FLSmidth releases 2023 guidance and unveils new mining and cement strategies

Danish cement and mining equipment and solutions provider FLSmidth has released its full year 2022 preliminary and unaudited results, which are in line with previous guidance. In addition, financial guidance for 2023 is introduced.
Concrete Plants, Equipment & Applications / January 19, 2023
By Liam McLoughlin
FLSmidth has unveiled the new pure play strategies for its Mining and Cement operations
FLSmidth has unveiled the new pure play strategies for its Mining and Cement operations

The company has also hosted a Capital Markets Day, where the company has introduced its new pure play strategies for Mining and Cement as well as its new long-term financial targets for the FY2026. 

The Q4 and full year 2022 results include costs related to the thyssenkrupp Mining acquisition of DKK125m and DKK252m, respectively. In addition, the Q4 and full year 2022 results include costs related to wind-down of Russian activities of DKK80m and DKK200m, respectively.

FLSmidth says it will, as previously communicated, release the detailed and audited financial results for the full year of 2022 on 22 February 2023.

Guidance for full year 2023 reflects continued improvement of the underlying legacy Mining business, integration of TK Mining and the establishment of the Non-Core Activities segment.

The company states: "The long-term outlook for the mining industry remains positive driven by strong industry fundamentals. Following a strong 2022, we expect market growth in 2023 to remain largely stable versus 2022. The former TK Mining business is expected to contribute with less than DKK3bn in revenue in 2023 and is expected to have a dilutive effect on the full year 2023 adjusted Mining EBITA margin of around 2%-point. Guidance for Adjusted EBITA margin includes adjustments for integration costs of around DKK550m for the full year 2023."

It adds that the short-term outlook for the cement industry remains impacted by overcapacity and the potential recession is expected to impact market demand negatively over the coming period.

Non-Core Activities EBITA margin guidance for 2023 reflects the operationally loss-making nature of the business as well as costs related to contract negotiations aimed at reducing the scope of the Non-Core Activities order backlog.

Consolidated Group guidance reflects the sum of the guidance for the three business segments. Guidance for 2023 is subject to uncertainty due to the global supply chain situation, potential recession and geopolitical turmoil.

New pureplay strategies for Mining and Cement
FLSmidth hosted a Capital Markets Day on January 18, where the company introduced its new pure play strategies for Mining and Cement as well as its new long-term financial targets for the FY2026. 

The company said that its business and business environment have changed in recent years. While its business performance has gradually improved, it says it has the potential for more. As a result, it has started a transformation journey in 2022 with a sharpened strategic focus on technology, Products & Services and sustainability to maximise its opportunities in Mining and Cement. In addition, the company is simplifying its operating model to reduce risks, improve efficiencies, ensure stronger execution and improve profitability and quality of earnings.

“We must prioritise our efforts on our core business, reduce risk and execute with excellence. We have already started to fundamentally transform our business to ensure stronger strategy execution and to achieve our long-term ambitions to the benefit of our stakeholders,” said Mikko Keto, CEO at FLSmidth.

The new Mining strategy provides a clear path to build on FLSmidth's core strengths to become an even stronger player in the Mining market and to improve its profitability in Mining. It adds that CORE’26 is rooted on its purpose of ‘mining for a sustainable world’ with a mission of ‘delivering solutions for tomorrow’s mine’. To deliver on this, CORE’26 is focused on four areas: Sustainability, Service, Technology and Performance. 

•    Sustainability: Building a better future for its employees, society and the planet
•    Service: Global partner for life-cycle performance and sustainability
•    Technology: The complete provider for process and product technology
•    Performance: Accelerating profitability through core businesses, simplification and balanced risk

Cement strategy (GREEN’26)
FLSmidth says it is on a journey to become the preferred service provider and it ahs a clear commitment to drive the green transition in the cement industry. Towards 2026, its new Cement strategy focuses on three key areas:

•    Operating model transition: Improve profitability and ensure it is fit-for-purpose 
•    Service business model transition: Accelerate service growth and advance green offerings
•    Green transition: Fulfil its commitment to drive the green transition in the cement industry and leverage the potential from this 

New long-term financial targets 
The previous mid- and long-term financial targets were withdrawn in connection with the release of the Annual report 2020, due to the uncertainty around the pandemic and other structural changes. Following the acquisition of TK Mining, FLSmidth's pure play approach and the establishment of a Non-Core Activities segment, it has now improved visibility into each of its different businesses. 

As a consequence, it is introducing new long-term financial targets for the FY2026 with a core focus on quality of earnings and reduced earnings volatility. 

For the FY2026, the company says it expects to deliver 13-15% EBITA margin in Mining, and ~8% EBITA margin in Cement.

In addition, the company's capital allocation is focused on having a strong balance sheet while allowing for growth investments and value-adding M&A. Its capital structure targets for leverage and dividend pay-out ratio remain unchanged with:Leverage (NIBD/EBITDA < 2); Dividend pay-out ratio (30-50% of net profit).

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