FLSmidth witnesses slow growth in cement sector
This week FLSmidth released its 1H18 report in which it reported revenues of DKK8.965bn (US$1.37bn), edging up from DKK8.956bn in 1H17 and a roughly stable gross profit of DKK2.255bn (1H17: DKK2.298bn). Net profit from continuing activities saw losses narrow to DKK31m from DKK34m in 1H17. The gross order intake slipped from DKK10.141bn to DKK10.074bn in 1H17 although in the second quarter the company saw order intake up by 10 per cent, which include 13 per cent organic growth as the Minerals division delivered a strong performance. Looking forward, group order backlog increased to DKK14.454bn, up from DKK14.115 in the year-ago period.
1H18 cement performance
FLSmidth described the cement market as unchanged in the second quarter while the aftermarket was seen as stable. Low plant utilisation on a global scale and few tenders for large new capacity projects were cited a key reasons for the pace of growth. Still, the company's Cement division received a “satisfactory” level of medium-sized orders and a good level of single equipment and upgrade project orders as customers are increasingly looking for retrofits and rebuilds to cut costs and reduce the environmental impact of their facilities.
Cement-related revenues edged up two per cent to DKK2.029bn in 1H18 from DKK1.991bn in the year-ago period. Revenues in the 2Q18 improved by seven per cent YoY to DKK1.097bn from DKK1.03bn, or by 10 per cent when adjusted for currency effects. This positive development was underpinned by the timing of projects.
Gross profit before the allocation of shared cost increased by 28 per cent YoY to DKK259m from DKK202m in 1H17, with a margin improving from 10.1 to 12.8 per cent as a result of “good execution combined with standardisation and procurement initiatives”, according to the cement producer.
The company’s cement EBIT swung from a DKK101m loss to an DKK11m profit in 1H18 with the corresponding margin improving from -5.1 per cent to 0.5 per cent.
However, gross order intake was down 42 per cent YoY from DKK2.742bn to DKK1.603bn, mainly on the back of a weaker first-quarter performance. In 2Q18 gross order intake fell 15 per cent from DKK1.023bn to DKK866m, although the decline in organic order intake was limited to 11 per cent. Cement orders accounted for 16 per cent of the company’s order intake in the second quarter.
Outlook – project pipeline offers opportunities in several regions
In the 1H18 the cement back order log declined 18 per cent from DKK5.672bn to DKK4.646bn when compared with the first half of 2017.
FLSmidth reported that the pipeline of cement projects will provide opportunities in north Africa, parts of Asia, Latin America and the Middle East. The Indian market has also been seen to be picking up from a low level.
New reporting structure
As of July 2018 FLSmidth has also reduced its reporting divisions from four to two – cement and mining. The step is expected to help support a regional set-up and to strengthen customer focus and life-cycle solutions, combined with a new central digital organisation.
The new cement division will report across cement projects, equipment, operation and maintenance, customer services (including after-sales, spare parts, wear parts, retrofits and maintenance) as well as product companies – cement products and services sold to customers.
"We are extending our customer coverage and are now able to offer our entire life-cycle portfolio anywhere around the globe. In addition, digitalisation is becoming an extremely important part of our customers' capex plans, and being able to offer digital solutions means that we can enhance productivity throughout the entire product life-cycle, thereby positioning us for further growth," said Group CEO, Thomas Schulz.
