FLSmidth annual report for 2013 was released on 13 February 2014. Best viewed on a full screen mode, this annual report informs the reader about how well FLSmidth's business is doing financially, as well as FLSmidth's growth strategies and new financial targets projected for the next year.
2. Key highlights
2013 executed as planned and communicated
Focus on managing the cyclical downturn
and preparing for the upturn
Eyes set on sustainable profitable growth
ROCE > 20%
Annual Report 2013
13 February 2014
2
3. Safety
Safety above all
Lost Time Injury Frequency Rate (LTIFR) 3.9 in 2013
Number of lost time
injuries per million
working hours
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
LTIFR
(annually)
-17% vs. 2012
4.2
2011
4.7
2012
Safety ambition: No injuries
2015 LTIFR target: < 3
3.9
2013
Annual Report 2013
13 February 2014
3
4. Guidance
Overall market trends unchanged
Mining capex
Cement capex
Downturn to continue throughout 2014
Flattish or slight decline in 2015
Slow growth in 2016
At a low level since 2009
Similar or slightly higher level of activity in 2014
Recovery to commence in 2015
Customer Services resilient and growing
Annual Report 2013
13 February 2014
4
5. Key highlights Q4 2013
Key financial highlights Q4 2013
Order intake reflecting business environment
Three large capital orders received in Material Handling and Cement
Large 5-year O&M contract received in Customer Services
Revenue as expected
Currency headwind -7% on order intake and revenue
Positive cash flow from operating activities, but not enough
EBITA impacted by planned costs and Buxton arbitration award
Efficiency Programme on track
Annual Report 2013
13 February 2014
5
6. Efficiency Programme
Efficiency Programme update
DKK 750m efficiency improvement by 2015
DKK +498m EBITA improvement run-rate:
33% (SG&A* costs)
23% (SG&A costs and Gross profit)
37% (COGS**)
6% (COGS and SG&A costs)
No EBITA effect
Started
1% (product pruning)
*) SG&A: Sales, ceneral and administration costs
**) COGS: Costs of goods sold
Annual Report 2013
13 February 2014
6
7. Efficiency Programme
Efficiency Programme on track
Targeted
full-year effect in
2015
2013 effect
Estimated fullyear effect
(run-rate)
Headcount reductions
-1,100
-898
-1,102
Location reductions
>20
25
41
One-off costs
DKK -500m
DKK -428m
DKK -428m
EBITA improvement
DKK+750m p.a.
DKK ~0m
DKK +498m
(2013-2014 effect)
(+78m vs. Q3’13E)
(2013 full year effect)
Annual Report 2013
13 February 2014
7
8. Results Q4 2013
Financial performance in Q4 2013
Q4
2013
Q4
2012
Change
Change
FX adjusted
Order intake
5,616
6,104
-8%
-1%
Revenue
7,420
8,395
-12%
-5%
Gross margin
18.6%
23.5%
222
893
EBITA margin
3.0%
10.6%
Net results
-179
462
77
1,532
FLSmidth & Co. A/S
(DKKm)
EBITA
CFFO
-75%
Order intake record high
had Nigerian O&M contract
been fully included
Revenue decreased 5%
(adjusted for currency)
comparing to a record high
Q4’12
EBITA margin 8.7%,
adjusted for special items
Annual Report 2013
13 February 2014
8
9. Annual Report 2013
Financial performance in 2013
Guidance
2013
FLSmidth & Co. A/S
2013
Order intake
FLSmidth & Co. A/S
(DKKm)
Order backlog
20,911
Q2 2013
22,312
27,727
-25%
Q2 2012
Change
29,451
-24%
Order intake
Revenue
5,626
26,923
7,246
26,284
Revenue
Gross margin
6,456
19.3%
5,653
24.8%
(DKKm)
EBITA
287
977
2012
Change
4.4%
3.6%
2% -22%
26-28bn
+14%
10.2%
9.7%
EBIT
Net results
195
-784
1,303 323
EBIT margin
CFFO
CFFO
3.0%
-157
-51
-567
14,817
CFFI
Employees2)
Working capital
ROCE
Employees
2,382
Revenue increased 2%
organically
2,559 576 -62% -50%
EBITA margin
3.5-4.5%
-39%
5.7%
1,720 333
-3,398
12,717 -83%
+17%-0.8bn
1,950
+22%
6%
18%
15,317
15,900
Order intake impacted by
mining capex downturn
7-8%
Gross margin impacted by
special items
EBITA margin 8.2%,
adjusted for special items
CFFO negatively impacted by
one-off costs
CFFI strictly managed
ROCE 14% adjusted for
special items
-4%
Annual Report 2013
13 February 2014
9
10. Annual Report 2013
Service activities accounted for 49% of 2013 orders
Order intake 2013
Revenue 2013
Capital business
Service business
Capital business
36%
51%
64%
2012: 37%
Service business
49%
2012: 41%
Annual Report 2013
13 February 2014
10
11. Annual Report 2013
Order intake decreased 8% in Q4
Order intake
DKKm
10,000
8,000
(quarterly)
Q4 order intake by industry
-8% vs. Q4 2012
Other
Announced O&M orders
Announced capital orders
Unannounced orders
Cement
34%
39%
6,000
4,000
Fertilizers
Iron ore
2,000
0
(quarterly)
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
0%
2%
6%5%
Coal
Gold
14%
Copper
Order intake increased 5% adjusted for O&M contracts
Order intake would have been record high in Q4 had the principle for recognition of O&M order
intake not been changed
Annual Report 2013
13 February 2014
11
12. Annual Report 2013
Revenue increased sequentially in Q4
Revenue
DKKm
(quarterly)
-12% vs. Q4 2012
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Organic Revenue growth -5% in
Q4’13
Service activities accounted for 34%
of Q4’13 revenue
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
Pattern of seasonally increasing
revenue over the calendar year broken
in Q3’13 but reestablished in Q4’13
Revenue in Q4’12 (the comparison
quarter) was record high
Annual Report 2013
13 February 2014
12
13. Annual Report 2013
Gross margin impacted by special items
Gross profit
DKKm
-30% vs. Q4 2013
2,000
1,500
Gross margin Q4’13 vs. Q4’12
(quarterly)
26.3%
Gross margin
- by division
40%
18.6%
23.5%
30%
1,000
500
28.8%
20%
10%
0
0%
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
24.7%
24.0%
27.3%
21.6%
14.7%
Q4’13
2.2%
Q4’12 Q4’13
Customer
Services
Material
Handling
Q4’12
6.8%
Q4’12
Q4’13
Mineral
Processing
Q4’12
Q4’13
Cement
Decline in gross margin due to one-off costs related to the Efficiency Programme, the Buxton
arbitration award and execution of lower margin order backlog in Cement
Annual Report 2013
13 February 2014
13
14. Annual Report 2013
SG&A ratio impacted by Efficiency Programme in Q4
SG&A costs*
DKKm
(quarterly)
9% vs. Q4 2012
1,200
1,000 12.6%
11.9%
SG&A ratio*
14.7%
18%
15%
800
12%
600
9%
400
6%
200
3%
0
0%
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
SG&A ratio up 2.8%-points
vs. Q4’12
SG&A ratio impacted by
efficiency programme oneoff costs in Q4’13
‘Underlying’ SG&A ratio
(adjusted for EP) 12.9% in
Q4’13
*) SG&A ratio: SG&A costs divided by revenue
Annual Report 2013
13 February 2014
14
16. Annual Report 2013
Return on Capital Employed decreased to 6%
Average
capital employed
DKKm
18,000
ROCE*
(quarterly)
6% in Q4 2013
ROCE target
ROCE
capital employed
DKKm
30%
25%
15,000
12,000
20%
12,000
9,000
15%
9,000
6,000
10%
6,000
3,000
5%
3,000
0%
(end of quarter)
18,000
15,000
Capital employed
0
0
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
ROCE decreased 11%-points vs. Q4’ 12 due to declining EBITA margin and increased average capital
employed as a result of acquisitions made in 2012 and higher average working capital
ROCE 14% adjusted for special items (EBITA impact)
*) ROCE: Return on capital employed calculated on a before tax basis, including goodwill and based on last 12 months’ EBITA and average capital employed
Annual Report 2013
13 February 2014
16
17. Annual Report 2013
Decline in advanced payments*) in 2013
DKK -2.2bn absorbed in net working capital in 2013
Net working capital
DKKm
Change in net working capital in Q4
DKKm
End Q4 2013 vs. End Q3 2013
4,000
3,000
2,500
691
3,000
2,000
1,500
242
353
122
361
2,000
1,000
500
1,000
0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
2,382
2,285
-
*) Advance payments: Work-in-progress net + prepayments net
Annual Report 2013
13 February 2014
17
18. Special items
Special items eroded earnings and cash flow in 2013
EBITA (DKK)
EBIT (DKK)
Cash-effect
Material Handling one-off costs Q2
-323m
-323m
Yes
Expected costs related to Efficiency
Programme Q3-Q4
-428m
-428m
Yes
Inventory write-down Q3
-203m
-203m
No
-901m
No
Ludowici impairment loss Q3
Buxton arbitration award Q4
-160m
-160m
Yes
Sale of assets Q3
+37m
+37m
Yes
Other costs of non-recurring nature Q1-Q2
-163m
-163m
Yes
-1,240m
-2,141m
Total full-year impact
Annual Report 2013
DKK -673m
13 February 2014
18
19. Annual Report 2013
Capital structure affected by special items
Equity
DKKm
NIBD
(quarterly)
Equity ratio 25%
Equity ratio
Equity ratio target (self-imposed)
DKKm
(quarterly)
Gearing 3.6x EBITDA
NIBD / EBITDA
Gearing target (self-imposed)
50%
5,000
8,000
40%
4,000
4.0
6,000
30%
3,000
3.0
4,000
20%
2,000
2.0
2,000
10%
1,000
1.0
10,000
0
0%
5.0
0
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
Gearing temporarily impacted by one-off costs booked in 2013 and currently outside target of
maximum 2 times EBITDA
Gearing expected to be back on target by the end of 2014
Annual Report 2013
13 February 2014
19
20. Business practice
More prudent business practices
More stringent approach to capitalisation of internal costs related to
R&D development projects, including the ERP/business system
More stringent assessment of ageing inventory items
Cash flow from investments to develop more in line with depreciation
and amortisation (excl. effect of purchase price allocations)
New O&M contracts included in order intake and order backlog
with 12 months rolling revenue only
Annual Report 2013
13 February 2014
20
21. Dividend
Proposed dividend of DKK 2 per share
Dividend policy implies no dividend for 2013
Capital structure outside targeted range implies no dividend for 2013
However...
Capital structure and profits expected to normalise in 2014
Proposed dividend DKK 2 per share equivalent to DKK 106m
Annual Report 2013
13 February 2014
21
22. Targets
Long term financial targets unchanged
Financial targets
Annual revenue growth
Above market average
EBITA margin
10-13%
ROCE*
> 20%
Tax rate
32-34%
Equity ratio
>30%
Financial gearing**
<2
Pay-out ratio
30-50%
*) ROCE: Return on capital employed calculated on a before tax basis as EBITA divided by average Capital Employed including goodwill
**) Financial gearing: NIBD / EBITDA
Annual Report 2013
13 February 2014
22
25. Key take-aways
2013 executed as planned and communicated
Focus on managing the cyclical downturn
and preparing for the upturn
Eyes set on sustainable profitable growth
ROCE > 20%
Annual Report 2013
13 February 2014
25
26. Annual Report 2013
Forward-looking statements
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.
Annual Report 2013
13 February 2014
26
27. Questions &
Answers
Next update: Annual General Meeting on 27 March 2014
Follow us on Twitter and LinkedIn
Annual Report 2013
13 February 2014
27
36. Interim report Q3 2013
Status on legacy projects in Material Handling
No new problematic projects identified
14 projects out of a total portfolio of 182 projects
in the Material Handling Business Unit are
currently regarded as risky (end of Q3 2013: 15 projects)
These projects accounted for DKK 481m or 11%
of the backlog at the end of Q4
The one-off costs of DKK 323m realised in Q2
cover future losses related to the legacy projects
Annual Report 2013
13 February 2014
36
43. Annual Report 2013
Order intake growth by segment
Order intake growth Q4’13 vs. Q4’12
Growth
Organic
Acquisitions
Currency
Total
Customer
Services
Material
Handling
Mineral
Processing
Cement
Announced orders in Q4’13
Group
-10%
157%
-52%
92%
-1%
0%
0%
0%
0%
0%
-7%
-11%
-6%
-5%
-17%
146%
-58%
87%
Industry
Country/
Region
Cement (O&M)
Value
DKK
Booked by
(Division)
Nigeria Undisclosed Customer Services
Building materials
Qatar
1,000
Material Handling
-7%
Cement
Qatar
515
Cement
-8%
Cement
Indonesia
300
Cement
Total
1,815
Organic order intake growth of -1% in Q4 2013
Service activities accounted for 45% of Q4 orders
‘Dangote’ – the largest order ever - was received in Q4 2013
*) Operation & Maintenance
Annual Report 2013
13 February 2014
43
44. Annual Report 2013
Revenue growth by segment
Order backlog
Revenue growth Q4’13 vs. Q4’12
DKKm
Growth
Customer
Services
Material
Handling
Mineral
Processing
Cement
Group
Organic
2%
22%
-22%
3%
-5%
Acquisitions
0%
0%
0%
0%
0%
-8%
-11%
-7%
-3%
-7%
-6%
11%
-29%
0%
-12%
Currency
Total
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
(quarterly)
-24% vs. Q4 2012
Book-to-bill ratio*
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
Organic revenue growth of -5% in Q4 2013
Service activities accounted for 34% of Q4 revenue
Expected backlog conversion to revenue: 65% in 2014, 20% in 2015 and 15% in 2016 and
beyond. O&M* contracts accounted for DKK 5.1bn (23%) of the order backlog at the end of Q4
*) Order backlog divided by last-twelve-months revenue
Annual Report 2013
13 February 2014
44
45. Special items
EBITA margins adjusted for special items
Special items Q4’13
Growth
Customer
Services
Material
Handling
Mineral
Processing
Cement
Cembrit
Group
Reported EBITA%
9.8%
-2.0%
6.4%
-2.9%
-7.0%
3.0%
Total EBITA impact
-97m
-72m
-15m
-196m
-41m
-421m
14.6%
2.9%
7.1%
10.2%
4.0%
8.7%
Underlying EBITA%
Special items 2013
Growth
Customer
Services
Material
Handling
Mineral
Processing
Cement
Cembrit
Group
Reported EBITA %
9.1%
-11.2%
8.2%
2.4%
-4.4%
3.6%
Total EBITA impact
-316m
-512m
-88m
-265m
-59m
-1,240m
Underlying EBITA %
13.3%
0.0%
9.1%
7.5%
-0.3%
8.2%
Annual Report 2013
13 February 2014
45
46. Annual Report 2013
Emerging markets 66% of revenue in 2013
Revenue 2013
Revenue 2013
– classified by country category
– classified by geography
Europe
BRIC countries
(Brazil, Russia, India, China)
High-income
countries
(Cf. World Bank’s definition)
20%
Asia
34%
Australia
46%
Developing countries
16%
25%
18% North America
7%
14%
20%
Africa
South America
(Exclusive of BRIC)
Annual Report 2013
13 February 2014
46
47. Annual Report 2013
Segment developments in 2013
EBITA 2013
Revenue 2013
– classified by segment
– classified by segment
Cement
Cembrit
5%
19%
Customer Services
77%
71%
27%
13%
-7%
-52%
Mineral Processing
33%
16%
Material Handling
Customer Material Mineral Cement Cembrit
Services Handling Processing
Annual Report 2013
13 February 2014
47
48. Annual Report 2013
Highest revenue but lowest order intake in
Mineral Processing in 2013
Order intake Q4 2013
Revenue Q4 2013
– classified by segment
– classified by segment
Cembrit
Cement
19%
5%
Cement
Customer Services
Customer Services
20%
26%
35%
Mineral Processing 17%
Mineral Processing
31%
19%
Material Handling
28%
Material Handling
Annual Report 2013
13 February 2014
48
49. Annual Report 2013
Service activities accounted for 45% of Q4 orders
Revenue Q4 2013
Capital business
Service business
Order intake Q4 2013
Capital business
34%
66%
Service business
45%
55%
Annual Report 2013
13 February 2014
49
50. Annual Report 2013
EBITA by segment
EBITA margin Q4 2013
EBITA Q4 2013
– classified by segment
– classified by segment
195
9.8%
153
-29
Customer
Services
Material
Mineral
Handling Processing
6.4%
-44
Cement
-2.0%
Customer
Services
-2.9%
Material
Mineral
Handling Processing
Annual Report 2013
Cement
13 February 2014
50
51. Annual Report 2013
Free cash flow of DKK -24m in Q4 2013
CFFO
DKKm
CFFI
(quarterly)
DKK 77m in Q4 2013
DKKm
(quarterly)
DKK -101m in Q4 2013
1600
600
1200
0
800
-600
400
-1,200
0
-1,800
-400
-2,400
-800
-3,000
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2011 2012 2012 2012 2012 2013 2013 2013 2013
Cash flow from operating activities (CFFO) impacted by Efficiency Programme one-off costs and Buxton
in Q4’13
Cash flow from investments (CFFI) reflects that acquisitions are temporarily on hold and that other
investments are managed closely
Annual Report 2013
13 February 2014
51
52. Annual Report 2013
Number of employees decreasing
Number of employees decreased by 583
in 2013 (from 15,900 to 15,317)
Number of employees Q4’13 vs. Q4’12
- by segment
Decline explained by Efficiency
Programme and business right-sizing
Increase of several hundred staff related
to O&M contracts
6,003
5,847
3,435
3,306
Q4’13
Q4312 Q4’13
Customer
Services
Material
Handling
Q4’12
2,833 2,840
Q4’12
Q4313
Mineral
Processing
Annual Report 2013
2,554 2,251
Q4’12
Q4’13
Cement
13 February 2014
52
53. Guidance
Guidance developments in 2013
February 2013
May 2013
August 2013
Revenue
DKK 27-30bn
Low end of range
DKK 26-28bn
EBITA margin
8-10%
Low end of range
4-5%
ROCE
15%
7-8%
CFFI
DKK -1bn
December 2013
DKK -0.8bn
Reasons for changed guidance:
Market
developments
Market
developments,
special items
and Cembrit
Annual Report 2013
3.5-4.5%
Buxton
arbitration
award
13 February 2014
53
54. Guidance
Divisional guidance developments in 2013
Guidance 12 February 2013
Revenue
Guidance 7 November 2013
EBITA margin
Revenue
EBITA margin
Customer Services DKK 8-10bn
13-15%
DKK 7-8bn
10-11%
Material Handling
> 0%
DKK 4-5bn
-11% to -12%
Mineral Processing DKK 10-12bn
8-10%
DKK 9-10bn
8-9%
Cement
DKK 5-7bn
6-8%
DKK 5-6bn
5-6%1)
Cembrit
Discontinued
DKK 1.4bn
-4%
DKK 4-6bn
Guidance changed to reflect market developments and allocation of special items to divisions
1)
EBITA margin not adjusted for Buxton DKK 160m arbitration award
Annual Report 2013
13 February 2014
54