41 slides from Flsmidth & Co. A/s's earnings presentation, November 2018
Slide 1: FLSmidth roadshow Q3 2018
Nov 2018 FLSmidth roadshow Q3 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 ~11,500 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 Nov 2018 Investor Roadshow The info
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: 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 5: 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 6: Our offering to the cement and mining industries
Our offering to the cement and mining industries Cement Cement Material Crushing Grinding Pyro processing Clinker cooling handling and Handling packing FLSmidth ThyssenKrupp KHD Sinoma Mining Minerals Beneficiation Refining Exploration Development Extraction material Comminution & Recovery & Smeltin
Slide 7: Key highlights Interim Report Q3 2018
Key highlights Interim Report Q3 2018 Q3 2018 MARKET OUTLOOK ▪ Strongest order intake in six years (+71%) ▪ Mining continuing positive trend ▪ Stable outlook for cement ▪ Low revenue and related operating leverage ▪ Positive free cash flow GUIDANCE MAINTAINED ▪ Revenue 18-20bn ▪ Revenue expected to
Slide 8: Safety performance
Safety performance Total Recordable Injury Frequency Rate*) (TRIFR) 3.0 TRIFR Number of recordable injuries per million working hours 12.0 ▪ Safety ambition: No injuries 10.0 ▪ 2018 TRIFR target : ≤ 3.2 8.0 6.0 ▪ Deterioration vs. Q2 2018 of 2.9 10.0 ▪ Upcoming training week in FLSmidth 4.0 8.5 8.1
Slide 9: Innovation highlight: Wave Grate for Cross-Bar cooler
Innovation highlight Wave Grate for Cross-Bar® cooler What: ▪ Improved wear part for existing cooler with 200+ installations Benefits ▪ 8-10% higher production ▪ 8-10% lower power consumption ▪ Less wear – easier maintenance ▪ Short return on investment ▪ Proven performance ▪ Manufactured at FLSmidt
Slide 10: Revenue split in Q3 2018
Revenue split in Q3 2018 MINING vs. CEMENT CAPITAL vs. SERVICE REVENUE REVENUE EBITA EBITA margin margin 2.0% 13.3% 48% 43% ROCE ROCE 57% >20% <20% 52% 10 Nov 2018 Investor Roadshow The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright
Slide 11: Strongest quarterly order intake in six years
Strongest quarterly order intake in six years ORDER INTAKE ORDER INTAKE Q3 2018 VS. Q3 2017 71% vs. Q3 2017 - by industry DKKm DKKm Organic 8,000 +17% +161% growth 7,000 5,000 +19% +159% Growth 6,000 5,000 4,000 4,000 3,000 3,000 2,000 3,858 2,000 3,250 2,737 1,000 1,000 1,489 0 0 Q3 Q4 Q1 Q2 Q3 Q4
Slide 12: Market outlook
Market outlook Mining Cement ▪ Positive outlook ▪ Select opportunities but significant ▪ Translating into increasing CAPEX regional differences ▪ Few tenders for large orders and continued intense competition keeps ▪ Activity in most commodities margins at a low level ▪ Largest interest in copper an
Slide 13: Profit improvement in Cement
Profit improvement in Cement Situation CEMENT ▪ Stable, subdued short-term outlook for large cement (12 months rolling) projects DKKm EBITA margin ▪ Ongoing pricing pressure 10,000 10% 8,000 8% Action 6,000 6% ▪ Cost reduction and efficiency improvements 4,000 4% ▪ Notice given to more than 100 peop
Slide 14: Financial performance in Q3 2018
Financial performance in Q3 2018 Q3 Q3 ▪ Organic developments in revenue and order intake in Q3 (DKKm) Change 2018 2017 ▪ Order intake +70% Order intake 7,164 4,193 71% ▪ Revenue +6% Revenue 4,335 4,101 6% Gross margin 26.0% 26.0% ▪ EBITA margin down due to costs related to digitalization EBITA 350
Slide 15: Cash flow statement in Q3 2018
Cash flow statement in Q3 2018 Group (DKKm) Q3 2018 Q3 2017 ▪ Negative impact from change in provisions EBITDA continuing adjusted 419 407 ▪ Less positive impact from change in net working capital than Q3 2017 EBITDA discontinued (4) (94) ▪ CFFI impacted by increased capitalisation of R&D vs. Change
Slide 16: Revenue growth driven by Cement
Revenue growth driven by Cement REVENUE REVENUE Q3 2018 VS. Q3 2017 +6% vs. Q3 2017 - by industry DKKm DKKm Organic 8,000 -3% +11% growth 7,000 -3% +11% Growth 3,000 6,000 5,000 4,000 2,000 3,000 1,000 2,310 2,242 2,038 2,000 1,843 1,000 0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3'17 Q3'18 Q3'17 Q3'18 2016 20
Slide 17: Order intake trending above revenue
Order intake trending above revenue Revenue expected to pick-up ORDER INTAKE VS. REVENUE (12 months rolling) ▪ Higher order intake than revenue in the last 5 DKKm quarters (rolling basis) 23,000 ▪ Order backlog / last 12 months revenue increased 22,000 to 94% in Q3 21,000 20,000 ▪ Highest order back
Slide 18: Stable gross margin
Stable gross margin GROSS PROFIT GROSS MARGIN Q3 2018 VS. Q3 2017 +6% vs. Q3 2017 - by industry DKKm Gross margin 1,500 30% 26.0% 26.0% 24.4% 1,200 24% 40% 900 18% 30% 600 12% 20% 29.1% 31.7% 300 6% 10% 19.9% 21.2% 0 0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 0% 2016 2016 2017 2017 2017 2017 2018 2018 2018 Q3'17
Slide 19: SG&A: Stable sales costs, administrative costs up
SG&A: Stable sales costs, administrative costs up SG&A COSTS ▪ SG&A increased 51m vs. Q3 2017 due to increased +8% vs. Q3 2017 proposal work, and costs related to digitalization DKKm SG&A ratio* and efficiency improvements in Cement 1,000 20% 16.3% 16.6% 800 15.6% 16% ▪ SG&A decreased 23m vs. Q2 201
Slide 20: EBITA up due to higher revenue
EBITA up due to higher revenue Slight decline in margin due to higher cost base EBITA EBITA BRIDGE DKKm +4% vs. Q3 2017 EBITA margin DKKm Q3 2018 vs. Q3 2017 600 12% 500 500 10% 8.2% 400 8.1% 7.2% 61 47 400 8% 300 300 6% 200 200 4% 336 350 100 100 2% 0 0% 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 EBITA Q3'17 Inc
Slide 21: Net working capital ratio below 10%
Net working capital ratio below 10% NET WORKING CAPITAL Net working capital developments in Q3 continuing activities DKKm DKKm End Q3 End Q2 Change continuing activities 2018 2018 3,000 18% Inventories 2,621 2,529 92 2,500 15% 2,000 12% Trade Receivables 3,869 3,869 0 1,500 9% Trade Payables (2,695)
Slide 22: Capital structure in line with long-term targets
Capital structure in line with long-term targets EQUITY NIBD Equity ratio 37% NIBD/EBITDA 1.1 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 23: Return on Capital Employed (ROCE)
Return on Capital Employed (ROCE) ROCE Q3 2018*) Mining ROCE < 20% Mining EBITA 13.3% 10.7% Cement ROCE > 20% Cement EBITA 2.0% (Q3 2017: 10.0%) EBITA LTM Capital employed DKK 1,539m DKK 14,387m Growth (Q3 2017: 1,476m) (Q3 2017: 14,720m) (ORDER INTAKE & REVENUE) Growth and operating leverage to dri
Slide 24: Management agenda
Management agenda Managing the cycle (customers, costs & cash) Strategic focus areas KPIs: Trend Q3 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 25: Group guidance for 2018 (maintained)
Group guidance for 2018 (maintained) Group Realised Q1-Q3 2018 Guidance 2018 Revenue (DKK bn) 13.3 18-20 EBITA margin 8.1% 8-10% ROCE 10.7% 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
Slide 26: Key highlights
Key highlights Strongest quarterly Positive trend in mining Interim Report Q3 2018 order intake in six years Stable outlook for cement Low revenue and Strong performance in Mining Guidance maintained operating leverage REVENUE DKK 18-20BN Efficiency improvements in EBITA MARGIN 8-10% Cement ROCE 10-
Slide 27: 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 28: Backup slides
Backup slides flsmidth.com/linkedin flsmidth.com/twitter flsmidth.com/facebook flsmidth.com/instagram flsmidth.com/youtube 28 Nov 2018 Investor Roadshow The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law
Slide 29: Group
Group Q1-Q3 Q1-Q3 (DKKm) Q3 2018 Q3 2017 Change Change 2017 2018 2017 Order intake 7,164 4,193 71% 17,238 14,334 20% 19,170 Order backlog 17,228 13,799 25% 17,228 13,799 25% 13,654 Revenue 4,335 4,101 6% 13,300 13,057 2% 18,000 Gross profit 1,126 1,065 6% 3,381 3,363 1% 4,597 Gross margin 26.0% 26.0
Slide 30: Mining
Mining Q1-Q3 Q1-Q3 (DKKm) Q3 2018 Q3 2017 Change Change 2017 2018 2017 Order intake 3,250 2,737 19% 9,886 7,814 27% 10,403 Order backlog 8,579 6,230 38% 8,579 6,230 38% 6,261 Revenue 2,242 2,310 -3% 7,440 7,116 5% 9,769 Gross margin before shared costs 31.7% 29.1% 28.3% 28.9% EBITA margin before sha
Slide 31: Mining: Pickup in order intake in 2018, yet to come in revenue
Mining Pickup in order intake in 2018, yet to come in revenue ORDER INTAKE REVENUE +19% vs. Q3 2017 -3% vs. Q3 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% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Slide 32: Cement
Cement Q1-Q3 Q1-Q3 (DKKm) Q3 2018 Q3 2017 Change Change 2017 2018 2017 Order intake 3,858 1,489 159% 7,357 6,612 11% 8,889 Order backlog 8,653 7,697 12% 8,653 7,697 12% 7,473 Revenue 2,038 1,843 11% 5,869 6,077 -3% 8,430 Gross margin before shared costs 21.2% 19.9% 22.5% 21.6% EBITA margin before sh
Slide 33: Cement: Strong order intake – low EBITA margin
Cement Strong order intake – low EBITA margin ORDER INTAKE REVENUE +159% vs. Q3 2017 11% vs. Q3 2017 DKKm DKKm EBITA margin 4,000 3,500 14% 3,500 3,000 12% 3,000 2,500 10% 2,500 2,000 8% 2,000 1,500 6% 1,500 1,000 1,000 4% 500 500 2% 0 0 0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016
Slide 34: Order intake and revenue growth
Order intake and revenue growth Order intake growth Revenue growth Mining Cement Group Mining Cement Group Q3'18 vs. Q3'17 Q3'18 vs. Q3'17 Organic 17% 161% 70% Organic -3% 11% 6% Acquisition 6% 0% 4% Acquisition 3% 0% 2% Currency -4% -2% -3% Currency -3% 0% -2% Total growth 19% 159% 71% Total growth
Slide 35: Net working capital components
Net working capital components TRADE PAYABLES ▪ NWC decreased in Q3 DKKm TRADE RECEIVABLES DKKm due to lower WIP and 5,000 5,000 4,000 4,000 higher prepayments 3,000 3,000 2,000 2,000 1,000 1,000 0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2016 2017 2017 2017 2017 2018 2018 2018 2
Slide 36: Order backlog and conversion to revenue
Order backlog and conversion to revenue Order backlog / last 12 months revenue increased to 94% in Q3 ORDER BACKLOG ▪ Highest order backlog in three years +25% vs. Q3 2017 DKKm Order backlog/Revenue 20,000 100% Expected backlog conversion to revenue: ▪ 30% in 2018 16,000 80% ▪ 48% in 2019 12,000 60%
Slide 37: Order intake by commodity
Order intake by commodity ORDER INTAKE Q3'18 – by commodity 15% 1% 4% 5% 6% 54% 15% Cement Copper Gold Coal Fertilizer Iron ore Other mining 37 Nov 2018 Investor Roadshow The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law
Slide 38: Sustainable growth, managing the cycle, huge cyclicality
Mill. tonnes GLOBAL COPPER CONSUMPTION CAPEX TREND IN MINING Mill. (BASED ON 30 MAJOR MINING PLAYERS) USDm Sustainable growth tonnes 25 120,000 in consumption of cement and 100,000 20 minerals.. 80,000 15 60,000 10 40,000 ..but huge cyclicality 5 20,000 in investments in the cement and mining indust
Slide 39: 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 40: 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 41: Thank you
Thank you flsmidth.com/linkedin flsmidth.com/twitter flsmidth.com/facebook flsmidth.com/instagram flsmidth.com/youtube 41 Nov 2018 Investor Roadshow The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law