KHD interim report

 KHD interim report
08 November 2013

KHD has released an interim report on business development, its financial position and the general economic scene. It stresses that the global economy remains sluggish, particularly due to weak growth in key emerging economies. On the other hand, some developed economies are  generating positive momentum.
Business Development
In the first nine months of the year, KHD's order intake amounted to EUR82.8m (EUR97.3m without the currency impact), compared to EUR282.9m in the same period in 2012. This clear decrease compared to the previous year's level – which was affected by several major contracts –  is attributable primarily to investment restraint in the cement industry. Currency exhange differences also had a negative effect amounting to EUR14.5m. In the third quarter of the year, the spare parts and service business once again accounted for a high proportion of the order intake.
The order backlog dropped by EUR98.7m (-20.1 per cent) to EUR392.3m in comparison with 31 December 2012, due to the lower order intake and the ongoing execution of the order backlog. 
Revenue rose by 26 per cent to EUR181.5m compared with the previous year (EUR144m). This increase mainly reflects the ongoing project execution of orders awarded in previous years. Gross profit fell to EUR24.5m in the reporting period (previous year: EUR30.2m). Gross profit margin declined from 20.9 to 13.5 per cent. Income related to the licence agreement with Weir Minerals and releases of provisions due to  successful work after the completion of deliveries positively affected  gross profit margin.

However, gross profit margin deteriorated, which was mainly caused by low margin orders in the order backlog that were won under fierce market conditions and high margin pressure. In addition, the  execution of a major project in Malaysia had an adverse impact on gross profit margin. A significant portion of this order is for structural steel  and general erection works. This scope has been passed through to KHD's strategic partner AVIC with no additional gross profit for KHD. Finally, several difficulties in project execution, including the termination of a contract at our CSC Americas, had an adverse impact on gross profit margin.

Economic background
In October, the International Monetary Fund (IMF) reduced its forecast for 2013 as a whole to 2.9 per cent (2012: 3.2 per cent). For the developing and emerging economies, the IMF now predicts growth of just 4.5 per cent (2012: 5.1 per cent):
The development in India was disappointing as the IMF reduced its growth forecast to 3.8 per cent (previous year: four per cent). The industry is suffering due to the slow pace of infrastructure development as well as regulatory obstacles. Companies and consumers are also struggling due to inflation which remains high.
The IMF has also significantly cut its growth forecast for Russia, which is now 1.5 per cent (previous year: 3.4 per cent). However, the cement industry is continuing to benefit from the infrastructure investments for the Winter Olympic Games 2014 and the FIFA World Cup 2018 as well as private housing construction.
The Turkish economy remains in recovery mode and will likely achieve a growth rate of 3.8 per cent (previous year: 2.2 per cent) for the year as a whole. In the period under review, the cement industry has benefitted, in particular, from a government investment programme backing the construction of earthquake-proof housing.
The economic trend in Latin America has been curbed by inadequate infrastructure, lower raw materials prices and also, in some cases, by a tightening of monetary policy. For the year as a whole, the IMF predicts growth of 2.7 per cent (previous year: 2.9 per cent).
The economies of the emerging markets in southeast Asia, relevant to KHD, slowed down considerably. Indonesia, Malaysia and Thailand are dealing with slower growth rates. With a predicted growth rate of 7.6 per cent, China will grow at a slightly slower pace than in the previous year (7.8 per cent).

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