flsmidth @ finansforeningens virksomhedsdag flsmidth @ finansforeningens virksomhedsdag managing the...

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

http://www.pfaff-aqs.de/index.php?deutsch_home

http://www.glv.com/Corporate.aspx?idMenu1=1&id=1251

http://www.transweigh-india.com/index.html


Supplier into six growth industries…. Copper Gold Coal

Iron ore Fertiliser Cement

…but cyclical industries

Cyclical industries


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FLSmidth Revenue (reported*)

*) 2012-2014 excl. Cembrit

9% CAGR (organic growth 2006-2012)

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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


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


Cross-selling (products and services)

EPC & system sales

Single sales of engineered products


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


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


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


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


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


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


Product Companies

4 June 2015

-10%

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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


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


May-June 2015 Interim Report Q1 2015 roadshow 17

0

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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


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


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


..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


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


QUESTIONS

Enhancing productivity

Forward-looking statements



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


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


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


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


2015 Q1 order intake by industry

Cement

Coal

Iron ore

Adjacent

Copper

Gold

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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


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

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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


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


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

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Capital allocation


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

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2,000

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6,000

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Gearing 2.1x EBITDA Gearing target (self-imposed)

NIBD / EBITDA

flsmidth @ finansforeningens virksomhedsdag flsmidth @ finansforeningens virksomhedsdag managing the...

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