KHD releases Interim Report for January – September 2014

Market environment

In the first nine months of 2014, the world economy grew weaker than expected. KHD Humboldt Wedag International AG’s key sales markets were affected by the economic situation in several ways:

• India: the cement industry continued suffering from low capacity utilisation. Nevertheless, there were signs of somewhat stronger economic growth in 3Q14, which had a positive impact on the demand for cement.
• Russia: the economic situation continued to deteriorate in view of the Ukraine crisis and related sanctions. Nevertheless, the consumption of cement increased further due to ongoing infrastructure investments.
• Turkey: growth has slowed over the course of the year. However, the construction industry has shown stability.
• USA: the country remains on a path of economic recovery. The demand for cement benefited from high growth rates in the construction industry.
• Latin America: cement markets continued to be affected by the lack of momentum in Brazil, Mexico, and Argentina.

Business development

Controlling, monitoring and reporting within KHD have been carried out in the two separate segments Capex (project business) and Parts & Services since 1 January 2014. Comparability with the figures for FY13 is, however, only provided for the aggregated values.

During the first nine months of 2014, order intake was €80.2 million, slightly below the previous year’s level (€82.8 million). The Parts & Services segment contributed €41.8 million, which is more than half of the total value. Since the newly won order in Russia (Kaluga region) totalling more than €90 million could not yet be recorded in order intake, total order intake in the Capex segment amounted to just €38.4 million.

As a result of the low level of order intake and the execution of existing projects, order backlog as of 30 September 2014 was at €246.3 million, below the level at the end of FY13 (€339.3 million).

Financial results

Revenue of €173.2 million declined by 4.6% compared with the previous year’s amount (€181.5 million). Within the cost of sales, project costs of approximately €5 million, which were back charged to a subcontractor in 3Q14, had a positive impact. As a result, gross profit for the first nine months was €28.3 million – 15.5% above the previous year’s amount (€24.5 million). The gross profit margin therefore rose from previous the year’s 13.5% to 16.3%.

Sales expenses increased by 8.6% from €7 million to €7.6 million in the first nine months of FY14. Sales activities remained focused on strategically important projects in KHD’s core markets. The increase in general and administrative expenses by 10.9% from €11.9 million to €13.2 million was to a large extent attributable to higher personnel expenses, also from the expansion of the Parts & Services segment. Other expenses of €5.3 million (previous year: €4.5 million) include research and development expenses of €3.3 million (previous year: €2.1 million). The significant increase in research and development expenses from the previous year was due to additional focus on several development projects, which will reinforce KHD’s leading technological position. Both the expansion of the Parts & Services business unit and the increased expenses for research and development reflect the continued investment in KHD’s strategic growth despite the currently difficult economic environment.

Earnings before interest and taxes (EBIT) amounted to €3.2 million in the reporting period (previous year: €4.1 million), which corresponded to an EBIT margin of 1.8% (previous year: 2.3%). The Group’s net finance income of €1.7 million (previous year: €1 million) improved significantly. Net finance income includes interest income of €0.6 million resulting from a €50 million intercompany loan granted in July 2014 to AVIC International (HK) Group Ltd., Hong Kong. Earnings before taxes (EBT) of €5 million were at the previous year’s level (€5.1 million). The net profit for the period came to €3.3 million (previous year: € 3.6 million), which translates into diluted and basic earnings per share of €0.07 (previous year: €0.07).

Outlook

Economic growth in KHD’s core markets is not expected to gain momentum in 4Q14. As a consequence, the dynamics in the cement markets – with the exception of North America – should also remain limited. Therefore, the growth rate for worldwide cement consumption will not match the forecasts at the beginning of the year (CW Group: 3.9%; Exane BNP Paribas: 2.9% to 6.5%). Nevertheless, modernisation programmes and upgrades to improve efficiency and to meet increased environmental requirements remain important growth drivers.

Adapted from press release by Rosalie Starling

Read the article online at: https://www.worldcement.com/europe-cis/14112014/khd-releases-interim-report-for-january-september-2014-857/