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FLSmidth shares Interim Report for H1 2020

Published by , Deputy Editor
World Cement,

H1 impacted by the pandemic

Highlights in Q2 2020
  • Organic order intake declined by 29%.
  • Organic revenue decreased by 26%.
  • Cement more impacted than mining.
  • Profitability negatively impacted by the decline in revenue.
  • EBITA margin declined to 3.4%.
  • Strong cash flow and reduction in net debt.
  • In Q2 2020, organic order intake declined by 29% and organic revenue decreased by 26% compared to Q2 2019. Order intake was DKK 3 348 million compared to DKK 4 54 million in Q2 2019 (-32%). Revenue amounted to DKK 3 846 million compared to DKK 5 472 million in Q2 2019 (-30%). The negative development in both order intake and revenue was larger in cement than in mining.

The order backlog decreased by 2% to DKK 15 227 million in Q2 2020 (end of Q1 2020: DKK 15 591 million).

FLSmidth Group CEO, Thomas Schulz, commented: “As anticipated, the second quarter results were marked by the COVID-19 pandemic. Mining was less impacted than cement, and the service business was more resilient than the capital business. During the quarter, a lot of attention has been dedicated to assessing and managing the pandemic’s impact on our business, including a strong focus on customer relationships and identification of business opportunities. Whilst customers continue to defer non-critical investments, more mine sites and cement plants have now restarted operations, underpinning a gradual recovery later in the year.”

Financial performance

Revenue decreased 30% in Q2 2020, comprising a 22% decline in mining and a 41% decrease in cement. The organic decrease in group revenue was 26%. The relatively sharper decline in cement was due to a more severe COVID-19 impact on the cement industry, but also a result of a lower level of cement capital orders in the past four quarters.

EBITA decreased 73% to DKK 131 million (Q2 2019: DKK 487 million), primarily as a result of the lower revenue. The clear majority of the revenue decline was attributable to COVID-19, but the change was also a result of a lower backlog entering the year. The EBITA margin was 3.4% (Q2 2019: 8.9%), and the decline was driven primarily by cement. Adjusted for extraordinary costs/savings in the quarter, the EBITA margin was 6.1% in Q2 2020.

Net working capital decreased to DKK 2 351 million at the end of Q2 2020 (end of Q1 2020: DKK 2 792 million), owing to a combined reduction in trade receivables and net work in progress. The net working capital ratio came down to 12.3% from 13.5%.

CFFO increased to DKK 533 million in Q2 2020 compared to DKK 143 million in Q2 2019, due to significant cash inflow from working capital. The adjusted free cash flow increased to DKK 476 million in Q2 2020, compared to DKK 63 million in Q2 2019.

Net interest-bearing debt decreased to DKK 2 298 million, from DKK 2 663 million at the end of Q1 2020. FLSmidth maintains a strong financial position with a net debt to EBITDA of 1.5 and undrawn committed credit facilities of DKK 4.2 billion by the end of June.

Thomas Schulz, continues: “Cash generation has been an important objective for all our activities. We are pleased that we have managed to significantly improve cash flow and net working capital, despite the challenging market conditions during the quarter. The strong collection of receivables was thanks to a changed way of working and a continuation of the positive trend from Q1.”

Average capital employed increased to DKK 15.4 billion in Q2 2020 compared to DKK 14.9 billion in Q2 2019, related to intangible assets. ROCE decreased to 8.0% in Q2 2020 compared to 11.1% in Q2 2019, due to the higher capital employed and a lower 12-months trailing EBITA.

Guidance 2020 remains suspended

On 23 March, FLSmidth’s financial guidance for 2020 was suspended due to the global uncertainty caused by the COVID-19 pandemic. On 28 April, the company announced that full year results are expected to be below the initial guidance. On 24 July, preliminary key figures for H1 2020 were announced and the company reconfirmed the suspension of guidance.

Across all regions, the mining industry and especially the cement industry have been negatively affected by the pandemic. Whilst the general situation around COVID-19 is improving in parts of the world, it continues to escalate in other parts. As a global supplier with customers around the world, FLSmidth is subject to these varying market conditions. Lockdowns and mobility restrictions have continued to impact customers and the workforce, especially the utilisation level of global service technicians. This creates significant uncertainty around the company’s service order intake and thus revenue for the remaining period of the year. Timing of the company’s order backlog conversion is also impacted by uncertainty from these circumstances, as it is challenging to predict when customers will be able to progress projects and take delivery. Thus, visibility remains low and guidance remains suspended. FLSmidth previously expected a moderate recovery in Q3, but the impact of the pandemic seems to last longer. The company is cautiously optimistic about a gradual recovery later in the year.

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