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FLSmidth releases its Interim Report

World Cement,

Market trends

The company still expects to see positive investment trends in the cement and particularly the minerals industries in 2011. Both cement and minerals have experienced high momentum and proposal activity in Q3, and this trend has so far continued into Q4.

In cement, activity remains high in a number of emerging markets, particularly in Russia, South America, Africa and Asia. Due to a temporary growth pause in India, however, the forecast for the global market for new contracted cement kiln capacity (exclusive of China) has been revised downwards to 55 million tpa in 2011 as against the previous guidance of 65 million tpa (2010: 65 million tpa), of which India is now expected to account for approximately 10 million tpa as against the previous projection of approximately 20 million tpa (2010: 23 million tpa).

The unrest in North Africa has temporarily put a damper on cement consumption and investments in this region, which has had a negative impact on the Cement order intake in Q1-Q3 2011. For the same reason, the progress of ongoing projects in Egypt, Tunisia and Libya is delayed. Execution of the projects in Egypt and Tunisia was resumed in Q2 2011. The situation in Libya now appears closer to being resolved, which clears the way for being able to resume activity in the country some time during 2012.

Despite decreasing mineral prices in Q3 2011, minerals is seeing a high level of activity and no signs of slowdown. The high level of activity is particularly evident in crushing, grinding and material handling, primarily in some of the segments on which the company focuses, viz. coal, copper and iron ore. As a consequence of the increasing demand, lead times in the supply chain are beginning to rise in certain segments. High capacity utilisation in the minerals industry is also reflected in record high demand for single machines, upgrading projects and customer services.

Income statement developments

Orders received amounted to DKK18 188 million in Q1-Q3 2011, representing an 11% increase on the same period last year (Q1-Q3 2010: DKK16 352 million).

Revenue in Q1-Q3 2011 amounted to DKK14 712 million, which is unchanged compared to the same period last year (Q1-Q3 2010: DKK14 666 million). Revenue in cement declined 18% on the same period the year before, whilst increasing 20% in minerals and 5% in Cembrit.

Overall, the foreign exchange effect of translating into DKK has had a 2% negative impact on revenue compared to Q1-Q3 2010. The gross profit amounted to DKK3818 million in Q1-Q3 2011 (Q1-Q3 2010: DKK3798 million), corresponding to a gross margin of 26.0% (Q1-Q3 2010: 25.9%).

Sales, distribution and administrative costs, etc. in Q1-Q3 2011 amounted to DKK2166 million (Q1-Q3 2010: DKK2044 million) representing 14.7% of the revenue (Q1-Q3 2010: 13.9%). Adjusted for acquisitions, sales, distribution and administrative costs are on a par with last year. Higher sales and order activity generally generates higher sales and distribution costs in the short term, but no revenue and earnings until at a later stage. This has particularly been the case in minerals.

Earnings before interest and tax, depreciation and amortisation and special non-recurring items (EBITDA) amounted to DKK1652 million (Q1-Q3 2010: DKK1754 million), corresponding to an EBITDA ratio of 11.2% (Q1-Q3 2010: 12.0%). 

Cement outlook for 2011

In 2011, the global market for new contracted cement kiln capacity (exclusive of China) is expected to be approximately 55 million tpa (previous forecast 65 million tpa), of which India is expected to account for approximately 10 million tpa (previous forecast approximately 20 million tpa). 

This year is expected to see an increasing intake of major cement projects compared to 2010 measured in DKK. On the other hand, 2011 is not expected to generate the same high intake of operation and maintenance contracts as 2010.

FLSmidth & Co. now specifies guidance for consolidated revenue in 2011 at DKK21.5 – DKK22 billion (previous guidance DKK21– DKK22 billion), of which cement will make up approximately DKK9 billionn (previously: DKK9 – DKK10 billion).  The company also maintains guidance for the EBIT ratio at 9 – 10%. 

In 2011, the effective tax rate is expected to be around 30%, and cash flow from investing activities (exclusive of acquisitions) is expected to continue to be around DKK-900 million in 2011.

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