Download Center

FLSmidth & Co. is a project and service focused engineering business with a unique global market position and strong potential for growth.

FLSmidth download center


Here you can read company announcements and press releases from FLSmidth.

FLSmidth Company Announcements

FLSmidth & Co. A/S Annual General Meeting 15 April 2005 Chairman's Report

Message to the Copenhagen Stock Exchange, No. 11 - 2005.

Chairman of the Board of Directors Jørgen Worning today presented the following report at the Annual General Meeting of FLSmidth & Co. A/S at Radisson SAS Falconer Center, Frederiksberg.
Chairman of the Board of Directors Jørgen Worning today presented the following report at the Annual General Meeting of FLSmidth & Co. A/S at Radisson SAS Falconer Center, Frederiksberg:
2004 was yet an eventful year for the FLSmidth Group. We have carried out the divestments planned and have tightened up the core undertaking's organisational structure and working procedures to enhance its competitive strength and profitability. This makes us well placed to meet the growing competition and to maintain our position as the cement and minerals industries' leading supplier and preferred partner.
Three years ago I stood on this rostrum for the first time and presented the then newly elected Board's tentative plan for the necessary turnaround of the Group. Many people considered this plan exceptionally drastic and ambitious in view of the timeframe which the Board had set for its implementation. It was a both necessary, dramatic and ambitious plan which, not least because of the DKK 5.5 billion debt, was essential for the survival of the Group.
I am therefore extremely satisfied to note today that we have met our objectives and present a financial statement that verifies the progress we have made and the initial positive results of our efforts. The platform is in place for the future FLSmidth: a strong management team, a strong capital base, a dedicated and focused Group and a market position as the world's leading supplier to the cement industry.
The FLSmidth Group today is a smaller, yet much stronger organisation than it was before. A fact emphasised by the confidence shown by investors in the Group and in its future strategy. This confidence resulted in a 49% increase of the share price during 2004, boosting the company's market value from DKK 3.6bn to DKK 5.4bn. So the shareholders have gained DKK 1.8bn in the value of their shares.
Following the administrative merger between FLSmidth A/S and the parent company FLS Industries A/S and the focusing of the company's activities on Cement and Minerals, it was decided at the Extraordinary General Meeting on 28 January to change the parent company name to FLSmidth & Co. This decision is yet another sign of the company's strategic decision to return to its roots and market the total Group under the globally recognised FLSmidth name which has been a well-established brand for more than 120 years.
As to the year's financial results , I refer to the printed Annual Report which can also be seen on the FLSmidth website. I shall limit my comments to a few specific issues.
Both turnover and operating profit are in accordance with or in excess of the projected results. Several events, however, had an impact on the projections during the year, such as the sale of companies, notably FLS Aerospace, Aalborg Portland and Unicon, and the write-down of values in Dansk Eternit Holding.
Selling FLS Aerospace took longer than anticipated, not least because the process turned out to be extremely complicated and complex. FLS Aerospace consisted of several acquired businesses that each entailed a number of legal obligations, Group guaranties and long-term commitments. In addition, the aircraft maintenance industry was affected by the recession in the wake of September 11 and the fact that new aircraft require much less maintenance than old ones, not to mention the rapidly growing competition from Eastern Europe.
The sale of Aalborg Portland and Unicon was a completely different matter and proceeded much faster than expected.
In the Board's opinion, these divestments took place on satisfactory terms.
In 2004, the consolidated turnover reached DKK 14.7bn. This is on a par with 2003 when turnover amounted to DKK 14.9bn. So the Group reached a level of sales that exceeded the expectations announced at the beginning of the year.
Turnover within the cement sector rose by DKK 1.1bn compared to 2003, and in the minerals sector the increase was over DKK 400m. So the total turnover of the continuing activities, viz. cement and minerals engineering plus Dansk Eternit Holding and Densit, amounted to DKK 10.7bn.
On the bottom line, it is gratifying to note the positive results after several years of red figures. The Group posted earnings before interest, tax and amortisation of goodwill (EBITA) of DKK 107m, up from DKK -2,883m in 2003.
The earnings before interest and tax (EBIT) amounted to DKK 28m as against DKK -2,990m in 2003. The continuing businesses posted an EBIT result of DKK 119m before the DKK 400m write-down in Dansk Eternit Holding.
Earnings before tax (EBT) were DKK 435m, up from DKK -2,550m in 2003. This result positively reflects the profit earned on the sale of Aalborg Portland and Unicon as well as FLSmidth & Co.'s share of the profit from the disposal of shares in Philippine-based Union Cement Holding.
Although the figures are now in the black, it is still a long way to go before we reach our earnings goal. The aim is to attain an EBT level in 2007 which corresponds to five per cent of the turnover. A number of changes and initiatives have been implemented which produced positive results already in 2004. Turning the Group around is a lengthy process.
Today the FLSmidth Group is debt-free and has net cash and cash equivalents amounting to DKK 1.2bn as against a net bank debt of DKK 2.4bn at the end of 2003. In addition, the Group's bank guarantee requirements amount to some DKK 3.0bn. The cash flow will continue to be a key issue in the day-to-day operations of the Group. No major investments nor acquisitions are expected to take place over the next few years. Disposals of minor none-core undertakings and minor shareholdings will have a positive impact on cash flow.
Tax amounting to DKK 371m calls for an explanation. The amount of tax may seem exorbitant compared to the earnings of the Group. However, most of the amount derives from the sale of Aalborg Portland. In connection with the sale of that company, a tax asset was expensed which had been created when FLS Industries in 2000/2001 acquired Blue Circle's 50% stake in Aalborg Portland. The tax has no effect on cash flow, but is merely related to an entry in the accounts. When disregarding this extraordinary reversal, the tax paid in 2004 at DKK 89m is on a par with 2003.
If we consider the individual businesses, the main activity FLSmidth, including its Customer Services, Automation and Materials Handling divisions, posted a total turnover of DKK 6.9bn in 2004 as against DKK 5.9bn in 2003 and earnings before interest and tax (EBIT) of DKK 115m as against a DKK 101m loss in 2003. So FLSmidth has improved its earnings by DKK 216m compared to 2003.
After several years of very low demand for new production capacity, the market for new plants and new production equipment became very active during the past year. Exclusive of China, orders were placed for approximately 53 million tonnes per year of new kiln capacity, this being the highest level since the mid nineties.
In the cement industry market, key figures and developments are always stated exclusive of China, because exact information about existing and new capacity in the world's largest single market is not as readily available as is the case in the rest of the global market.
The next few years are expected to see a continuation of the positive trend, although not at the same high rate. We expect a global market in the range of 30 to 35 million tonnes per year this year and next.
Accelerating market growth is stimulated by the oil-producing countries which are investing part of their earnings from high oil prices in infrastructural development. So FLSmidth has been awarded contracts for major projects in Algeria, Pakistan, Iran, India, Turkey and the United Arab Emirates.
FLSmidth has maintained its position as the world's leading supplier and preferred partner in this market - however, with a slightly smaller market share than in latter years. This is due to two things:
-          we have adopted a more selective sales and price strategy
-          we are facing increasing competition.
Experience gained from a number of loss-making contracts at the beginning of this millennium has prompted us to change our sales strategy and contract terms. In the last few years we have not signed contracts which do not offer us a reasonable profit or reasonable coverage of the risks we undertake. This applies, in particular, to contracts signed on a turnkey basis.
It is therefore highly encouraging to note that despite a more selective price policy the flow of orders has fulfilled our expectations, enabling us to maintain our goal of being the leading supplier to the global market.
From a competitive standpoint, it is also encouraging that FLSmidth has been able to maintain its market leadership. The expanding market has attracted new contenders. Particularly one Chinese competitor has gained ground in the turnkey market, mainly in the Middle East where he has signed a number of contracts within a price range which we have declined to match.
Several initiatives have been and are being taken to lower the Group's cost structure and maintain its competitive strength. It is planned to expand the activities of the Group's engineering centre in India, and Global Procurement is increasingly attempting to source production of equipment and machinery with suppliers in low-cost countries, without jeopardising the Group's high quality standards and quality assurance procedures.
Finally, we have bolstered our research and development efforts. In addition to increasing our investments in research, we have decided to concentrate our R&D activities and incorporate our laboratory activities in a global R&D centre. We are therefore expanding our present facility in Mariager, Jutland, and this year will see the transfer of R&D activities from our centres in Bethlehem, USA and Valby, Denmark to this location. In this way we shall establish a unique innovative environment that will enable the Group to continue to serve its customers with cutting-edge and well-tested technology.
If we turn to FLSmidth's specialised product divisions, we see that both FLSmidth Customer Services, which handles sales of services and replacement parts plus single machine units and minor projects, and FLSmidth Automation, which handles sales of electrical systems and control, optimisation and quality control systems, recorded highly satisfactory results, in terms of both turnover and earnings.
Having undergone extensive rationalisation and focusing on the cement and minerals markets, also FLSmidth Materials Handling, which handles sales of equipment for transport and storage of raw materials, made progress and posted a much improved financial result. As part of the focusing strategy, the company sold the German subsidiary Motan Materials Handling and most of the activities in the Swedish company H.W.Carlsen.
FLSmidth Airtech, which develops and markets air and flue gas cleaning equipment, had a difficult year and posted an unsatisfactory result. During the year, a number of initiatives were launched to reverse the negative trend. As is the case with FLSmidth Materials Handling, the company has concentrated its activities entirely on cement and minerals.
The two product companies Ventomatic in Italy, which produces and sells packing, loading and palletising systems, and Pfister in Germany, which produces and markets weighing and dosing equipment for the cement and minerals industries, both had a successful year with increasing sales and satisfactory earnings. Pfister has been particularly successful in the Chinese market with its upmarket dosing technology.
The Swiss company MAAG Gear, which produces industrial gear units, increased its turnover in 2004 and considerably improved its financial performance on 2003. The financial result, however, is still far from satisfactory. Changes have been made in the company management, but structural changes will still be needed to attain a satisfactory result.
In the Minerals sector the Group provides equipment and services to the global mining and minerals industry, an activity marketed under the name of FFE Minerals.
Since it was established in 1994, this core activity has made very successful progress with a consistently increasing rate of turnover and profitability. During the past year, higher turnover and order intake enabled FFE Minerals to maintain its strong position in the markets served, but the year's financial result was very disappointing. This reflects problems encountered in two ongoing projects in Australia and the USA, which in turn affected the result for the year. Once the two projects are completed, FFE Minerals is again expected to see successful financial results.
As in the Cement sector, minerals was a growth market in 2004, under the influence of high metal prices resulting from growing demand in Asia, notably China and India. The industry is expected to maintain a stable level of investment during the coming years.
Let there be no doubt that we remain confident of minerals being a potential growth market for FLS, a market that is more than five times larger than that for cement equipment.
In addition to Cement and Minerals, the continuing activities of the Group also include the two companies: Dansk Eternit Holding and Densit which are both being restructured and are to be sold in the longer term once the current process of preparing them for sale is completed.
Dansk Eternit Holding is Europe's second-largest producer and distributor of fibre cement products - a market currently characterised by consolidation and intense competition.
The year's earnings before interest and tax (EBIT) amounted to DKK -397m as opposed to DKK -83m in 2003. This result is affected by the decision at the end of 2004 to downward adjust the values in the companies by DKK 400m in connection with preparing the company for sale. The write-down in value was made with a view to attaining a reasonable balance between the company's book value and a realistic selling price.
The past year saw the closure of production in Aalborg and relocation of the production plant to the Czech Republic. The relocation took place in accordance with plan, and the Dansk Eternit Holding Group now has in place an efficient and competitive production platform with a right-sized capacity. 
The niche business Densit, which produces cement-based specialist materials is suffering from the postponement of projects, especially in the off-shore market, a situation that is reflected in the somewhat disappointing break-even result.
After completion of its only remaining project, a desulphurisation plant at the Eggborough power station in the UK, FLS miljø will be closed down. This project was to have been completed in 2004, but commissioning of the desulphurisation plant has been suspended since August 2004 due to acidic droplet fall-out from a stack. The stack and the problems regarding acidic fall-out are not within FLS miljø's scope of responsibility, so we have reserved all contractual rights and demand full compensation for the costs incurred due to the delays. An independent judicial opinion, recently received, agrees with FLS miljø's position on this issue.
West Burton, the other UK desulphurisation project, is completed. All guarantee tests have been carried out and the plant was handed over to the customer in December. A series of claims for compensation have been raised against the customer. The latter, on his part, has claimed compensation for the delay of the project.
A final financial settlement of the two projects thus remains, but provisions have been made in previous years to cover the anticipated costs, and provisions have also been made for liabilities during the warranty period and for the winding up of FLS miljø. Against this background, no additional provisions nor costs in connection with the final closure of the company are expected.
The sale of FLS Aerospace was finalised in February last year and became effective on 28 June when the Swiss aircraft maintenance group SR Technics took over the company. Until the take-over date FLS Aerospace posted a turnover of nearly DKK 1.1bn and an EBIT result of DKK -34m.
In August we signed an agreement to sell Aalborg Portland and Unicon to Cementir, the Italian cement group, and the shares changed ownership on 29 October. During the period until the take-over date Aalborg Portland and Unicon recorded a turnover of DKK 2,724m and an EBIT-result of DKK 412m.
As to the prospects for 2005, we shall stick to the course followed in the latter years. Focusing on cement and minerals will continue, as will the tight control of the Group's sales policy and its cash flow.
In 2005 the core business must show continued progress towards the goal of a five per cent EBT-result on turnover in 2007.
As announced previously, 2005 is expected to see a consolidated turnover in the range of DKK 10 billion, earnings before interest and tax (EBIT) between 150 and 200 million DKK, and earnings before tax (EBT) between 180 and 230 million DKK. These previous projections are maintained. The developments of the first few months of 2005 are in accordance with plan.
As stated on page 9 of the printed Annual Report, the Board of Directors proposes to the company in general meeting that a dividend of DKK 7 per share be paid out for 2004, representing a total dividend of DKK 372m.
According to the announcement issued in December 2004, the dividend is to consist of 3 DKK in ordinary dividend and 4 DKK in extraordinary dividend reflecting the divestments made.
It is the intention of the Board to give the shareholders as high a dividend as possible. On the other hand, it is absolutely necessary to strike the right balance between the capitalisation of the Group and dividend payment. In the years 1999 and 2000 very large amounts of dividend were paid out. This contributed to the accumulation of massive debt which threatened to cripple the Group in 2002. Since then no dividend has been paid out.
In the Board's opinion, excess liquidity should be returned to the shareholders when the earnings targets have been achieved. Meanwhile, it should be emphasised that day-to-day operations of the Group require considerable bank guaranties so a balanced policy of dividend distribution continues to be necessary.
As I close this speech, I would like to express my gratitude to the Management and the Board for constructive and fruitful cooperation and to thank the employees of the Group. Across the entire organisation, loyal and dedicated efforts are being made in a period of changeable conditions.
FLSmidth & Co. A/S
Corporate Public Relations