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FLSmidth: Interim Report for FLSmidth & Co. A/S for 1 July-30 September 2016. FLSmidth is growing its service activities

09.11.2016

Company Announcement no. 18-2016, 09 November 2016

Main conclusions:

  • Strong cash flow generation led to significant debt reduction
  • Highest order intake from service activities since early 2014
  • Sequential improvement in revenue is as expected.
  • Corrective actions are being implemented to adjust cost base to lower level of activity
  • Guidance for 2016 unchanged

Group CEO Thomas Schulz says, "Our results for the third quarter are as expected, with strong activity in the service business as well as continued pressure on capital orders, especially in minerals. As announced in the second quarter, we have implemented corrective actions worldwide to adjust our cost base and to invest in the future."

"The market for mining capex is at a volatile low, and we expect to see the start of a slow recovery from the end of 2017. Our strength here is our stronghold in gold and copper processing, where we see good prospects for brownfield activities and a solid mid-term outlook. The market for new cement capacity continues to be characterised by pricing pressure. That said, the pipeline of potential projects is encouraging, and current tendering activity gives reason to be cautiously optimistic about the mid-term outlook," continues Thomas Schulz.

Corrective actions
As a consequence of continued low market activity, it was announced in August 2016 that corrective actions would be implemented to compensate for declining revenue and earnings. The corrective actions include further business right-sizing, more site closures, management delayering as well as supply chain optimisation and procurement savings. At the same time it was announced that investments would be made in value engineering, new sales offices in 'white spots' and more sales people.

In total, it is anticipated that the corrective actions will result in an EBITA improvement of DKK 500m in 2017 and lead to one-off costs of DKK 350m. The EBITA improvement is expected to be largely offset by lower level of activity and lower margin orders in the backlog. As part of the corrective actions, 600 employees were given notice in September and October 2016.

Guidance for 2016
It is still expected that revenue will be DKK 17-18bn and that the EBITA margin will be 7-8%, however the EBITA margin is expected to end up at the lower end. The return on capital employed is expected to be 8-9%. The effective tax rate is expected to be 29-31% (2015: 32%) and cash flow from investments is expected to be around DKK -0.3bn excluding acquisitions and divestments. The full year guidance is based on the assumption that execution of the order backlog will not be negatively impacted by further market-driven delays.

Key Figures third quarter 2016

DKKm Q3  2016 Q3  2015 Change Q1-Q3 2016 Q1-Q3  2015 Change
Order intake 4,133 5,151 -20% 13,759 14,799 -7%
Hereof service order intake 2,647 2,279 16% 7,419 7,388 0%
Service share 64% 44%   54% 50%  
Order backlog 15,174 16,666 -9% 15,174 16,666 -9%
Revenue 4,774 4,609 4% 12,667 14,385 -12%
Hereof service revenue 2,601 2,677 -3% 7,373 8,094 -9%
Service share 54% 58%   58% 56%  
Gross profit 1,164 1,174 -1% 3,280 3,691 -11%
Gross margin 24.4% 25.5%   25.9% 25.7%  
EBITDA 421 431 -2% 1,073 1,415 -24%
EBITA 344 358 -4% 863 1,198 -27%
EBITA margin 7.2% 7.8%   6.8% 8.3%  
EBIT 243 245 -1% 573 862 -32%
EBIT margin 5.1% 5.3%   4.5% 6.0%  
Profit for the period 170 (84)   340 402 -15%
CFFO 744 496 50% 839 390 115%
Free cash flow 701 510 37% 689 1,120 -38%
Net working capital 2,251 2,626 -14% 2,251 2,626 -14%
Net interest-bearing debt (3,150) (3,746) -16% (3,150) (3,746) -16%

For additional information, please see Investor Room at www.flsmidth.com.

Contacts

Investors
Pernille Friis Andersen, phone +45 36 18 18 87, pefa@flsmidth.com
Nicolai Mauritzen, phone +45 36 18 18 51, nicm@flsmidth.com

Media
Sofie Karen Lindberg, phone +45 30 93 18 77, skl@flsmidth.com