Company Announcement No. 11-2019, 29 October 2019
Record high service order intake, unsatisfactory profitability
Highlights for Q3 2019
- Revenue increased by 9%
- EBITA increased 8%
- EBITA margin declined to 8.0%
- Strong service order intake
- Lower capital order intake
- Positive free cash flow
FLSmidth’s order intake for the third quarter of 2019 amounted to DKK 4,571m – a decline of 36% compared to the third quarter last year. The performance is explained by a sharp decline in the capital order intake that was partly offset by a record high service order intake, combined with the exceptionally strong comparative quarter in 2018 which included two large cement plant orders worth a total of about DKK 1.9bn.
The order backlog decreased to DKK 16,088m from DKK 16,762m at the end of Q2 2019.
FLSmidth Group CEO, Thomas Schulz, commented: “Global economic headwinds combined with challenges regarding license to operate have led to a more cautious outlook for mining capital investments. The social license to operate is becoming an increasingly important issue and is now considered a top risk for mining companies. This has caused some projects to be postponed. On the other hand, we are seeing growing interest in our sustainable technologies and tailings management, which can help mining companies maximise safety and attain a license to operate. Sustainability is also gaining traction in the cement industry, and customers looking to reduce their environmental footprint and enhance productivity are increasingly taking an interest in our pyro upgrades, including our Low-NOx calciner technology and our HOTDISC® systems."
Financial performance
Revenue developed according to the expected phasing for the year and increased 9% for the Group, driven by 26% growth in Mining.
EBITA was up by 8% to DKK 377m, while the EBITA margin decreased to 8.0% from 8.1% in Q3 2018. The margin in Mining was affected by some projects which delivered lower profit than anticipated. Profitability in Cement improved as expected.
Average capital employed amounted to DKK 15.0bn in Q3 2019. This was an increase of DKK 0.6bn over Q3 2018, mainly related to working capital and the acquisition of IMP Automation Group. ROCE increased to 11.2% due to the higher EBITA over the past 12 months, partly offset by higher an increase in capital employed. Positive free cash flow resulted in a DKK 109m reduction of net debt.
On 11 October, FLSmidth revised its full-year financial guidance.
Thomas Schulz commented: “We maintain growth in revenue and a good momentum in our service order intake. We have, however, seen an unfavourable development in our business mix over the year, and the postponement of capital orders has disrupted our workflow and caused under absorption. In addition, some mining projects have delivered lower profit than anticipated. In the context of recent market developments and financial performance, we will accelerate ongoing business improvement initiatives which will add costs this year as well. As a result, we revised our full year guidance earlier in October. I am confident that the business improvements in combination with the reassessment of the profitability on Mining capital projects going forward will create a strong foundation for delivering sustainable profitable growth and shareholder value.”
The expected financial impact of the business improvement initiatives is an annual EBITA improvement of DKK 100m with a full run-rate from end of 2020 and implementation costs around DKK 150m.
Guidance
On 11 October, FLSmidth adjusted its full-year guidance (Company announcement no. 10-2019) as follows:
Revenue is expected to be in the range of DKK 20-21bn (prior to 11 October: expected to be at the higher end of the DKK 19-21bn range).
The EBITA margin is expected to be around 8% (prior to 11 October: expected to be at the lower end of the 9-10% range).
Return on capital employed is expected to be 10-12% (prior to 11 October: 12-14%).
There are no changes to this guidance.
Read the full Q3 2019 interim report here
Contacts
Investor Relations
Nicolai Mauritzen, tel +45 36 18 18 51, nicm@flsmidth.com
Media Relations
Fleming Voetmann, tel +45 53 81 51 28, fleming.voetmann@flsmidth.com
Key figures Q3 2019
| (DKKm) | Q3 2019 | Q3 2018 | Change (%) | Q1-Q3 2019 | Q1-Q3 2018 | Change (%) |
| Order intake (gross) |
For additional information, go to our Investor Room at www.flsmidth.com
FLSmidth delivers sustainable productivity to the global mining and cement industries. We deliver market-leading engineering, equipment and service solutions to our customers enabling them to improve performance, drive down costs and reduce environmental impact. Our operations span the globe and our 11,400 employees are present in more than 60 countries. In 2018, FLSmidth generated revenue of DKK 18.8 billion. www.flsmidth.com
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