Timminco: Q2 Results
Timminco Limited reported its financial results for the second quarter ended June 30, 2011 ("Q2-11"). All figures are in Canadian dollars unless otherwise stated.
Beginning with the first quarter of 2011, the Company is reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"), as required for public companies in Canada. Previously, the Company reported its financial results under Canadian Generally Accepted Accounting Principles ("GAAP"). Financial results for the comparable periods in 2010 ("Q2-10") have been restated to reflect the adoption of IFRS. Under IFRS, the Company's 51% ownership in Quebec Silicon Limited Partnership ("Quebec Silicon"), the silicon metal production partnership established with Dow Corning Corporation in October 2010, is accounted for using the equity method, under which the Company's financial results reflect its proportionate ownership in Quebec Silicon. As a result, the Company's financial results have been reduced by reason of the change in accounting methods, even though the scale of operations and ownership interests in Quebec Silicon remain unchanged. Previously under Canadian GAAP, Quebec Silicon's financial statements were consolidated with the Company's.
Second Quarter 2011 Summary:
-- Consolidated sales were $21.0 million in Q2-11 compared with $34.3
million in Q2-10, with the decrease reflecting the deconsolidation of
Quebec Silicon's results of operations on January 1, 2011;
-- Sales from silicon metal product lines were $15.7 million, reflecting
shipments of 5,460 mt in Q2-11, compared with $32.0 million, reflecting
shipments of 13,228 mt, in Q2-10 when the Company owned 100% of the
silicon metal production operations;
-- Sales of solar grade silicon were $3.1 million, reflecting shipments of
87 metric tons in Q2-11, compared to no sales in Q2-10;
-- Gross loss was $2.8 million (negative 13.3% of sales) in Q2-11 compared
with $2.3 million (negative 6.8% of sales) in Q2-10, with positive gross
margin of $1.0 million related to sales of silicon metal products;
-- EBITDA was negative $3.6 million in Q2-11 compared with negative $3.0
million for Q2-10; and
-- Net loss was $5.3 million, or $0.03 per share in Q2-11, compared with
$9.7 million, or $0.05 per share for Q2-10.
"Our results for the second quarter reflect the continued operation of our silicon metal operations at capacity, excluding planned major maintenance shut downs, as well as sales of 87 metric tons solar grade silicon from inventories, bringing total solar grade silicon sales for the first half of 2011 to 159 metric tons," said Dr. Heinz Schimmelbusch, Chairman of the Board and Chief Executive Officer of Timminco. "Our solar grade silicon sales in the first half of 2011 reflect the ongoing interest in the product for the PV market. As we continue to test improvements to our purification process on a small scale, we plan for production-scale testing in the second half of 2011, in advance of restarting our solar grade silicon operations. Our short-term objective is to develop a customer base, with firm supply commitments, to support a decision to invest the capital required for the restart of our solar grade silicon operations."
The Silicon Group segment is operated through the Company's wholly-owned subsidiary, Becancour Silicon Inc. ("Becancour Silicon"). Until September 30, 2010, the Silicon Group segment consisted of the production and sale of silicon metal and solar grade silicon products. As of October 1, 2010, the production of silicon metal was transferred to Quebec Silicon, and Becancour Silicon became a purchaser of silicon metal from Quebec Silicon and continued to sell silicon metal to its own customers. For the three months ended December 31, 2010, Quebec Silicon's results of operations were consolidated with the Company under Canadian GAAP. However, starting January 1, 2011, Quebec Silicon's results are not consolidated with the Company under IFRS. The Silicon Group segment continues to include all of the production and sale of solar grade silicon.
For Q2-11, Silicon Group sales were $21.0 million, compared with $34.3 million in Q2-10.
Sales of silicon metal in Q2-11 were $15.7 million, compared with $32.0 million for Q2-10. As a result of transferring the silicon metal production assets to Quebec Silicon and establishing the production and supply agreements with Dow Corning in Q4-10, quantities of silicon metal available for sale by Becancour Silicon to its customers were reduced by 49%. This is reflected in the lower volumes and revenues in Q2-11, compared with Q2-10. However, the Company has been able to realize higher unit selling prices for silicon metal in Q2-11, reflecting improved market demand and higher realized prices under the supply contract with a long-standing customer compared to Q2-10. The volume of silicon metal sold by Becancour Silicon in the six months ended June 30, 2011 ("H1-11") includes shipments from its existing silicon metal inventories and silicon metal purchased from Quebec Silicon and other suppliers. The volume of silicon metal allocated to Becancour Silicon in H1-11 was greater than 51% of Quebec Silicon's production during that period and, accordingly, Becancour Silicon's allocation will be reduced in subsequent reporting periods.
As a result of the transfer of the silicon metal production assets to Quebec Silicon in Q4-10, all by-products produced by Quebec Silicon are sold by Becancour Silicon as agent on behalf of Quebec Silicon. Consequently, these by-product sales are no longer included in the Silicon Group's sales. However, Becancour Silicon still owns a silica fumes disposal site and extracts silica fumes (a form of by-product) from that site. Silica fumes extraction operations are conducted mainly in the summer months. During Q2-11, $2.2 million of silica fumes were extracted and sold.
Sales of solar grade silicon for Q2-11 were $3.1 million, compared with $nil in Q2-10, and reflect sales of inventories produced in 2009, some of which was further processed at the ingoting facility in Becancour, Quebec. The sales reflect demand due to improved market conditions, as well as the progress of the Company's market development efforts. The Company continues to test its purification process and develop prospective customers to enable the restart of purification operations, as market conditions warrant.
Gross loss for Q2-11 was $2.8 million (negative 13.3% of sales) compared with $2.3 million (negative 6.8% of sales) in Q2-10. Gross margin related to silicon metal sales for Q2-11 was $1.0 million compared with $1.2 million for Q2-10. Although the Company realized higher average selling prices for silicon metal compared with Q2-10, these were offset by higher costs of production due to lower yields resulting from poor raw material quality and unabsorbed overheads during planned maintenance shut downs. Gross margin for H1-11 was unfavourably impacted by $0.9 million, compared with H1-10, as a result of lower realized Canadian dollar selling prices resulting from the depreciation of the Euro and US dollar relative to the Canadian dollar. Commencing October 2010, to mitigate the volatility of short term exchange rate movements, Becancour Silicon entered into forward contracts to convert anticipated Euro inflows into Canadian dollars. Gross loss related to solar grade silicon sales for Q2-11 was $3.8 million compared with $3.5 million for Q2-10. The increase in gross loss for Q2-11 was the result of stand-down and other overhead costs related to the solar grade silicon facilities, depreciation and amortization and process improvement and development costs.
EBITDA for Q2-11 was negative $1.6 million compared with positive $0.6 million for Q2-10. The increase was the result of the aforementioned higher production costs for silicon metal and the operation of the solar grade silicon ingoting facility for inventory production and market development. Q2-11 was unfavourably impacted by the currency translation effect of the Canadian dollar against the Euro and the US dollar.
Net loss for Q2-11 was $3.2 million compared with $3.3 million for Q2-10. The decrease was the result of profitable shipments of solar grade silicon inventory, which was partially offset by higher silicon metal production costs and solar grade silicon market development costs.
EBITDA for Q2-11 was negative $3.6 million compared with negative $3.1 million for Q2-10. The decrease is primarily the result of higher production costs for silicon metal and the operation of the solar grade silicon ingoting facility for inventory production, as well as stand down and other overhead costs relating to the solar grade silicon production facilities, costs relating to continuous process improvement, and the unfavourable impact of the strengthening of the Canadian dollar against the U.S. dollar and the Euro.
Net loss for Q2-11 improved to $5.3 million, or $0.03 per share, compared with $9.7 million, or $0.05 per share, for Q2-10.
Cash, cash equivalents and restricted cash at June 30, 2011 were $0.4 million compared with $7.6 million at December 31, 2010. The decrease is primarily the result of cash consumed by ongoing operating activities. The Company had drawn $0.7 million against its $20 million senior credit facility with Bank of America at June 30, 2011.
Timminco will file its unaudited consolidated financial statements for the period ended June 30, 2011 and related management's discussion and analysis ("MD&A") prepared in accordance with IFRS 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 host a conference call tomorrow, Wednesday, August 10, 2011, at 10:00 a.m. ET to discuss its financial results for the second quarter and year to date ended June 30, 2011. To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Wednesday, August 17, 2011 at midnight. To access the archived conference call, dial 416-849-0833 or 1-855-859-2056 and enter the reservation number 87476643#.
A live audio webcast of the conference call will also be available at www.timminco.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be available for replay at www.timminco.com following the live presentation.
Timminco produces silicon metal for the chemical (silicones), aluminum and electronics/solar industries, through its 51%-owned production partnership with Dow Corning, known as Quebec Silicon. Timminco is also a producer of solar grade silicon, using its proprietary technology for purifying silicon metal, for the solar photovoltaic energy industry, through its wholly owned subsidiary Becancour Silicon.
Executive Vice President - Finance and CFO
(416) 364-3451 (FAX)