FLSmidth & Co. 2009 Annual Report

The Board of Directors and Group Management of FLSmidth & Co. AS has reviewed and adopted the Annual Report for 2009. The main conclusions are historically high EBIT ratio, profit and cash flow from operating activities in 2009.

• In 2009, FLSmidth & Co. posted satisfactory developments in revenue, earnings and cash flow from operating activities.
• Revenue decreased 9% to DKK 23 134 million in 2009. 
• Earnings before interest and tax, depreciation and amortisation and special non-recurring items (EBITDA) decreased 6% to DKK 2725 million in 2009.
• Earnings before interest and tax (EBIT) decreased 6% to DKK 2261 million in 2009, corresponding to an EBIT ratio of 9.8%.
• Earnings before tax (EBT) decreased 1% in 2009 to DKK 2108 million.
• Profit for the year increased 10% to DKK 1664 million in 2009.
• Cash flow from operating activities increased 6% to DKK 2470 million in 2009.
• Cash flow from investing activities amounted to DKK -530 million in 2009.
• The order intake decreased 56% to DKK 13 322 million in 2009.
• The order backlog decreased 30% to DKK 21 194 million at the end of 2009.

The market situation
In the first half of 2009, there was a marked slowdown in the willingness to invest among customers. Planned projects were deferred, ongoing projects were put on hold and several plants stopped production. Inventories were reduced and maintenance was minimised. Customers were mainly focusing on liquidity and cost reduction. In the second half of 2009, the gloomy prospects waned and signs of slightly increased optimism and increased customer interest were observed.

Cement: the global market for new contracted cement kiln capacity (exclusive of China) amounted to 45 million tpa in 2009, FLSmidth & Co.'s share of the market being 38%.

Minerals: investment in the minerals industry dropped markedly in 2009, overall investments were reduced to half of the historically high level in 2008.

Prospects for 2010
The level of investments both in the cement and minerals industries is expected to increase in 2010 compared to 2009, but is expected to remain at a lower level than before the global financial crisis. All other things being equal, this will result in an increasing order intake in both cement and minerals in 2010 compared to 2009.

• In 2010, the global market for new contracted cement kiln capacity (exclusive of China) is expected to amount to 50 million tpa. Also, FLSmidth & Co. expects a consolidated revenue of approximately DKK 19 – 20 billion and an EBIT ratio of 8 - 9%.

• The effect of purchase price allocations regarding GL&V Process is expected to be approximately DKK -100 million.

• Cash flow from operating activities for 2010 as a whole is expected to show a positive result, albeit with large fluctuations during the year.

• Investments (exclusive of acquisitions) are expected to be approximately DKK 400 million in 2010.

• The effective tax rate is expected to be approximately 30%

Long-term growth and earnings prospects
In 2009, the global financial crisis severely dampened the cement and minerals producers' willingness to invest. There are signs, however, indicating that particularly the minerals producers' propensity to invest is about to return, as higher minerals prices and economic key indicators are supporting plans for capacity expansion.

In the longer term, it is still expected that particularly urbanisation and industrialisation in developing countries will generate increasing demand for cement and minerals.

In the coming years, earnings from minerals and customer services in both cement and minerals are expected to account for a larger share of the group's total earnings, which will reduce the effect of cyclical market fluctuations in cement. Against this background, the group expects its EBIT ratio to be 10 - 12% in periods of high activity and 8 - 9% in periods of low activity, where it should be noted that FLSmidth is late cyclical by nature. Adjusted for purchase price allocations regarding GL&V Process, the group's EBIT ratio was 10.6% in 2008 and 10.2% in 2009. The annual effect of purchase price allocations regarding GL&V Process is in future expected to be approximately DKK -100 million.

Moving forward, the annual investments (exclusive of acquisitions) are expected to be approximately DKK 300 – 400 million.

The long-term average sustainable level for addition of new global cement kiln capacity (exclusive of China) is expected to be 60 million – 75 million tpa.

Read the article online at: https://www.worldcement.com/europe-cis/01032010/flsmidth_and_co_2009_annual_report/