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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

Timminco ramped up its

Timminco ramped up its UMSi production and shipments to 1,214 mt and 1,045 mt, respectively. We are making significant progress in learning how to meet the many challenges which occur in the large scale commercialization of a completely new process with a new workforce in a new plant. While these challenges will continue, we are confident in our ability to meet our customers’ expectations in 2009 and beyond. Timminco UMSi Shipments (mt) The solar industry is working though a dramatic market slowdown which is leading to inventory reductions along the value chain. It is currently difficult to predict the extent and the duration of the slowdown and the impact that slowdown will have on the multitude of participants in the solar industry. In the near term, this slowdown will adversely impact our solar furnace business and Timminco’s UMSi shipments. The reduction in worldwide solar silicon production has also reduced the demand for silicon metal which, in turn, has resulted in Timminco’s decision to temporarily shut down its silicon metal smelters. Despite this, we believe that the secular trend supporting the solar industry remains fundamentally sound; however, the question of when significant growth will resume cannot be stated with any degree of certainty. Fuel Efficiency Several of our titanium alloy products are critical components of energy saving solutions such as in aerospace and stationary natural gas turbines. The titanium alloys product line developed satisfactorily in 2008. Titanium furnace deliveries for aerospace and industrial gas turbines in our Engineering Systems Division increased approximately 15% over the already high level of 2007. Titanium master alloy sales increased by 5% over 2007, despite the sharp down-turn in price and volume during the fourth quarter. We are working to complement our position in the titanium value chain through efficiency improvements in production of high-purity titanium alloys and new process technologies aimed at eliminating expensive conversion steps through a combination of furnace designs and tailor-made alloys. Given the current weakness in the aerospace and transportation sectors, the fuel efficiency end markets will face challenges in 2009. As such, AMG has taken steps to better align its position in the value chain, especially for titanium, through reducing head count and streamlining operations. In January 2009, AMG announced a significant reduction in its workforce. While this process entails difficult decisions, it is ultimately in the best interest in the long term viability of the business. In December 2008, AMG announced the formation of a joint venture with Norsk Hydro ASA, Norway, for the development of an innovative magnesium metal process and its implementation in Norway. Recycling Recycling is a key component of AMG’s strategy to access low cost and low volatility raw material sources. During 2008 AMG signed a multi-year agreement with a major operator in the Alberta Oil Sands to process and recycle additional quantities of spent catalysts. AMG’s Advanced Materials Division produces ferrovanadium and ferronickel-molybdenum from these spent catalysts as well as from North and Central American power plants. While the contract with a major operator in the Alberta Oil Sands provides AMG with a volatility-reducing long position, AMG is currently working to further reduce volatility associated with its other more traditional raw material supply contracts. AMG’s recycling business delivered solid performance in 2008, generating $167.1 million in revenues, despite a rapidly deteriorating macroeconomic environment during the fourth quarter. This represented 46% growth over 2007. This growth was the result of increasing 12 Letter to Shareholders

Selected Market Prices for Ferrovanadium, Molybdenum and Nickel demand and strong prices during the first three quarters of 2008 for ferrovanadium, which is used primarily in structural steel to increase the strength-to-weight ratio. Selected Market Prices for Ferrovanadium, Molybdenum and Nickel The market softened dramatically in the fourth quarter of 2008 and although AMG is uniquely positioned as the largest low cost secondary producer globally, performance of this unit will depend upon an upturn in the global infrastructure markets. Nuclear 2008 was a year of substantial progress for AMG in its nuclear end markets. AMG’s Engineering Systems Division formed a joint venture, Furnaces Nuclear Applications Grenoble S.A., to design and produce sintering systems for a number of nuclear applications. Subsequently, AMG acquired the balance of the joint venture that it did not own, bringing crucial engineering experience and expertise fully under the AMG name. This unit won a high profile contract with Shaw Areva MOX Services LLC for the detailed engineering of sintering furnace systems for the production of mixed oxide nuclear fuels. AMG now has the world’s leading vacuum furnace engineering team specializing in nuclear technologies. In addition, the acquisition of Graphit Kropfmühl provides a vertically integrated source of natural graphite, an important material for use in modern nuclear applications. We believe that nuclear energy will be a key component of the global strategy to provide secure, low emission power to a growing planet. AMG’s engineering technologies and niche specialty metals will participate in providing the essential tools necessary to support this growth. Outlook 2009 will be a challenging year. Our visibility in Advanced Materials, Timminco and Graphit Kropfmühl is limited. In these business units, the management team is focused on preserving free cash flow by reducing costs, streamlining operations, limiting all non-essential capital investments and adjusting production levels to meet reduced demand perspectives. We are also positioning these businesses for long term growth when the current economic cycle ends. On the other hand, the Engineering Systems Division’s backlog provides reasonable visibility for 2009 and we expect relatively stable performance and cash flow generation. Despite this, we will not reduce, but rather we will reinforce our dedication to clean energy and energy savings trends that dominate our business model. AMG’s portfolio approach will provide some insulation from the current global crisis and we will continue to adjust our value chain positions to reduce the volatility of our cost positions. While 2009 will be difficult, we believe that the CO 2 reduction end markets which we serve — Solar, Recycling, Fuel Efficiency and Nuclear — will provide opportunities for long term growth. Dr. Heinz C. Schimmelbusch Chief Executive Officer Letter to Shareholders 13

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