48 slides from Flsmidth & Co. A/s's earnings presentation, September 2018
Slide 1: Investor Roadshow Q2 2018
Aug-Sep 2018 Investor Roadshow Q2 2018 The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law
Slide 2: FLSmidth today
FLSmidth today Danish Company founded in We are 1882 ~11,800 employees Cement We are a market-leading supplier to the global We operate in OUR VISION cement and mining industries We drive success through sustainable productivity enhancement +100 countries Mining 2 Aug-Sep 2018 Investor Roadshow Q2 2
Slide 3: We are Productivity Provider #1
We are Productivity Provider #1 Products A unique combination of projects, products Customer benefits Increasing output and services and quality Projects Services Reducing total cost of ownership Increasing productivity FLSmidth key competencies Process and product Guaranteed Proactive and Minimising
Slide 4: Key highlights Interim Report Q2 2018
Key highlights Interim Report Q2 2018 Q2 2018 MARKET OUTLOOK ▪ Strong order intake ▪ Ongoing positive aftermarket momentum ▪ More than 100% growth in Minerals ▪ Mining capex continuing positive trend ▪ Stable outlook for cement ▪ Improved profitability but negative cash flow GUIDANCE MAINTAINED ▪ St
Slide 5: Safety performance
Safety performance Total Recordable Injury Frequency Rate*) (TRIFR) 2.9 TRIFR ▪ Safety ambition: No injuries Number of recordable injuries per million working hours 12.0 ▪ 2018 TRIFR target : ≤ 3.2 10.0 8.0 ▪ Positive development in Q2. Reversal of negative trend seen in past quarters 6.0 10 4.0 8.5
Slide 6: Sustainable technology highlight
Sustainable technology highlight Generating value from waste - Modular RefluxTM Classifier Plant Modular plant with guaranteed outcome ▪ Recovery of valuable commodities from mining waste material (e.g. chrome out of platinum waste) ▪ Unique complete plant solution Customer benefits (eg. a platinum
Slide 7: Revenue split in Q2 2018
Revenue split in Q2 2018 MINING vs. CEMENT CAPITAL vs. SERVICE BUSINESS REVENUE BUSINESS REVENUE EBITA EBITA margin margin 9.9% 4.9% ROCE 58% 42% ROCE 45% 55% <20% >20% Cement business Service business Mining business Capital business 7 Aug-Sep 2018 Investor Roadshow Q2 2018 The information containe
Slide 8: Strong order intake in Minerals due to numerous small and mid-sized orders
Strong order intake in Minerals due to numerous small and mid-sized orders ORDER INTAKE ORDER INTAKE Q2 2018 VS. Q2 2017 10% vs. Q2 2017 - by division DKKm (13% organic) Actual order intake, DKKm Organic 6,000 +6% 0% +109% -11% growth 5,000 +1% -5% +126% -15% Growth 2,000 4,000 1,500 3,000 1,000 2,0
Slide 9: Market outlook
Market outlook Mining Cement ▪ Continued positive demand trends ▪ Select opportunities but significant ▪ Translating into increasing CAPEX regional differences ▪ Positive outlook for 2018 ▪ Few tenders for large orders and ▪ Activity in most commodities continued intense competition keeps ▪ Largest
Slide 10: Financial performance in Q2 2018
Financial performance in Q2 2018 Q2 Q2 ▪ Organic developments in revenue and order intake in Q2 (DKKm) Change 2018 2017 ▪ Order intake +13% Order intake 5,056 4,580 10% ▪ Revenue +7% Revenue 4,730 4,585 3% ▪ Gross margin down due to business mix and slightly higher Gross margin 25.0% 25.4% R&D expen
Slide 11: Cash flow statement in Q2 2018
Cash flow statement in Q2 2018 Group (DKKm) Q2 2018 Q2 2017 ▪ Negative impact from change in net working capital related to decrease in prepayments and increase in EBITDA continuing adjusted 450 398 inventories EBITDA discontinued (45) (6) ▪ Negative impact from change in provisions, primarily Chang
Slide 12: Revenue growth driven by capital divisions
Revenue growth driven by capital divisions REVENUE REVENUE Q2 2018 VS. Q2 2017 +3% vs. Q2 2017 - by division DKKm DKKm Organic +4% -3% +24% +10% growth 6,000 2,000 -1% -7% +24% +7% Growth 5,000 1,500 4,000 3,000 1,000 1,709 1,697 2,000 1,457 1,348 500 1,030 1,097 1,000 635 789 - 0 Q2 Q3 Q4 Q1 Q2 Q3
Slide 13: Stable gross margin
Stable gross margin GROSS PROFIT GROSS MARGIN Q2'18 VS. Q2'17 +1% vs. Q2 2017 - by division DKKm Gross margin 1,500 30% 40% 26.1% 25.4% 25.0% 1,200 24% 30% 900 18% 20% 600 12% 32.5% 32.4% 29.6% 30.3% 10% 18.0% 15.2% 300 6% 13.0% 9.6% 0 0% 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2'17 Q2'18 Q2'17 Q2'18 Q2'17 Q
Slide 14: SG&A: sales costs up, administrative costs down
SG&A: sales costs up, administrative costs down SG&A COSTS ▪ SG&A decreased 18m vs. Q2’17 -2% vs. Q2 2017 ▪ In Q2’17 SG&A included one-off costs of DKKm SG&A ratio* DKK 36m (net) (SG&A ratio adj. 15.8%) 1,000 20% 17.8% ▪ Sales costs increased DKK 16m 16.6% 800 15.7% 16% ▪ Administrative costs excl.
Slide 15: EBITA up: Higher revenue, no reported one-off costs
EBITA up: Higher revenue, no reported one-off costs EBITA EBITA BRIDGE DKKm +12% vs. Q2 2017 EBITA margin DKKm Q2'17 vs. Q2'18 600 12% 500 39 500 10% 77 400 15 7.5% 8.1% 92 400 8% 6.6% 300 300 6% 200 381 342 200 4% 100 100 2% 0 0 0% EBITA Q2'17 Decrease in Increase in Decrease in Increase in EBITA Q
Slide 16: Increase in net working capital in Q2 due to temporary planned increase in inventory & WIP
Increase in net working capital in Q2 due to temporary planned increase in inventory & WIP NET WORKING CAPITAL Net working capital developments in Q2 continuing activities DKKm DKKm End Q2 End Q1 Change continuing activities 2018 2018 3,000 18% Inventories 2,529 2,375 154 2,500 15% Trade Receivables
Slide 17: Capital structure in line with long-term targets
Capital structure in line with long-term targets EQUITY NIBD Equity ratio 37% NIBD/EBITDA 1.2 NIBD/EBITDA DKKm Equity ratio DKKm Continuing activities Minimum equity ratio target Maximum NIBD/EBITDA target 14,000 40% 5,000 2.5 12,000 35% 4,000 2.0 10,000 30% 8,000 25% 3,000 1.5 6,000 20% 2,000 1.0 4
Slide 18: Return on Capital Employed (ROCE)
Return on Capital Employed (ROCE) ROCE Q2 2018*) Mining ROCE < 20% Mining EBITA 9.9% 10.4% Cement ROCE > 20% Cement EBITA 4.9% (Q2 2017: 9.8%) EBITA LTM Capital employed DKK 1,525m DKK 14,648m Growth (Q2 2017: 1,484m) (Q2 2017: 15,101m) (ORDER INTAKE & REVENUE) Growth and operating leverage to drive
Slide 19: Status on new operating model
Status on new operating model ▪ The operating model went live and has New operating model been operational since 1 July 2018 Cement Mining Productivity Provider #1 through: Life-cycle Life-cycle ▪ Industries owning and developing ownership ownership life-cycle offerings Regions ▪ Regions owning cust
Slide 20: Restated historical data for new Mining and Cement reporting segments
Restated historical data for new Mining and Cement reporting segments DKKm MINING* EBITA margin DKKm CEMENT EBITA margin 18,000 18% 18,000 18% 16,000 16% 16,000 16% 14,000 14% 14,000 14% 12,000 12% 12,000 12% 10,000 10% 10,000 10% 8,000 8% 8,000 8% 6,000 6% 6,000 6% 4,000 4% 4,000 4% 2,000 2% 2,000
Slide 21: Management agenda
Management agenda Managing the cycle (customers, costs & cash) Strategic focus areas KPIs: Trend Q2 YoY Long term: Productivity Provider #1 ROCE ▪ Customers ▪ People ▪ Innovation ▪ Sustainability Order intake ▪ Digitalization EBITA% Short term: NWC% ▪ Expand in wear parts TRIFR (Total Recordable Inj
Slide 22: Group guidance for 2018
Group guidance for 2018 Group Realised H1 2018 Guidance 2018 Revenue (DKK bn) 9.0 18-20 EBITA margin 8.1% 8-10% ROCE 10.4% 10-12% Assumptions: ▪ Based on foreign exchange rates at the beginning of the year ▪ Market conditions will improve moderately in mining and be stable in cement ▪ No one-off cos
Slide 23: Key highlights
Key highlights Strong growth in New operating model Interim Report Q2 2018 order intake effective 1 July 2018 Improved Negative Guidance maintained profitability free cash flow REVENUE DKK 18-20BN EBITA MARGIN 8-10% ROCE 10-12% 23 Aug-Sep 2018 Investor Roadshow Q2 2018 The information contained or r
Slide 24: Forward-looking statements
Forward-looking statements FLSmidth & Co. A/S’ financial reports, whether in the ▪ statements regarding future economic performance, reductions for FLSmidth & Co. A/S’ products and/or form of annual reports or interim reports, filed with the future actions and outcome of contingencies such as servic
Slide 25: Backup slides
Backup slides flsmidth.com/linkedin flsmidth.com/twitter flsmidth.com/facebook flsmidth.com/instagram flsmidth.com/youtube 25 Aug-Sep 2018 Investor Roadshow Q2 2018 The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law
Slide 26: Our organisation has evolved over time
Our organisation has evolved over time Adjusting to changing market conditions 2004 2012 2014 2018 Cement Cement Cement Cement Minerals Minerals Processing Minerals Mining Material Handling Product Companies Consisting of >40 Working through business units Customer Services Customer Services seven r
Slide 27: Organising for growth
Organising for growth – a new way of working and reporting from 1 July 2018 1 Why 2 What 3 How ▪ To accelerate growth through ▪ Two Industries will drive and enhanced digitalization and develop the life-cycle offering and productivity offerings product portfolio ▪ To enforce a productivity-driven ▪
Slide 28: Two industries, seven regions, one digital approach
Two industries, seven regions, one digital approach BEFORE AFTER Customer Product Cement Services Minerals Companies Cement Mining Projects & Projects & Life-cycle Life-cycle Engineered Service Engineered Products Products Products ownership ownership Sales & Sales & Sales & Regions Sales O&M servic
Slide 29: Group Executive Management from July 2018
Group Executive Management from 1 July 2018 CEO*) Thomas Schulz Annette Terndrup Legal & Strategy Cori Petersen HR Communications Sofie K. Lindberg & Marketing Brian Day Head of Regions CFO*) Lars Vestergaard CPO Asger Lauritsen Scott Baker North America CDO Mikael Lindholm Andres Costa South Americ
Slide 30: Restated quarterly developments – Mining (new segment)
Restated quarterly developments – Mining (new segment) Pickup in order intake in 2018, yet to come in revenue ORDER INTAKE REVENUE +37% vs. Q2 2017 +13% vs. Q2 2017 DKKm DKKm EBITA margin 3,500 3,500 14% 3,000 3,000 12% 2,500 2,500 10% 2,000 2,000 8% 1,500 1,500 6% 1,000 1,000 4% 500 500 2% 0 0 0% Q
Slide 31: Restated quarterly developments – Cement (new segment)
Restated quarterly developments – Cement (new segment) Relatively stable revenue and margin around 5% ORDER INTAKE REVENUE -19% vs. Q2 2017 -8% vs. Q2 2017 DKKm DKKm EBITA margin 3,500 3,500 14% 3,000 3,000 12% 2,500 2,500 10% 2,000 2,000 8% 1,500 1,500 6% 1,000 1,000 4% 500 500 2% 0 0 0% Q2 Q3 Q4 Q
Slide 32: Roadmap to long term targets
Roadmap to long term targets Revenue, EBITA% and ROCE ROCE 30,000 30.0% TARGET >20% 25,000 25.0% 20,000 20.0% 15,000 15.0% EBITA% TARGET 10,000 10.0% 10-13% 5,000 5.0% 0 0.0% Q2 2011 Q1 2017 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q3 20
Slide 33: Long-term financial targets reflect growth ambitions
Long-term financial targets reflect growth ambitions Group long-term financial targets Annual revenue growth Above market average on track to deliver EBITA margin 10-13% on track to deliver ROCE >20% dependent on growth Equity ratio >30% already there Financial gearing (NIBD/EBITDA) <2 already there
Slide 34: Customer Services
Customer Services Q1-Q2 Q1-Q2 (DKKm) Q2 2018 Q2 2017 Change Change 2017 2018 2017 Order intake 1,768 1,750 1% 3,668 3,611 2% 6,967 Order backlog 2,588 2,421 7% 2,588 2,421 7% 2,260 Revenue 1,697 1,709 -1% 3,309 3,433 -4% 6,832 Gross margin before shared costs 32.4% 32.5% 32.1% 32.3% 32.1% EBITA marg
Slide 35: Customer Services
Customer Services ORDER INTAKE REVENUE +1% vs. Q2 2017 -1% vs. Q2 2017 DKKm DKKm EBITA margin 2,000 2,500 20% 1,800 1,600 2,000 16% 1,400 1,200 1,500 12% 1,000 800 1,000 8% 600 400 500 4% 200 0 0 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 2017 2017 2018 2018 20
Slide 36: Product Companies
Product Companies Q1-Q2 Q1-Q2 (DKKm) Q2 2018 Q2 2017 Change Change 2017 2018 2017 Order intake 1,478 1,554 -5% 2,939 3,151 -7% 5,623 Order backlog 2,923 3,128 -7% 2,923 3,128 -7% 2,687 Revenue 1,348 1,457 -7% 2,633 2,732 -3% 5,564 Gross margin before shared costs 30.3% 29.6% 30.3% 30.6% 30.0% EBITA
Slide 37: Product Companies
Product Companies ORDER INTAKE REVENUE -5% vs. Q2 2017 -7% vs. Q2 2017 DKKm DKKm EBITA margin 2,000 2,000 16% 1,500 1,500 12% 1,000 1,000 8% 500 500 4% 0 - 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 2017 2017 2018 2018 2016 2016 2016 2017 2017 2017 2017 2018 20
Slide 38: Minerals
Minerals Q1-Q2 Q1-Q2 (DKKm) Q2 2018 Q2 2017 Change Change 2017 2018 2017 Order intake 1,189 525 126% 2,306 1,269 82% 3,134 Order backlog 4,957 3,728 33% 4,957 3,728 33% 4,160 Revenue 789 635 24% 1,381 1,221 13% 2,586 Gross margin before shared costs 15.2% 18.0% 16.9% 17.7% 18.0% EBITA margin before
Slide 39: Minerals
Minerals ORDER INTAKE REVENUE +126% vs. Q2 2017 +24% vs. Q2 2017 DKKm DKKm EBITA margin 2,000 1,200 2,000 20% 1,000 1,500 1,500 10% 800 1,000 600 1,000 0% 400 500 500 -10% 200 0 0 0 -20% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 2017 2017 2018 2018 2016 2016 2016
Slide 40: Cement
Cement Q1-Q2 Q1-Q2 (DKKm) Q2 2018 Q2 2017 Change Change 2017 2018 2017 Order intake 866 1,023 -15% 1,603 2,742 -42% 4,546 Order backlog 4,646 5,672 -18% 4,646 5,672 -18% 5,193 Revenue 1,097 1,030 7% 2,029 1,991 2% 4,077 Gross margin before shared costs 13.0% 9.6% 12.8% 10.1% 11.3% EBITA margin befor
Slide 41: Cement
Cement ORDER INTAKE REVENUE -15% vs. Q2 2017 +7% vs. Q2 2017 DKKm DKKm EBITA margin 2,000 2,500 15% 2,000 10% 1,500 1,500 5% 1,000 1,000 0% 500 500 -5% 0 0 -10% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 2017 2017 2018 2018 2016 2016 2016 2017 2017 2017 2017 2018
Slide 42: Order intake and revenue growth by division
Order intake and revenue growth by division Order intake growth Q2'18 vs. Q2'17 ORDER INTAKE Q2'18 16% Customer Product – classified by division Growth Minerals Cement Group 34% Services Companies Growth 6% 0% 109% -11% 13% (currency adj.) Customer Service 22% Acquisition 2% 0% 29% 0% 4% Product Com
Slide 43: Order intake by industry
Order intake by industry ORDER INTAKE Q2'18 – classified by industry 27% 37% 5% 7% 4% 20% Cement Copper Gold Coal Iron ore Fertilisers Other 43 Aug-Sep 2018 Investor Roadshow Q2 2018 The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright
Slide 44: Order backlog and conversion to revenue
Order backlog and conversion to revenue ORDER BACKLOG Expected backlog conversion to revenue: +2% vs. Q2 2017 DKKm Order backlog/Revenue ▪ 50% in 2018 20,000 100% ▪ 34% in 2019 16,000 80% ▪ 16% in 2020 and beyond 12,000 60% 8,000 40% 4,000 20% 0 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017
Slide 45: Net working capital components
Net working capital components TRADE PAYABLES ▪ NWC increased in Q2 due DKKm TRADE RECEIVABLES DKKm to higher WIP and 5,000 5,000 4,000 4,000 inventory, and due to 3,000 3,000 lower prepayments 2,000 2,000 1,000 1,000 0 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017
Slide 46: Increase in net working capital in H1 due to higher inventories and lower prepayments
Increase in net working capital in H1 due to higher inventories and lower prepayments NET WORKING CAPITAL Net working capital developments YTD continuing activities DKKm DKKm End Q2 End Change continuing activities 2018 2017 3,000 18% Inventories 2,529 2,332 197 2,500 15% Trade Receivables 3,869 4,3
Slide 47: Growth and EBITA margin levers
Growth and EBITA margin levers Structural growth Self-initiated growth opportunities in our industries through key levers presented today ROCE >20% Cement Cement requires1 +2-3% ▪ Digitalisation as the foundation for productivity 3-4% EBITA > DKK 3bn ▪ Innovation to address complexity of operations
Slide 48: Thank you
Thank you flsmidth.com/linkedin flsmidth.com/twitter flsmidth.com/facebook flsmidth.com/instagram flsmidth.com/youtube 48 Aug-Sep 2018 Investor Roadshow Q2 2018 The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law