Cement and mining products and services provider FLSmidth has reported a sequential improvement in order intake for the third quarter of 2020 amid continued impacts from the COVID-19 pandemic.
The Denmark-based company said that, while order intake decreased by 13% to DKK3,955m (€531.1m) compared to Q3 2019 (Q32019: DKK4,571m or €613.82m), it increased by 18% compared to the previous quarter (Q2 2020: DKK3,348 or €449.59m).
FLSmidth Group CEO Thomas Schulz commented: “Similar to Q2, our Q3 results were negatively impacted by the pandemic, which affected order intake, revenue and EBITA. The market activity stabilised during the quarter, and we achieved a sequential improvement in both order intake and EBITA.”
Schulz added that the company’s business is still impacted by restricted access to sites and hesitation around large capital investments, particularly in Cement.
“With COVID-19 infection rates currently increasing across most of the world, unexpected shutdowns could change the outlook, but we continue to take advantage of our vast pool of local resources and our strong capabilities within remote support to help customers sustain production,” said Schulz.
Q3 2020 revenue amounted to DKK3,834m (€514.85m) compared to DKK4,736m (€635.97m) in Q3 2019 (-19%). Organic revenue decreased by 12%, comprising a 1% increase in Mining and a 33% decline in Cement. The sharp decline in Cement was due to a more severe pandemic impact on the cement industry and a low backlog.
Despite challenging market conditions, cash flow from operation (CFFO) increased to DKK594m (€79.77m) in Q3 2020 compared to DKK244m (€32.77m) in Q3 2019, mainly due to significant cash inflow from working capital.
Schulz commented: “In recent years, cement industry dynamics have put pressure on the returns of cement producers due to the overcapacity in regional markets. There is a clear positive outlook in the areas of digitalisation and green cement, but the fall in cement capital investment has been accelerated by the pandemic and is not expected to recover in the short- to medium term.
He added that throughout this year FLSmidth’s strong focus has been on executing its Group business improvement programme, including site consolidation, an improved logistical setup, and headcount reductions. The programme is now complete with an EBITA improvement run-rate of DKK150m (€20.14m). To address the challenging cement market, Schulz said the company has taken additional steps to increase outsourcing, simplify the cement business and adjust the cost structure.
The company’s full year guidance was reinstated on 28 August, based on the following assumptions: no further escalation of COVID-19; no further extensive lockdowns or travel restrictions occurring before year-end; a gradual improvement in business sentiment for the remainder of 2020; business improvement implementation costs of around DKK210m or €28.20m (now expected to be DKK222m or €29.81m) are included in the guidance.
“We have seen a stabilisation of business activities, but with the increasing spread of COVID-19, we have not seen the gradual improvement in business sentiment that we had assumed in our base case scenario,” said Schulz. He added that consequently, FLSmidth has narrowed its 2020 revenue guidance to around DKK16bn or or €2.15m (previously DKK15.5-17.0bn or or €2.08-2.28m) and the EBITA margin guidance to 4.5-5.0% (previously 4.5-6.0%).
