4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 1
FLSmidth @ Finansforeningens virksomhedsdag
Managing the cycle and preparing for the upturn
Lars Vestergaard, CFO
FLSmidth at a glance
2
FLSmidth at a glance
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen
Single equipment Complete plants
Spare parts & services Complete operation & maintenance contracts
A market-leading supplier of engineering, equipment and services to the global minerals and cement industries
A global company with headquarters in Denmark and a local presence in more than 50 countries
Long history of strategic acquisitions
Acquisition history
Handelsbanken Mining & Equipment Seminar, Stockholm 3
1926 1959 1990 1997 1914 2012
Key historical milestones …
FLSmidth (Denmark) starts to supply equipment and services to the minerals industry
Fuller Company is established in Catasauqua, PA, USA
Traylor Engineering & Manufacturing Company is acquired by Fuller Company (Established 1902)
FLSmidth acquires Fuller Company
FLSmidth forms a separate minerals company, FFE Minerals
2007
FFE Minerals changes name to FLSmidth Minerals Acquisition of GL&V transformed minerals to a single source solution supplier
2000 1995 2010 2011 2009 2008
10 December 2013
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 4
Supplier into six growth industries…. Copper Gold Coal
Iron ore Fertiliser Cement
…but cyclical industries
Cyclical industries
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 5
0
5,000
10,000
15,000
20,000
25,000
30,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
FLSmidth Revenue (reported*)
*) 2012-2014 excl. Cembrit
9% CAGR (organic growth 2006-2012)
0
50
100
150
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
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2014
0
50,000
100,000
150,000
200,000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
USDm Mining capex (source: Bloomberg, based on 253 mining companies’ capex data)
New cement kiln capacity (excl. China, source: FLSmidth)
mty
Mining investments
Expected to trough in 2015 Slow growth expected in 2016 Impacted by market uncertainty and lower commodity prices Customer focus on productivity enhancing investments
Cement investments
Moving out of the trough Increasing utilisation rates to underpin growth Customer focus on new capacity, productivity and environment
Services resilient and growing
Customer focus on optimised inventories and productivity Fewer bigger, but more smaller orders
Current market trends
Market update
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 6
The mining industry’s top 10 issues in 2015 - according to Deloitte’s “Tracking the trends 2015”
Finansforeningens Virksomhedsdag, Copenhagen 7 4 June 2015
1. Operational excellence / improved productivity 2. Innovation 3. Reduction of power costs 4. Managing commodity supply/demand imbalances 5. Financing 6. Survival of the junior miners 7. New skillsets needed 8. Geopolitical uncertainty 9. Stakeholder engagement 10. Engagement with governments
New divisional structure 1 January 2015
Finansforeningens Virksomhedsdag, Copenhagen 8
Minerals Cement Customer Services
Product Companies
Type of business
Engineered, customised single products EPS projects EPC projects
Spare parts ~70% Services ~15% O&M ~15%
Relatively standardised and market-leading product range
Characteristics Cyclical business, large orders, negative NWC, low margins
Small orders, stable high margins, growth
Stable high margins, original equipment & spare parts
Our excellence
Project execution Procurement Full flow sheet offering Engineered products
Inventory Logistics Speed O&M
Product leadership Market share Assembly/Manufac. Inventory
Business model
Global direct sales OEM supplier / technology provider In-house R&D and engineering Outsourced manufacturing
Local direct sales, Warehouse, service & supports centres, mostly outsourced manufacturing
Mostly local direct sales, integrated value chain, in-house assembly /manufacturing
4 June 2015
Long term growth and efficiency levers
Finansforeningens Virksomhedsdag, Copenhagen 9
Cross-selling (products and services)
EPC & system sales
Single sales of engineered products
Minerals Cement Customer Services
Product Companies
O&M
Wear parts
Leverage sales opportunities
Global reach
Go-To-Market model
Integration and synergies
Leverage integration of MP and MH
Mid market
Design, build and operate
FLSmidth
Engineering in India
Supply Chain, Logistics & Warehousing
Shared HR, IT and Financial services
Growth levers
Efficiency levers
4 June 2015
The Product Companies Division: 9 well-known, leading brands
Finansforeningens Virksomhedsdag, Copenhagen 10
PredominantlyMinerals
Both
Predominantly Cement
ABON Krebs Buffalo
Airtech Automation
MAAG Gear
Möller
Ventomatic Pfister 4 June 2015
Fit for cycle navigation in new divisional structure - attractive growth potential in healthy, but cyclical industries
Long-term financial targets
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 11
Divisional long-term financial targets
Growth (over the cycle)
EBITA% (over the cycle)
Net working capital (as pct. of revenue)
Customer Services 5-10% >15% 15-20%
Product Companies 5-10% 12-15% ~15%
Minerals 5-6% 3-8% Negative
Cement 3-5% 3-8% Negative
Long-term financial targets unchanged
Long-term financial targets
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 12
Group long-term financial targets
Annual revenue growth Above market average
EBITA margin 10-13%
ROCE* > 20%
Tax rate 32-34%
Equity ratio >30%
Financial gearing (NIBD/EBITDA) <2
Pay-out ratio 30-50%
*) ROCE: Return on capital employed calculated on a before tax basis as EBITA divided by average Capital Employed including goodwill
The CFO agenda
Finansforeningens Virksomhedsdag, Copenhagen 13
Key objective is to keep our financial promises and to have sufficient capital to develop the business and deliver on our vision
Drive financial performance
Ensure capital efficiency
Manage capital allocation
4 June 2015
Key financial challenges in the new divisions
Finansforeningens Virksomhedsdag, Copenhagen 14
Type of business
Engineered, customised single products EPS projects EPC projects
Spare parts ~70% Services ~15% O&M ~15%
Relatively standardised and market-leading product range
Characteristics Cyclical business, large orders, negative NWC, low margins
Small orders, stable high margins, growth
Stable high margins, original equipment & spare parts
Our excellence
Project execution Procurement Full flow sheet offering Engineered products
Inventory Logistics Speed O&M
Product leadership Market share Assembly/Manufac. Inventory
Key financial challenges
Managing the cycle Business right sizing Project controlling NWC: Prepayments, WIP
Efficiency Pricing NWC: Inventory, A/R
Invest in growth Pricing Capacity utilisation NWC: Inventory,A/R
Minerals Cement Customer Services
Product Companies
4 June 2015
-10%
-5%
0%
5%
10%
15%
20%
25%
0
200
400
600
800
1,000
1,200
1,400
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0%
5%
10%
15%
20%
25%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
Revenue, EBITA and adjusted EBITA - by new divisions
Q3 2014
Q1 2015
Q1 2014
Q3 2013
Q1 2013
Q3 2012
Q1 2012
DKKm
Q3 2014
Q1 2015
Q1 2014
Q3 2013
Q1 2012
Q1 2013
Q3 2012
DKKm
DKKm
Q1 2015
Q3 2014
Q1 2014
Q3 2013
Q1 2013
Q3 2012
Q1 2012
DKKm
Customer Services Product Companies
Minerals Cement
Q3 2014
Q1 2015
Q1 2014
Q3 2013
Q1 2013
Q3 2012
Q1 2012
EBITA% long term target
Revenue EBITA margin Adjusted EBITA margin
EBITA margin Revenue
Adjusted EBITA margin
Adjusted EBITA margin
Revenue EBITA margin
EBITA margin Adjusted EBITA margin
Revenue
Finansforeningens Virksomhedsdag, Copenhagen 15 4 June 2015
Currency translation effects had 9% positive impact on revenue and 10% on order intake
Non-recurring costs DKK -88m
Profit from discontinued activities amounted to DK 98m, mainly related to the sale of Cembrit
Financial performance in Q1 2015
Interim Report Q1 2015
May-June 2015 16 Interim Report Q1 2015 roadshow
Continuing business (DKKm)
Q1 2015
Q1 2014
Change
Order intake 4,677 4,841 -3%
Revenue 4,825 4,949 -3%
Gross margin % 24.6% 23.8%
EBITA 370 322 +15%
EBITA % 7.7% 6.5%
EBITA % adjusted 9.5% 7.4%
Net results* 272 115 +136%
ROCE 11% 7%
*) Net results include profit from discontinued activities
1,725
1,356 1,387
726
1,878
1,375
946 836
Revenue increased in all divisions but Minerals
Interim Report Q1 2015
May-June 2015 Interim Report Q1 2015 roadshow 17
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Revenue (quarterly)
-3% vs. Q1 2014 DKKm
Revenue Q1 2015 vs. Q1 2014 - by division
Product Companies
Minerals Cement
Q1’15 Q1’14 Q1’15 Q1’14 Q1’15 Q1’14 Q1’15 Q1’14
Customer Services
Revenue declined 12% (currency adjusted)
Cash flow statement in Q1 2015
Interim Report Q1 2015
May-June 2015 18 Interim Report Q1 2015 roadshow
Continuing activities Q1 2015 Q1 2014
EBITDA adjusted 451 421
Change in provisions 120 (94)
Change in NWC (545) (672)
Financial payments (10) (36)
Taxes paid (61) (171)
CFFO (45) (552)
CFFI excl. acquisitions & disposals (70) (72)
Acquisitions & disposals 830 0
CFFI 760 (72)
Free cash flow (FCF) 715 (624)
Free cash flow positively impacted by:
Sale of Cembrit
Higher EBITDA
Cash inflow from provisions
Less negative impact from NWC and financial payments
Lower cash tax rate
Guidance
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 19
Group 2014 2015 YTD Guidance 2015
Revenue1) DKK 21.1bn DKK 4.8bn DKK 19-21bn
EBITA margin 7.7% 7.7% 9-10%
ROCE 11% 11% 12-14%
Tax rate 30.2% 31% 31-33%
CFFI (excl. acquisitions) DKK -0.4bn DKK -0.1bn ~DKK -0.4bn
Group guidance 2015 unchanged
1) At prevailing currency exchange rates
Next industry cycle – Enhancing Productivity
Ready for the future
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 20
..we invest in..
Competencies New technologies Customer training EPC O&M Sales & service offices Safety & quality
A unique combination of
projects, products and services
Based on an optimised internal set-up..
Efficiency and business right-sizing
Streamlined, business model-driven organisation
Supply chain optimisation and agility
..to support customers’ value creation through..
Reduced costs Increased throughput Improved recovery rates Sustainable production Better safety
..Enhanced productivity
We support our customers to create value through enhanced productivity
21 4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen
Our shareholder value proposition
Finansforeningens Virksomhedsdag, Copenhagen 22
We manage the cycle through early execution of efficiency programmes and
business right-sizing
We prepare for the upturn with a clear target to overperform in the next cycle
We have a balanced portfolio which enables us to leverage the full attractiveness of our industries
Two strong, cycle-resilient and high-margin businesses
Two globally leading project divisions with low/negative NWC
We are exposed to industries with an attractive long term growth potential
4 June 2015
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 23
QUESTIONS
Enhancing productivity
Forward-looking statements
Interim Report Q1 2015
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 24
FLSmidth & Co. A/S’ financial reports, whether in the form of annual reports or interim reports, filed with the Danish Business Authority and/or announced via the company’s website and/or NASDAQ OMX Copenhagen, as well as any presentations based on such financial reports, and any other written information released, or oral statements made, to the public based on this interim report or in the future on behalf of FLSmidth & Co. A/S, may contain forward-looking statements. Words such as ‘believe’, ‘expect’, ‘may’, ‘will’, ‘plan’, ‘strategy’, ‘prospect’, ‘foresee’, ‘estimate’, ‘project’, ‘anticipate’, ‘can’, ‘intend’, ‘target’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance identify forward-looking statements. Examples of such forward-looking statements include, but are not limited to: • statements of plans, objectives or goals for future operations, including those related to FLSmidth & Co. A/S markets, products, product research and product
development • statements containing projections of or targets for revenues, profit (or loss), capital expenditures, dividends, capital structure or other net financial items • statements regarding future economic performance, future actions and outcome of contingencies such as legal proceedings and statements regarding the underlying
assumptions or relating to such statements • statements regarding potential merger & acquisition activities. These forward-looking statements are based on current plans, estimates and projections. By their very
nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which may be outside FLSmidth & Co. A/S’s influence, and which could materially affect such forward-looking statements.
FLSmidth & Co. A/S cautions that a number of important factors, including those described in this presentation, could cause actual results to differ materially from those contemplated in any forward-looking statements. Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including interest rate and exchange rate fluctuations, delays or faults in project execution, fluctuations in raw material prices, delays in research and/or development of new products or service concepts, interruptions of supplies and production, unexpected breach or termination of contracts, market-driven price reductions for FLSmidth & Co. A/S’ products and/or services, introduction of competing products, reliance on information technology, FLSmidth & Co. A/S’ ability to successfully market current and new products, exposure to product liability and legal proceedings and investigations, changes in legislation or regulation and interpretation thereof, intellectual property protection, perceived or actual failure to adhere to ethical marketing practices, investments in and divestitures of domestic and foreign enterprises, unexpected growth in costs and expenses, failure to recruit and retain the right employees and failure to maintain a culture of compliance. Unless required by law FLSmidth & Co. A/S is under no duty and undertakes no obligation to update or revise any forward-looking statement after the distribution of this presentation.
Crushing
• Limestone, shale and clay crushing
• Hammer crushers
• Impact crushers
• Roller crushers
Material Handling
• Stacker/Reclaimers
• Bucket elevators
• Pan conveyors
Grinding
• Raw meal, coal and cement grinding
• Vertical mills
• Ball millls
• Roller presses
Pyro processing
• Heating, calcining and clinker burning
• Preheaters
• Kilns
Clinker cooling
• Cooling of clinker
• Grate coolers
• Other coolers
Cement handling
and packing
• Truck loaders
• Palletisers
• Silo equimpent
Competitive Landscape in Cement
Finansforeningens Virksomhedsdag, Copenhagen 25
FLSmidth
Claudius Peters
Haver & Boecker Bedeschi IKN
ThyssenKrupp
KHD
Aumund Hazemag
Sinoma
Various Chinese suppliers
Beumer
Loesche
Pfeiffer
FCB Beumer
4 June 2015
ThyssenKrupp Resources
Competitive landscape in Minerals
Exploration Development Extraction Material Handling
Crushing, Grinding &
Sizing Separation Refining
Exploration for mineral resources
•Remote sensing
•Geophysical / geochemical tests
•Samples
Feasibility studies
Drilling and modeling of the ore body Selection of appropriate mining technique Capital investment in mine infrastructure
Mining of the ore body Rock breaking Surface mining Underground mining
Mined minerals transported to processing site Use of loaders, trucks, trains, at the face mining systems and conveyors
Materials are crushed and ground to achieve finer particles Particles sized for optimum recovery of minerals specie
Flotation, leaching, sedimentation and filtration are used to increase the mineral content to an economic level
Refining to increase concentration of minerals further Key techniques:
•Pyro-metallurgy
•Electro-winning
Metso
FLSmidth
Outotec
Various Chinese suppliers
Sandvik
Finansforeningens Virksomhedsdag, Copenhagen 26 4 June 2015
Short Term
Navigate through cyclical downturn
Mid Term
Sustainable profitable growth
Long Term
Full service provider
Strategic management focus
Focus on efficiency: Efficiency programme Business right-sizing Re-organisation
27
Strategy health check Aug. 2013
FLSmidth
Customer Services
Minerals Cement Product
Companies
ROCE >20%
4 June 2015 12 February 2015 Finansforeningens Virksomhedsdag, Copenhagen
1 Jan. 2015
Industry trends and drivers
Finansforeningens Virksomhedsdag, Copenhagen 28
Industry trends
Health, safety, environment
Productivity
Innovation
Full service supply
Customer intimacy
Automation
Energy efficiency
Macro trends
Rising population
Increasing urbanization
Growing wealth
Higher energy demand
More infrastructure
Supply trends
Lower ore grades
Higher technical complexity
More remote locations
Full service
provider
4 June 2015
30%
16% 6% 6%
8%
5%
29%
Order intake expected to grow in 2015
Order intake trends
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 29
2015 Q1 order intake by industry
Cement
Coal
Iron ore
Adjacent
Copper
Gold
0
2,000
4,000
6,000
8,000
10,000
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Order intake (quarterly)
-3% vs. Q1 2014 DKKm
Announced O&M orders Announced capital orders Unannounced orders
Order intake decreased 13% in Q1 2015 (currency adjusted)
Two large orders totalling DKK ~1bn have been announced so far in Q2 2015
Fertilizers
322 370
111
16
43
30
7
0
100
200
300
400
Adjusted EBITA margin increased 2.1%-points
Interim Report Q1 2015
May-June 2015 Interim Report Q1 2015 roadshow 30
EBITA margin
EBITA (quarterly)
+15% vs. Q1 2014 DKKm DKKm EBITA bridge Q1’15 vs. Q1’14
7.4%
9.5%
0%
2%
4%
6%
8%
10%
0
100
200
300
400
500
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Adjusted EBITA margin Q1’15 9.5% (reported 7.7%)
Adjusted EBITA margin Q1’14 7.4% (reported 6.5%)
adjusted
adjusted
CFFI positively impacted by DKK 830m related to sale of Cembrit in Q1 2015
Cash flow from operations is improving
Cash flow trends
4 June 2015 Finansforeningens Virksomhedsdag, Copenhagen 31
CFFO (quarterly) DKKm
CFFI (quarterly)
DKK +760m in Q1 2015 DKKm DKK -45m in Q1 2015
(108) (72)
760
(400)(200)
0200400600800
(466) (552)
(45)
(1,000)
(500)
0
500
1,000
Capital Efficiency
Finansforeningens Virksomhedsdag, Copenhagen 32
Asset light business model
Key focus to keep investments at same level as depreciation and amortisation
Investments in R&D / IT assets
R&D – strict rules on capitalisation
IT – only capitalise pure IT cost
Key focus is working capital
Net working capital DKKm
Goodwill & Customer Relations
Other intangible assets
Tangible assets
Financial assets
Working capital
Cash
Assets
We will keep our asset light business model
4 June 2015
0
500
1,000
1,500
2,000
2,500
3,000
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Capital allocation
Finansforeningens Virksomhedsdag, Copenhagen 33
Capital deployment (prioritised)
1. Be well-capitalized (NIBD/EBITDA < 2)
2. Ensure stable dividends (30-50% of net profit)
3. Invest in organic growth
4. Value adding M&A (not actively seeking)
5. Share buyback or special dividend
4 June 2015
NIBD (quarterly) DKKm
-
1.0
2.0
3.0
4.0
5.0
6.0
0
1,000
2,000
3,000
4,000
5,000
6,000
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Gearing 2.1x EBITDA Gearing target (self-imposed)
NIBD / EBITDA