flsmidth & co. a/s

FLSmidth & Co. A/S

Annual Report 2009

Annual Report 20091

Facts about FLSmidth & Co.a leading supplier of equipment and services to the global cement and minerals industries- a leading supplier of equipment and services to the global cement and minerals industries

A global company with a strong local presence worldwideHead office in Denmark, major engineering centres in India and USA10,664 employees worldwideStrong track record and 128 years of experience

Geographical distribution of employees

Annual Report 20092

Investing in FLSmidth & Co. A/S

2009 2008Total shareholder return : 104% (64%)Pay out ratio: 22% (DKK 2+5 h ) 0%Pay-out ratio: 22% (DKK 2+5 per share) 0%EPS (diluted) : DKK 31.9 28.8Number of shareholders: 44,800 42,000Market Cap: DKK 19 5bn DKK 9 6bnMarket Cap: DKK 19.5bn DKK 9.6bn

Annual Report 20093

Key messages in Annual Report 2009

Historically strong performance 2009 2008– Cash flow from operations (DKK) 2,470m 2,324mp ( ) , ,– EBIT margin 9.8% 9.5%– Net profit (DKK) 1,664m 1,515m

Proposed dividend DKK 5 per share (on top of DKK 2 already paid in 2009)

O d i k i 20 0 i d i i b h C dOrder intake in 2010 is expected to increase in both Cement and Minerals vs. 2009

Expected revenue in 2010: DKK 19-20bnExpected revenue in 2010: DKK 19 20bn

Expected EBIT margin in 2010: 8-9%

Annual Report 20094

Asset light business model is working well

Engineering house and technology provider

Flexible cost structure (payroll)Flexible cost structure (payroll)

Most manufacturing is outsourced(~80-90%)

Low working capital due to prepayments from customers (typically 10-25% of total contract amount upfront)

Low maintenance CAPEX (~2% of revenue at present)

Order related engineering off-shored to India

Increased sourcing from competitive-cost-countries(~25% at present)

Annual Report 20095

(~25% at present)

Highlights 2009

DKKm 2009 2008 change

Revenue 23,134 25,285 -9%

EBITDA (before special non-recurring items) 2,725 2,911 -6%

EBIT 2,261 2,409 -6%

Profit for the year 1 664 1 515 +10%Profit for the year 1,664 1,515 +10%

Order intake 13,322 30,176 -56%

Order backlog 21,194 30,460 -30%

Net interest bearing receivables /(debt) 1,085 (574)

Working capital 21 207

CFFO 2,470 2,324 +6%

Free cash flow 1,965 1,453 +35%

Investments in R&D 315 268 +18%

Number of employees 10,664 11,510 -7%

Annual Report 20096

Revenue 2009

Revenue in 2009: DKK 23,134m down 9% vs. 2008

Strong order backlog at the beginning of the year provided protection g g g g y p pagainst weak business climate in 2009 resulting in a soft landing

Developing countries accounted for 71% of revenue in 2009 (2008 67%) of which BRICs accounted for 28% (2008 13%)(2008: 67%) – of which BRICs accounted for 28% (2008: 13%)

Cement is still the largest business segment accounting for 56% of revenue in 2009 (2008: 54%)( )

Annual Report 20097

A strong financial platform

Equity ratio 30%-target reached in 2009

No net debt (End 2009: Net interest bearing receivables DKK 1,085m)

C itt d dit f iliti t d d t 2013Committed credit facilities extended to 2013Working capital close to zero (End 2009: DKK 21m)

New dividend policy: DKK 7 per share per year

NIBD & Gearing Equity & equity ratioGEARING

1.583

1000

1500

2000

0,5

1,0

Equity ratioGEARINGNIBD / EBITDA

NIBD (DKKm) Equity (DKKm)6.627

5.0354.214

4 000

5.000

6.000

7.000

20

25

30

35Equity ratio target: 30%

Net interest bearing debt

574

-500

0

500

1000

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

(0,5)

-

0

1.000

2.000

3.000

4.000

0

5

10

15

20

Annual Report 20098

-1000 (1,0)Net interest bearing receivables

0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

0

Key strategic focus areas in coming years

Stronger focus in Minerals– Prioritize growth industries– Enhance customer intimacy– Enhance customer intimacy– Focused technology portfolio

Stronger focus on China and India– Growing regional marketsG o g g o a a s– India: internal sourcing of engineering and back-office– Group Management to be represented in India from

1 July 2009 by Bjarne Moltke Hansen– China: internal and external sourcing of manufactured

t d i tcomponents and equipment

Increased activity in Customer Services– New and innovative service concepts– O&M contractsO&M contracts

One Company – One Name – ”One Source”– Subsidiaries and product companies to be named FLSmidth– Branding platform being launched

Annual Report 20099

g p g

Optimisation of the cost structure

Cost reduction measures in 2009– Prudent spending– Reduced travel activity and increased use of video conferencingy g– Workforce reduced by ~10% (excl. acquisitions)– Restructuring of Technical Division and transfer of order related

engineering work to IndiaContinued global integration of functions and physical offices– Continued global integration of functions and physical offices

LEAN Engineering– Lead time for design reduced by 40% in departments where introduced– To be applied in the global organisation

Annual Report 200910

Satisfactory revenue and margins in 2009

Revenue down 9% yoy– Customer Services revenue up 2% yoy– Traditional seasonal quarterly pattern repeated in 2009

EBIT ratio 9.8% vs. 9.5% in 2008, exceeding own expectations– Positively impacted by improved order execution, higher than expected revenue

and finalisation of projectsO t li ht b i d l i ki !

Revenue (quarterly) EBIT adj.*) (quarterly)

– Our asset light business model is working!

6.535

7.574

6.479

5 000

6.000

7.000

8.000

-14% vs. Q4 2008 -10% vs. Q4 2008DKKm

788

680

873

800

1.000

8,0%

10,0%

12,0%

DKKm

0

1.000

2.000

3.000

4.000

5.000

200

400

600

2,0%

4,0%

6,0%

, %


0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

*) Adjusted for effect of purchase allocation regarding GL&V Process

0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

0,0%

Development in Cement & Minerals EBITA ratio (Group EBIT excl. Cembrit and purchase price allocations related to GL&V)

Revenue (Cement & Minerals)

EBITA ratio (Cement & Minerals)

9,9%

11,1%10,9%

20000

25000

10,0%

12,0%

6,3%

15000

6,0%

8,0%

3,7%

5000

10000

2,0%

4,0%

02005 2006 2007 2008 2009

0,0%

,


Order intake and order backlog

Focus on securing new orders on satisfactory terms and conditionsSigns of slightly increased optimism and customer interest in Q409Quarterly order intake down 7% vs. Q408, however up 13% vs. Q309Q y Q , p QOrder backlog down 30% vs. End 2008 Approx. DKK 2.5bn of current order backlog is still on hold, but developing positively

Order intake gross (quarterly) Order backlog

p g p y

6.7288.000

10.000

DKKm

Order intake gross (quarterly) Order backlog-7% vs. Q4 2008 -30% vs. Q4 2008 Book-to-bill ratioDKKm

30.460

25 000

30.000

35.000

1,20

1,40

1,60

4.0914.394

6.728

2.000

4.000

6.00021.194

10.000

15.000

20.000

25.000

0,40

0,60

0,80

1,00


0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

0

5.000

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

0,00

0,20

Cash management in 2009Strong cash-flow generation and working capital under control

8351.000

DKKm

Working capitalDedicated effort throughout 2009 to reduce trade receivables and i t i d t ti i t d

167

637451

614

20721

200

0

200

400

600

800

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

inventories, and to optimise trade creditors

Increasing trend in working capital

-800

-600

-400

-200 Q42007

Q1 2008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

g g preversed in Q3 and Q4

1.281

1 200

1.400

DKKm

CFFO

1.920 1.893 1.8901 8022 000

2.500DKKm

Inventories-2% vs. End 2008

717613

192

416

939 923

499

400

600

800

1.000

1.200

1.392 1.4851.650

1.463

1.802 1.760

500

1.000

1.500

2.000

Annual Report 200914(400)

(200)

0

200

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

0

Q42007

Q1 2008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Cash management focus areas

3.8034.394 4.424

3 5384 000

5.000

6.000DKKm

Prepayments (net liability *)-5% vs. End 2008

582653 629

600

800

1.000DKKm

Work-in-progress (net asset)

2.868 3.0763.538

3.0243.1933.330

0

1.000

2.000

3.000

4.000337

207

-400

-200

0

200

400

600

Q42007

Q1 2008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

0

Q42007

Q1 2008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

*) Prepayments from customers less Prepayments to sub-suppliers-800

-600

400

4 5484.9084.939 5.063

5 000

6.000

DKKm

2 132 2.2392.388 2.467

2.2762.464

2.7482.421

2.500

3.000DKKm

Trade receivables-16% vs. End 2008

Trade creditors-12% vs. End 2008

4.286 4.548 4.333 4.2763.696

4.270

2.000

3.000

4.000

5.000 2.132 2.2392.077

500

1.000

1.500

2.000


0

1.000

Q42007

Q1 2008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

0

500

Q42007

Q1 2008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Cement

Highlights 2009 Current business environment

Revenue down by 5%, whileEBIT was up by 2%, and as such, record high - due to higher than

t d i d d

Market outlook remains somewhat weak, resulting in intensified price competition

expected revenue, improved order execution and finalisation of projects

Acquisition of EEL Limited India

Local business opportunities prevail,particularly in:

- North Africaq

The largest cement plant in the world, Holcim’s Ste. Genevieve, USA was successfully

North Africa- India- Indonesia- Latin/South America

USA, was successfully commissioned in 2009

20092008DKKm YTD13,059

1,54811.9%

13,7081,521

11.1%

RevenueEBITEBIT ratio


Holcim, Ste. Genevieve, Missouri, USAThe world’s largest cement production line with a capacity of 12,000 tonnes clinker per day

Designed and delivered by FLSmidth

Facts about Ste. Genevieve

Commissioned in 2009

State-of-the art technology

Largest capacity in the worldLargest capacity in the world

Lowest OPEX per tonne ordinary portland cement produced

Complies with most stringent Complies with most stringent environmental regulations


Large cement orders received in 2009

21 July 2009 Uruguay DKK 225m 30 July 2009 Indonesia DKK 420m31 July 2009 Indonesia DKK 420m22 Sep. 2009 Libya (O&M) DKK 330mp y ( )

14 Oct. 2009 Libya DKK 970m


Cement

Order intake (gross) Order backlog

+15% vs. Q4 2008

g-32% vs. Q4 2008

D KKm

4.315

4.000

5.000 DKKm

18.56517 26520 000

25.000

2.2481.961

1.000

2.000

3.00012.568

17.265

5.000

10.000

15.000

20.000

Revenue EBIT

0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

Revenue-9% vs. Q4 2008

EBIT+2% vs. Q4 2008

DKKm

3.6053.9733.849

4.000DKKm

561550600

1.000

2.000

3.000346

100

200

300

400

500


0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

0

00

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Cement

New global contracted cement kiln capacity(excl of China)(excl. of China)

160

mty Expected future average of 60-75 mty is based on an assumption of 3-4% global GDP (excl. China) and a conservative replacement need of 10 mty per annum

120

140

1602009: 45 mty

2010E: ~50 mty

Expected futureaverage:

80

100

~ 60-75 mty

40

60

0

20

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 0E


199

199

199

199

199

199

199

199

199

199

200

200

200

200

200

200

200

200

200

200

2010

Geographical distribution of new global contracted cement kiln capacity

(excl China)(excl. China)

38% 3%

21% 2% 15%

0% 0% 21%


Market share 2009 Contracted new kiln capacity globally excl. Chinap y g y


Minerals


Order intake considerably lower, although improvement seen in Q409

Supported by improved market conditions, the mining industry is taking a more optimistic view on 2010

ti iti lth h till ti

Revenue down by 14% andEBIT by 17% in 2009

activities, although still cautious

Announced 2010 Capex budgets are supporting increased business activity

Management focus in 2009:1.Stabilise the business2.Prepare for the future

pp g y

Large inquiry list and improved customer interaction, particularly in coal, iron ore gold phosphate and copper

20099,037

200810 470

DKKm YTDRevenue

3.Redefine our strategic roadmapiron ore, gold, phosphate and copper

9,037798895

8.8%9 9%

10,470960

1,2389.2%

11 8%

RevenueEBITEBIT adj.EBIT ratio


9.9%11.8%EBIT ratio adj.

Minerals

1) Stabilise the business

Order intake and backlog developmentMining companies focused on balance sheet optimisation and cash preservationpreservationOnly few large projects became contractsIntensified price competition as a result

Order intake (gross) Order backlog

-25% vs. Q4 2008 -31% vs. Q4 2008DKKm

4000

5000

DKKm

8 777

12.60615000

190725442464

1000

2000

3000

8.777 8.712

5000

10000

+39%


0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009

MineralsBreakdown of large order intake in 2009 (orders>DKK 50m)


Order intake in 2009

Activity has primarily been within coal and alumina

Demand has primarily been for material handling and separation equipment

India has been the most active market

Major contracts in Q409– India, coal DKK 262m– Vietnam, coal DKK 201m


Vietnam, coal DKK 201m

Minerals


Backlog execution in 2009Some contracts and shipments were postponed or put on hold, resulting in delayed income recognitionresulting in delayed income recognitionSome normalisation in Q4, resulting in the highest levels of revenue and EBIT compared to previous quarters 2009Several contracts on hold are in process of being revitalizedSeveral contracts on hold are in process of being revitalized

Revenue22% Q4 2008

EBIT adj. 37% Q4 2008-22% vs. Q4 2008 -37% vs. Q4 2008

DKKm

2.332

3.414

2.6583000

4000

DKKm

275

441

277300

400

500

0

1000

2000

0

100

200

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4


Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

*) Adjusted for effect of purchase price allocations related to GL&V Process; DKK -24m in Q4 2008 and DKK -24m in Q4 2009

Minerals

2) Prepare for the future

Actions to reduce costs in 2009 and protect margins going forwardReduction in forceReduced working weekReduced working weekMonitor operational costsImproved utilisation of resources in IndiaImproved sourcing in cost competitive countriesImproved sourcing in cost competitive countriesContinued integration with Cement

Acquisitions in 2009Enhanced flowsheet coverage through acquisition of:

Conveyor Engineering, USA(supplier of major bulk material handling systems)

Summit Valley Equipment & Engineering, USA(modular gold and silver extraction plants and equipment)


Minerals

3) Redefine our strategic roadmap

Strategic review with aligned focus and management attention dtowards

Improved customer intimacySelected growth industriesKey technologiesGrow Customer Services segmentR&D activities directed towards growth industries and key technologies Acquisitions directed towards growth industries Further develop supply chain management Improved internal coordination and communication through delayering and simplified management structure in place February 2010


Customer Services showed signs of improvement in Q4(included in Cement & Minerals)

Cement Customer Services revenue(12M trailing)

-4% vs Q4 2008

Cement Customer Services revenue(quarterly)

-19% vs Q4 2008DKKm 4% vs. Q4 2008

2.380

3.060 2.946

1.500

2.000

2.500

3.000

3.500DKKm

19% vs. Q4 2008

699

918

740

400

600

800

1.000DKKm

0

500

1.000

500

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

i l

0

200

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

i l

2.3712.555

2 500

3.000

DKKm

Minerals Customer Services revenue(12M trailing)

+8% vs. Q4 2008

700800

DKKm

Minerals Customer Services revenue(quarterly)

+10% vs. Q4 2008

1.609

500

1.000

1.500

2.000

2.500599

636

200

400

600


0

500

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

0

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Operation & Maintenance contracts (O&M)

Dedicated work over the past 3 years to establish operation & maintenance of cement and minerals

Current contracts

Cement (O&M)

• Egypt (contracted in 2007)

processing plants as a new business area

• Egypt (contracted in 2007)

• Libya (contracted in 2009)

Minerals (M)

First Cement O&M contract in Egypt has been in operation for 1 year with very satisfying results

• Los Pelambres, Chile(prolonged in 2008)

• Collahuasi, Chile(prolonged in 2008)

P ñ it M i

First Minerals Maintenance contract at Los Pelambres in Chile has just celebrated 10 year anniversary

• Peñasquito, Mexico (contracted in 2008)

just celebrated 10 year-anniversary

Negotiations ongoing with several other interested customersother interested customers

Cembrit


Revenue down 11% and negative EBIT of DKK 25mVery weak first half followed by

Market outlook still weak, although some signs of stabilisation

Very weak first half followed by signs of improvement in second halfProduction capacity rightsizedto lower demand and number of

Eastern Europe particularly hard hit by slowdown

A i i ito lower demand and number of employees reduced by 15%

Aggressive competition

20091 243

20081 390

DKKm YTDR 1,243

(25)(2.0%)

1,39025

1.8%

RevenueEBITEBIT ratio


Quarterly developments

Signs of improvement in second half of 2009Revenue up 11% in Q4 vs last yearRevenue up 11% in Q4 vs. last yearQ1 and Q4 are typically low season

Turnover (DKKm) EBIT (DKKm)DKKm

DKKm

348297

329

200

300

40029

10

20

30

40

50

0

100

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

(20)

(30)(30)

(20)

(10)

0Q4

2007Q1

2008Q2

2008Q3

2008Q4

2008Q1

2009Q2

2009Q3

2009Q4

2009


Guidance 2010

2010 2009■ New cement kiln capacity 50mty 45mty■ R DKK 19 20b DKK 23 134

Group

■ Revenue DKK 19-20bn DKK 23,134m■ EBIT-ratio 8-9% 9.8%■ Tax rate 30% 19%■ CFFI (excl. acquisitions) DKK -400m DKK -244m

■ Order intake in both Cement and Minerals is expected to increase in 2010 vs. 2009

Re en e EBIT

SegmentsRevenue EBIT

■ Cement DKK 9-10bn ~9%■ Minerals DKK 8-9bn ~9%■ Cembrit DKK ~1.2bn ~2%


■ Cembrit DKK 1.2bn 2%

Unchanged long term growth and earnings prospects

Urbanisation and industrialisation in developing countries are expected to continue to generate increasing demand for cement and minerals in futurecement and minerals in future.

In periods of high activity: Expected EBIT ratio: 10-12%

In periods of low activity: Expected EBIT ratio: 8-9%


Concluding remarks

71% of revenue generated in emerging markets

Record high CFFO, EBIT ratio and profits in 2009

Asset light business model is working well

Increased optimism among customers

Strong financial position allows dividend paymentto be increased in 2010

New dividend policy: DKK 7 per share per year

A number of strategic initiatives are ongoing to further enhance the competitive and financial position further enhance the competitive and financial position of FLSmidth


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flsmidth & co. a/s

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