FLSmidth launched its GREEN '26 strategy for its cement business at its recent Capital Markets Day, and explained how it intends to deliver new strategies for its cement, mining and non-core business segments going forward. The changes will transform the company's dealings with the global cement sector.
The Danish company is taking this action for several reasons. "Our business and our business environment have changed in recent years. While our business performance has gradually improved, we have potential for more. As a result, we kickstarted a transformation journey in 2022 with a sharpened strategic focus on technology, products and services, and sustainability to maximise our opportunities in Mining and Cement," stated FLSmdith.
How will FLSmidth’s cement strategy change?
FLSmidth’s cement business transformation follows negative EBITDA margins in 2020 and 2021, while the preliminary unaudited 2022 results saw a 3.3 per cent growth for its cement business. The company has identified long-term business drivers and opportunities such as the green transition, economic growth and industry challenges. Meanwhile, FLSmith is transitioning from an engineering and projects conglomerate to a technology company offering products and services, pure play strategy (with separate Mining, Cement and None-Core businesses). This will simplify the company's footprint and, it hopes, deliver high-quality earnings. Sustainability, innovation and digitalisation will be key growth instruments during the transition period and beyond.
Fit for purpose
“FLSmidth as a company needs to ensure it is fit for purpose before it can drive service growth and then it will be ready to drive the cement sector’s green transition,” said Asger Lauritsen, FLSmidth’s COO and Cement president.
The company will be focussed on profitability more than growth initially. It is reducing its operational layers from 10 to just four by cutting middle and regional management. It will be more resistant to recession by having its cost base reduced. It aims to tune and facilitate cement plants to achieve more capacity and efficiencies for its customers. As a more streamlined company, FLSmidth is also reducing its suppliers to 1450 from 15,000 a few years ago.
FLSmidth's assessment of the global cement market sees a total of 3027 plants and of these, the company has a customer base of 1598, or approximately with half of the market. Of its customers, 469 are considered plants with core FLSmidth pyroprocessing technology, and it will tune and optimise these plants as a priority with servicing and digitalisation. Approximately 50 per cent of the company’s research and development investments include digital components and will focus on operational reliability and optimisation solution applications. The company will be an app provider but not a platform provider of digital technology. FLSmidth is already partnered with Microsoft and Aveva with its Osisoft technology for data management. FLSmidth’s apps will build on and use the data available from its platform partners.
GREEN '26
While FLSmidth transitions and synergises, following the thyssenKrupp Mining business acquisition, it has simultaneously started to work on providing the green offerings the cement industry needs. Rather than operating as a regional profit and loss (P&L) company, FLSmidth will offer global P&L business lines of products and services. The new strategy for cement is entitled 'GREEN '26' and will see the company focus on:
• operating model transition – to improve profitability
• service business model transition – to accelerate green offerings
• accelerated service growth and green transition – to fulfil commitments to drive the green transition in the cement industry and to leverage this potential.
The Danish supplier already has 60 per cent of its cement product portfolio aimed at delivering green offerings in the areas of efficiency improvements, fuel substitution and clinker substitution. The OK™ mill can offer 5-10 per cent efficiency gains, while FLSmidth’s HOTDISC® technology now reduces 130,000tpa of CO2 emissions, and by using calcined clay to reduce clinker in cement FLSmidth can deliver a further 16 per cent CO2 reduction. The remaining 40 per cent to reach a carbon neutral plant will be realised through new green technologies.
The company predicts an EBITDA margin of approximately eight per cent for its cement business in the 2026. To bridge the gap from the 3.3 per cent, preliminary non-audited EBITDA margin in 2022, FLSmidth will implement a more simplified organisational structure. It will deploy a new operating model, with a de-risked portfolio and improved service mix. The company will aim for increased service growth for customers that are already benefitting from the company's solutions, while providing an improved product mix. Mr Lauritsen summarised that FLSmidth wants to “prioritise value over volume” and action the transition quickly.
