Larsen & Toubro Limited Performance for FY 2003 · Larsen & Toubro Limited Performance for FY 2003...
Transcript of Larsen & Toubro Limited Performance for FY 2003 · Larsen & Toubro Limited Performance for FY 2003...
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Larsen & Toubro LimitedPerformance for FY 2003
May 2003
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Disclaimer
This presentation contains certain forward looking statements concerning L&T’s future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but not limited to, risks and uncertainties, regarding fluctuations in earnings, our ability to manage growth, competition ( both domestic and international), economic growth in India and the target countries for exports, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, our ability to manage our international operations, government policies and actions with respect to investments, fiscal deficits, regulations, etc., interest and other fiscal costs generally prevailing in the economy. The company does not undertake to make any announcement in case any of these forward looking statements become materially incorrect in future or update any forward looking statements made from time to time by or on behalf of the company.
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Strong performance in a difficult environment
Good growth in order booking in difficult circumstancesRevenue growth reflects the strong order backlog at the beginning of the yearDrop in PBDIT
– lower cement prices– lower margin on exports – higher provisioning requirements– additional provision for retirement
benefits
PBT improves smartly with lower interest cost
– reduction in funds employed– active management of loan portfolio– significant gains from hedging
activities
Good growth in PAT
Rs. Billions
Order Booking 132.11 108.20 22%
Sales 98.70 81.67 21%
Other Income 2.54 2.18 17%
Total Income 101.24 83.85 21%
PBDIT 9.92 10.42 (5%)
PBIDT/Total Inc. 9.8% 12.4%
Depreciation 3.05 3.26
PBIT 6.87 7.16 (4%)
Interest 1.77 3.16 (44%)
PBT 5.10 4.00 28%
Tax Current 0.88 0.24
Tax Deferred (0.11) 0.29
PAT 4.33 3.47 25%
Order Backlog 136.87 111.36 25%
FY 03 FY 02 % Change
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Balance Sheet
31-Mar-03 31-Mar-02SHAREHOLDERS' FUNDS
Share Capital 2.49 2.49Reserves 33.14 30.95Net Worth 35.63 33.44LOAN FUNDS 31.76 34.63Secured Loans 27.03 27.10Unsecured Loans 4.73 7.53Deferred Tax Liabilities 8.41 8.52TOTAL SOURCES 75.80 76.59
Net Block incl. CWIP 40.49 42.64Investments 11.60 9.18Current Assets 61.60 53.87Less: Current Liab. 38.59 29.74NCA 23.01 24.13Misc. Expenditure 0.70 0.64TOTAL APPLICATION 75.80 76.59
Marginal reduction in total assets despite a 21% increase in sales
– Focus on containing working capital– Capital expenditure contained to Rs.
970 million
Reduction in loans by Rs. 2.87 billion (FY 03 Rs. 7.2 bn.)
Regrouping due to accounting change for integrated JVs
– Net funds employed of Rs. 490 million (FY 03 Rs. 333 million) accounted as investments
Net Debt to Equity (incl. Deferred Tax Liability) goes down to 58% from 76%
Rs. Billions
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Others5%Elect.
8%
Cement30%
E&C57%
Others4%Elect.
8%
Cement26%
E&C62%
Segment-wise revenues
FY 03 FY 02
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Segment-wise share of EBITDA
Others1%Elect.
9%
Cement45%
E&C45%
Others3%
Elect.11%
Cement38%
E&C48%
FY 03 FY 02
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Segment-wise share of EBIT
Others1%Elect.
11%
Cement36% E&C
52%E&C61%
Cement24%
Elect.14%
Others1%
FY 03 FY 02
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A challenging economic environment
Falling growth rates in IndiaLow level of investments in the economySevere competition for the limited opportunitiesTalent acquisition and retention was a key concern
(3.1)7.3(6.7)(0.7)8.1Agriculture
10.7(3.4)1.77.012.6Capital Goods
5.82.95.47.24.4Manufacturing Sector
5.82.85.16.64.1Industrial Growth
4.45.64.46.16.5GDP
02-03 (E)01-0200-0199-0098-99
Growth %
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A vision to meet the challenges
….L&T shall be an ….Indian
multinational…
…committed to enhancing shareholder
value…..
…constantly creating value and attaining
global benchmarks…..
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How we responded
Thrust on “internationalization” of operations to diversify markets– Build “L&T” as an international brand by creating
awareness about L&T and its capabilities– Approved vendor status from owners, contractors,
process licensors and inspection agencies– Formation of consortia with global majors– Expansion of product range and global network
Improve cost competitiveness and enhance skills
Institutionalisation of risk management practices
Initiatives to retain, attract and motivate talent
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Strong growth in international businessEquipment exports to more than 45 countries including North America, UK, Europe, Middle East..
Success in securing turnkey contracts– Two gas based power plants in Oman and
Sri Lanka– Gas processing and Pipeline project in
Tanzania– Platform in Qatar– Qualified to do turnkey projects in oil &
gas, refinery sectors
International construction business with focus on Middle East, SAARC, ASEAN & CIS
– JV/ Subsidiary in Saudi Arabia, Oman, Malaysia
– Experience of executing large construction jobs in USSR, Middle East, Malaysia
Export margins are improving – Acceptability by customer– Learning from experience– Increasing order sizes
27503840
7200
11240
16330
98-99 99-00 00-01 01-02 02-03
Growth in international business
Rs. million
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Enhancing capabilitiesFront-end Engineering and Design group at Vadodara
– ISO 9001/ISOm1401 certified– Serves the process engineering requirements of Refinery, Petrochemicals and
Fertilizer industries– Service capabilities include feasibility studies, process licensor selection, basic
engineering packages
Basic and Detailed Engineering centres at Mumbai and VadodaraEngineering, Design and Research Centre at Chennai serving the construction activities
– Several innovation introduced in construction engineering
Engineering JVs with world majors to meet capability gaps– Chiyoda, Sargent & Lundy, Ramboll
R&D centres to support product development and upgradation efforts of Electrical & Electronics segment
– Several new designs and awards– Provides the competitive edge
Thrust on export of engineering services
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Improving cost competitiveness
Thrust on cost reduction – Global Sourcing– E-procurement– Value Engineering– Efficiency improvement in plant operations
Delivery cycle reduced from 18-25 months to 8-11 months for many critical equipmentSix Sigma processes in manufacturing activities to reduce rejection and rework
Supply Chain Management covering materials, sub-contracts, manpower, plant & machinery
Working Capital Management– All out effort to reduce levels of working capital levels– Inventory levels reduced– Fuller utilisation of vendor credits
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Institutionalizing risk management
Size and complexity of orders are increasing even as delivery periods are becoming longer
Exposure to international business is increasing– Target to increase international business to 25% of sales by
2006
Risk management module being evolved concomitantly as business is scaling up
– Risk management model incorporating state-of-the art tools and techniques has been developed
– Training programs for risk identification and management
Risk management is a key focus area for E&C Business
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Several HR initiatives for talent acquisition and management
Creating a Performance Driven Culture– Focus on Value Creation
Capability building and enhancement – Training as a conscious strategy and business decision for growing talent– Management Development Centre at Lonavla – a temple of true learning– Capability and Leadership Development/GLOPAT Programmes
Contemporary Program to benchmark Global Management Practices for Top Management
Global Business Strategy program for key employees involved in internationalization of businesses
Management/Technology/Executive Leadership Programs to identify potential business and technology leaders
Sharper differentiation in compensation to reward performance and attract talent
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Tracking the results
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Sector-wise Order Booking
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7
12
11
46
25
11
18
18
28
98
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26
31
5
21
17
43
14
24
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6
31
15
0%
20%
40%
60%
80%
100%
'98-99 '99-00 '00-01 '01-02 '02-03
Process Oil & Gas Power Infrastructure Others
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Sector-wise Order Backlog
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16
16
29
29
17
10
19
17
37
88
25
46
13
5
17
21
48
9
17
21
10
35
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0%
20%
40%
60%
80%
100%
'98-99 '99-00 '00-01 '01-02 '02-03
Process Oil & Gas Power Infrastructure Others
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Cash Flow StatementRs. Billion
1998-99 1999-00 2000-01 2001-02 2002-03
Operating Profit 8.06 9.34 9.44 9.76 9.02
Changes in Working Capital (3.64) (5.42) (3.14) 2.65 3.06
Operating Cash Flow 4.42 3.92 6.30 12.41 12.08
Direct Taxes Paid (1.49) (0.69) (0.68) 0.70 (0.41)
Investments in Fixed Assets (6.28) (3.45) (3.82) 0.33 (0.80)
Interest (Net) (1.51) (3.17) (3.71) (3.69) (1.94)
Investments in Subs./JVs (2.08) (3.58) (0.75) (0.05) (0.29)
Dividends from Subs./JVs 0.43 0.24 0.12 0.52 0.39
Net Free Cash Flow (6.51) (6.73) (2.54) 10.22 9.03
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Snapshot of historical performance
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100
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1998-99 1999-00 2000-01 2001-02 2002-03
Rs Billion
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4
6
8
10
12Rs. Billion
Order Booking Total Income Total Assets PBDIT
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Segmental review
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Engineering & Construction
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Engineering & ConstructionGood order booking in a slack investment climate
– Strong growth in export order booking
A few path breaking orders– PTA project for IOC– Platform order for Qatar
Petroleum– Gas pipeline project - Tanzania
Received 4 industrial licenses in defence sector
Margin drops due– Retirement provisions– Lease charges for Plant &
Machinery– Additional provisioning
FY 03 FY 02 Change
Order Booking 95.02 73.54 29.2%
Domestic 75.65 64.68 17.0%
Export 19.37 8.86 118.6%
Sales (1) 61.48 45.98 33.7%
Domestic 48.72 37.50 29.9%
Exports 12.76 8.48 50.5%
Order Backlog 136.87 110.63
EBITDA 5.00 4.78 4.6%
EBITDA/ External Sales 8.1% 10.4%
EBIT 4.45 4.03 10.4%
Net Segment Assets 21.02 20.64
(1)Excl. inter-segment sales 0.07 1.16
Rs. Billion
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E&C - Major orders received - Domestic
1250PTA Project/Elec.Work for Panipat Refinery, Petrochem
1370Road Project-J&K State Power Corporation Ltd.
1700Sulphur Block and associated facilities, BPCL, Mumbai
2960Jaipur Kishengarh Expressway
2160Orders for Water/Effluent/Sewerage Treatment Plants
2690Karnataka State Highways-Improvement Project
6120DHDT and Hydrogen Package for IOCL, Panipat
3360Water Distribution System at Vizag
12420IOCL PTA Project
1200LPG Cavern construction for South Asia LPG.Co.Ltd.
1140Laboratory & Animal House – Noida, U.P.
1980Road Upgradation for PWD, Uttar Pradesh
Rs. Mio
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E&C- Major orders received - International
Rs. Mio
Songo Songo- Gas processing and pipeline Project, Songas Ltd.Tanzania 5160
Platform for Qatar Petroleum 4700
Equipment for OMIFCO, Oman 1560
400 KV Transmission Line, Fujairah, UAE 1520
Turnkey Services for Sulphur Recovery Unit forKuwait National Petroleum Corporation 1210
Overhead Transmission Line for Abu Dhabi Water & Electricity Authority Limited 1200
Conveyor Belt/detailed engineering forLafarge Surma Cement 1170
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Electrical & Electronics
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Electricals and Electronics
Impressive sales growth in the face of competition from MNCs
– Helped by Metering Instruments and Petrol dispensing products
Margins improve – Several cost reduction
measures
Market share maintained at 44% for low tension switchgear New product intensity maintained at a high 35%Continuing efforts to reduce funds employed
Rs. Billion
FY 03 FY 02 Change
Sales (1) 7.81 7.05 10.8%
Domestic 7.45 6.67 11.7%
Exports 0.36 0.38 (5.3)%
EBITDA 1.14 0.93 22.6%
EBITDA/ External Sale 14.6% 13.2%
EBIT 1.04 0.81 28.4%
Net Segment Assets 4.45 4.36(1)Excl. inter-segment sales 0.84 0.31
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Cement
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Cement
Strong consumption growth of 9.5%
– Industry capacity utilisationat 85%
– Large supply overhang
L&T volume grows by 11.7%
Domestic prices remained low for most part of the year
– Some improvement during Q4– Average sales realisation for
the year dropped by 10%
Ongoing cost improvement efforts
– Efforts on logistics beginning to show results
FY 03 FY 02 % change
Sales-Mio Tonnes 13.32 11.93 11.7%
Domestic 10.56 9.52 10.9%
Exports 2.76 2.41 14.5%
Segment Sales (1) 25.83 24.86
External Sales 22.99 22.50
Exports 2.84 2.36 20.3%
Net realisation * 1276 1420 (10.1)% (Domestic)
EBITDA 3.92 4.79 (18.2)%
EBITDA /Sales 15.2% 19.3%
EBIT 1.78 2.71 (34.3)%
Segment Assets(Net) 33.16 35.37Excl. Inter-segment Sales 1.32 1.25
Rs. Billion
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Continuous improvement in Operations
699701708
714
726
690
700
710
720
730
740
98-99 99-00 00-01 01-02 02-03
Lowest in the Industry
Coal Cost (Rs/T of Cement)
Heat Consumption (Kcal/Kg Clinker)
L&T Group 235 709
ACC 242 782
Ambuja 261 747
Grasim 258 714
Madras Cement 282 776
India Cement 376 850
L&T Heat Consumption –K.Cal/ Kg.Clinker
Industry Comparison – FY 2002
Comparable with industry
FY 2002
Power Cost (Rs/T of Cement)
Power Consumption
(kwh/t of cement)
L&T Group 240 91
ACC 262 92
Ambuja Group 203 89
Grasim Group NA 91
Madras Cement 238 78
ICL Group 291 92
Source - Director's report, CMA report
L&T Power consumption –KWh/Tonne of Cement
Industry Comparison – FY 2002
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9491 91
88
80
100
98-99 99-00 00-01 01-02 02-03
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The “ICBM” Initiative
Initiative launched in January 2002 to “Increase Cement Business Margins”
Covered the following elements:– Network Optimisation: Analysis of Price / Demand /
Constraints/ Cost of Constraints – Total Delivered Cost : Plant-Market Link ; How to serve at
lowest possible cost– Sales & Distribution: Market analysis ; Focus on increasing
market share – Consumer Research: Understand Consumer Behaviour ;
Increase “L&T” Brand pull
Benefit Tracking & Monitoring– “What gets measured gets done”
Addressing multiple facets of the supply chain
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The “ICBM” Initiative : Gains so far
Entire Cement Division aligned towards objective – Achievement of agreed tangible targets– Motivation to achieve ongoing improvements
Some results:– Consistently improving jetty performance : Utilisation % projected to
increase to 96% in FY04 vs. 87% in FY02– Distribution cost reduced by Rs. 350 mn. over FY 02– Freight cost level maintained in spite of steep increase in diesel
prices
Making ICBM a way of life
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Outlook FY 2003 – 04
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E&C – Outlook
Healthy order backlog at Rs. 136.87 billion– Good visibility of revenue and margins– Growing international presence
Order prospects in the refinery, oil & gas and infrastructure sectors
– Large investments in Oil & Gas in public and private sector– Investments in pipelines by GAIL/IOC – more than 2500 kms– Large investments by government bodies in water/water related
projects– Passing of Electricity Bill and reform related central assistance to
accelerate reforms in the power sector and catalyse investment– Prospects of more than Rs. 150 billion in the infrastructure sector– Heightened investment activity in the Middle East and Africa– Rebuilding of Iraq and Afghanistan
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Cement - Outlook
Consumption growth expected at 8 – 10% with large investments in infrastructure and strong demand from housing sector
Improving demand-supply situation– No major addition to capacity in the next two years– Artificial incentives for new capacity addition are withdrawn– Most new capacity creation by larger players aiding consolidation
Cement prices to stabilise and improve in the current year
Continuing effort to reduce costs and improve efficiencies– “Parivartan” (“Change”) – an initiative to involve all levels of employees in
improvement– Six sigma and Total Productive Maintenance Programme for enhanced plant
performance, availability and reduced maintenance costs– Further benefits expected from logistics optimisation
Margin improvement to be better than the industry as volumes grow– Lowest variable cost– Domestic despatches are only 70% of capacity, allowing volume growth without
further investment/commitment to fixed costs
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Electricals & Electronics - Outlook
Growth opportunities in transmission and distribution resulting from the ongoing reform process
– New Electricity Bill– Accelerated Power Development Programme
New opportunities in Metering-demand for intelligent meters
Petrol Pumps business will see growth from new products and strengthening of the distribution network by oil majors
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Thank you