FLSmidth & Co. A/S
Transcript of FLSmidth & Co. A/S
FLSmidth & Co. A/S
Annual Report 2009
Annual Report 20091
Facts about FLSmidth & Co.a leading supplier of equipment and services to the global cement and minerals industries- a leading supplier of equipment and services to the global cement and minerals industries
A global company with a strong local presence worldwideHead office in Denmark, major engineering centres in India and USA10,664 employees worldwideStrong track record and 128 years of experience
Geographical distribution of employees
Annual Report 20092
Investing in FLSmidth & Co. A/S
2009 2008Total shareholder return : 104% (64%)Pay out ratio: 22% (DKK 2+5 h ) 0%Pay-out ratio: 22% (DKK 2+5 per share) 0%EPS (diluted) : DKK 31.9 28.8Number of shareholders: 44,800 42,000Market Cap: DKK 19 5bn DKK 9 6bnMarket Cap: DKK 19.5bn DKK 9.6bn
Annual Report 20093
Key messages in Annual Report 2009
Historically strong performance 2009 2008– Cash flow from operations (DKK) 2,470m 2,324mp ( ) , ,– EBIT margin 9.8% 9.5%– Net profit (DKK) 1,664m 1,515m
Proposed dividend DKK 5 per share (on top of DKK 2 already paid in 2009)
O d i k i 20 0 i d i i b h C dOrder intake in 2010 is expected to increase in both Cement and Minerals vs. 2009
Expected revenue in 2010: DKK 19-20bnExpected revenue in 2010: DKK 19 20bn
Expected EBIT margin in 2010: 8-9%
Annual Report 20094
Asset light business model is working well
Engineering house and technology provider
Flexible cost structure (payroll)Flexible cost structure (payroll)
Most manufacturing is outsourced(~80-90%)
Low working capital due to prepayments from customers (typically 10-25% of total contract amount upfront)
Low maintenance CAPEX (~2% of revenue at present)
Order related engineering off-shored to India
Increased sourcing from competitive-cost-countries(~25% at present)
Annual Report 20095
(~25% at present)
Highlights 2009
DKKm 2009 2008 change
Revenue 23,134 25,285 -9%
EBITDA (before special non-recurring items) 2,725 2,911 -6%
EBIT 2,261 2,409 -6%
Profit for the year 1 664 1 515 +10%Profit for the year 1,664 1,515 +10%
Order intake 13,322 30,176 -56%
Order backlog 21,194 30,460 -30%
Net interest bearing receivables /(debt) 1,085 (574)
Working capital 21 207
CFFO 2,470 2,324 +6%
Free cash flow 1,965 1,453 +35%
Investments in R&D 315 268 +18%
Number of employees 10,664 11,510 -7%
Annual Report 20096
Revenue 2009
Revenue in 2009: DKK 23,134m down 9% vs. 2008
Strong order backlog at the beginning of the year provided protection g g g g y p pagainst weak business climate in 2009 resulting in a soft landing
Developing countries accounted for 71% of revenue in 2009 (2008 67%) of which BRICs accounted for 28% (2008 13%)(2008: 67%) – of which BRICs accounted for 28% (2008: 13%)
Cement is still the largest business segment accounting for 56% of revenue in 2009 (2008: 54%)( )
Annual Report 20097
A strong financial platform
Equity ratio 30%-target reached in 2009
No net debt (End 2009: Net interest bearing receivables DKK 1,085m)
C itt d dit f iliti t d d t 2013Committed credit facilities extended to 2013Working capital close to zero (End 2009: DKK 21m)
New dividend policy: DKK 7 per share per year
NIBD & Gearing Equity & equity ratioGEARING
1.583
1000
1500
2000
0,5
1,0
Equity ratioGEARINGNIBD / EBITDA
NIBD (DKKm) Equity (DKKm)6.627
5.0354.214
4 000
5.000
6.000
7.000
20
25
30
35Equity ratio target: 30%
Net interest bearing debt
574
-500
0
500
1000
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
(0,5)
-
0
1.000
2.000
3.000
4.000
0
5
10
15
20
Annual Report 20098
-1000 (1,0)Net interest bearing receivables
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
0
Key strategic focus areas in coming years
Stronger focus in Minerals– Prioritize growth industries– Enhance customer intimacy– Enhance customer intimacy– Focused technology portfolio
Stronger focus on China and India– Growing regional marketsG o g g o a a s– India: internal sourcing of engineering and back-office– Group Management to be represented in India from
1 July 2009 by Bjarne Moltke Hansen– China: internal and external sourcing of manufactured
t d i tcomponents and equipment
Increased activity in Customer Services– New and innovative service concepts– O&M contractsO&M contracts
One Company – One Name – ”One Source”– Subsidiaries and product companies to be named FLSmidth– Branding platform being launched
Annual Report 20099
g p g
Optimisation of the cost structure
Cost reduction measures in 2009– Prudent spending– Reduced travel activity and increased use of video conferencingy g– Workforce reduced by ~10% (excl. acquisitions)– Restructuring of Technical Division and transfer of order related
engineering work to IndiaContinued global integration of functions and physical offices– Continued global integration of functions and physical offices
LEAN Engineering– Lead time for design reduced by 40% in departments where introduced– To be applied in the global organisation
Annual Report 200910
Satisfactory revenue and margins in 2009
Revenue down 9% yoy– Customer Services revenue up 2% yoy– Traditional seasonal quarterly pattern repeated in 2009
EBIT ratio 9.8% vs. 9.5% in 2008, exceeding own expectations– Positively impacted by improved order execution, higher than expected revenue
and finalisation of projectsO t li ht b i d l i ki !
Revenue (quarterly) EBIT adj.*) (quarterly)
– Our asset light business model is working!
6.535
7.574
6.479
5 000
6.000
7.000
8.000
-14% vs. Q4 2008 -10% vs. Q4 2008DKKm
788
680
873
800
1.000
8,0%
10,0%
12,0%
DKKm
0
1.000
2.000
3.000
4.000
5.000
200
400
600
2,0%
4,0%
6,0%
, %
Annual Report 200911
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
*) Adjusted for effect of purchase allocation regarding GL&V Process
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
0,0%
Development in Cement & Minerals EBITA ratio (Group EBIT excl. Cembrit and purchase price allocations related to GL&V)
Revenue (Cement & Minerals)
EBITA ratio (Cement & Minerals)
9,9%
11,1%10,9%
20000
25000
10,0%
12,0%
6,3%
15000
6,0%
8,0%
3,7%
5000
10000
2,0%
4,0%
02005 2006 2007 2008 2009
0,0%
,
Annual Report 200912
Order intake and order backlog
Focus on securing new orders on satisfactory terms and conditionsSigns of slightly increased optimism and customer interest in Q409Quarterly order intake down 7% vs. Q408, however up 13% vs. Q309Q y Q , p QOrder backlog down 30% vs. End 2008 Approx. DKK 2.5bn of current order backlog is still on hold, but developing positively
Order intake gross (quarterly) Order backlog
p g p y
6.7288.000
10.000
DKKm
Order intake gross (quarterly) Order backlog-7% vs. Q4 2008 -30% vs. Q4 2008 Book-to-bill ratioDKKm
30.460
25 000
30.000
35.000
1,20
1,40
1,60
4.0914.394
6.728
2.000
4.000
6.00021.194
10.000
15.000
20.000
25.000
0,40
0,60
0,80
1,00
Annual Report 200913
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
0
5.000
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
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0,00
0,20
Cash management in 2009Strong cash-flow generation and working capital under control
8351.000
DKKm
Working capitalDedicated effort throughout 2009 to reduce trade receivables and i t i d t ti i t d
167
637451
614
20721
200
0
200
400
600
800
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
inventories, and to optimise trade creditors
Increasing trend in working capital
-800
-600
-400
-200 Q42007
Q1 2008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
g g preversed in Q3 and Q4
1.281
1 200
1.400
DKKm
CFFO
1.920 1.893 1.8901 8022 000
2.500DKKm
Inventories-2% vs. End 2008
717613
192
416
939 923
499
400
600
800
1.000
1.200
1.392 1.4851.650
1.463
1.802 1.760
500
1.000
1.500
2.000
Annual Report 200914(400)
(200)
0
200
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
0
Q42007
Q1 2008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Cash management focus areas
3.8034.394 4.424
3 5384 000
5.000
6.000DKKm
Prepayments (net liability *)-5% vs. End 2008
582653 629
600
800
1.000DKKm
Work-in-progress (net asset)
2.868 3.0763.538
3.0243.1933.330
0
1.000
2.000
3.000
4.000337
207
-400
-200
0
200
400
600
Q42007
Q1 2008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
0
Q42007
Q1 2008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
*) Prepayments from customers less Prepayments to sub-suppliers-800
-600
400
4 5484.9084.939 5.063
5 000
6.000
DKKm
2 132 2.2392.388 2.467
2.2762.464
2.7482.421
2.500
3.000DKKm
Trade receivables-16% vs. End 2008
Trade creditors-12% vs. End 2008
4.286 4.548 4.333 4.2763.696
4.270
2.000
3.000
4.000
5.000 2.132 2.2392.077
500
1.000
1.500
2.000
Annual Report 200915
0
1.000
Q42007
Q1 2008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
0
500
Q42007
Q1 2008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Cement
Highlights 2009 Current business environment
Revenue down by 5%, whileEBIT was up by 2%, and as such, record high - due to higher than
t d i d d
Market outlook remains somewhat weak, resulting in intensified price competition
expected revenue, improved order execution and finalisation of projects
Acquisition of EEL Limited India
Local business opportunities prevail,particularly in:
- North Africaq
The largest cement plant in the world, Holcim’s Ste. Genevieve, USA was successfully
North Africa- India- Indonesia- Latin/South America
USA, was successfully commissioned in 2009
20092008DKKm YTD13,059
1,54811.9%
13,7081,521
11.1%
RevenueEBITEBIT ratio
Annual Report 200916
Holcim, Ste. Genevieve, Missouri, USAThe world’s largest cement production line with a capacity of 12,000 tonnes clinker per day
Designed and delivered by FLSmidth
Facts about Ste. Genevieve
Commissioned in 2009
State-of-the art technology
Largest capacity in the worldLargest capacity in the world
Lowest OPEX per tonne ordinary portland cement produced
Complies with most stringent Complies with most stringent environmental regulations
Annual Report 200917
Large cement orders received in 2009
21 July 2009 Uruguay DKK 225m 30 July 2009 Indonesia DKK 420m31 July 2009 Indonesia DKK 420m22 Sep. 2009 Libya (O&M) DKK 330mp y ( )
14 Oct. 2009 Libya DKK 970m
Annual Report 200918
Cement
Order intake (gross) Order backlog
+15% vs. Q4 2008
g-32% vs. Q4 2008
D KKm
4.315
4.000
5.000 DKKm
18.56517 26520 000
25.000
2.2481.961
1.000
2.000
3.00012.568
17.265
5.000
10.000
15.000
20.000
Revenue EBIT
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
Revenue-9% vs. Q4 2008
EBIT+2% vs. Q4 2008
DKKm
3.6053.9733.849
4.000DKKm
561550600
1.000
2.000
3.000346
100
200
300
400
500
Annual Report 200919
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
0
00
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Cement
New global contracted cement kiln capacity(excl of China)(excl. of China)
160
mty Expected future average of 60-75 mty is based on an assumption of 3-4% global GDP (excl. China) and a conservative replacement need of 10 mty per annum
120
140
1602009: 45 mty
2010E: ~50 mty
Expected futureaverage:
80
100
~ 60-75 mty
40
60
0
20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 0E
Annual Report 200920
199
199
199
199
199
199
199
199
199
199
200
200
200
200
200
200
200
200
200
200
2010
Geographical distribution of new global contracted cement kiln capacity
(excl China)(excl. China)
38% 3%
21% 2% 15%
0% 0% 21%
Annual Report 200921
Market share 2009 Contracted new kiln capacity globally excl. Chinap y g y
Annual Report 200922
Minerals
Highlights 2009 Current business environment
Order intake considerably lower, although improvement seen in Q409
Supported by improved market conditions, the mining industry is taking a more optimistic view on 2010
ti iti lth h till ti
Revenue down by 14% andEBIT by 17% in 2009
activities, although still cautious
Announced 2010 Capex budgets are supporting increased business activity
Management focus in 2009:1.Stabilise the business2.Prepare for the future
pp g y
Large inquiry list and improved customer interaction, particularly in coal, iron ore gold phosphate and copper
20099,037
200810 470
DKKm YTDRevenue
3.Redefine our strategic roadmapiron ore, gold, phosphate and copper
9,037798895
8.8%9 9%
10,470960
1,2389.2%
11 8%
RevenueEBITEBIT adj.EBIT ratio
Annual Report 200923
9.9%11.8%EBIT ratio adj.
Minerals
1) Stabilise the business
Order intake and backlog developmentMining companies focused on balance sheet optimisation and cash preservationpreservationOnly few large projects became contractsIntensified price competition as a result
Order intake (gross) Order backlog
-25% vs. Q4 2008 -31% vs. Q4 2008DKKm
4000
5000
DKKm
8 777
12.60615000
190725442464
1000
2000
3000
8.777 8.712
5000
10000
+39%
Annual Report 200924
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
MineralsBreakdown of large order intake in 2009 (orders>DKK 50m)
1) Stabilise the business
Order intake in 2009
Activity has primarily been within coal and alumina
Demand has primarily been for material handling and separation equipment
India has been the most active market
Major contracts in Q409– India, coal DKK 262m– Vietnam, coal DKK 201m
Annual Report 200925
Vietnam, coal DKK 201m
Minerals
1) Stabilise the business
Backlog execution in 2009Some contracts and shipments were postponed or put on hold, resulting in delayed income recognitionresulting in delayed income recognitionSome normalisation in Q4, resulting in the highest levels of revenue and EBIT compared to previous quarters 2009Several contracts on hold are in process of being revitalizedSeveral contracts on hold are in process of being revitalized
Revenue22% Q4 2008
EBIT adj. 37% Q4 2008-22% vs. Q4 2008 -37% vs. Q4 2008
DKKm
2.332
3.414
2.6583000
4000
DKKm
275
441
277300
400
500
0
1000
2000
0
100
200
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Annual Report 200926
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
*) Adjusted for effect of purchase price allocations related to GL&V Process; DKK -24m in Q4 2008 and DKK -24m in Q4 2009
Minerals
2) Prepare for the future
Actions to reduce costs in 2009 and protect margins going forwardReduction in forceReduced working weekReduced working weekMonitor operational costsImproved utilisation of resources in IndiaImproved sourcing in cost competitive countriesImproved sourcing in cost competitive countriesContinued integration with Cement
Acquisitions in 2009Enhanced flowsheet coverage through acquisition of:
Conveyor Engineering, USA(supplier of major bulk material handling systems)
Summit Valley Equipment & Engineering, USA(modular gold and silver extraction plants and equipment)
Annual Report 200927
Minerals
3) Redefine our strategic roadmap
Strategic review with aligned focus and management attention dtowards
Improved customer intimacySelected growth industriesKey technologiesGrow Customer Services segmentR&D activities directed towards growth industries and key technologies Acquisitions directed towards growth industries Further develop supply chain management Improved internal coordination and communication through delayering and simplified management structure in place February 2010
Annual Report 200928
Customer Services showed signs of improvement in Q4(included in Cement & Minerals)
Cement Customer Services revenue(12M trailing)
-4% vs Q4 2008
Cement Customer Services revenue(quarterly)
-19% vs Q4 2008DKKm 4% vs. Q4 2008
2.380
3.060 2.946
1.500
2.000
2.500
3.000
3.500DKKm
19% vs. Q4 2008
699
918
740
400
600
800
1.000DKKm
0
500
1.000
500
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
i l
0
200
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
i l
2.3712.555
2 500
3.000
DKKm
Minerals Customer Services revenue(12M trailing)
+8% vs. Q4 2008
700800
DKKm
Minerals Customer Services revenue(quarterly)
+10% vs. Q4 2008
1.609
500
1.000
1.500
2.000
2.500599
636
200
400
600
Annual Report 200929
0
500
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
0
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Operation & Maintenance contracts (O&M)
Dedicated work over the past 3 years to establish operation & maintenance of cement and minerals
Current contracts
Cement (O&M)
• Egypt (contracted in 2007)
processing plants as a new business area
• Egypt (contracted in 2007)
• Libya (contracted in 2009)
Minerals (M)
First Cement O&M contract in Egypt has been in operation for 1 year with very satisfying results
• Los Pelambres, Chile(prolonged in 2008)
• Collahuasi, Chile(prolonged in 2008)
P ñ it M i
First Minerals Maintenance contract at Los Pelambres in Chile has just celebrated 10 year anniversary
• Peñasquito, Mexico (contracted in 2008)
just celebrated 10 year-anniversary
Negotiations ongoing with several other interested customersother interested customers
Cembrit
Highlights 2009 Current business environment
Revenue down 11% and negative EBIT of DKK 25mVery weak first half followed by
Market outlook still weak, although some signs of stabilisation
Very weak first half followed by signs of improvement in second halfProduction capacity rightsizedto lower demand and number of
Eastern Europe particularly hard hit by slowdown
A i i ito lower demand and number of employees reduced by 15%
Aggressive competition
20091 243
20081 390
DKKm YTDR 1,243
(25)(2.0%)
1,39025
1.8%
RevenueEBITEBIT ratio
Annual Report 200931
Quarterly developments
Signs of improvement in second half of 2009Revenue up 11% in Q4 vs last yearRevenue up 11% in Q4 vs. last yearQ1 and Q4 are typically low season
Turnover (DKKm) EBIT (DKKm)DKKm
DKKm
348297
329
200
300
40029
10
20
30
40
50
0
100
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
(20)
(30)(30)
(20)
(10)
0Q4
2007Q1
2008Q2
2008Q3
2008Q4
2008Q1
2009Q2
2009Q3
2009Q4
2009
Annual Report 200932
Guidance 2010
2010 2009■ New cement kiln capacity 50mty 45mty■ R DKK 19 20b DKK 23 134
Group
■ Revenue DKK 19-20bn DKK 23,134m■ EBIT-ratio 8-9% 9.8%■ Tax rate 30% 19%■ CFFI (excl. acquisitions) DKK -400m DKK -244m
■ Order intake in both Cement and Minerals is expected to increase in 2010 vs. 2009
Re en e EBIT
SegmentsRevenue EBIT
■ Cement DKK 9-10bn ~9%■ Minerals DKK 8-9bn ~9%■ Cembrit DKK ~1.2bn ~2%
Annual Report 200933
■ Cembrit DKK 1.2bn 2%
Unchanged long term growth and earnings prospects
Urbanisation and industrialisation in developing countries are expected to continue to generate increasing demand for cement and minerals in futurecement and minerals in future.
In periods of high activity: Expected EBIT ratio: 10-12%
In periods of low activity: Expected EBIT ratio: 8-9%
Annual Report 200934
Concluding remarks
71% of revenue generated in emerging markets
Record high CFFO, EBIT ratio and profits in 2009
Asset light business model is working well
Increased optimism among customers
Strong financial position allows dividend paymentto be increased in 2010
New dividend policy: DKK 7 per share per year
A number of strategic initiatives are ongoing to further enhance the competitive and financial position further enhance the competitive and financial position of FLSmidth
Annual Report 200935
QuestionsQuestions
Annual Report 200936