was at its highest level in over a decade. In addition, the company stated that critical material prices appeared to have reached a bottom, with early 2020 market pricing showing signs of improvement from the depressed pricing experienced throughout 2019. In particular, vanadium pricing was said to have increased by over 30% in the early part of 2020.

Dr Heinz Schimmelbusch, Chairman of the Management Board and CEO of AMG, commented on the company’s results, “AMG achieved EBITDA of $23 million in the fourth quarter, resulting in total EBITDA of $121 million for 2019. AMG generated cash flows from operations of $56 million in the fourth quarter despite the unprecedented fall in critical materials prices across the AMG portfolio. As a result, AMG ends the year with strong liquidity and the ability to continue to invest in our growth projects.”

“As we face global macroeconomic challenges throughout our business, we continue to focus on the things we can control. Specifically, we have maintained an industry-leading working capital cycle of 21 days, which is down 17 days, or 45%, from the prior year ending balance,” he continued. “This is accomplished by constant management focus on investment effectiveness and increasing operating efficiency throughout the company. In addition, despite the poor market conditions, our status as a low-cost producer across all nine of AMG’s business units ensured that each one was EBITDA positive throughout 2019.” 

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