Danish cement and mining equipment and solutions provider FLSmidth says that its growth momentum was sustained in the third quarter of the year with 53% mining service order intake growth and cement order intake increasing by 8% on Q3 2021.
The company’s mining order intake increased 13% organically as a result of improved service activity compared to Q3 2021. Including currency effects and the impact from the acquisition of TK Mining, order intake increased by 30%, comprising a 53% increase in service orders and an 8% decline in capital orders.
FLSmidth says this reflects its focus on increasing the share of higher margin service orders and portfolio de-risking approach. Group order intake increased by 11% organically, driven by both mining and cement. Currency tailwinds and the acquisition of TK Mining supported order intake in the quarter by 9% and 6%, respectively.
Group CEO Mikko Keto commented: “The positive momentum that we saw in the second quarter has been sustained in the third quarter where we have seen robust growth in both order intake and revenue. The Mining business continued to benefit from a healthy backlog and fundamentally positive market conditions, with a 53% growth in service order intake and an adjusted Mining EBITA margin (including the combination with the former TK Mining business) reaching 10.1% in the quarter. This was driven by a strong service business and continued focus on de-risking the portfolio. In addition, the cement business delivered an EBITA margin of 3.0% and the short-term outlook has improved based on stable performance despite an emerging recession. Following the negative cash flow in the first half of 2022, cash flow turned, as expected, positive again in Q3 2022.”
Mining revenue increased organically by 7% and by 24% including currency effects and the additional revenue coming from the acquisition of TK Mining. The adjusted Mining EBITA margin was 10.1% (excluding the dilutive impact from TK Mining, legacy FLSmidth Mining would on a standalone basis have delivered an adjusted EBITA margin of 12.1%). Including integration costs related to the TK Mining acquisition of DKK45m and costs of DKK70m related to the wind-down of our activities in Russia, the reported Mining EBITA margin was 7.2%.
Cement revenue increased 7% organically and by 13% including favourable currency effects. Cement EBITA continued the positive trend seen during 2022, mainly as a result of the improved gross margin. Cement EBITA amounted to DKK50m in Q3 2022 compared to DKK3m in Q3 2021. The corresponding Cement EBITA margin was 3.0%, compared to 0.2% in Q3 2021.
Consolidated Group organic revenue increased 7% driven equally by mining and cement, while the EBITA margin decreased to 5.9% from 6.5%. Adjusted for the costs of DKK70m related to the wind-down of our Russian activities and integration costs of DKK45m related to the acquisition of TK Mining, the adjusted EBITA margin for the Group was 8.0% in Q3 2022.
On 31 August 2022, FLSmidth successfully completed the acquisition of TK Mining. With this acquisition, FLSmidth says it is better positioned than ever before and it adds that it is highly dedicated to provide its customers with full flowsheet technologies and service solutions to enhance their productivity and sustainability agenda. The company says that while the strategic rationale for the acquisition has been reconfirmed, additional cost synergy potential has been uncovered and the pace to realise this has been accelerated.
Following the integration of TK Mining, FLSmidth conducted a planned strategic review of the combined mining product portfolio. As a result of this, it has decided to split its mining business into two segments: a continuing mining segment, and a non-core activities segment effective from Q4 2022. This will ensure sharpened strategic focus and stronger execution of the continuing Mining activities that are key to accelerating our long-term profitability and growth. At the same time, we have decided to divest or wind-down non-core and unprofitable mining activities, and dedicated focus and resources will be allocated to ensure effective execution and to minimise losses from these activities.
The financial guidance for 2022 as set out in the company’s announcement on 20 October 2022 is maintained. FLSmidth says this reflects the underlying business performance, integration of TK Mining including the updated synergy target and integration costs, and the establishment of the non-core activities segment. Adjusted EBITA margin guidance was introduced to drive transparency on the underlying business performance. The adjustment covers integration costs and costs related to the wind-down of Russian activities.
