FLSmidth expects pick-up in cement order intake in 2015

FLSmidth expects pick-up in cement order intake in 2015
Published: 13 May 2015

Tagged Under: Denmark FLSmidth Results 

FLSmidth reported a 39 per cent decline in cement order intake for the first quarter of 2015 but, based on the current order tender activity, the group still expects the division's full-year order intake to be higher than last year.

In its interim report released last week, FLSmidth reported a decline in both total revenue and order intake of three per cent over Jan-March 2015 period, despite currency tailwind. The drop in revenue was related to the Minerals division as a consequence of a low order backlog at the beginning of  the year, whereas the decline in order intake was first and foremost related to the Cement division, where no large orders became effective in the first quarter this year. In general, the Customer Services  and the Product Company divisions are showing good, stable developments.

Total order intake in the first three months of the year decreased three per cent to DKK4677m (US$704m) versus DKK4841m in the comparative period of 2014. The order backlog fell 14 per cent to DKK18,952m. Revenue, meanwhile, was down three per cent to DKK4825m (1Q14: DKK4949m).

EBITDA increased 15 per cent to DKK370m, corresponding to an EBITA margin of 7.7 per cent (1Q14: 6.5 per cent). Net profit amounted to DKK272m versus DKK115m in the same period of last year.

Cement division
Cement order intake in 1Q15 decreased to DKK431m (1Q14: DKK702m) due to the aforementioned lack of announced orders over the reporting period. Adjusted for currency effects, the order intake decreased 45 per cent.

FLSmidth underlined in its report that the oil price is currently impacting regional growth dynamics, and thus the local cement markets. "While a lower oil price is good for the overall economy and the GDP-driven cement industry, the recent flow of funds from oil-exporting countries to oil-importing countries is creating a shift in the short-term demand for new cement capacity. This, combined with geopolitical tensions, is causing a more muted short-term recovery," the Danish equipment supplier noted.

However, revenue increased 15 per cent to DKK836m, of which currency effects accounted for six per cent. EBITA amounted to DKK39m – 105 per cent higher than last year – and corresponding to an EBITA margin of 4.7 per cent (1Q14: 2.5 per cent). The positive margin development is explained by a higher contribution margin and efficiency improvements.

On its overall guidance for 2015, FLSmidth expects a consolidated revenue of DKK19-21bn and an EBITA margin of 9-10 per cent.

With respect to the expected divisional performance, FLSmidth said “it is clear that 2015 will be a challenging year for the two project divisions, Minerals and Cement, considering the relatively low order backlog at the beginning of the year and the current cyclical downturn. Cement, however, is expected to see a pick-up in order intake in 2015.”

The anticipated uptake in cement orders is underpinned by expectations for mid-single digit global demand growth (excluding China) "and the fact that the industry as a whole is well-capitalised and ready to invest when capacity becomes scarce," according to the group. It highlighted that the regions with most activity at present are North America, selected parts of Latin America, the Middle East and several parts of Africa and Southeast Asia. India shows signs of recovery but due to large overcapacity in the cement industry no significant pickup is expected this year, the company added.