annual report summary

It looks good.

MAGONTEC LIMITED | ANNUAL REPORT 31 Dec 2013 2

Summary
In the 30 months since the acquisition of the Magontec assets, management has been focussed on developing a robust operating base
and a sound financial footing upon which the Company can go forward. 2013 has been a year of significant and positive progress on
both fronts.
In 2012 a restructuring program was outlined to shareholders that included relocation and rationalisation of operating assets in Europe
and China and an ambitious re-financing program to fund capacity expansion in China and margin improvement across our business.
In 2013 the Company has achieved its short-term goals in establishing two profitable new operating businesses in Romania (Mg Alloy
recycling and Mg anode manufacturing) and raising sufficient capital to fund its expansion plans in Qinghai Province, PRC.
Over the same period management has significantly improved the competitiveness of the German Mg recycling operation and
continues to benefit from robust demand for titanium anodes in targeted markets. In China we have relocated the Mg anode
manufacturing operation to our Xian site and moved the focus of our primary Mg alloy manufacturing from Xian to Jishan in Shanxi
Province.

The 2013 financial result includes a number of expensed “one-off” costs associated with relocating equipment as well as ramping up
production. This particularly applies to the European Mg anode business now located in Santana, Romania. In the second quarter of
2013 production machinery was re-located from Germany and installed at Santana. In the third and fourth quarters new employees
were engaged and trained.
In China domestic primary Mg alloy sales have been relatively robust however export sales from China to Europe and North America
have again encountered very strong price discounting from Chinese competitors. Magontec’s Chinese Mg anode business has also
experienced price discounting and lost a significant order in the first quarter of 2013.
Despite these circumstances both Chinese businesses managed to show an improvement year on year at the gross profit line, largely a
result of management efforts to reduce costs. Through 2014 the PRC team will be upgrading anode manufacturing equipment in Xian
and by the second half of the year will have the benefit of a more competitive Mg anode manufacturing facility to chase lost and new
volumes.
The critical challenge for the Chinese primary Mg alloy team will be to further reduce production costs at the Jishan facility. While the
facility has significant production capacity and is situated adjacent to a regular and predictable supply of pure magnesium, the need for
regular minor repairs has caused periods of downtime through 2013. In March and April of this year there will be a major equipment
upgrade to address these reliability issues and improve safety.
The markets for magnesium alloy products remain extremely competitive. Magontec’s results in 2013 reflect both this high level of price
competitiveness and the costs of repositioning the Company to improve margins in the future. The most significant element of
Magontec’s expansion and margin improvement strategy is a USD11 million investment in a magnesium alloy cast house at Golmud in
Qinghai Province, PRC. This will provide the Company with access to high volumes of raw material for Mg alloying activities and is also
likely to increase volumes of scrap Mg material for recycling at Magontec plants in China, Germany and Romania.
Importantly, the commencement of production at the Qinghai cast house is expected to enable Magontec to address its
underperforming PRC primary Mg alloy manufacturing activities, in particular its competitiveness in international markets.