The Service Leap · With The Service Leap, FLSmidth can reach its targets EXECUTIVE INSIGHTS...
Transcript of The Service Leap · With The Service Leap, FLSmidth can reach its targets EXECUTIVE INSIGHTS...
The Service Leap Winning in the long-term with a focus on service
Jarl Greve | Nadine Raida | Morten Juhl | Sebastian Kersting
With The Service Leap, FLSmidth can reach its targets
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 2 CBS |
Facing a challenging market with low
margins in cement and mining.
Revenues have been declining for
FLSmidth
“How can FLSmidth regain above-
market growth together with ROCE
above 20% and EBITA between 10-
13% by 2020?”
Product business Project business Service business
Re
ve
nu
e
Time
The Service Leap
Product business Project business Service business
Re
ve
nu
e
Time
20%
30%
10,000
0 0%
30,000
10%
20,000
mDKK
2016 2015 2017 2020 2018 2019
28,256
7%
19,682 21,158
22,745
26,285 24,451
7% CAGR
20%
11% 10%
ROCE
Revenue
EBITA Margin
FLSmidth has experienced large volatility in ROCE and is
currently at a downturn
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 3 CBS |
ROCE
20%
5%
10%
15%
0% 2013 2014 2015 2012
ROCE
Source: Annual Reports
Since the volatility follows profitability, high margin segments
has to be prioritized to meet target
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 4 CBS |
ROCE MARGINS
20%
5%
10%
15%
0.0
2.0
3.0
0%
1.0
2013 2014 2015 2012
PM
ROCE
Turnover rate
Minerals Cement Product
Companies Customer
Services
13.2% 13.0%
2.5%
-7.2%
Source: Annual Reports
Cyclical market constitute a challenge to FLSmidth in
generating stable income
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 5 CBS |
Revenue Commodity Prices CAPEX
How can FLSmidth generate stable growth over the cycle?
0
5
20
25
15
10
30 bDKK
2015 2005 2010
40
20
0
140
160
180
120
60
80
100
b$
2010 2015 2005
100
0
50
250
300
350
400
150
200
MG Base Metal Index (MGM)
2010 2015
Source: Annual Reports, UBS
Shifting from equipment to services has proven generate high
returns for equipment manufactures
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 6 CBS |
Service share of revenues
Ave
rag
e c
om
po
un
d T
SR
Source: The Boston Consulting Group
7.1
5.0
+2.1
%-points
1.5
3.1
2.1x
9.8
23.0
+13.2
%-points
34.0
25.0
+9.0
%-points
CAGR 2006-2012 (%)
Annual revenue grow th
Variance, 2006-2012
Average revenue drop
due to economic crisis(%)
Average gross margin,
2012 (%)
Faster growth
Greater
Predictability Greater resilience
Greater
Profitability
Service
Equipment
FLSmidth should increase its presence in customer services
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 7 CBS |
Minerals Cement Product
Companies Customer
Services
13.2% 13.0%
2.5%
-7.2%
20%
37%
25%
18%
Cement Product Companies
Customer Services Minerals
10%
5%
55%
30%
Source: Annual Reports
2015 2020
With a focus on service, FLSmidth can become less cyclical
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 8 CBS |
Product business Project business Service business
Re
ve
nu
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Time
Product business Project business Service business
Re
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The Service Leap
Cement
Minerals
Product companies
Services
Cement
Minerals
Product companies
Service
9 CBS |
Overall goal to move from products to services
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY
Products Solutions
Outputs Outcomes
Transactions Relationships
Elements Ecosystems
From a world of … To a world including …
VISION
The Service
Leap
10 CBS |
4 initiatives will improve FLSmidths service offerings now
and in the long term
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY
Products Solutions
Outputs Outcomes
Transactions Relationships
Elements Ecosystems
From a world of … To a world including …
1
2
3
4
Short-term
Long-term
Reverse supply chain
Improved service
Big data
Relationship pricing
Timeline
VISION INITIATIVES
The Service
Leap
3 initiatives will drive short-term impact of new vision
11 CBS |
Relationship Pricing
Reverse supply chain
Improved service
WIN
WIN
CUSTOMER
FLSMIDTH
EXPENDITURE PRODUCTION AGILITY
REVENUE COST KNOW-HOW 1
3
2
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY
12 CBS |
Through partnership FLSmidth can exploit opportunities of big
data and create value for customers
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY
Data
Center
Local
Service
Center
Customer
Data Status report
Required service,
maintenance and
parts
or
Outcome
Outcome
Outcome
1
3
2
Predictive to Preventive O&M Downtime decrease
Continuous optimization Improve productivity
Safety & Environment Decrease risk of accidents and energy use
Source: Bloomberg, IBM, General Electric, SAP
“The service leap” will be implemented and incorporated
gradually till 2020
13 CBS |
2016 2017 2018 2019 2020
PRODUCT TO
SERVICE
BIG DATA
Must win battles
Service activities in 2 key
markets at Q2 2017 1 2 3 Achieve 50% of revenue from
customer services by 2020
Establishing strong
partnership by Q4 2016
Internal implementation, hiring and training
Offer service initiatives in key markets
Training of personnel and internal implementation
Development of IT infrastructure
Constant feedback for continuous improvement and development
Form and negotiate big data partnership
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY
Expand to global markets
Pilot project with selected customers
Increasing service offerings will give FLSmidth a ROCE of
20% by 2020
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 14 CBS |
A focus on services will increase EBITA to 11% by 2020
Increase in revenue p.a.
Increase in capital
employed
Revenue from customer
services
7,5%
5%
55%
20%
30%
10,000
0 0%
30,000
10%
20,000
mDKK
2016 2015 2017 2020 2018 2019
28,256
7%
19,682 21,158
22,745
26,285 24,451
7% CAGR
20%
11% 10%
ROCE
Revenue
EBITA Margin
KEY ASSUMPTIONS
Pivotal risks has to be accounted for
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 15 CBS |
Lik
lih
oo
d
Impact
C
A
B
High Low
Low
H
igh
Lack of customer
interested
Market
dow nturn
Finding the right
partner
… but thorugh mitigation FLSmidth can succeed the
probability and impact
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 16 CBS |
Making sure to clearly communicate the benefits of new
service initiatives emphasizing down-time, stable cash flows, productivity etc.
Focus on managing these headwinds by improving
and enhancing customer services during down market
Thorough assessment of several options based on
company capabilities and experience
MITIGATION
A
B
C
Lik
lih
oo
d
Impact
C
A
B
High Low
Low
H
igh
Market
dow nturn
Finding the right
partner
Lack of customer
interested
The Service Leap will enable FLSmidth to live up to its vision
and reach set targets
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 17 CBS |
Product business Project business Service business
Re
ve
nu
e
Time
Product business Project business Service business
Re
ve
nu
e
Time
The Service Leap
1 2 3
Questions & Answers
Insights Solution Impact Appendix
02. Executive
04. ROCE and Profitability
05. Cyclical Market
06. Service provides best
returns
07. Increase services % of
revenue
08. Decrease cyclicality
10. From Product to
Service
11. Short-term initiatives
12. Long-term initiative
13. Implementation
Timeline
14. Financials
16. Risk
17. Summary
20. CAPEX and
depreciation to CAPEX
over time
21. Service part of revenue
and TSR
22. Gradual prioritization
of implementation
23. Assessment of service
need
24. Competitive landscape
25. Rating of Big Data
partners
26. Revenue Split
27. Forecast and
segmentation
28. Sensitivity analysis
29. Risk analysis
19 CBS |
Mining CAPEX shows cyclical behavior over last 40 years
APPENDIX 20 CBS |
Source: UBS
Service part of revenue and TSR
APPENDIX 21 CBS |
Source: The Boston Consulting Group
Gradual prioritization of implementation
22 CBS |
EU NA
SA
AS
AF
OC
Priority
1
2
3
Source: Annual Report
APPENDIX
Assessment of service need
23 CBS |
1. North America: largest demand for
services
2. South America: Large demand for
services
3. Asia: Medium demand for services
4. Africa: Medium demand for services
5. Oceania: Low demand for services
6. Europe: Low demand for services
Source: Annual Report
APPENDIX
Competitive landscape
APPENDIX 24 CBS |
HIG
H
LOW HIGH
Eq
uip
me
nt
Service
LO
W
ThyssenKrupp
Atlas Copco
Outotec
Metso
Sandvik
FLSmidht
Source: Market Line
Rating of Big Data partners
APPENDIX 25 CBS |
Parameter Capabilities Experience Global Engaged with
Competitors
Source: Bloomberg, IBM, General Electric, SAP
EXECUTIVE INSIGHTS SOLUTION IMPACT SUMMARY 26 CBS |
55% customer service
30% product companies
15% minerals and
cement
FLS can gain up to 12bDKK from services and products by 2020
2020 segment breakdown
Higher share of service in the product portfolio will increase
profitability and secure growth in revenues for FLS
Customer
service
2020 Product
Companies
Minerals and
cement
2015
3.508
28.256 8.301
19.682 -3.235
Source: Team Sauder analysis
Forecast and segmentation
APPENDIX 27 CBS |
Customer Services
Product Companies Minerals Cement Average EBITA Margin
2015 37% 25% 18% 20% 7,3%
2016 40% 26% 16% 18% 8,0%
2017 45% 27% 13% 16% 8,9%
2018 47% 28% 10% 14% 9,5%
2019 50% 29% 7% 12% 10,2%
2020 55% 30% 5% 10% 11,0%
EBITA margin 13,0% 13,2% -7,2% 2,5%
mDKK 2015 2016 2017 2018 2019 2020 Assumptions
Capital employeed 15162 15285 15438 15592 15748 15906 1% growth
Service 5577 6114 6947 7328 7874 8748
Product 3828 3974 4168 4366 4567 4772
Minerals 2744 2446 2007 1559 1102 795
Cement 3013 2751 2470 2183 787 1591
Revenue 19.682 21.158 22.745 24.451 26.285 28.256 CAGR 7,5%
EBITA 1444 1684 2026 2315 2670 3118
ROCE 10% 11% 13% 15% 17% 20%
Revenue 2015 19.682
Minerals & cement -3235
Product companies 3508
Customer service 8301
Revenue 2020 28.256
Source: Annual reports & transparency market research
Sensitivity analysis
APPENDIX 28 CBS |
mDKK ROCE EBITA/Capital employed 17.203/g=3% 16.544/g=2% 15.906/g=1% 15.162/g=0% 14.564/g=-1%
2.543/9% margin 15% 15% 16% 17% 17%
2.826/10% margin 16% 17% 18% 19% 19%
3.108/11% margin 18% 19% 20% 20,5% 21%
3.391/12% margin 20% 20% 21% 22% 23%
3.673/13% margin 21% 22% 23% 24% 25%
Source: Annual report
Risk analysis
APPENDIX 29 CBS |
Risk
Likelihood
Impact
Strategic importance
Mitigation
Customers not interested in our new service initiatives
3 4 12
Making sure to clearly communicate the benefits of new service initiatives emphasizing
down-time, stable cash flows, productivity etc.
Market conditions for both Mining and Cement industries 3 4 12
Focus on managing these headwinds by improving and enhancing customer services
during tough market conditions
Establishing partnership with big data analytics provider – finding the right partner
2 5 10
Thorough assessment of several options based on company capabilities and experience
Maintaining high quality standards in products and services every time 2 3 6
Role out plan focusing on creating a strong quality mindset, thus continuously measuring, developing, and improving quality performance
Hiring the right people for new initiatives 1 2 2
Thorough assessment of potential candidates through experience, knowledge, and merits
Source: Team Sauder analysis
Breakdown of ROCE & ROE
APPENDIX 30 CBS |
Source: Team Sauder analysis
EVA model ROE= ROCE= PM Turnover ratio
2015 20% 10% 8% 1,30
2014 23% 12% 9% 1,36
2013 14% 6% 4% 1,79
2012 27% 19% 10% 1,99