FLSmidth annual report: market activity picked up in H2 2016

In its annual report for 2016 7451 FLSmidth says it saw positive momentum in service orders in the second half of 2016, while revenue was above and EBITA margin within guidance for 2016. The company says debt was significantly reduced on the back of strong operating cash flow; revenue and EBITA margin in 2017 is expected to be at a level similar to 2016, and Q4 2016 saw the highest quarterly revenue in two years.

“After a weak first half, activity picked up, finishing the year on a strong note. Rising commodity prices positively impacted sentiment in the mining industry in 2016, although it has yet to translate into higher capital investments. The cement industry is showing early signs of recovery,” says Thomas Schulz, group CEO.

"Our range of projects, products, and services assist our customers in their pursuit of enhanced productivity, and we continue to improve our offerings to maintain our competitive edge.”

Order intake increased 2% organically in 2016, while revenue was 5% down due to a lower order backlog at the beginning of the year and a slow start to the year.

In 2016, the EBITA margin was 8% (adjusted for one-off costs), adversely impacted by lower revenue, particularly in the first half.

Towards the end of the year, activity picked up, and the adjusted EBITA margin increased to 9.7% in the fourth quarter.

Capital efficiency improved in 2016. The equity ratio increased to 35% and the financial gearing (NIBD/EBITDA) declined to 1.6, both comfortably within the targeted capital structure. Improved working capital and positive operating cash flow reduced net interest-bearing debt by DKK 1.1 billion (€150 million) in 2016.

The guidance for 2017 reflects the lower order backlog at the beginning of the year combined with an assumption of stable market activity in 2017. The EBITA margin guidance includes expected one-off costs related to corrective actions.

Accordingly, revenue is expected to be DKK 17-19 billion (€2.3-2.6 billion) and the EBITA margin to be 7-9%. The return on capital employed (ROCE) is expected to be 8-10%.