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FLSmidth 2nd Quarter Report 2012


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FLSmidth's second quarter report for 2012 was released on 15 August, 2012. Best viewed on a full screen mode, this quarterly report informs the reader about how well FLSmidth's business has performed in the 2nd quarter.

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FLSmidth 2nd Quarter Report 2012

  1. 1. Interim Report Q2 201215 August 2012Interim Report Q2 2012 1
  2. 2. Forward-looking statementsInterim Report Q2 201215 August 2012Interim Report Q2 2012 2FLSmidth & Co. A/S’ financial reports, whether in the form of annual reports or interim reports, filed with the Danish Business Authority and/or announced via thecompany’s website and/or NASDAQ OMX Copenhagen, as well as any presentations based on such financial reports, and any other written information released, or oralstatements made, to the public based on this interim report or in the future on behalf of FLSmidth & Co. A/S, may contain forward-looking statements.Words such as ‘believe’, ‘expect’, ‘may’, ‘will’, ‘plan’, ‘strategy’, ‘prospect’, ‘foresee’, ‘estimate’, ‘project’, ‘anticipate’, ‘can’, ‘intend’, ‘target’ and other words and termsof similar meaning in connection with any discussion of future operating or financial performance identify forward-looking statements.Examples of such forward-looking statements include, but are not limited to:• statements of plans, objectives or goals for future operations, including those related to FLSmidth & Co. A/S markets, products, product research and productdevelopment• statements containing projections of or targets for revenues, profit (or loss), capital expenditures, dividends, capital structure or other net financial items• statements regarding future economic performance, future actions and outcome of contingencies such as legal proceedings and statements regarding the underlyingassumptions or relating to such statements• statements regarding potential merger & acquisition activities. These forward-looking statements are based on current plans, estimates and projections. By their verynature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which may be outside FLSmidth & Co. A/S’s influence, andwhich could materially affect such forward-looking statements.FLSmidth & Co. A/S cautions that a number of important factors, including those described in this presentation, could cause actual results to differ materially fromthose contemplated in any forward-looking statements.Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including interest rate and exchange ratefluctuations, delays or faults in project execution, fluctuations in raw material prices, delays in research and/or development of new products or service concepts,interruptions of supplies and production, unexpected breach or termination of contracts, market-driven price reductions for FLSmidth & Co. A/S’ products and/orservices, introduction of competing products, reliance on information technology, FLSmidth & Co. A/S’ ability to successfully market current and new products,exposure to product liability and legal proceedings and investigations, changes in legislation or regulation and interpretation thereof, intellectual property protection,perceived or actual failure to adhere to ethical marketing practices, investments in and divestitures of domestic and foreign enterprises, unexpected growth in costsand expenses, failure to recruit and retain the right employees and failure to maintain a culture of compliance.Unless required by law FLSmidth & Co. A/S is under no duty and undertakes no obligation to update or revise any forward-looking statement after the distribution ofthis presentation.
  3. 3. Very strong order intake in Q2All segments except Bulk Materialsdelivered solid EBITA results in Q2EBIT results and guidance impacted byDKK 188m one-off write-down of capitalised R&D costsCembrit sales process initiatedRevenue guidance narrowed to DKK 25-26bn (excl. Cembrit)EBITA margin guidance of minimum 10% maintained15 August 2012Interim Report Q2 2012 3
  4. 4.  Order intake up 20% onQ2’11, and also up 13%sequentially Revenue up 26% due toincreasing order intake last year,particularly in Non-Ferrous andCustomer Services EBITA up 36% and EBITAmargin of 10.0% delivered in Q2 EBIT negatively impacted byDKK 188m one-off writedown of capitalized R&D costsFinancial developments in Q2 2012Q2 Results 201215 August 2012 4FLSmidth & Co. A/S(DKKm)Q2 2012 Q2 2011 ChangeOrder intake 7,246 6,048 +20%Order backlog 30,803 25,011 +23%Revenue 6,036 4,795 +26%Gross margin 24.9% 25.6%EBITA 605 445 +36%EBITA margin 10.0% 9.3%EBIT 349 404 -14%EBIT margin 5.8% 8.4%Net results 223 294 -24%CFFO 333 426 -22%Employees 13,818 12,144 +14%Interim Report Q2 2012
  5. 5. Segment developments21%17%37%25%Interim Report Q2 201215 August 2012Interim Report Q2 2012 5Order intake Q2 2012– classified by segmentCustomer ServicesBulk MaterialsCement26%20%33%15%6%Bulk MaterialsNon-FerrousRevenue Q2 2012– classified by segmentCustomer ServicesCementCembritNon-Ferrous
  6. 6. 37%21%14%5%2%5%16%15 August 2012Interim Report Q2 2012 6Announced orders in Q2 2012Cement Middle East DKK 630mCoal Mozambique DKK 370m (BM)Cement USA DKK 780mPhosphate Morocco DKK 460m (NF)Total DKK 2,240mDistribution of order intake by industryInterim Report Q2 2012Order intake Q1-Q2 2012– classified by industryCementCopperGoldCoalIron oreFertilizersOther
  7. 7.  Unannounced orders record high DKK 5bn in Q2 (particularly related to Non-Ferrous) Level of announced orders stable at DKK 2.4bn in Q2 Order backlog increased 7% in Q2 and is 23% higher than one year agoOrder intake increased 20% in Q2 2012Interim Report Q2 201215 August 2012Interim Report Q2 2012 702,0004,0006,0008,000Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Order intake (quarterly)+20% vs. Q2 2011DKKm0.80.911.,00010,00015,00020,00025,00030,00035,000Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Order backlog (quarterly)+23% vs. Q2 2011DKKm Book-to-bill ratio*Announced O&M ordersAnnounced Capital ordersUnannounced orders*) Order backlog divided by Trailing-Twelve-Months Revenue
  8. 8.  Organic growth +20% (excl. currency impact and acquisitions) Pattern of increasing quarterly revenue over the calendar year likely to be repeated in 2012 Solid EBITA results in all segments except Bulk MaterialsRevenue increased 26% in Q2 2012Interim Report Q2 201215 August 2012Interim Report Q2 2012 802,0004,0006,0008,000Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Revenue (quarterly)+26% vs. Q2 2011DKKm EBITA margin0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%02004006008001,000Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012EBITA (quarterly)+36% vs. Q2 2011DKKm
  9. 9. Tight focus on SG&A developmentsInterim Report Q2 201215 August 2012Interim Report Q2 2012 9 SG&A ratio down from unacceptable high level in Q1’12 Increase in SG&A vs. last year partly due to: Acquisitions (DKK ~60m in H1’12) High tender activity leading to increasing proposal costs- adding to costs now, but revenue later Additionally, SG&A included costs of non-recurringnature amounting to DKK ~100m in H1’12: Implementation of new strategy and organization Business alignment related to roll out of global ERP businesssystem Transaction and integration costs in connection withacquisitions Initiatives put in place to manage SG&A more closely: Cost awareness program Systematic cost level targets and closer monitoring of non-recurrent costsSG&A ratio0.0%3.0%6.0%9.0%12.0%15.0%18.0%02004006008001,0001,200Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012SG&A (quarterly)+14% vs. Q2 2011DKKm
  10. 10. One-off write-down of capitalised R&D costs in Q2Interim Report Q2 201215 August 2012Interim Report Q2 2012 10 Q2 results include a one-off write-down ofcapitalized R&D costs and decommissioningcosts amounting to DKK 188m Related to R&D project in ground-breakingnew technology Important milestones have been met andpatents have been taken out.. ..but commercial tests have not been able todemonstrate acceptable results R&D project related to Cement, Non-Ferrousand Customer Services and the write-downwill negatively impact EBIT in each of thethree divisions by approximately DKK 60m
  11. 11.  CFFO adversely impacted by increase in working capital of DKK 191m in Q2 CFFI amounted to DKK -386m in Q2 related to acquisition of Process Engineering Resources Inc.and Knelson Russia as well as tangible assets in connection with ongoing strategic activities Temporary slow down in acquisitions except for smaller bolt-on in coming quartersCash flow from operating and investing activitiesInterim Report Q2 201215 August 2012Interim Report Q2 2012 11CFFO (quarterly)-22% vs. Q2 2011DKKm-1,000-800-600-400-2000200400600Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012CFFI (quarterly)-161% vs. Q2 2011DKKm-1,000-800-600-400-2000200400600Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012
  12. 12. Tight focus on working capital developmentsInterim Report Q2 201215 August 2012Interim Report Q2 2012 12Working capital (quarterly)+154% vs. Q2 2011DKKm Working capital increased 10% in Q2 to DKK 2,117m Structural reasons for increase in working capital: Strategic initiatives in Customer Services Change in business mix towards more mining and less cement Specific reasons for increase in inventory in Q2 2012 Increasing inventories to reduce delivery lead times in productcompanies Reduction in Work-in-progress net (liability) caused by high levelof execution and increase in prepayments to subcontractors Initiatives put in place in Q2 to manage working capitalmore closely: Monthly reporting, monitoring and follow-up on KPIs Systematic NWC responsibility in the global organisation Specific initiatives launched in relation to accounts receivables,account payables, inventories, etc.0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%-2004006008001,0001,2001,4001,6001,8002,0002,200Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012WC /TTM* Sales*) TTM : Trailing-Twelve-Months
  13. 13.  Net debt increasing in Q2 due to distribution of dividend of DKK 471m and negative cash-flow Equity ratio reduced to 32% due to distribution of dividend and increased balance sheet total Dividend of DKK 9 per share paid on 10 April 2012 (equivalent to DKK 471m)Capital structureInterim Report Q2 201215 August 2012Interim Report Q2 2012 13NIBD (quarterly)DKKm0%5%10%15%20%25%30%35%40%02,0004,0006,0008,00010,00012,000Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Equity (quarterly)DKKm Equity ratio(0.8)(0.6)(0.4)(0.2)-,000)(1,500)(1,000)(500)-5001,0001,5002,000Q22010Q32010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Gearing(NIBD/ TTM* EBITDA)Gearing 0.3x EBITDA +15% vs. Q2 2011TTM: Trailing-Twelve-Months
  14. 14. Acquisition of LudowiciInterim Report Q2 201215 August 2012Interim Report Q2 2012 14 Acquistion of Ludowici finalised on 3 July 2012 Completes FLSmidth’s concentrator flowsheet used in copper,gold and other base metals. Enhances coal preparation andiron ore proprietary technology packages which now covermost key production steps Enterprise value AUD 388m (DKK 2.3bn) equivalent to implicitEV/EBITDA multiple of 13.4x based on 2011 proforma result ofAUD 29m (including full year effect of the acquisitions Meshcape and Amseal) Estimated effect of Ludowici in H2 2012: Revenue DKK 0.8bn EBITA margin 9.2% Group one-off transaction costs DKK 35m Effect of purchase price allocations DKK -40m NIBD DKK 2.3bn Ludowici will be included evenly in Non-Ferrous and CustomerServices Substantial sales synergies expected to be achieved over thenext couple of years
  15. 15. Market trendsInterim Report Q2 201215 August 2012Interim Report Q2 2012 15 Continued strong underlying demand and order intake- particularly in Non-Ferrous No significant changes in project pipeline or ongoingdialogue with customers However, mining capex outlook appears to havedeteriorated in the short term due to increasedmacroeconomic uncertainty Installation of new mining capacity is currently challenged bylengthy permitting processes, budget overruns andslightly tighter financing Long term prospects remain encouraging In Cement, proposal activity is high in many parts of theWorld. Inquiry levels and tender activity have even startedto pick up in India
  16. 16. Customer Services15 August 2012Interim Report Q2 2012 16
  17. 17. Customer ServicesCustomer Services15 August 2012Interim Report Q2 2012 17(DKKm)Q22012Q22011ChangeQ1-Q22012Q1-Q22011ChangeFull-year2011Expected trendin 2012Order intake 1,569 1,358 +16% 3,415 2,713 +26% 5,271 Strongly increasing1)Oder backlog 6,708 6,202 +8% 6,708 6,202 +8% 6,082Revenue 1,608 1,253 +28% 2,976 2,304 +29% 5,259 Strongly increasing1)EBITDA 244 227 +7% 437 369 +18% 882EBITA 231 214 +8% 411 342 +20% 838EBITA margin 14.4% 17.1% 13.8% 14.8% 15.9% StableEBIT 1552) 213 -27% 3292) 340 -3% 832EBIT margin 9.6%2) 17.0% 11.1%2) 14.8% 15.8%1) Previous expectation: Increasing2) Including one-off write-down of capitalized R&D costs of approximately DKK 60m
  18. 18.  Strong order intake reflects good market conditions and high capacity utilisation throughout thenon-ferrous industries and in certain regions of the cement business Clear pattern of increasing quarterly revenue over the calendar year O&M contracts progressing well and Supercenter build-out in line with plansStrong growth in order intake and revenueCustomer Services15 August 2012Interim Report Q2 2012 18Revenue (quarterly)DKKm EBITA margin+28% vs. Q2 20110.0%4.0%8.0%12.0%16.0%20.0%05001,0001,5002,0002,500Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q2201205001,0001,5002,0002,500Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Order intake (quarterly)+16% vs. Q2 2011DKKm
  19. 19. Bulk Materials15 August 2012Interim Report Q2 2012 19
  20. 20. Bulk Materials DivisionBulk Materials15 August 2012Interim Report Q2 2012 20*) Previous expectation: Stable(DKKm)Q22012Q22011ChangeQ1-Q22012Q1-Q22011ChangeFull-year2011Expected trendin 2012Order intake 1,272 1,261 +1% 2,215 2,902 -24% 5,482 IncreasingOder backlog 5,230 5,340 -2% 5,230 5,340 -2% 5,136Revenue 1,271 1,068 +19% 2,331 1,985 +17% 5,005 IncreasingEBITDA 28 -5 n/a 56 7 +700% 276EBITA 17 -11 n/a 33 -5 n/a 225EBITA margin 1.3% -1.3% 1.4% -0.3% 4.5% Decreasing1)EBIT 12 -24 n/a 16 -36 n/a 146EBIT margin 0.9% -2.2% 0.7% -1.8% 2.9%
  21. 21.  Slightly weakening outlook for Bulk Materials in the short term, but hotlist still encouraging Prudent tender approach Primary focus on improved operational excellenceModest order intake and execution challengesBulk Materials15 August 2012Interim Report Q2 2012 21Revenue (quarterly)DKKm EBITA margin+19% vs. Q2 201105001,0001,5002,000Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Order intake (quarterly)+1% vs. Q2 2011DKKm-4.0%0.0%4.0%8.0%12.0%16.0%-50005001,0001,5002,000Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012
  22. 22. Tight focus on execution challenges in Bulk MaterialsBulk Materials15 August 2012Interim Report Q2 2012 22 Bulk Materials Handling business facing challenges related to difficulties in projectexecution... ..stemming from underestimated risks in connection with orders received in previous years... ..combined with lack of timely handling and mitigation hereof A number of initiatives have been put in place, including: Transfer of project management know-how and best practices from other divisions New division head and member of Group Executive Management, Carsten Lund took office on 1July 2012 and has relocated to Wadgassen in Germany, where the Material Handling TechnologyCentre is based Strengthened divisional Management Group Based on the new management’s assessments, expectations to profitability in 2012 have beenchanged from “Stable” to “Decreasing” relative to last year’s EBITA margin of 4.5%
  23. 23. Non-Ferrous15 August 2012Interim Report Q2 2012 23
  24. 24. Non-FerrousNon-Ferrous15 August 2012Interim Report Q2 2012 24(DKKm)Q22012Q22011ChangeQ1-Q22012Q1-Q22011ChangeFull-year2011Expected trendin 2012Order intake 2,808 2,322 21% 5,253 4,002 31% 9,731 Strongly increasing1)Oder backlog 10,362 6,975 49% 10,362 6,975 49% 8,779Revenue 2,057 1,262 63% 3,779 2,425 56% 6,766 Strongly increasing2)EBITDA 209 119 74% 356 251 42% 859EBITA 193 108 77% 328 228 44% 815EBITA margin 9.4% 8.6% 8.7% 9.4% 12.0% Slightly decreasingEBIT 893) 82 8% 1833) 169 8% 689EBIT margin 4.3%3) 6.6% 4.8%3) 7.0% 10.2%1) Previous expectation: Stable2) Previous expectation: Increasing3) Including one-off write-down of capitalized R&D costs of approximately DKK 60m
  25. 25.  Level of unannounced orders particularly high in Q2 Margin slightly under pressure since order backlog is emptied for orders taken in 2007 and 2008at more favourable terms and conditions than todayContinued strong order intake and revenue growthNon-Ferrous15 August 2012Interim Report Q2 2012 25Revenue (quarterly)DKKm EBITA margin+63% vs. Q2 20110.0%3.0%6.0%9.0%12.0%15.0%18.0%05001,0001,5002,0002,5003,0003,500Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q2201205001,0001,5002,0002,5003,0003,500Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Order intake (quarterly)+21% vs. Q2 2011DKKm
  26. 26. Cement15 August 2012Interim Report Q2 2012 26
  27. 27. CementCement15 August 2012Interim Report Q2 2012 27(DKKm)Q22012Q22011ChangeQ1-Q22012Q1-Q22011ChangeFull-year2011Expected trendin 2012Order intake 1,902 1,291 47% 3,317 1,818 +82% 4,439 Slightly increasingOder backlog 9,240 7,151 29% 9,240 7,151 +29%Revenue 952 1,028 -7% 1,811 2,177 -17% 4,354 Slightly increasingEBITDA 155 121 28% 257 257 0% 541EBITA 144 106 36% 237 227 +4% 494EBITA margin 15.1% 10.3 13.1% 10.4% 11.3% Slightly increasing1)EBIT 742) 104 -29% 1592) 221 -28% 475EBIT margin 7.8%2) 10.1% 8.8%2) 10.2% 10.9%1) Previous expectation: Decreasing2) Including one-off write-down of capitalized R&D costs of approximately DKK 60m
  28. 28. 05001,0001,5002,000Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012 Proposal activity remains high in many parts of the world The Indian market still subdued, but inquiry levels and tender activity picking up Strong order execution leading to increase in marginsHigh order intake and solid order executionCement15 August 2012Interim Report Q2 2012 28Revenue (quarterly)DKKm EBITA margin-7% vs. Q2 20110.0%5.0%10.0%15.0%20.0%05001,0001,5002,000Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012Order intake (quarterly)+47% vs. Q2 2011DKKm
  29. 29. Cembrit - Europe’s largest dedicated provider of fibre-cement products15 August 2012Interim Report Q2 2012 29
  30. 30. Cembrit sales process initiatedCembrit15 August 2012Interim Report Q2 2012 30Revenue (quarterly)DKKm EBITA margin-3% vs. Q2 2011-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%-200-1000100200300400500Q22010032010Q42010Q12011Q22011Q32011Q42011Q12012Q22012DKKmQ22012Q22011changeQ1-Q22012Q1-Q22011changeRevenue 383 394 -3% 699 684 +2%EBITA 33 25 +32% 27 17 +59%EBITAmargin8.6% 6.3% 3.9% 2.5% Part of FLSmidth since 1927 and the onlyremaining Building Materials Company in theGroup Not part of FLSmidth’s long term strategy,and a sales process is initiated As a consequence, Cembrit will be reported asdiscontinued activities from Q3 FLSmidth cautions that there is no assurancethat the process will in fact lead to a sale andthat no firm timeline has been set for thecompletion of the process
  31. 31. Future Outlook15 August 2012Interim Report Q2 2012 31
  32. 32. Financial targets (unchanged)Future Outlook15 August 2012Interim Report Q2 2012 32Financial targetsAnnual revenue growth Above market averageEBITA margin 10-13%Equity ratio >30%Financial gearing (NIBD/EBITDA) <2Pay-out ratio 30-50%CFFI (excl. acquisitions) DKK -700m to -900mThe Board will be considering and adopting new financial targets for Return on Capital Employed– no later than in connection with the Annual Report for 2012
  33. 33. Group Guidance 2012 Previous guidance Actual 2011Revenue DKK 25-26bn1) DKK 24-26bn DKK 22bnEBITA ratio ≥10% 10.9%EBIT ratio 8-9%2) 9-10% 9.9%Tax rate 30-32% 31%CFFI (excl. acquisitionsand their subsequent Capexneeds)DKK -900m DKK -733mGroup guidance 2012 updatedFuture Outlook15 August 2012Interim Report Q2 2012 331) Continuing activities - excluding Cembrit, and including Ludowici as of 3 July 20122) EBIT-margin expectation reduced due to write-down of capitalized R&D costs of DKK 188m
  34. 34. Key take-awaysStrong order intake and solid EBITA results in all segmentsexcept Bulk Materials, where challenges persistEBIT impacted by DKK 188m one-off write-down of capitalisedR&D costsCembrit sales process initiatedFull-year guidance updated15 August 2012Interim Report Q2 2012 34
  35. 35. Questions &AnswersVisit FLSmidth at MINExpoin Las Vegas and at our officesin Salt Lake City, USAon 26-27 September 2012Follow us on Twitter: @flsmidth15 August 2012Interim Report Q2 2012 35