Neo Material Technologies reports third quarter 2008 financial results

TORONTO, Nov. 6, 2008 (Canada NewsWire via COMTEX) -- NEMFF | Quote | Chart | News | PowerRating -- << Third Quarter 2008 highlights: - Revenue increased 13% from 3Q07 to US$71M - EBITDA at US$14 M - Net income and EPS at US$8M and US$0.07 - Cash at a record US$47M - Long-term debt retired - Cash flow from operations at US$21M >>

Neo Material Technologies Inc. (TSX: NEM | Quote | Chart | News | PowerRating) (the "Company") today reported its financial results for the three-month and nine-month periods ended September 30, 2008. Unless otherwise specified, all currency amounts are expressed in U.S. dollars.

For the three-month period ended September 30, 2008, the Company reported revenues of $71.1 million and net income of $7.8 million, or $0.07 per share on a basic and fully diluted basis. Operating income plus depreciation and amortization ("EBITDA") during the quarter was $13.9 million. This compares to 2007 revenues of $63.1 million, net income of $5.7 million, or $0.06 per share on a basic and fully diluted basis, and EBITDA of $16.0 million. For the three months ended September 30, 2008 and 2007, the weighted average basic number of common shares outstanding was 108,355,862 and 100,842,340, respectively.

For the nine-month period ended September 30, 2008, the Company reported a 26% increase in revenues to $220.0 million and net income of $24.0 million, or $0.23 per share on basic and fully diluted basis. EBITDA during the first nine months of the year amounted to $47.0 million. This compares to 2007 nine-month revenues of $174.6 million and net income, EBITDA and earnings per share of $19.7 million, $44.5 million and $0.24 and $0.23 per share on a basic and fully diluted basis, respectively. For the nine months ended September 30, 2008 and 2007, the weighted average basic number of common shares outstanding was 103,582,325 and 90,606,096, respectively.

On September 8, 2008, the Company reported that 17,581,800 of the Corporation's warrants were exercised on or before the expiry date of September 2, 2008 representing 99% of the total warrants issued on August 31, 2005 which were exercisable into common shares at Cdn$2.50 per share. The aggregate total proceeds from the exercise of the warrants was approximately Cdn$44.0 million, of which Cdn$40.7 million was received during the third quarter of 2008. A portion of these proceeds was used to retire the long-term debt of the Corporation.

At September 30, 2008, the Company had a record $47.0 million in cash. Long-term debt was reduced to nil as at September 30, 2008, compared to $19.9 million at June 30, 2008. As a result, the Company is well positioned with a strong and flexible balance sheet, which will enable it to weather the current economic environment and also pursue strategic growth opportunities that will complement its strong organic growth profile.

During the third quarter of 2008, Magnequench shipped 1,178MT, a 7% quarter-over-quarter increase. Volume shipped at Magnequench increased on a quarter-over-quarter basis despite a shift in sales from the third quarter to the second quarter prior to the Beijing Olympics. AMR Performance Materials shipped 1,825MT, a small 3% decline compared to the tonnage shipped in the same three-month period in 2007. However, due to gross margin compression, there was a more pronounced decline in operating income. During the quarter, selling prices of selected rare earth products declined with immediate impact to gross margin. Also, during the quarter, raw material costs declined; however the impact of this on product costs will not take effect until the fourth quarter. Third quarter operating income was negatively impacted by this timing difference.

<< Magnequench $000's (except for ----------------------------------------------------- quantity shipped) Q3 Q4 Q1 Q2 Q3 Trailing 2007 2007 2008 2008 2008 Twelve Months ------------------------------------------------------------------------- Quantity Shipped (tonnes) 1,097 1,183 1,242 1,404 1,178 5,007 ------------------------------------------------------------------------- Revenues 31,963 35,571 35,562 40,867 33,830 145,830 ------------------------------------------------------------------------- Operating Income 12,566 13,070 10,806 11,422 10,102 45,400 ------------------------------------------------------------------------- AMR Performance Materials ----------------------------------------------------- $000's (except for Q3 Q4 Q1 Q2 Q3 Trailing quantity shipped) 2007 2007 2008 2008 2008 Twelve Months ------------------------------------------------------------------------- Quantity Shipped (tonnes) 1,882 2,315 2,156 2,271 1,825 8,567 ------------------------------------------------------------------------- Revenues 34,445 38,046 37,885 48,502 39,746 164,179 ------------------------------------------------------------------------- Operating Income 4,094 4,597 4,710 6,040 2,223 17,570 ------------------------------------------------------------------------- Consolidated $000's (except for ----------------------------------------------------- EPS) Q3 Q4 Q1 Q2 Q3 Trailing 2007 2007 2008 2008 2008 Twelve Months ------------------------------------------------------------------------- Inter-segment sales (3,314) (7,725) (7,959) (5,917) (2,467) (24,068) ------------------------------------------------------------------------- Revenues 63,094 65,892 65,488 83,452 71,109 285,941 ------------------------------------------------------------------------- Operating Income 13,324 14,337 13,504 13,790 10,924 52,555 ------------------------------------------------------------------------- EBITDA 16,031 17,182 16,418 16,738 13,851 64,189 ------------------------------------------------------------------------- Net Income 5,659 8,554 8,277 7,911 7,828 32,570 ------------------------------------------------------------------------- EPS (F.D.) 0.06 0.08 0.08 0.07 0.07 0.30 ------------------------------------------------------------------------- >>

"Looking ahead, we have tempered our short term sales expectations but look for strong demand for our Neo powders and rare earth products to return around the middle of 2009. Neo Material Technologies is extremely well positioned to weather the current economic climate with very low debt, substantial cash, solid customer relationships, innovative technology and a leading position in its chosen markets." noted Constantine Karayannopoulos, President & CEO.

About Neo Material Technologies

Neo Material Technologies is a producer, processor and developer of neodymium-iron-boron magnetic powders, rare earths and zirconium based engineered materials and applications through its Magnequench and AMR Performance Materials business divisions. These innovative products are essential in many of today's high technology products. Magnequench's neo powders are used to produce bonded magnets, generally used in micro motors, precision motors, sensors and other applications requiring high levels of magnetic strength, flexibility, small size and reduced weight. Rare earth and zirconium applications include catalytic converters, computers, television display panels, optical lenses, mobile phones and electronic chips. The Company is headquartered in Toronto, Canada and has approximately 1,300 employees in 15 locations, across 10 countries.

Forward Looking Statements

From time to time, the Company may publish forward-looking statements relating to such matters as expected financial performance, business prospects, technological developments, and development activities and like matters. These statements involve risk and uncertainties, including but not limited to the risk factors previously described. Actual results could differ materially from those projected as a result of these risks and should not be relied upon as a prediction of future events. Neo Material Technologies Inc. undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Teleconference Call

Management will host a teleconference call on Friday, November 7, 2008 at 10:00 a.m. (Eastern Time) to discuss these results. Interested parties may access the teleconference by calling (416) 915-5762 (local) or (800) 796-7558 (toll free long distance) or by visiting http://www.newswire.ca/webcast. A recording of the teleconference may be accessed by calling (416) 640-1917 (local) or (877) 289-8525 (toll free long distance), and entering pass code 21287884 followed by the number sign until December 8, 2008 or by visiting http://www.newswire.ca/webcast.

Online Access

The financial statements and the Management's Discussion and Analysis will be posted to SEDAR (www.sedar.com) and available online at www.neomaterials.com by Friday, November 7, 2008.

<< Financial Results follow NEO MATERIAL TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEETS (All figures in thousands of United States dollars) September 30 December 31 2008 2007 (Unaudited) ------------------------------------------------------------------------- ASSETS Current Cash $ 47,048 $ 17,160 Accounts receivable 33,287 32,919 Inventories 68,404 68,892 Future income tax asset 1,038 604 Other current assets 1,563 4,408 ------------------------------------------------------------------------- Total current assets 151,340 123,983 ------------------------------------------------------------------------- Property, plant and equipment 50,660 50,175 Patents and other intangible assets 17,027 19,776 Pension benefit asset 4,082 4,165 Goodwill 37,620 37,620 Other long-term assets 5,967 4,559 ------------------------------------------------------------------------- Total assets $ 266,696 $ 240,278 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Bank advances and other short-term debt $ 14,910 $ 25,668 Accounts payable and other accrued charges 33,469 47,498 Long-term debt due within one year - 17,500 ------------------------------------------------------------------------- Total current liabilities 48,379 90,666 ------------------------------------------------------------------------- Long-term debt - 22,594 Future income tax liability 1,232 1,419 Accrued postretirement benefits 624 625 Other long-term liabilities 9,874 9,603 ------------------------------------------------------------------------- Total liabilities 60,109 124,907 ------------------------------------------------------------------------- Non-controlling interest 23,987 7,494 Contingencies and commitments Subsequent event Shareholders' equity 182,600 107,877 ------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 266,696 $ 240,278 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NEO MATERIAL TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT (Unaudited - all figures in thousands of United States dollars, except per share information) Three months ended Nine months ended September 30 September 30 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenues $ 71,109 $ 63,094 $220,049 $174,604 Costs of sales Costs excluding depreciation and amortization 49,958 38,052 147,965 106,841 Depreciation and amortization 2,101 1,903 6,330 4,860 ------------------------------------------------------------------------- Gross profit 19,050 23,139 65,754 62,903 Expenses Selling, general and administrative 8,080 6,595 22,930 18,408 Stock-based compensation (2,170) 1,362 (1,042) 2,330 Depreciation and amortization 826 804 2,459 2,412 Research and development 1,390 1,054 3,189 2,574 ------------------------------------------------------------------------- 8,126 9,815 27,536 25,724 ------------------------------------------------------------------------- Operating income before the undernoted 10,924 13,324 38,218 37,179 Other (income) expense (319) 7 (470) (168) Interest expense, long-term debt 670 3,844 3,631 8,784 Interest expense, other 452 400 1,598 1,000 Foreign exchange (gain) loss (147) (663) 399 (890) ------------------------------------------------------------------------- Income from operations before taxes, non-controlling interest and equity income of affiliate 10,268 9,736 33,060 28,453 Income taxes 2,021 2,695 7,451 7,622 ------------------------------------------------------------------------- Income from operations before non-controlling interest and equity income of affiliate 8,247 7,041 25,609 20,831 Equity income of affiliate 270 182 553 584 Non-controlling interest in earnings of subsidiaries (689) (1,564) (2,146) (1,758) ------------------------------------------------------------------------- Net income for the period $ 7,828 $ 5,659 $ 24,016 $ 19,657 ------------------------------------------------------------------------- Deficit, beginning of period (65,376) (52,973) (81,564) (67,009) Cumulative impact of adopting new accounting requirements for financial instruments - - - 38 Early retirement of convertible debenture - (42,804) - (42,804) ------------------------------------------------------------------------- Deficit, end of period (57,548) (90,118) (57,548) (90,118) ------------------------------------------------------------------------- Net income per share, basic $ 0.07 $ 0.06 $ 0.23 $ 0.24 ------------------------------------------------------------------------- Net income per share, diluted $ 0.07 $ 0.06 $ 0.23 $ 0.23 ------------------------------------------------------------------------- NEO MATERIAL TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - all figures in thousands of United States dollars) Three months ended Nine months ended September 30 September 30 2008 2007 2008 2007 ------------------------------------------------------------------------- Operating Activities Net income for the period $ 7,828 $ 5,659 $ 24,016 $ 19,657 Add (deduct) items not affecting cash Depreciation and amortization 2,927 2,707 8,789 7,272 Stock-based compensation (2,170) 1,362 (1,042) 2,330 Non-controlling interest in earnings of subsidiaries 689 1,564 2,146 1,758 Accretion in carrying value of debt 345 206 1,749 1,193 Future income tax 87 128 (621) (143) Equity income of affiliate (270) (182) (553) (584) Write-off of deferred financing costs - 2,322 - 2,322 Amortization of deferred financing costs - 147 - 147 Accrued benefit expense 119 30 173 142 Loss on disposal - - - 9 Restructuring payment - - - (77) Net change in non-cash working capital balances related to operations 11,578 (10,838) (3,958) (31,038) ------------------------------------------------------------------------- Cash provided by operating activities 21,133 3,105 30,699 2,988 ------------------------------------------------------------------------- Investing activities Acquisition of property, plant and equipment (1,882) (960) (6,524) (2,756) Acquisition of intangible asset - (4,925) - (4,925) Other investments - (150) (693) (150) Cash acquired on consolidation of VIE - - - 308 Decrease in restricted cash - - - 269 ------------------------------------------------------------------------- Cash used in investing activities (1,882) (6,035) (7,217) (7,254) ------------------------------------------------------------------------- Financing activities Repayment of long-term debt (20,095) (64,747) (41,250) (74,757) Proceeds from issuance of long-term debt - 50,000 - 50,000 Debt issue costs - (1,451) - (1,451) Repayment of long-term debt - (50,993) - (50,993) Cash received by subsidiary from non-controlling interest partners 7,819 - 7,819 - (Decrease) increase in bank advances and other short-term debt (15,411) (7,055) (10,758) 1,988 Cash received from repayment of shareholder's loan - - 150 - Issue of common shares 38,128 77,078 50,448 79,093 ------------------------------------------------------------------------- Cash provided by financing activities 10,441 2,832 6,409 3,880 ------------------------------------------------------------------------- Effect of exchange rate changes on cash (10) (24) (3) (127) ------------------------------------------------------------------------- Cash provided (used) during the period 29,682 (122) 29,888 (513) ------------------------------------------------------------------------- Cash beginning of period 17,366 9,133 17,160 9,524 ------------------------------------------------------------------------- Cash end of period $ 47,048 $ 9,011 $ 47,048 $ 9,011 ------------------------------------------------------------------------- NEO MATERIAL TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited - all figures in thousands of United States dollars) Three months ended Nine months ended September 30 September 30 2008 2007 2008 2007 ------------------------------------------------------------------------- Net income for the period $ 7,507 $ 5,659 $ 23,695 $ 19,657 Change in unrealized loss on derivatives designated as cash flow hedges, net of tax (76) 87 (115) 87 ------------------------------------------------------------------------- Comprehensive income for the period $ 7,431 $ 5,746 $ 23,580 $ 19,744 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

%SEDAR: 00002061E

SOURCE: Neo Material Technologies Inc.

Information Contact, Michael Doolan, Chief Financial Officer, (416) 367-8588, ext.335, Website: www.neomaterials.com, e-mail: info@neomaterials.com; Ali Mahdavi, Investor Relations, (416) 962-3300, ext. 225, e-mail: am@spinnakercmi.com

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