What are FLSmidth & Co.s long-term growth and earnings prospects?
In 2009, the global financial crisis severely dampened the cement and minerals producers’ willingness to invest. There are signs, however, indicating that particularly the minerals producers’ propensity to invest is about to return, as high minerals prices and economic key indicators are supporting plans for capacity expansion. In the longer term, it is still expected that particularly urbanisation and industrialisation in developing countries will generate increasing demand for cement and minerals. In the coming years, earnings from Minerals and Customer Services in both Cement and Minerals are expected to account for a larger share of the Group’s total earnings, which will reduce the effect of cyclical market fluctuations in Cement. Against this background, the Group expects its EBIT ratio to be 10-12% in periods of high activity and 8-9% in periods of low activity, where it should be noted that FLSmidth is late cyclical by nature. Adjusted for purchase price allocations regarding GL
In the longer term, it is still expected that particularly urbanisation and industrialisation in developing countries will generate increasing demand for cement and minerals. Moreover, with the depletion of existing ore reserves and the decline in quality and accessibility of unexploited ore deposits, mining companies will need to invest in larger production capacity and new technology merely to maintain an the current level of production. Earnings from Minerals and Customer Services in both Cement and Minerals are expected in the coming years to account for a larger share of the Group’s total earnings, which will reduce the effect of cyclical market fluctuations in Cement. Against this background, the Group expects its consolidated EBIT ratio to be 10-12% in periods of high activity and 8-9% in periods of low activity. Adjusted for purchase price allocations regarding GL&V Process, the Group’s EBIT ratio amounted to 10.6% in 2008, 10.2% in 2009 and 10.4% in the first three quarters of
It is still expected that particularly urbanisation and industrialisation in developing countries will generate increasing demand for cement and minerals. In addition, there are a number of other structural conditions which are expected to result in increasing investments in the minerals industry; they include underinvestment over a number of years, the fact that existing mines are being depleted; and the fact that the quality and accessibility of unexploited ore deposits are decreasing; thereby contributing to a higher demand for minerals handling and processing equipment. The long-term sustainable level for addition of new global cement kiln capacity (exclusive of China) is expected to be 60-75m tonnes per year on average. Earnings from Customer Services in both Cement and Minerals are expected over the coming years to account for a rising proportion of the Group’s total earnings. This also applies to the Minerals segment as a whole. In the light of these facts the Group expects its
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