Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 1
Forward-looking statements
Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 2
FLSmidth & 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 the company’s website and/or NASDAQ OMX Copenhagen, as well as any presentations based on such financial reports, and any other written information released, or oral statements 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 terms of 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 product
development • 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 underlying
assumptions 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 very
nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which may be outside FLSmidth & Co. A/S’s influence, and which 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 from those 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 rate fluctuations, 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/or services, 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 costs and 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 of this presentation.
Very strong order intake in Q2 All segments except Bulk Materials delivered solid EBITA results in Q2 EBIT results and guidance impacted by DKK 188m one-off write-down of capitalised R&D costs Cembrit sales process initiated Revenue guidance narrowed to DKK 25-26bn (excl. Cembrit) EBITA margin guidance of minimum 10% maintained
15 August 2012 Interim Report Q2 2012 3
Order intake up 20% on Q2’11, and also up 13% sequentially
Revenue up 26% due to increasing order intake last year, particularly in Non-Ferrous and Customer Services
EBITA up 36% and EBITA margin of 10.0% delivered in Q2
EBIT negatively impacted by DKK 188m one-off write down of capitalized R&D costs
Financial developments in Q2 2012
Q2 Results 2012
15 August 2012 4
FLSmidth & Co. A/S (DKKm)
Q2 2012 Q2 2011 Change
Order 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
Segment developments
21%
17%
37%
25%
Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 5
Order intake Q2 2012 – classified by segment
Customer Services
Bulk Materials
Cement
26%
20% 33%
15%
6%
Bulk Materials Non-Ferrous
Revenue Q2 2012 – classified by segment
Customer Services
Cement
Cembrit
Non-Ferrous
37%
21%
14%
5%
2%
5%
16%
15 August 2012 Interim Report Q2 2012 6
Announced orders in Q2 2012 Cement Middle East DKK 630m Coal Mozambique DKK 370m (BM) Cement USA DKK 780m Phosphate Morocco DKK 460m (NF) Total DKK 2,240m
Distribution of order intake by industry
Interim Report Q2 2012
Order intake Q1-Q2 2012 – classified by industry
Cement
Copper
Gold
Coal
Iron ore
Fertilizers
Other
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 ago
Order intake increased 20% in Q2 2012
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15 August 2012 Interim Report Q2 2012 7
0
2,000
4,000
6,000
8,000
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Order intake (quarterly)
+20% vs. Q2 2011 DKKm
0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Order backlog (quarterly)
+23% vs. Q2 2011 DKKm Book-to-bill ratio*
Announced O&M orders Announced Capital orders Unannounced orders
*) Order backlog divided by Trailing-Twelve-Months Revenue
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 Materials
Revenue increased 26% in Q2 2012
Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 8
0
2,000
4,000
6,000
8,000
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Revenue (quarterly)
+26% vs. Q2 2011 DKKm EBITA margin
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
200
400
600
800
1,000
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
EBITA (quarterly)
+36% vs. Q2 2011 DKKm
Tight focus on SG&A developments
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15 August 2012 Interim 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-recurring nature amounting to DKK ~100m in H1’12:
Implementation of new strategy and organization
Business alignment related to roll out of global ERP business system
Transaction and integration costs in connection with acquisitions
Initiatives put in place to manage SG&A more closely:
Cost awareness program
Systematic cost level targets and closer monitoring of non-recurrent costs
SG&A ratio
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
0
200
400
600
800
1,000
1,200
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
SG&A (quarterly)
+14% vs. Q2 2011 DKKm
One-off write-down of capitalised R&D costs in Q2
Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 10
Q2 results include a one-off write-down of capitalized R&D costs and decommissioning costs amounting to DKK 188m
Related to R&D project in ground-breaking new technology
Important milestones have been met and patents have been taken out..
..but commercial tests have not been able to demonstrate acceptable results
R&D project related to Cement, Non-Ferrous and Customer Services and the write-down will negatively impact EBIT in each of the three divisions by approximately DKK 60m
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 quarters
Cash flow from operating and investing activities
Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 11
CFFO (quarterly)
-22% vs. Q2 2011 DKKm
-1,000 -800 -600 -400 -200
0 200 400 600
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
CFFI (quarterly)
-161% vs. Q2 2011 DKKm
-1,000 -800 -600 -400 -200
0 200 400 600
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Tight focus on working capital developments
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15 August 2012 Interim Report Q2 2012 12
Working capital (quarterly)
+154% vs. Q2 2011 DKKm
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 product companies
Reduction in Work-in-progress net (liability) caused by high level of execution and increase in prepayments to subcontractors
Initiatives put in place in Q2 to manage working capital more 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%
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
WC /TTM* Sales
*) TTM : Trailing-Twelve-Months
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 structure
Interim Report Q2 2012
15 August 2012 Interim Report Q2 2012 13
NIBD (quarterly) DKKm
0% 5% 10% 15% 20% 25% 30% 35% 40%
0
2,000
4,000
6,000
8,000
10,000
12,000
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Equity (quarterly)
DKKm Equity ratio
(0.8) (0.6) (0.4) (0.2) - 0.2 0.4 0.6 0.8
(2,000) (1,500) (1,000)
(500) -
500 1,000 1,500 2,000
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Gearing (NIBD/ TTM* EBITDA)
Gearing 0.3x EBITDA +15% vs. Q2 2011
TTM: Trailing-Twelve-Months
Acquisition of Ludowici
Interim Report Q2 2012
15 August 2012 Interim 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 and iron ore proprietary technology packages which now cover most key production steps
Enterprise value AUD 388m (DKK 2.3bn) equivalent to implicit EV/EBITDA multiple of 13.4x based on 2011 proforma result of AUD 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 Customer
Services
Substantial sales synergies expected to be achieved over the next couple of years
Market trends
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15 August 2012 Interim Report Q2 2012 15
Continued strong underlying demand and order intake - particularly in Non-Ferrous
No significant changes in project pipeline or ongoing dialogue with customers
However, mining capex outlook appears to have deteriorated in the short term due to increased macroeconomic uncertainty
Installation of new mining capacity is currently challenged by lengthy permitting processes, budget overruns and slightly tighter financing
Long term prospects remain encouraging
In Cement, proposal activity is high in many parts of the World. Inquiry levels and tender activity have even started to pick up in India
Customer Services
15 August 2012 Interim Report Q2 2012 16
Customer Services
Customer Services
15 August 2012 Interim Report Q2 2012 17
(DKKm) Q2
2012 Q2
2011 Change
Q1-Q2 2012
Q1-Q2 2011
Change Full-year
2011 Expected trend
in 2012
Order 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% 6,082
Revenue 1,608 1,253 +28% 2,976 2,304 +29% 5,259 Strongly increasing1)
EBITDA 244 227 +7% 437 369 +18% 882
EBITA 231 214 +8% 411 342 +20% 838
EBITA margin 14.4% 17.1% 13.8% 14.8% 15.9% Stable
EBIT 1552) 213 -27% 3292) 340 -3% 832
EBIT margin 9.6%2) 17.0% 11.1%2) 14.8% 15.8%
1) Previous expectation: Increasing 2) Including one-off write-down of capitalized R&D costs of approximately DKK 60m
Strong order intake reflects good market conditions and high capacity utilisation throughout the non-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 plans
Strong growth in order intake and revenue
Customer Services
15 August 2012 Interim Report Q2 2012 18
Revenue (quarterly)
DKKm EBITA margin +28% vs. Q2 2011
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
0
500
1,000
1,500
2,000
2,500
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
0
500
1,000
1,500
2,000
2,500
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Order intake (quarterly)
+16% vs. Q2 2011 DKKm
Bulk Materials
15 August 2012 Interim Report Q2 2012 19
Bulk Materials Division
Bulk Materials
15 August 2012 Interim Report Q2 2012 20
*) Previous expectation: Stable
(DKKm) Q2
2012 Q2
2011 Change
Q1-Q2 2012
Q1-Q2 2011
Change Full-year
2011 Expected trend
in 2012
Order intake 1,272 1,261 +1% 2,215 2,902 -24% 5,482 Increasing
Oder backlog 5,230 5,340 -2% 5,230 5,340 -2% 5,136
Revenue 1,271 1,068 +19% 2,331 1,985 +17% 5,005 Increasing
EBITDA 28 -5 n/a 56 7 +700% 276
EBITA 17 -11 n/a 33 -5 n/a 225
EBITA margin 1.3% -1.3% 1.4% -0.3% 4.5% Decreasing1)
EBIT 12 -24 n/a 16 -36 n/a 146
EBIT margin 0.9% -2.2% 0.7% -1.8% 2.9%
Slightly weakening outlook for Bulk Materials in the short term, but hotlist still encouraging
Prudent tender approach
Primary focus on improved operational excellence
Modest order intake and execution challenges
Bulk Materials
15 August 2012 Interim Report Q2 2012 21
Revenue (quarterly)
DKKm EBITA margin +19% vs. Q2 2011
0
500
1,000
1,500
2,000
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Order intake (quarterly)
+1% vs. Q2 2011 DKKm
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
-500
0
500
1,000
1,500
2,000
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Tight focus on execution challenges in Bulk Materials
Bulk Materials
15 August 2012 Interim Report Q2 2012 22
Bulk Materials Handling business facing challenges related to difficulties in project execution...
..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 1 July 2012 and has relocated to Wadgassen in Germany, where the Material Handling Technology Centre is based
Strengthened divisional Management Group
Based on the new management’s assessments, expectations to profitability in 2012 have been changed from “Stable” to “Decreasing” relative to last year’s EBITA margin of 4.5%
Non-Ferrous
15 August 2012 Interim Report Q2 2012 23
Non-Ferrous
Non-Ferrous
15 August 2012 Interim Report Q2 2012 24
(DKKm) Q2
2012 Q2
2011 Change
Q1-Q2 2012
Q1-Q2 2011
Change Full-year
2011 Expected trend
in 2012
Order 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% 8,779
Revenue 2,057 1,262 63% 3,779 2,425 56% 6,766 Strongly increasing2)
EBITDA 209 119 74% 356 251 42% 859
EBITA 193 108 77% 328 228 44% 815
EBITA margin 9.4% 8.6% 8.7% 9.4% 12.0% Slightly decreasing
EBIT 893) 82 8% 1833) 169 8% 689
EBIT margin 4.3%3) 6.6% 4.8%3) 7.0% 10.2%
1) Previous expectation: Stable 2) Previous expectation: Increasing 3) Including one-off write-down of capitalized R&D costs of approximately DKK 60m
Level of unannounced orders particularly high in Q2
Margin slightly under pressure since order backlog is emptied for orders taken in 2007 and 2008 at more favourable terms and conditions than today
Continued strong order intake and revenue growth
Non-Ferrous
15 August 2012 Interim Report Q2 2012 25
Revenue (quarterly)
DKKm EBITA margin +63% vs. Q2 2011
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Order intake (quarterly)
+21% vs. Q2 2011 DKKm
Cement
15 August 2012 Interim Report Q2 2012 26
Cement
Cement
15 August 2012 Interim Report Q2 2012 27
(DKKm) Q2
2012 Q2
2011 Change
Q1-Q2 2012
Q1-Q2 2011
Change Full-year
2011 Expected trend
in 2012
Order intake 1,902 1,291 47% 3,317 1,818 +82% 4,439 Slightly increasing
Oder backlog 9,240 7,151 29% 9,240 7,151 +29%
Revenue 952 1,028 -7% 1,811 2,177 -17% 4,354 Slightly increasing
EBITDA 155 121 28% 257 257 0% 541
EBITA 144 106 36% 237 227 +4% 494
EBITA margin 15.1% 10.3 13.1% 10.4% 11.3% Slightly increasing1)
EBIT 742) 104 -29% 1592) 221 -28% 475
EBIT margin 7.8%2) 10.1% 8.8%2) 10.2% 10.9%
1) Previous expectation: Decreasing 2) Including one-off write-down of capitalized R&D costs of approximately DKK 60m
0
500
1,000
1,500
2,000
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
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 margins
High order intake and solid order execution
Cement
15 August 2012 Interim Report Q2 2012 28
Revenue (quarterly)
DKKm EBITA margin -7% vs. Q2 2011
0.0%
5.0%
10.0%
15.0%
20.0%
0
500
1,000
1,500
2,000
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Order intake (quarterly)
+47% vs. Q2 2011 DKKm
Cembrit - Europe’s largest dedicated provider of fibre-cement products
15 August 2012 Interim Report Q2 2012 29
Cembrit sales process initiated
Cembrit
15 August 2012 Interim Report Q2 2012 30
Revenue (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
-100
0
100
200
300
400
500
Q2
2010
03
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
DKKm Q2
2012 Q2
2011 change
Q1-Q2 2012
Q1-Q2 2011
change
Revenue 383 394 -3% 699 684 +2%
EBITA 33 25 +32% 27 17 +59%
EBITA margin
8.6% 6.3% 3.9% 2.5%
Part of FLSmidth since 1927 and the only
remaining Building Materials Company in the
Group
Not part of FLSmidth’s long term strategy,
and a sales process is initiated
As a consequence, Cembrit will be reported as
discontinued activities from Q3
FLSmidth cautions that there is no assurance
that the process will in fact lead to a sale and
that no firm timeline has been set for the
completion of the process
Future Outlook
15 August 2012 Interim Report Q2 2012 31
Financial targets (unchanged)
Future Outlook
15 August 2012 Interim Report Q2 2012 32
Financial targets
Annual revenue growth Above market average
EBITA margin 10-13%
Equity ratio >30%
Financial gearing (NIBD/EBITDA) <2
Pay-out ratio 30-50%
CFFI (excl. acquisitions) DKK -700m to -900m
The 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
Group Guidance 2012 Previous guidance Actual 2011
Revenue DKK 25-26bn1) DKK 24-26bn DKK 22bn
EBITA ratio ≥10% 10.9%
EBIT ratio 8-9%2) 9-10% 9.9%
Tax rate 30-32% 31%
CFFI (excl. acquisitions
and their subsequent Capex needs)
DKK -900m DKK -733m
Group guidance 2012 updated
Future Outlook
15 August 2012 Interim Report Q2 2012 33
1) Continuing activities - excluding Cembrit, and including Ludowici as of 3 July 2012 2) EBIT-margin expectation reduced due to write-down of capitalized R&D costs of DKK 188m
Key take-aways Strong order intake and solid EBITA results in all segments except Bulk Materials, where challenges persist EBIT impacted by DKK 188m one-off write-down of capitalised R&D costs Cembrit sales process initiated Full-year guidance updated
15 August 2012 Interim Report Q2 2012 34
Questions & Answers Visit FLSmidth at MINExpo in Las Vegas and at our offices in Salt Lake City, USA on 26-27 September 2012 Follow us on Twitter: @flsmidth
15 August 2012 Interim Report Q2 2012 35