TK Aluminum Ltd. Reports Financial Results for the First Quarter Ended March 31, 2006 (1)

CARMAGNOLA, Italy, May 31 /PRNewswire/ -- Teksid Aluminum net revenues in the first quarter of 2006, increased 10.1% as compared to the prior year. Adjusted EBITDA decreased by 56.4% materially impacted by raw material price increases mainly due to the aluminum lag embedded in the price formula, and operational inefficiencies in one of our North American operations.

TK Aluminum Ltd., the indirect parent of Teksid Aluminum Luxembourg S.à.r.l., S.C.A., today reported its consolidated financial results for the first quarter ended March 31, 2006.

"While Teksid Aluminum revenues continue to grow, we have experienced a challenging quarter with respect to EBITDA" reported Jake Hirsch, CEO of Teksid Aluminum. "In the first quarter of 2006, net revenues grew by 10% while tons sold were relatively flat and Adjusted EBITDA decreased by 56%. The positive impact of cost reduction initiatives and restructuring savings were more than offset by rapidly rising aluminum costs and continued operating inefficiencies in one of our North American operations. As previously reported, the aluminum lag has been improved through specific renegotiation of the price formula with our customers to align them with our buying formula. Going forward, we will benefit from an improved time lag between buy and sell on approximately 80% of the value of our contracts".

Consolidated financial results for the quarter ended March 31, 2006

The table below contains certain financial information of the Company for the three-month periods ended March 31, 2006 and 2005 respectively. All amounts included herein for the prior period have been adjusted to reflect the previous restatement of certain financial information related to the Brazilian investigation reported in the prior periods.

    
        EUR m            Three-Month Period Ended March 31
                                2006        2005 (as restated)

        K/Tons                    56.2               55.4
        Net Revenues          EUR274.5           EUR249.4
        EBITDA                  EUR3.9            EUR20.8
        Adjusted EBITDA         EUR7.1            EUR16.3
        Net Loss               EUR18.9             EUR8.4
        Capex                   EUR6.8            EUR19.9
        Net Debt (a)          EUR361.8           EUR323.7

(a) Net Debt at December 31, 2005 was EUR313.1 m

Net Revenues increase as a result of aluminum pass through and a positive foreign exchange impact

Net Revenues in the first quarter of 2006 increased by 10.1% compared to the same period in 2005, primarily due to exchange rate fluctuations. Assuming constant exchange rates, Net Revenues in the first quarter of 2006 were 3.3% higher as compared to the same period in 2005. Net Revenues in the reported period were primarily affected by aluminum price increases, partially offset by reduced tooling sales and contractual price give backs.

Adjusted EBITDA in Q1 2006 was positively impacted by cost savings, restructuring savings, miscellaneous items, offset by a rapid increase in aluminum costs and operating inefficiencies in North America

Adjusted EBITDA for the first quarter of 2006 was 2.6% of Net Revenues compared to Adjusted EBITDA for the same period in 2005, which was 6.5% of Net Revenues.

Adjusted EBITDA for the first quarter of 2006 was positively impacted by cost saving initiatives of EUR4.3 million, by savings of EUR2.0 million on our restructuring program and by EUR3.3 million of miscellaneous items. This improvement was offset by the negative impact of EUR6.0 million due to aluminum price increases and the time lag in the pass through of such increases to customers, EUR5.0 million due to cost inefficiencies in North America, EUR4.2 million due to cost inflation, EUR1.2 million due to OEM contractual price give-backs and product mix, along with EUR0.7 million due to decreased tooling profit and EUR1.7 million due to negative foreign exchange impact.

For a definition and reconciliation of EBITDA to Adjusted EBITDA see enclosed attachment 1.

Net Loss increased primarily due to lower operating performance, higher interest costs and negative foreign exchange impact

Net Loss for the first quarter of 2006 was EUR18.9 million representing a loss increase of 125.0% compared to same period in 2005, primarily as a result of aluminum price fluctuations, operational inefficiencies at our North American operations and higher interest costs in the current period.

Capital expenditures carefully monitored

Capital expenditures for the first quarter of 2006 were EUR6.8 million compared to EUR19.9 million during the same period of 2005. Such capital expenditures primarily relate to purchases of machinery and equipment by the Company's subsidiaries in the United States, Mexico and Europe. Capital Expenditure approval process has been carefully monitored in light of reduced operating performance for the current quarter.

Net Debt increased primarily to support working capital requirements and as a result of reduced operating performance

Net Debt at March 31, 2006, which includes EUR48.8 million in cash, increased by EUR48.7 million to EUR361.8 million from Net Debt of EUR313.1 million at December 31, 2005. The increase in Net Debt was primarily due to net cash used in operating activities mainly related to a seasonal increase in working capital and other reserves for EUR44.3 million and by a EUR6.8 million of cash used for investing activities, partially offset by a EUR2.4 million positive impact of foreign exchange.

Aluminum

Aluminum prices continued to increase through Q1 of 2006 by approximately 7%. This is in addition to a approximately 23% increase in aluminum prices in the fourth quarter of 2005. To minimize the effect of aluminum price fluctuations on our results, we are continuing to negotiate with our customers to amend existing sales contracts to shorten the time lag between the change in our cost of aluminium and the change in the price our customers pay to us for aluminum. Going forward, we will benefit from an improved time lag between buy and sell on approximately 80% of the value of our contracts.

China

On April 26, 2006, the Company signed an agreement to increase its investment in Nanjing Teksid Aluminum Foundry Co, Ltd., an aluminum foundry based in Nanjing. The investment is pending subject to approval by the local government. Upon approval, the Company will invest an additional EUR2.6 million in the Company registered capital, which will increase the Teksid Aluminum's equity rights to approximately 70%. Nineteen percent of this equity share is represented by voting rights provided to the Company from Simest, an Italian state owned agency that provides specific financial support for direct investment abroad to Italian companies.

Covenants Compliance

The next Financial Covenants period for the Company will be June 30th, 2006.

Results for the three-month period ended March 31st 2006 and 2005 respectively included herein are unaudited and have been presented in accordance with U.S. GAAP.

Further comments on the first quarter of 2006 earnings will be delivered by Messrs. Jake Hirsch and Jon Smith during the bondholders and analyst conference call to be held on June 5th, 2006, at 15:30 pm, Central European Time, 14:30 pm London Time, 9:30 am Eastern Time. Registration of the Conference Call will be available on June the 6th and 7th, 2006 at 15:30 pm, Central European Time, 14:30 pm London Time, 9:30 am Eastern Time.

Any interested person may join the conference call by using the dial-in numbers set forth below.

Dial-in +39-071-2861848

About Teksid Aluminum

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