FLSmidth - · PDF fileDecreased leadtime differentiates FLSmidth from its low-cost...

FLSmidth

2020 Strategy

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10/03/2016 1

Executive summary

10/03/2016 2

Today Tomorrow Impact

• Cost efficient • Integrated solutions • Ready for the economic

upturn

Downward cycle in industry

11.1Bn DKK

Global market leader, present in 50 countries

… Decrease leadtime … Sustainable innovation

EXECUTIVE INSIGHTS SOLUTION IMPACT

Environment and sustainability is important for customers and valueable for FLS

10/03/2016 3

6% of CO2 pollution stems from cement production…


Increased damage if they’re not more energy efficient- WWF

CO2 and sustainability are already important issues

for our customers, and we think these factors will

become even more significant in the future

Bo Steffensen, CLO FLSmidth

FLS have 3 fundamental values;

• Competence • Co-operation • Responsibility

Decreased leadtime differentiates FLSmidth from its low-cost competitors

10/03/2016 4

32 % of market in 2009

1-3% of market in 2005

FLSmidth’s Chinese competitors

40% lower prices

FLSmidth’s reduced 14 months of leadtime

300+ mio. DK increase in customer value

Months

10

20

30

2005 2012 2020


10/03/2016 5

How should FLSmidth position themselves to become sustainable market leaders and be ready for a clean future?

10/03/2016 5 EXECUTIVE INSIGHTS SOLUTION IMPACT

Decreasing leadtime and sustainable innovation serves as best strategic solution

10/03/2016 6

High

Low

Low High

Feasibility

B A

C

A

B

C

Increased focus on customer service

Decrease leadtime, sustainable innovation

Sell cement – forward integration


Impact

Creating customer value through 2 initiatives

10/03/2016 7

Decrease leadtime Sustainable innovation


Shorter leadtimes will create value for customers through better investment cases

10/03/2016 8

Creating customer value

• Reduce costs of project implementation: Engineering, installation and commissioning

• Reduce costs of operation and maintenance (quality)

• Reduced lead times - customers start making money at an earlier date

Components of customer value

Project competiveness dependent on ability to improve customer business/investment case: • Lead time being most important – decreasing lead time

Project NPV


Managing leadtime components to achieve 12 months average production time

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1

2

3

4

5

16 Months

12 Months

Impact 80 m

Standardised processes and modules – moving to delivering plant solutions

Drivers for reduction in lead-time

Project management, education of more sufficient experienced project managers

Improved IT tools, improved basis for control, planning, execution & integration of processes across functions

Inventory levels, increase inventories to facilitate lean and agile plant production Process gains:

• Fewer resources employed • More predictably • Better quality Customer Value =

Cost decrease =

Engineering time clarifying all deliverables, dependencies and durations, considerable reductions can be created

1

2 3 4

5


Creating customer value through 2 initiatives

10/03/2016 10

Decrease leadtime Sustainable innovation


In the long-term FLS must provide environmental friendly and energy efficient solutions

10/03/2016 11

Reduce emissions Energy efficiency Distruptive technology

(advanced materials)


.. Which will be done through integrated innovation efforts

10/03/2016 12

In-house

Foundation for Innovation

Collaboration

Create foundation for continuous innovation to avoid future disruption

Open innovation

• Recruitment • Formalize innovation processes

• Customers • NGOs • Tech leaders

• University research grants • Competitions


How would this look in practice?

10/03/2016 13

Oscar Meeting with sales

R&D Manager Deploys team Novacem

Research grants Disruption!

?


The initiatives will generate 31.6 BnDK in revenue and provide 9% CAGR

10/03/2016 14

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

2016F 2017F 2018F 2019F 2020F

Forecasted revenue - BnDKK

The strategy will enable FLS to reach revenue of 31,6 BnDK … Derived by

20.5 Bn DKK

2020F

Total Revenue growth

11.1BnDK

2015 Status Quo

6.8

3.4

31.6 Bn DKK

lead time

4.3 BnDKK additional

revenue from our initiatives

Innovation

0.9


FLSmidth will obtain 3.2BnDKK in EBIT with an EBIT CAGR of 23.7% and a ROCE of 21.3%

10/03/2016 15

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2015 2016F 2017F 2018F 2019F 2020F

Forecasted EBIT- BnDKK

This strategy will enable FLSmidth to reach an EBIT-margin of 10.2% … With the following Capital Employed

14,9

15,0

15,0

15,1

15,1

15,2

15,2

15,3

15,3

15,4

15,4

2015 2016 2017 2018 2019 2020

Forecasted capital employed

Our recommendation enables FLSmidth to increase revenue, while decreasing capital employed: • Thereby FLSmidth obtains a ROCE > 20% by 2020


Implementation plan - Monday morning

10/03/2016 16

Must win battles:

1 Success communication of

strategic importance

2 Education of project managers 3 Set up innovation programme

Increase

innovation

2016 2017 2018 2019 2019

Decrease

leadtime

In-house

Plan & communicate

srategic priority

2020


Collaboration

Open innovation

Steering committee and project lounge

Educate project managemers

Source IT solutions

Standardize process and moduls

Development of standard plans

Leverage initiative

Leverage initiative

Key takeaways

10/03/2016 17

Situation Solution Impact

Has been the marketleader for almost

130 years but must navigate strategically

through downward cycle

to maintain position

Decrease leadtime and implement

sustainable innovation

11.1Bn DKK increase in revenue by 2020


Q&A Insert picture here

10/03/2016 18

Appendix

10/03/2016 19

1FLSmidth 2.Executive summary 3.Environment and sustainability is important for customers ... 4.Decreased leadtime differentiates FLSmidth from its low-co... 5.Key question 6.Decreasing leadtime and sustainable innovation serves as ... 7.Creating customer value through 2 initiatives 8.Creating customer value by decreasing plant leadtime from ... 9.Shorter leadtimes will create value for customers through... 10.Managing leadtime components to achieve 12 months average... 11.In the long-term FLS must provide environmental friendly ... 12... Which will be done through integrated innovation efforts 13.How would this look in practice? 14.The initiatives will generate 31.6 BnDK in revenue and pr... 15.FLSmidth will obtain 3.2BnDKK in EBIT with a EBIT CAGR of... 16.Implementation plan - Monday morning 17.Key takeaways

1.Leverage spill-over/derrived effects from reduction in le... 2.Rating of solutions 3.Competitor analysis 4.De-construction of elements to achieve 12 months average ... 5.Advanced materials: Green cement by storing carbon dioxid... 6.Development in EBIT 7.Decomposition of capital employed 8.In-house efforts 9.Innovation through collaboration 10.Open innovation 11. Creating customer value by decreasing plant leadtime from... 12.Decomposition of Net Working Capital 13.Detailed revenue and EBIT forecast 14. PNL statement 15. All strategies contain risks that must be considered ..

Presentation Backup slides

Leverage spill-over/derrived effects from reduction in lead-time initiative

10/03/2016 20

► Leveraging increased economic customer gain to decrease payment duration terms ► Free up receivables, currently 25% of revenue

► leverage plant offering to increase customer service penetration ► Service solutions increase through customer relationship improvement & contact

Increasing overall demand for service solutions

Decreasing payment terms to free receivables

1 2

Impacting revenue CAGR and ROCE

Rating of solutions

10/03/2016 21

Solution Capabilities Alignment

with strategy Feasibility Impact Time Risk

Overall rating

Increased focus on customer service

7 9 8.5 3 4 5 6,1

Decrease leadtime, increase innovation

6 9 8 7 7 6 7,2

Sell cement – forward integration

6 6 2 8 5 3 5,0

Rated on a scale of 1 to 10,

10 being positive, 1 negative

Competitor analysis

10/03/2016 22

Social

ThyssenKrupp

Services include consulting, process-

engineering, research and development

Cement and other basic industries (including

chemical, refinery, coal plants, and port handling

facilities

Full integration

Metso Oyj

A heavy equipment company offering maintenance and support services

Paper, energy and mining

Full integration

Social

FIVES

Designs and supplies machines, process

equipment and production lines

Aluminium, steel, glass, automotive, aerospace, logistics, cement and

energy sectors

Full integration

Industry

Value chain

De-construction of elements to achieve 12 months average production time

10/03/2016 23

► Securing compatibility and interface consistency ► Mutual applicability in different plant designs ► Unify technical infrastructure & divisions

Standardised processes and modules

1

► Development of standard plans enabling project proposals and projects can be initiated earlier. ► Cross functional collaboration program (up to 15 departments engage at same time)

Decrease engineering time

2

► Project management tools focus on education/ knowledge sharing ► KPIs for project completion development (non existing)

Project management

3

► Best practise logistic and supply capabilities of products/components ► Flexible global coverage ► Unify technical infrastructure & divisions

Inventory levels increase

4

► Development of standard plans enabling project proposals and projects can be initiated earlier. ► Cross functional collaboration program (up to 15 departments engage at same time)

Improved IT tools

5

10/03/2016 24

Advanced materials: Green cement by storing carbon dioxide in cement

► Cement production to absorb more carbon dioxide than it emits ► Acting as a vehicle for carbon capture and sequestration ► For every ton of cement produced, two-fifths of a ton of carbon dioxide is stored

► Heating pulverized limestone, clay, and sand to 1,450 °C with a fuel such as coal or natural gas. ► The process generates a lot of carbon dioxide ► One metric ton of commonly used cement releases 650 to 920 kilograms of it

Tradition cement industry New Green Cement

The old World The New & Green World

► ""All we need is water and pollution." ► “We probably have the best carbon capture and storage technique there is by a long shot." ► Invloved institutions, Stanford, U.N., EU, Northwestern University &

now FLSmidth

New Green Cement insights

Development in EBIT

10/03/2016 25

EBIT 2016 2017 2018 2019 2020

Total before additional costs 1,51 1,79 2,16 2,65 3,12

Additional R&D costs -0,33 -0,34 -0,38 -0,37 -0,37

Fewer resources 0,16 0,34 0,37 0,41 0,46

Total from operations 1,3 1,8 2,2 2,7 3,2

1 => 2% of variable costs

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2016 2017 2018 2019 2020

Assumptions

Decomposition of capital employed

10/03/2016 26

14,9

15,0

15,0

15,1

15,1

15,2

15,2

15,3

15,3

15,4

15,4

2015 2016 2017 2018 2019 2020

Total capital employed Capital Employed schedule 2015 2016 2017 2018 2019 2020

Intangible assets 10,1 10,1 10,1 10,1 10,1 10,1

Tangible Assets 2,6 2,6 2,6 2,6 2,6 2,6

Net working Capital 2,6 2,6 2,7 2,6 2,5 2,4

Assumptions Intangible assets: No influence - includes goodwill patents and customer relations Tangible assets: No inflence Net working capital: Better management of inventory decreases NWC

EBIT Margin 6,4% 8,0% 8,9% 10,1% 10,6%

In-house efforts

10/03/2016 27

Innovative minds

In-house innovation

Formalized innovation process

- Attract new engineers & talent though meaningful job vision - New technology & competences

- Platform for collection of Feedback (Virtual knowledge-sharing)

- Bi-monthly meetings between sales people and R&D division

Create foundation for continuous innovation to avoid future disruption

Knowledge Plaza

Innovation through collaboration

10/03/2016 28

Tech leaders • First-movers • Universities • Start-ups

Gaining key insights and knowledge through collaborative partnerships promoting sustainable innovation

NGO • Environmental • Industry • Societal

• Guidelines &

knowledge sharing

Customers • Long-time • Integrated • Emerging +

consolidated markets

• Monthly engineers + sales rep. visits

Open innovation

10/03/2016 29

► Case competitions ► Start accelerator programs

► Funding of Master and PHD studies ► Faculty research funding

Research grants Competitions

1 2

Open innovation will secure external perspectives on R&D and innovation efforts

Creating customer value by decreasing plant leadtime from 16 to 12 months

10/03/2016 30

• Sales price 1 tonne 375 • Varible cost 125 • Contribution margin per tonne 50

(Assumption production of 3000 tonnes per day)

Customer value of one day’s production is DKK 0.75 million Customer value of one month’s production is DKK 20 million

• Productivity driving customer value • Differentiating product offering from low cost competitors

Cost impact

Value driver

Margin breakdown

Decomposition of Net Working Capital

10/03/2016 31

Net Working capital changes 2015 2016 2017 2018 2019 2020

Net Working capital in 2015 2,58 2,62 2,65 2,63 2,53 2,37

Additional inventory 0,26 0,26 0,20 0,13 0,06

Work in progress -0,1 -0,1 -0,1 -0,1 -0,1

Decrease in Trade Receiveables -0,1 -0,1 -0,1 -0,1 -0,1

Trade payables -0,03 -0,03 -0,03 -0,03 -0,03

Total changes 0,03 0,04 -0,03 -0,09 -0,16

Assumptions Additional Inventory: From 10-2,5% increase due to decreasing load time initiative, decreasing over time Work in progress: Decrease in lead time – more plants build Decrease in trade receiveables: Quicker payment, since customers obtain positive cashflows quicklier Trade Payables: Economies of scale argument

Detailed revenue and EBIT forecast

10/03/2016 32

Revenue 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

Customer Service 7,565 7,061 7,3 7,6 8,1 8,9 9,8 10,8 Part of total growth

Current targeted growth 2,5% 5,0% 7,5% 7,5% 7,5% Market growth Additonal growth 1,0% 2,0% 2,5% 2,5% 2,5% 7,5%

Total growth 3% 4% 7% 10% 10% 10%

Product Companies 5,5 5,7 5,9 6,2 6,8 7,3 7,9 Market growth Current targeted growth 2,5% 5,0% 7,5% 7,5% 7,5% 7,5%

Additonal growth 0,8% 0,8% 0,8% 0,8% 0,8% #50% of sa les is aftermarket Total growth 3% 3% 6% 8% 8% 8%

Minerals 9,3 4,9 3,6 3,7 4,0 4,6 5,3 6,2 Market Growth 1,5% 3,0% 4,5% 4,5% 4,5% Market growth Additonal growth in number of customers 1% 2% 2,5% 2,5% 2,5% 4,5%

Additional growth from increase in price 1,3% 2,7% 3% 4% 5%

Total growth -28% 4% 8% 14% 16% 18%

Cement 5,2 4,0 3,9 4,0 4,3 4,9 5,6 6,6 Market Growth 1,2% 2,3% 3,5% 3,5% 3,5% Market growth Additonal growth in number of customers 1% 2% 2,5% 2,5% 2,5% 3,5%

Additional growth from increase in price 1,3% 2,7% 3% 4% 5%

Additional growth from innovation (increase in price) 3% 4% 5% Total growth -1% 4% 7% 13% 15% 17%

Total 22,0 21,5 20,5 21,2 22,7 25,1 28,0 31,6

EBIT-margin 2014 2015 2016F 2017F 2018F 2019F 2020F Assumptions

Customer Service 11,7% 10,8% 11,1% 11,6% 12,5% 13,6% 14,2% Primarily after sales, huge increase + high margin

Growth -8% 2% 5% 8% 9% 4%

Product Companies 10,8% 12,1% 12,2% 12,5% 13,0% 13,5% 13,8% Same as customer service but only 50% aftersales - therefore estimated 15% growth

Growth 12% 1% 2% 4% 4% 2%

Minerals -3,1% -11,9% -3% -1% 0% 2% 3% Return to previous margins in 2016, thereafter Increase with shorter load time as FLSmidth has done previously

Growth na na na na 50%

Cement 3,9% 1,3% 2% 2,3% 3,10% 3,9% 4,5% Returning to previous margins, thereafter a marginal increase with shorter load time

Growth 35% 28% 35% 26% 15%

P&L statement

10/03/2016 33

Profit and loss - BnDKK

Without strategy 2015 2016 2017 2018 2019 2020

Revenue 20,5 20,9 21,8 23,1 24,6 27,6

Gross profit 4,9 5,1 5,3 5,8 6,3 6,9

EBIT 1,1 1,1 1,2 1,4 1,6 1,9

Strategy 2015 2016 2017 2018 2019 2020

Revenue 0,0 0,2 0,8 1,7 2,8 4,3

Gross profit 0,0 0,2 0,5 0,9 1,3 1,8

Incremental EBIT 0,2 0,5 0,7 1,0 1,3

Combined 2015 2016 2017 2018 2019 2020

Revenue 20,5 21,2 22,5 24,8 27,4 31,9

Gross profit 4,9 5,3 5,8 6,7 7,6 8,7

EBIT 1,1 1,3 1,8 2,2 2,7 3,2

Margin 5,4% 6,3% 7,9% 8,7% 9,8% 10,1%

All strategies contain risks that must be considered ..

10/03/2016 34

Lik

lih

oo

d

Impact

C

A

B

High Low

Lo

w

Hig

h Issue

Change in customer value

drivers

External stakeholder pressure

Failure to reduce leadtime

Mitigation

Close customer relationship

feedback loop

Communication

Management priority and

ressource allocation

A

B

C

Issues

10/03/2016 34 EXECUTIVE INSIGHTS SOLUTION IMPACT

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