AMG Advanced Metallurgical Group N.V. Annual Report 2011 Essential technology for critical materials [Positioning and TOC] this is the age of material science Highlights 2 CEO Letter to Shareholders 6 Market Focus Reports 14 Report of the Management Board 22 Report of the Supervisory Board 40 Sustainable Development 51 Corporate Governance 60 Financial Review 66 Looking out the window mid-flight, you may not know about all of the lightweight, high-strength materials around you that are reducing fuel consumption and improving performance. With more than 100 years of metallurgical expertise, AMG is continuously developing new materials, changing what is possible. Aerospace is just the beginning. Scientifically engineered materials are essential everywhere you look—Tantalum in smart phones, Vanadium-strengthened steel supporting bridges and buildings, Cerium for the glasses you are wearing, Natural Graphite and Antimony in hybrid car batteries—advancements in material science are connecting and empowering us in new and exciting ways. This is the world we live in. this is the age of material science AMG Advanced Metallurgical Group N.V. | 2011 Annual Report 1 At a Glance AMG provides material science based metallurgical solutions for energy, aerospace, infrastructure and specialty metals and chemicals markets. OUR DIVISIONS: ADVANCED MATERIALS AMG operates three business units that apply material science to produce essential materials. Advanced Materials develops and produces critical raw materials and specialty metals, alloys, and coatings designed for demanding, high-stress environments. Engineering Systems designs and produces advanced vacuum furnaces used to create high purity metals and operates vacuum heat treatment facilities. Graphit Kropfmühl produces silicon metal and is a vertically integrated producer of natural graphite. AMG participates in the value chains of these critical materials AMG’s material science expertise Li B C 6.9 10.8 12.0 extends across a broad spectrum LITHIUM BORON CARBON of minor metals, many of which Al Si 27.0 28.1 suffer from scarcity of secure ALUMINUM SILICON supply. AMG’s unique market Sc Ti V Cr Mn Fe Ni Cu Zn 45.0 47.9 50.9 52.0 54.9 55.9 58.7 63.5 65.4 position in these minor metals’ SCANDIUM TITANIUM VANADIUM CHROMIUM MANGANESE IRON NICKEL COPPER ZINC value chains includes secure Sr Zr Nb Mo Ag Sn Sb 87.6 91.2 92.9 95.9 107.9 118.7 121.8 raw material supplies, recycling STRONTIUM ZIRCONIUM NIOBIUM MOLYBDENUM SILVER TIN ANTIMONY services, conversion processing Ta 181.0 and vacuum technology used in TANTALUM all aspects of the production of these critical materials. Ce 140.1 CERIUM U 238.0 URANIUM 2 At a Glance Using secure raw material strategies, vertical and horizontal industry consolidations and investments in technology, AMG produces products that contribute to CO2 reduction. ENGINEERING SYSTEMS GRAPHIT KROPFMÜHL GLOBAL OPERATIONS UK Germany Netherlands Czech Republic France Turkey USA China Mexico Sri Lanka Brazil Headquarters Zimbabwe Operations Mines At a Glance 3 Financial and Operational Highlights Return on Capital Revenue $M Gross Profit $M Employed (ROCE) % .9% .2% 4.8 19 26 R 2 GR GR .9% AG CA CA 117.0 19 C 238.0 GR 1,351.3 110.1 268.6 CA 1.74x 1.72x 237.1 15.1% 178.6 89.3 990.5 84.9 79.6 203.8 165.6 1.26x 11.9% 867.4 69.1 10.5% 27% 2011 Increase in ROCE 09 10 11 09 10 11 09 10 11 09 10 11 09 10 11 09 10 11 09 10 11 Consolidated Revenue 2011 $M 10 616.3 65% Advanced Materials 872.0 11 872.0 >41% 10 245.6 23% Engineering Systems 313.8 11 313.8 >28% 10 128.6 Graphit Kropfmühl 12% 165.5 11 165.5 >29% Revenue by End Market 2011 $M 10 211.2 18% Energy 243.2 11 243.2 >15% 29% 10 258.8 Aerospace 385.5 11 385.5 >49% 15% 10 162.7 Infrastructure 196.6 11 196.6 >21% 38% Specialty Metals 10 357.8 > & Chemicals 526.0 11 526.0 47% 4 Highlights EBITDA $M Cash $M Debt $M Net Debt to EBITDA % .9% .2% 4.8 19 26 R 2 GR GR .9% AG CA CA 117.0 19 C 238.0 GR 1,351.3 110.1 268.6 CA 1.74x 1.72x 237.1 15.1% 178.6 89.3 990.5 84.9 79.6 203.8 165.6 1.26x 11.9% 867.4 69.1 10.5% 09 10 11 09 10 11 09 10 11 09 10 11 09 10 11 09 10 11 09 10 11 ADVANCED MATERIALS ENGINEERING SYSTEMS $255.7 million increase in revenue, up 41% from 2010 $68.2 million increase in revenue, up 28% from 2010 $10.6 million increase in EBITDA, up 27% from 2010 $34.0 million in EBITDA, 11% of revenue • Acquired KB Alloys, the North American market leader in the • Formed a 65% owned production company in Shanghai, with production of aluminum master alloys and grain refiners a long-term local partner, to strengthen AMG’s Asian market • Entered into long-term sales contracts for tantalum presence concentrate in early 2011 • Increased nuclear revenues by 95% in 2011 due to sales • Launched the accelerated global EHS initiatives with of furnaces for the recycling of weapons grade plutonium implementation targets for ISO 14001 and OHSAS 18001 and nuclear fuel products that reduce CO2 emission in power generation • Expanding spent catalyst processing capacity for the production of vanadium—expected completion in the fourth quarter 2012 • Granted U.S. Patent No. 8,048,221 for Mono2(TM), mono- crystalline growth methods • Conducting extensive antimony drilling and exploration program at the mine in Turkey and produced 34,000 tons of • Entered into a joint development project of the impermeable antimony ore in 2011 graphite matrix technology for safe storage of nuclear wastes in cooperation with Spanish government agencies • Conducting strategic re-alignment of Advanced Materials Division to create an AMG Mining reporting segment • Completed the buildout of heat treatment service facilities in the U.S. and Mexico GRAPHIT KROPFMÜHL $37.0 million increase in revenue, up 29% from 2010 $18.2 million increase in EBITDA, up 239% from 2010 • Entered into a long-term silicon metal sales contract with a global specialty metals company • AMG initiated a voluntary tender offer for the remaining 11.84% outstanding shares of Graphit Kropfmühl AG for a price of 131.75 per share on March 14, 2012. This is the next step in AMG’s strategy to simplify its corporate structure by consolidating all operating activities under one public entity Highlights 5 Letter to Shareholders 2011 was a successful year. AMG generated improved financial results, made progress in the execution of capital projects, and advanced towards our sustainability goals. Adjusted EBITDA increased 30% to $110.1 million, following a 23% increase in 2010. Return on Capital Employed (ROCE) increased to 15.1%, up from 11.9% in 2010. Net working capital days decreased to 65 days. Revenue per employee increased from $370,000 in 2010 to $428,000 in 2011. The Advanced Materials Division’s performance improved, with antimony, chrome metal, titanium alloys and coatings driving growth. The Engineering Systems Division experienced strong growth in the Heat Treatment business, both in engineering and in Heat Treatment Services. Graphit Kropfmühl AG had a record year. 6 Letter to Shareholders Financial KPIs 2009 2010 2011 CAGR margin control, and achieving budgets. Mr. Jackson will also Revenue $867.4 M $990.5 M $1,351.3 M 24.8% develop and execute efficiency initiatives for AMG’s products Gross Profit $165.6 M $178.6 M $238.0 M 19.9% and services. The goal of these initiatives is to improve AMG’s EBITDA $69.1 M $84.9 M $110.1 M 26.2% profitability. AMG will target a ROCE above 15% and EBITDA EBITDA Margin 8.0% 8.6% 8.2% 1.2% growth in 2012. ROCE 10.5% 11.9% 15.1% 19.9% Also in 2011, AMG complemented and deepened its senior In 2011, AMG made substantial progress on our strategic management team. AMG has welcomed, among others, projects. One significant project, the $17 million expansion of the Dr. Markus Holz, former CEO of Thyssen Krupp Titanium, as vanadium recycling facility, will double the recycling capacity for a Managing Director of the Engineering Systems Division; the processing of spent catalysts from oil refineries by the end of and Mr. Frank Berger, former CFO and Managing Director 2012. In Engineering Systems, the primary project has been the of a German Tier I automotive supplier, as Member of the expansion of the Heat Treatment Service business driven by the Management Board of Graphit Kropfmühl; and, through growing market of small, high efficiency automotive engines. In acquisitions, Mr. Rick Malliris, CEO of KB Alloys and Mr. Frank mining, we continue to expand the antimony mine and smelter in Scheuch, CEO of AMG Intellifast. Turkey and develop natural graphite projects in Africa. In March 2012, AMG appointed Mr. Hoy Frakes as President AMG’s publicly listed affiliate, Timminco Limited announced of AMG Mining. Mr. Frakes joined AMG in 2000 and his latest that it decided to seek protection from its creditors under the leadership role was as President of AMG Vanadium, Inc. Canadian Companies’ Creditors Arrangement Act on January Mr. Frakes will bring his extensive expertise in mining and 3, 2012 due to reduced cash flows from Timminco’s silicon metallurgical applications to improving mining operational metal operations combined with deterioration in the global efficiencies at AMG’s existing antimony and tantalum mines.