India and Russia projects boost KHD first-quarter revenue

India and Russia projects boost KHD first-quarter revenue
Published: 16 May 2012

Tagged Under: New project KHD 

In the first three months of 2012, KHD generated revenue of EUR48.8m, which was primarily the result of projects in India and Russia. Revenue declined by 16.9% in a YoY comparison (previous year: EUR58.7m). The company attributed this largely to customers delaying awarding and execution of projects, due to the uncertain market situation. Gross profit totalled EUR8.4m (previous year: EUR11.4m), corresponding to a gross margin of 17.2%.

In a statement, the German-based equipment manufacturer stated: “Despite signs of encouragement from the long-term trends seen in several  markets, adverse economic conditions in KHD's business troubled the Group  in the first quarter of 2012. Muted expectations regarding demand for cement, combined with surplus capacity in a number of regions, resulted in modest investment activity on the part of cement producers. Furthermore, difficult conditions for financing had a negative impact and led to delays in the awarding of orders as in the financial year 2011.  

“Nevertheless, KHD was able to win new orders with a volume of EUR159.1m. This represents more than a four-fold increase over the unsatisfactory amount of EUR36m in the first quarter of the  previous year.”

This jump in new orders was primarily due to KHD's collaboration with, strategic partner and shareholder AVIC International  Beijing (AVIC), the group stated. In Malaysia, KHD received an order from Straits Cement to construct a fully integrated cement facility with a capacity of 5000tpd and an order volume of EUR100m.  KHD noted that new orders in Malaysia and Venezuela will start to contribute to revenues at the earliest in the second half 2012.   

The key sales markets of KHD were affected to varying degrees by the  economic slowdown. China's growth rate remains healthy in line with expectations thanks to  robust consumer spending and investment, despite slowing slightly to 8.2% compared to the previous year (9.2%). Cement consumption is  expected to rise further in spite of a decline in investment in  infrastructure. The government initiated reorganisation of the cement  industry, together with decommissioning of old plants and tighter emission controls, presents a number of opportunities for KHD. In India, 6.9% growth is forecast for India (previous year: 7.2%), although there are a number of risks caused by the high rate of inflation, the group noted. Margins in the cement industry remain under downward pressure and the industry continues to suffer from below-average capacity utilisation. In other Asian economies, moderately decelerating growth rates are  expected. For instance, Malaysia predicts GDP to increase by 4.4%  (previous year: 5.1%). However, a rise in building and infrastructure  construction projects should stimulate the cement consumption.

The IMF predicts the growth rate in Russia to slow to 4.0%. Nevertheless, an increase in infrastructure investments should lift  cement consumption back to levels seen before the crisis began (2008). Indications are increasingly pointing to a moderate improvement in the  US economy, which is also having an effect on the labor market.  

Latin America is less affected by the euro crisis than other regions, the group highlights. IMF economists forecast that the Brazilian and Venezuelan economies will see faster growth rates than in the previous year In the medium-to-long term, factors such as ongoing urbanisation, demographic trends, and infrastructural needs in developing and emerging  economies will continue to drive construction activities and boost cement  consumption.

The BRIC and IST countries (Indonesia, South Africa, Turkey)  in particular have contributed significantly to the growth of the cement market and are forecast to remain key drivers of growth in the future. China remains the largest single market with a 56% share of global cement consumption.