Timminco Limited
TSX : TIM

Timminco Limited

August 11, 2008 16:31 ET

Timminco Reports Second Quarter 2008 Results

Quarter marked by progress in ramp up of production and shipments and signing new customer contracts for solar grade silicon

TORONTO, ONTARIO--(Marketwire - Aug. 11, 2008) - Timminco Limited ("Timminco" or the "Company")(TSX:TIM) announced its financial results for the second quarter ended June 30, 2008.

Highlights of the Second Quarter

- Shipped 221 metric tons of solar grade silicon, more than doubling first quarter output of 100 metric tons, at an average selling price of $65 per kilogram.

- Sales were $63.3 million, an increase of 49.3%, compared with $42.4 million in the second quarter of 2007.

- Consolidated earnings before interest, taxes, depreciation, amortization and reorganization costs(1) (EBITDA) for the second quarter of 2008 was $6.5 million compared with $0.3 million for the second quarter of 2007. Consolidated EBITDA for the six months ended June 30, 2008 was $7.6 million compared with a loss of $1.0 million for six months ended June 30, 2007.

- EBITDA for the Silicon Group for the second quarter of 2008 was $9.1 million compared with $2.0 million for the second quarter of 2007. Silicon Group EBITDA for the six months ended June 30, 2008 was $11.6 million compared with $3.1 million for the six months ended June 30, 2007.

- Adjusted net income (excluding a reorganization charge of $9.8 million relating the closure of its Haley, Ontario magnesium facility) was $2.8 million compared with a net loss of $1.5 million in the second quarter of 2007.

- Signed long-term solar grade silicon supply agreements with Solar Power Industries and CaliSolar.

- Initiated the expansion of its solar grade silicon production facility in Becancour, Quebec that is expected to result in annual nominal production capacity of 14,400 metric tons.

(1) EBITDA is not a recognized measure under Canadian generally accepted accounting principles, however, management believes that it is a useful performance measure as it approximates cash generated from operations, before capital expenditures and changes in working capital and excludes unusual items.

Highlights Subsequent to Quarter End

- Signed a long-term solar grade silicon supply agreement with a leading manufacturer of wafers for the photovoltaic energy industry to supply approximately 1,150 metric tons through to December 2009.

- Extended the existing agreement with Q-Cells, to supply 6,000 metric tons of solar grade silicon per year for the years 2010 to 2013.

- Received $16.2 million in deposits from solar grade silicon customers.

"The second quarter was highlighted by progress in the ramp up and expansion of our solar grade silicon production and shipments as we advance towards our planned nominal annual capacity of 14,400 metric tons," said Dr. Heinz Schimmelbusch, Chairman and Chief Executive Officer of Timminco. "As anticipated, we encountered a number of production challenges that are typical during the start-up periods for complex industrial processes, which impacted our output of solar grade silicon for the quarter. Purity of our material is paramount as we continuously refine our facilities in meeting our customers' specifications. Based on our experience to date with the three new production lines commissioned earlier this year, and process improvements that we plan to implement as we expand our solar grade silicon production capacity, we have targeted output in the range of 1,200 to 1,500 metric tons for the current year."

Financial Results

Timminco has two reporting segments: the Silicon Group, which includes the silicon metal and solar grade silicon product lines and the Magnesium Group, which includes the magnesium extrusion and fabrication and specialty metals product lines. Timminco also has a minority investment in Fundo Wheels AS, an aluminum wheels business based in Norway.

Sales for the second quarter of 2008 were $63.3 million, an increase of 49.3% from $42.4 million in the same period of 2007. For the six months ended June 30, 2008, sales were $110.8 million, an increase of 30% from $85.2 million for the six months ended June 30, 2007. The growth is attributable to higher sales of the Company's solar grade silicon and silicon metal products.

Net loss for the second quarter was $7.0 million, or $0.07 per share, compared to a net loss of $1.5 million, or $0.02 per share, for the second quarter of 2007. The higher loss is the result of a $9.8 million reorganization charge related to the closure of the Company's Haley, Ontario manufacturing facility under its Magnesium Group. Excluding the reorganization charge, adjusted net income for the second quarter was $2.8 million. For the six months ended June 30, 2008, net loss was $7.6 million compared with a net loss of $4.6 million for the first half of 2007. Excluding the aforementioned reorganization charge, adjusted net income for the six months ended June 30, 2008 was $2.2 million. The Company expects that the closing of the Haley facility will result in annual savings up to $5 million, due to reduction in the fixed overhead costs of such facility.

During the second quarter, the Company invested $11.6 million to support the next phase expansion of its solar grade silicon manufacturing facility to 14,400 metric tons of annual production. For the six months ended June 30, 2008, Timminco invested $28.9 million in capital expenditures, of which $26.1 million was directed towards the construction of its solar grade silicon production facilities in Becancour, Quebec.

Cash and short-term investments as at June 30, 2008 were $1.0 million, compared to $34.6 million at December 31, 2007. The Company received deposits of $7.7 million in the second quarter and an additional $16.2 million subsequent to the end of quarter from customers under the terms of its solar grade silicon supply contracts. At June 30, 2008, the Company had incremental borrowing capacity available to it through its credit facility of US$23.0 million. The Company believes it will have sufficient liquidity to finance its capital expansion plans and working capital needs, based on its cash on hand, solar grade silicon customer deposits, cash flow from operations and its existing credit facility.

Silicon Group

Sales of the Silicon Group for the second quarter were $45.0 million, an increase of 77.29% from $25.4 million for the second quarter of 2007. For the six months ended June 30, 2008, sales for the Silicon Group were $79.8 million, an increase of 61.5% from $49.4 million for the first half of 2007. The growth was due to an increase in the sales of solar grade silicon and a higher average selling price for silicon metal.

The Silicon Group shipped 221 metric tons of solar grade silicon in the second quarter, an increase of 121% from 100 metric tons shipped in the first quarter of 2008, generating revenue of $14.4 million. The Company continued to ramp-up production in the quarter and resolved a number of production issues that typically occur in such start-up situations and identified enhancements to be addressed in the third quarter.

Gross profit for the second quarter of 2008 was $9.9 million, or 21.9% of sales, compared with a gross margin of $0.4 million, or 1.5% of sales in 2007. Gross margin for the solar grade silicon product was 51% after deducting the start-up costs incurred in the quarter. Gross profit for the six months ended June 30, 2008 was $14.1 million, or 17.7% of sales, compared with a gross margin of $2.0 million, or 4.1% of sales, for the six months ended June 30, 2007. The increase was due to higher sales of solar grade silicon, as well as a higher average selling price for silicon metal in the second quarter of 2008.

Amortization of capital assets in the second quarter of 2008 was $1.3 million compared with $0.6 million in the second quarter of 2007. The increase was due to higher depreciation charges against assets now in use at the Company's solar grade silicon manufacturing facility.

Earnings before interest, taxes, depreciation and amortization(2) (EBITDA) for the second quarter of 2008 was $9.1 million compared with $2.0 million for the second quarter of 2007. EBITDA for the six months ended June 30, 2008 was $11.6 million compared with $3.1 million for six months ended June 30, 2007.

(2) EBITDA is not a recognized measure under Canadian generally accepted accounting principles, however, management believes that it is a useful performance measure as it approximates cash generated from operations, before capital expenditures and changes in working capital and excludes unusual items.

Magnesium Group

Sales of the Magnesium Group were $18.3 million in the second quarter of 2008, an increase of 8.3% from the $16.9 million for the second quarter of 2007. For the six months ended June 30, 2008, sales were $31.1 million compared with $35.8 million for the six months ended June 30, 2007, a decrease of 13.1% . The increase in sales is attributable to price increases across most of the Group's product lines to offset higher magnesium metal costs. The decline relates primarily to opportunistic sales of excess magnesium metal on hand in 2007 that did not repeat in 2008. Sales softness in the Magnesium Group's traditional markets of water heater anodes and construction tools were offset by increased volume in specialty metals markets.

Gross profit for the second quarter was $2.2 million, or 11.9% of sales. This compares to $2.2 million or 13.3% of sales in the second quarter of 2007. Although overhead expenses were decreased by $0.8 million, these were offset by higher costs for magnesium feedstock and increased competition in principal markets. Gross profit for the six months ended June 30, 2008 was $3.4 million, or 10.9% of sales, compared with a gross margin of $3.3 million, or 9.3% of sales, for the six months ended June 30, 2007.

Earnings before interest, taxes, depreciation, amortization and reorganization costs(3) (EBITDA) for the second quarter of 2008 was $66,000 compared with EBITDA of $0.7 million for the second quarter of 2007. EBITDA for the six months ended June 30, 2008 was $0.2 million compared with an EBITDA loss of $0.2 million for six months ended June 30, 2007.

(3) EBITDA is not a recognized measure under Canadian generally accepted accounting principles, however, management believes that it is a useful performance measure as it approximates cash generated from operations, before capital expenditures and changes in working capital and excludes unusual items.



Financial Highlights
Three Months Ended Six Months Ended
(unaudited) (unaudited)

June June June June
30, 2008 30, 2007 30, 2008 30, 2007

Sales $ 63,288 $ 42,371 $ 110,845 $ 85,157
Gross profit 12,274 2,952 17,975 5,999
Gross profit
percentage 19.4% 7.0% 16.2% 7.0%
Net loss (7,048) (1,502) (7,604) (4,621)
Loss per common
share, basic and
diluted (0.07) (0.02) (0.07) (0.06)
Working capital
(excluding available
cash items and bank
indebtedness) 42,351 22,143 42,351 22,143
Total assets 207,203 115,047 207,203 115,047
Cash and marketable
securities 1,046 758 1,046 758
Bank debt 10,003 9,744 10,003 9,744
Total long term
liabilities 28,433 22,903 28,433 22,903
Weighted average
number of
Common shares
outstanding, basic
and diluted 104,082 86,913 104,040 81,055


Timminco will file its consolidated financial statements for the quarter ended June 30, 2008, and related management's discussion and analysis (MD&A) with securities regulatory authorities within the applicable timelines. Such financial statements, MD&A and related documents will be available through SEDAR at www.sedar.com as well as through Timminco's website, www.timminco.com.

Timminco will also post on its website a document that describes the material factors or assumptions underlying certain forward-looking information contained in PHOTON Consulting's Operational Review Report on Becancour Silicon Inc. posted on Timminco's website and discussed in a conference call hosted by Timminco on May 14, 2008. Timminco commissioned such report to support due diligence efforts for strategic discussions beyond normal supplier-customer relationships that are ongoing with potential partners. Although based on information provided by Timminco to PHOTON Consulting, the expectations, forecasts and other statements in the Operational Review Report relating to future developments in Timminco's solar grade silicon represent the exclusive opinion of PHOTON Consulting and are not necessarily shared or endorsed by Timminco. Timminco expects to post such document on its website, under the "Investors" tab, by no later than the time it files its consolidated financial statements for the quarter ended June 30, 2008, and related MD&A with securities regulatory authorities.

About Timminco

Timminco is a leader in the production and marketing of lightweight metals, specializing in solar grade silicon for the rapidly growing solar photovoltaic energy industry. Using its proprietary technology, Timminco processes metallurgical grade silicon into low cost solar grade silicon for use in the manufacture of solar cells. Timminco also produces silicon metal, magnesium extrusions and other specialty metals for use in a broad range of industrial applications serving the aluminum, chemical, pharmaceutical, electronics and automotive industries.

CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION

This news release contains "forward-looking information", as such term is defined in applicable Canadian securities legislation, concerning Timminco's future financial or operating performance and other statements that express management's expectations or estimates of future developments, circumstances or results. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "expects", "believes", "anticipates", "budget", "scheduled", "estimates", "forecasts", "intends", "plans" and variations of such words and phrases, or by statements that certain actions, events or results "may", "will", "could", "would" or "might" "be taken", "occur" or "be achieved". In this news release, such information includes statements regarding supply commitments, projected output for the current year, future production capacity, and liquidity and capital resources for capital expansion and working capital for Timminco's solar grade silicon product line, and anticipated cost savings in Timminco's magnesium business. Forward-looking information is based on a number of assumptions and estimates that, while considered reasonable by management based on the business and markets in which Timminco operates, are inherently subject to significant operational, economic and competitive uncertainties and contingencies.
Timminco cautions that forward-looking information involves known and unknown risks, uncertainties and other factors that may cause Timminco's actual results, performance or achievements to be materially different from those expressed or implied by such information, including, but not limited to: limited history with solar grade silicon production; expansion of solar grade silicon production and sales; production capacity expansion at the Becancour facilities; protection of intellectual property rights; increasing and maintaining the purity of solar grade silicon; long-term contracts for supplying solar grade silicon; selling prices for solar grade silicon; price volatility for silicon metal; pricing and availability of raw materials for silicon metal and solar grade silicon production; dependence upon power supply for silicon metal production; cost of solar grade silicon production; price volatility for magnesium metal; magnesium supply chain interruptions; dependence upon key customers of magnesium extruded and fabricated products; manufacturing cost reduction initiatives; financing requirements for capital expenditures; limitations under existing credit facilities; foreign currency exchange; dependence upon key executives and employees; customer concentration; completion and integration of potential acquisitions, partnerships or joint ventures; risks with foreign operations and suppliers; environmental, health and safety laws and liabilities; equipment failures; transportation disruptions; conflicts of interest; intellectual property infringement claims; new regulatory requirements; labour disputes; and changes in tax laws. These factors are discussed in greater detail in Timminco's Annual Information Form for the year ended December 31, 2007, which is available via the SEDAR website at www.sedar.com. Although Timminco has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in forward-looking information, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate or that management's expectations or estimates of future developments, circumstances or results will materialize. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information in this news release is made as of the date of this news release and Timminco disclaims any intention or obligation to update or revise such information, except as required by applicable law.

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Contact Information

  • Timminco Limited
    Robert Dietrich
    Executive Vice President - Finance and CFO
    (416) 364-5171
    (416) 364-3451 (FAX)
    Email: rdietrich@timminco.com
    or
    The Equicom Group Inc.
    Lawrence Chamberlain
    (416) 815-0700 ext. 257
    (416) 815-0080 (FAX)
    Email: lchamberlain@equicomgroup.com