September 2016
Progress Report to IBC Investors
Fellow Shareholders –
As IBC's President and CEO, I am writing to provide this update on the progress we are making toward becoming a growing and profitable Company. The entire IBC Advanced Alloys team has been intensely focused on the execution and implementation of production expansion and equipment upgrades that were the focus of our successful capital raise earlier this year.
I am pleased to report that we are making significant progress on all fronts:
• We have been awarded “Approved Forging Supplier” status with two of the world’s largest shipbuilders, Newport News Shipbuilding and the Electric Boat division of General Dynamics. More details are here.
• Our business in supplying key parts to Lockheed Martin for the F-35 Joint Strike Fighter continues to grow. More details here.
• Our development program for a new beryllium-aluminum alloy product with BAE Systems, another global aerospace and defense leader, is progressing well. Initial prototypes have completed production and have been delivered to the customer. Details here.
• While sales at the Copper Alloys division have remained relatively flat, we are working to get the product mix right and we are seeing growth in key product lines. Our ring business grew a robust 14% in FY2016, as compared to FY2015, and bookings in FY17 are continuing to climb. Our non-beryllium alloy, used primarily in injection molds, experienced an extraordinary 88% year-on-year growth in FY2016, and shipments and bookings for this alloy in the first quarter of FY2017, on a combined basis, have already surpassed FY2016 sales. More details here.
• As noted above, our capital improvements program is advancing across both our Engineered Materials (EMC) division, which specializes in manufacturing precision cast beryllium-aluminum products, and our Copper Alloys division, which focuses on copper and advanced copper alloys in both semi-finished and finished products. Details here.
• We are strengthening our workforce so we can better meet customer needs. Details here.
• We are working to develop opportunities with scandium alloys – a new potential business line for us – in partnership with NioCorp Developments Ltd. More details here.
In short, I am very, very proud of this team and this Company. I have never been more excited about the future I see for IBC and for our ability to build long-term shareholder value.
Getting The Fundamentals Right
Even though IBC has developed breakthrough technologies and is now selling high-margin products to global leaders such as Lockheed-Martin, our Company has not yet broken through to cash-flow positive operations on a quarterly basis.
In order to change that trajectory and set us on the path to profitability, I undertook several initiatives after I assumed the role of CEO. First and foremost, I launched a bottom-up review of our operations. I tasked our team with taking a hard look at all aspects of our business. What are we doing well? Where is our performance lagging? How we can make improvements that better serve our customers? And, how do we implement those improvements in the most efficient way possible?
The team has rolled up its collective sleeves to attack these problems and implement solutions. We aren’t completely done with this process yet, and we still have improvements to make. But I have been very pleased with the results so far. As a Company, we are well on our way to building a culture of continuous improvement. Our entire team – from our talented workers on the factory floor to senior management -- understand that we must get the fundamentals right in order to build a firm foundation for future growth. That is what we are focused on now.
Improving The Corporate Culture: Key To Success
Upgrading equipment and improving systems isn’t good enough. As a builder and leader of high-performing teams for the past several decades, I can say definitively that culture matters in any organization. It is perhaps the single most important factor to success. That is why I am leading an effort to reinvigorate the corporate culture at IBC and instill a greater sense of mission and excitement about our future. I am already seeing tangible results. We are rapidly advancing as a Company that believes in -- and lives every day -- a set of core values: Integrity, Courage, Execution, and Teamwork. Foremost in our minds is Keeping the Customer First.
The Mission I see for IBC, and one that is increasingly shared across our 70+ employees, is this: to lead the specialty alloys industry by providing precision, cost- and purpose-effective materials solutions tailored to our customers’ specifications, while providing a positive work environment for our employees and value to our shareholders.
I believe that great, enduring companies embrace the “Genius of the ‘And’”, as Jim Collins would say. We are going to be a company that takes care of its people AND returns value to shareholders.
News Flow Should Be More Robust in the Months Ahead
I am sure that the meager news flow over the last several months has been a frustration, but there are a few reasons for it. Much of the technical, engineering, and process improvements we are making at this stage are incremental in nature until an upgrade is complete and the equipment is qualified for production. Also, we are careful about not broadcasting some of the details of our expansion plans for competitive reasons. We are, after all, technology innovators who are disrupting large existing markets.
Finally, the nature of our business is such that there are products we make, or are seeking to develop, that we simply cannot discuss publicly. This is because these products involve national defense systems with strict public disclosure limits, or because of customer confidentiality provisions.
Within these constraints, however, I commit that you will see and hear more from the Company in the months ahead as we complete major milestones in our capital improvements program and continue to expand our business with customers.
Below is some additional detail on the progress we are making in several areas. I hope you find this informative. Thank you for your continued support as we work to build a truly world-class company at IBC. As always, please do not hesitate to reach out to me or the staff if you have any questions or need additional information.
Very respectfully,
Major General Duncan Heinz (USMC, ret.)
President and CEO
ceo@ibcadvancedalloys.com
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IBC Progress Report
IBC Wins “Approved Forging Supplier” Status with Two of the World’s Largest Shipbuilders
IBC recently announced that it has received “Approved Forging Supplier” status with the Newport News Shipbuilding company, a division of Huntington Ingalls Industries. Newport News is the largest shipbuilding company in the U.S. and is the sole designer, builder, and re-fueler of U.S. Navy aircraft carriers. It also is one of two providers of U.S. Navy submarines. IBC’s qualification means that the Company can provide forged products through approved suppliers to Newport News across its many product lines.
The announcement with Newport News marked the second such attainment by IBC of approved forging supplier status with a world-class shipbuilder in as many weeks. On September 13, IBC announced that it received "Approved Forging Supplier" status with General Dynamics’ Electric Boat Division. Electric Boat is one of the U.S.’s premier submarine builders, having designed and delivered 15 of the U.S. Navy’s 19 classes of nuclear submarines.
These qualifications are not easy to receive from world-class manufacturing concerns such as Newport News and Electric Boat. The IBC team is very proud to have achieved such supplier status. And, these advancements open the door to new business for the Company, particularly in the area of forged rings and flanges and other Copper Alloy products.
F-35 Joint Strike Fighter Business Continues To Grow
Production and sales to Lockheed Martin of precision cast beryllium-aluminum parts used in the Electro-Optical Targeting System (EOTS) for the F-35 Joint Strike Fighter are continuing to ramp up. Extensive process and quality reviews have resulted in improved production yields at IBC’s plant in Wilmington, Massachusetts, even prior to the installation of new equipment at the facility.
Lockheed Martin has delivered the 200th EOTS for the F-35 JSF system. All 200 systems have been delivered on time or ahead of schedule for aircraft integration. Lockheed Martin is delivering F-35 EOTS under Low-Rate Initial Production contracts with a total of 367 systems ordered to date. Planned production quantities for the F-35 exceed 3,000 aircraft, with deliveries through 2030. Production should scale up to one EOTS per business day by 2020.
IBC is very proud to be a part of this important system for the F-35, and we look forward to serving Lockheed Martin with other components in the future.
Development Program Progressing For A New Beryllium-Aluminum Alloy Product With BAE Systems
Work continues to advance under IBC’s joint development contract with BAE Systems, another major defense contractor. Under the contract, IBC’s EMC division is developing initial prototype components to demonstrate the form-fit-function of its Beralcast® casted products for BAE Systems’ specific applications. Unfortunately, the specific defense application being examined cannot be disclosed publicly. This development contract with BAE marks a significant expansion of IBC's work with global aerospace manufacturers interested in utilizing IBC's proprietary Beralcast® materials.
Initial prototypes have completed production, have been delivered to the customer, and are currently proceeding through the program qualification process.
Other Business Growth Highlights
• The Company’s Copper Alloy ring business grew a robust 14% in FY2016, as compared to FY2015. Bookings in FY17 are continuing to climb, and the Company is forecasting continued growth in this business for FY2017.
• IBC’s proprietary non-beryllium alloy, produced in the Company’s Copper Alloys division and used primarily in injection molds, experienced an extraordinary 88% year-on-year growth in FY2016. Shipments and bookings for this alloy in the first quarter of FY2017, on a combined basis, have already surpassed FY2016 sales.
Capital Improvements and Equipment Upgrades
IBC is making steady progress across both business divisions on our ongoing capital improvement plans. Here is a quick update:
EMC
At EMC, a new furnace has been ordered from TevTec and it is expected to be installed and operational by the end of this year. This unit will help us increase uptime and production rate, and the timing is important as the production by Lockheed Martin of the F-35 continues to ramp up.
In addition, EMC President Chris Huskamp and his team are working to accomplish the following:
• Expand wax injection capabilities, which should help improve production rates.
• Upgrade heat treatment and thermal process equipment, which is expected to reduce costs, reduce variance, and increase safety margin by reducing touch labor.
• Enhance mold thermal processing, which should reduce process costs.
• Bring select outsourced processes in-house, which will help us eliminate significant subcontract costs and improve our lead and cycle times.
Copper Alloys
At IBC’s Copper Alloys division, work also is progressing steadily on planned capital improvements. A new solution annealing furnace and quench tank have been ordered and are likely to be installed and operational by the end of January 2017. After commissioning, the new furnace will provide the Copper Alloys group with additional capacity necessary to immediately accept orders from two new customers. The semi-automated load and quench cycle will further tighten our process control and allow the division to meet more stringent customer design requirements and specifications.
Other upgrades that are underway at Copper Alloys include these:
• Machine tool and process equipment additions, which are geared toward improving production capacity and yield; and
• Expansion of our inventory, which should help us capture a greater percentage of lost orders.
Strengthening our Workforce to Increase Production
Across both our EMC and Copper Alloy divisions, we are adding to our workforce in strategic areas in order to boost our production capacity and reduce labor-related bottlenecks.
One new hire in particular is Ms. Heather Hostetter, who will serve as the Executive Vice President of Administration and Sales in the EMC Wilmington facility. Heather has more than seven years in the beryllium industry and more than 25 years in operations and administration management. She is well known across many of our customer segments. As Heather notes, "I practically grew up in the beryllium industry, given that my father worked in a beryllium machining facility since he left the Navy, and I spent many weekends and evenings throughout my childhood in beryllium shops." Heather is a great addition to the IBC team.
Development Initiative with NioCorp on Scandium Alloys
Chris Huskamp and his team in the EMC Division are exploring new approaches and applications for alloys that contain scandium, a remarkable superalloy metal (element #21 on the periodic table). In general, scandium is combined with aluminum and some other metals to make very strong and lightweight alloys. Several commercial airline manufacturers have been exploring the possibility of incorporating scandium-containing alloys in mid-sized commercial aircraft because of the significant weight savings (and fuel and emissions savings) that these alloys can deliver.
The problem with scandium is that, while independent analysts estimate latent global demand for scandium at several hundred tonnes per year, only 10-15 tonnes of scandium is actually produced today. Most of that production occurs in China and Russia. If more scandium can be produced from reliable suppliers in the West, this metal promises tremendous opportunity for those companies that understand how to make these highly specialized alloys and can craft them into useful products.
NioCorp Developments Ltd. is on track to produce nearly 100 tonnes of scandium trioxide per year once its builds and ramps up production at its proposed mine and processing facility in Nebraska. This is why we are working with NioCorp in a development effort to explore opportunities for new applications that utilize scandium-containing alloys. With a relatively large, reliable, and domestic U.S. source of Scandium, such as NioCorp is expected to provide, the opportunities for IBC are truly exciting.
For More Information
For more information about IBC Advanced Alloys, please contact Jim Sims, Director of Investor and Public Relations for IBC, at 1 (303) 503-6203 or via email at jim.sims@ibcadvancedalloys.com
