Highlights in Q1 2020:
- Order intake increased by 16%
- Record high service order intake
- Strong capital order intake
- Revenue increased by 4% organically
- EBITA margin declined to 5% impacted by extraordinary costs
- Adjusted free cash flow amounted to DKK 103 million
- Strong financial position
- Order intake increased by 16% to DKK 6 526 million in Q1 2020, owing to a record high service order intake and three large announced orders in mining. The COVID-19 pandemic is intensifying the hesitation on large capital investments but producers in both mining and cement are increasingly looking at digitalised solutions, driven by the restrictions of on-site services. Mining order intake increased 73%, comprising a 16% increase in service orders and a 160% growth in capital orders. Cement service order intake was stable compared to Q1 2019 but total cement order intake declined 50% due to hesitation on capital investments and the absence of large project orders.
The order backlog increased by 10% to DKK 15 591 million in Q1 2020 (end of 2019: DKK 14 192 million) as a consequence of the high mining order intake during the quarter.
Apart from the announced mining orders, customer hesitation on capital investments has intensified. Technical services and commissioning are challenged by restricted access to sites.
Demand for spare and wear parts is seen relatively stable and in line with production rates, but dependent on activity level on sites.
FLSmidth Group CEO, Thomas Schulz, commented: “The COVID-19 outbreak has resulted in extraordinary times for all countries around the globe. Throughout the quarter, we have navigated the unpredictability and our clear top priority has been on the safety of our employees and customers. Around 70% of our employees are currently working from home and a safe working environment has been established for the remaining employees. At the same time, we have been adapting our operations to the changing circumstances to support our customers in the best way possible.”
Revenue increased 2% to DKK 4 525 million in Q1 2020, explained by a 6% growth in mining, partly offset by a 3% decline in cement. Organic revenue growth for the group was 4%.
EBITA decreased 27% to DKK 228 million, as a result of extraordinary costs related to business improvement initiatives and COVID-19, as well as the previously announced lower profitability in the mining capital business. Consequently, the EBITA margin decreased 2.1 percentage points to 5.0%.
Cash flow from operating activities decreased to DKK -35 million in Q1 2020, due to a lower EBITDA and cash outflow from working capital, despite a strong collection of receivables. The free cash flow adjusted for acquisitions and disposals decreased to DKK -103 million, compared to DKK 155 million in Q1 2019.
Average capital employed increased to DKK 15 424 million, mainly related to working capital and intangible assets. Consequently, ROCE decreased slightly to 10.2%.
Thomas Schulz, continues: “The COVID-19 pandemic has a significant impact on the current and future business and impacted our first quarter results, especially in the month of March, as the pandemic has led to higher costs associated with more complex logistics and lower capacity utilisation. There will be economic impacts for both of our core industries, but we see a relatively resilient mining industry, and the extensive global policy response already seen, such as the proposed USD 2 trillion infrastructure package in the US, could fuel a rapid growth in metals demand and boost construction and cement markets worldwide.”
Guidance 2020 suspended
On 23 March FLSmidth suspended its financial guidance for 2020 as a consequence of the global uncertainty caused by the current pandemic and pending further clarification of market developments and the actual financial impact on the business.
Visibility remains low and the company’s guidance remains suspended. However, FLSmidth now expect that the full year results will be below the initial guidance for the year.
The company are increasingly seeing disruptions to cement plants and mine sites which could impact near-term demand for equipment and services. Lockdowns and mobility restrictions are affecting suppliers and parts of the company’s own operations, resulting in more complex logistics and lower capacity utilisation. FLSmidth expects the biggest direct impact in Q2 and a more moderate impact in Q3, but is unable to assess the duration of disruptions and the extent of the impact.
The Board of Directors also decided on 23 March to withdraw the proposal to pay a dividend of DKK 8 per share to ensure resilience in a period of market uncertainty and to further strengthen FLSmidth’s financial position. Once market conditions have stabilised, the board will revisit the capital structure and allocation to shareholders.
Read the article online at: https://www.worldcement.com/europe-cis/28042020/flsmidth-shares-interim-report-for-q1-2020/