FLSmidth releases interim report 1H13

Danish turnkey supplier FLSmidth announced that its 1H13 order book has slipped, while revenues are also down. The company said : "Cement earnings were significantly below last year as expected. Order intake decreased 30 per cent, but revenue increased 37 per cent, whereas EBITA decreased 37 per cent."

FLSmidth had expected the market to remain fairly subdued between January-June 2013 and it saw no major shifts in demand for new orders. "The overall market stayed subdued, but good regional opportunities persist, particularly in Africa, the Middle East, Russia, South America and parts of Asia," the company said.

Africa was perhaps the one major highlight with a large order for the supply of a greenfield plant in Equatorial Guinea.

Across in India, FLSmidth suggests that the surplus capacity and slow political decision-making has reduced demand for new projects. However, the Danish company did win a large Indian order for a greenfield cement plant in 2Q13.

FLSmidth is seeking more orders in China, but the Chinese government has already shown its desire to limit excessive growth of cement capacity and demand for new kiln lines has dropped by 10 per cent from peak times. FLSmidth argues that this enhances competition both in and outside China, while  engineering, procurement and construction (EPC) contracts tend to be based on two-year cycles.

Overall order intake for the company declined 30 per cent to DKK1335m (US$239m) (2Q12: DKK1902m) (US$340.7m). In both 2Q12 and 2Q13, FLSmidth booked two large cement orders, but the value of the orders booked in 2Q13 was only half of those received in 2Q12. Unannounced orders were at a stable level.

Revenue increased 37 per cent to DKK1304m (US$233.6m) in Q2 (Q2 2012: DKK952m) (US$170.5m). EBITA decreased 37 per cent to DKK91m  (US$16.3m) (Q2 2012: DKK144m) (US$25.7m), equivalent to an EBITA margin of seven per cent (Q2 2012: 15.1 per cent). The 2Q13 result included one-off costs of DKK7m. FLSmidth said: "The margin in 2012 was extraordinarily high, due to projects being executed better than expected and not least due to finalisation of projects resulting in reversal of contingencies and provisions."

In 2012, the order book consisted partly of very attractive pre-crisis orders. As highlighted in the 2012 annual report, the order backlog was exhausted for the attractive pre-crisis orders entering 2013, and orders taken in the midst of the financial crisis are now being executed.

It is expected that revenue in 2013 will be DKK 5-6bn (2012: DKK4bn). The forecast for the EBITA margin in the cement division is that it will decline substantially in 2013, reflecting the deteriorating market conditions 2-3 years ago in the wake of the global financial crisis. The EBITA margin will be in the range of 6-7 per cent (2012: 17.8 per cent), according to FLSmidth.