Execution of a cement project from A-Z Per Mejnert Kristensen VP, Head of Project Division EMEA/APAC, Cement Capital Market Day 2009 1
Agenda Introduction Long term trends in the global cement industry FLSmidth s role in a cement project from A-Z Uncertainties and risks in execution of cement projects Outlook in Cement Capital Market Day 2009 2
Per Mejnert Kristensen VP, Head of Project Division EMEA/APAC, Cement Joined FLSmidth in 1992 Positions in FLSmidth: VP, Head of Project Division EMEA/APAC VP, Head of Project Division 1 General Manger, FLSmidth China Chief Representative Thailand Ass. Site manager, 10,000 tpd project, Thailand Project Sales Capital Market Day 2009 3
FLSmidth Cement Project Divisions Capital Market Day 2009 4
Agenda Introduction Long term trends in the global cement industry FLSmidth s role in a cement project from A-Z Uncertainties and risks in execution of cement projects Outlook in Cement Capital Market Day 2009 5
Long term trends Growing need for cement remains despite current global crisis! Capital Market Day 2009 6
New global contracted cement kiln capacity (excl. of China) mty 160 140 120 100 80 60 40 20 Contracted kiln capacity is an indicator of total cement capital investments. However, the kiln system only accounts for around 25% of the value of a cement production line and additionally, the lifetime of a kiln is generally longer than the other equipment 2009E: 25-50 mty Expected future average: ~ 60-75 mty 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E Capital Market Day 2009 7
Long term trends Growing need for cement remains despite current global crisis! Emerging markets will continue to be the driver - now also Africa Capital Market Day 2009 8
Geographical distribution of new global contracted cement kiln capacity (excl. China) mty 160 140 120 100 80 60 40 Asia (excl. China & India) India Russia Europe North America South America Middle East Africa 20 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Capital Market Day 2009 9
Long term trends Growing need for cement remains despite current global crisis! Emerging markets will continue to be the driver - now also Africa Cement kiln sizes growing Capital Market Day 2009 10
History of kiln capacity development Wet kilns 1892: 1.8x18 m 35 tpd 1967: 7.6x232 m 3500 tpd Preheater kilns 1970: 6.0x96 m 4000 tpd Precalciner kilns 1984: 5.0x80 m 5500 tpd 1990: 6.0x96 m 10,000 tpd 2006 : 6.6x93 m 12,000 tpd Capital Market Day 2009 11
Cement kiln sizes continue to grow Capital Market Day 2009 12
Cement kiln sizes continue to grow 6000 Average plant clinker capacity (t/d) 5000 4000 3000 2000 1000 1970 1980 1990 2000 2010 Year Capital Market Day 2009 13
Long term trends Growing need for cement remains despite current global crisis! Emerging markets will continue to be the driver - now also Africa Cement kiln sizes growing Increased environmental focus Capital Market Day 2009 14
Half of the fuel used in German cement plants is alternative fuel Alternative fuel energy coverage in % 60 50 40 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 Rapid increase in alternative fuel usage during the past 5 years - due to focus on lowering production costs in a cement market with excess production capacity Capital Market Day 2009 15
Going from here Increased focus on emissions The trends To there Capital Market Day 2009 16
Agenda Introduction Long term trends in the global cement industry FLSmidth s role in a cement project from A-Z Uncertainties and risks in execution of cement projects Outlook in Cement Capital Market Day 2009 17
A cement plant from A to Z Customer requirements FLSmidth strengths and and capabilities Feasibility study Proposal stage and signing of contract Design and order handling stage Civil design and construction Erection, start-up, Commissioning, handover, guarantees Production, operation and maintenance of the plant Capital Market Day 2009 18
Feasibility stage Market size, cement prices, investment costs? Budget proposals for for various sizes?? Capital Market Day 2009 19
Proposal stage and signing of contract Tender requirements on on main features or or technical specialities Contract 24 mth Leadtime as as a consequence of of requirements Basic plant Adapted plant Taylor made Capital Market Day 2009 20
Proposal stage and signing of contract Raw material samples to to FLSmidth FLSmidth tests the the raw raw materials R&D and test centre in Denmark and India Capital Market Day 2009 21
Proposal stage and signing of contract Optimal process and and low low production cost cost Advanced process design FLSmidth has in house laboratory with all modern testing facilities. FLSmidth is constantly increasing investments in research and development FLSmidth process designers are carrying a heritage of more than 100 years of experience and know how. Capital Market Day 2009 22
Proposal stage and signing of contract Can Can we we get get the the complete package from FLSmidth? FLSmidth has has equipment for for the the entire proces Main machines & auxuilary equipment of FLSmidth design Electrical equipment Vendor equipment Capital Market Day 2009 23
Proposal stage and signing of contract Local supply and and manufacturing FLSmidth offers split-supply 3 7 18 4 6 40% imported 60% local manufactured 1 2 5 12 Capital Market Day 2009 24
Proposal stage and signing of contract What are are the the total cost? Typical cost cost composition Buildings 30% Erection 15% Transport 5% Machinery 40% Supervision 5% Others 5% Capital Market Day 2009 25
Proposal stage and signing of contract Equipment, civil civil design or or turnkey? Different options are are possible Equipment Construction Civil design Erection Capital Market Day 2009 26
Proposal stage and signing of contract Finding the the right site site information? All All information sources are are used such as as Google Earth etc. etc. Capital Market Day 2009 27
Proposal stage and signing of contract Visualisation to to customer 3D 3D layouts and and models Capital Market Day 2009 28
Proposal stage and signing of contract Visualisation to to authorities 3D 3D layouts incorporated in in actual landscape Capital Market Day 2009 29
Proposal stage and signing of contract Signing the the contract Quick order start Capital Market Day 2009 30
Design and order execution Safe order handling A strong project team Experience + skills + tools Capital Market Day 2009 31
Design and order execution Security in in a changing world Company size size and and strengths in in market Buying power Supply chain Customer FLSmidth Long track record Global presence Vendor relations Capital Market Day 2009 32
Design and order execution Close contact to to the the supplier World wide design Global design centres design 24 hours a day Capital Market Day 2009 33
Design and order execution Fast Fast civil civil design Integrated technical and and civil civil design Capital Market Day 2009 34
Manufacturing, inspection and expediting High quality equipment Close co-operation with with large workshops Capital Market Day 2009 35
Shipping Safe transport Odd-size equipment or or in in containers Capital Market Day 2009 36
Construction and installation Swift and and trouble free free construction and and installation Experienced and and skilled supervisors Capital Market Day 2009 37
Training of client s staff Training of of staff FLSmidth Institute - good training programme Capital Market Day 2009 38
Commissioning, handover and guarantees A swift start of of the the plant FLSmidth has has a good record for for reaching all all guarantees Vi har en god track rekord mht at opfylde garantierne. Har vi evt nogle kurver eller lignende? FLSmidth Capital Market Day 2009 39
Operation of the plant A safe safe and and economical operation of of the the plant FLSmidth offers full full operation and and maintenance Capital Market Day 2009 40
Agenda Introduction Long term trends in the global cement industry FLSmidth s role in a cement project from A-Z Uncertainties and risks in execution of cement projects Outlook in Cement Capital Market Day 2009 41
Factors contributing to uncertainty about project income Progress of ongoing projects (to be addressed in following slides) When will signed LoI s and non-effective contracts materialise? General market outlook very uncertain these days! Even though our customers wants to move ahead with projects, they are met by financing constraints, - i.e. not even our customers can tell when they will be able to go ahead! Capital Market Day 2009 42
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% Typical project progress and income recognition Project Income Flow Installation Shipping Manufacture Procurement Engineering Letter of Credit Down payment 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th (PAC) Period of execution POC Net Sales CM SG&A EBIT Capital Market Day 2009 43 Contract
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% Typical project progress and income recognition Project Income Flow Installation Shipping Manufacture Procurement Engineering Letter of Credit Down payment 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th (PAC) Period of execution POC Net Sales CM SG&A EBIT Capital Market Day 2009 44 Contract
Risks in execution of a cement project Delayed supplies from vendors Client not ready to receive goods or formalities not in place (e.g. BTI) Client wants to postpone project Suspension of project due to temporary problems with financing Termination of project due to client s inability to continue All of the above creates uncertainty about timing of income recognition.and just a few months delay around New Year can impact the annual result significantly! Capital Market Day 2009 45
31st 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Typical Project project Cash Flow cash flow 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th (PAC) Period of Execution Client payments Total Project Cost Payments SG&A payments Net Cash Capital Market Day 2009 46 Contract
What happens when orders are cancelled or put on hold? Cancelled Initiated work and issue of purchase orders stop Legal department gets involved We stick to our contractual rights - no matter which client We have the right to be compensated for incurred and committed costs and as well as a pro-rata contribution margin Cancellation fee to be claimed Put on hold Initiated work and issue of purchase orders stop Contract and time schedule is amended We preserve the right to be compensated for any additional costs Some clients are constrained on cash, others are adjusting priorities Capital Market Day 2009 47
Status of our existing cement project portfolio Overall approx. 10 % of order backlog currently on hold. 3-4 major projects are partly suspended no major cement projects cancelled so far (but some minor) We are in very close contact with the customers and they are all determined to carry on but limited by financing Recent events on (partly) suspended contracts: Receipt of progress payment strong indicator of commitment Agreement on prolonged delivery schedule Agreement on finalising engineering but procurement on hold for a specified period At this stage we thus feel relatively confident about our existing cement project portfolio but timing still uncertain Capital Market Day 2009 48
Agenda Introduction Long term trends in the global cement industry FLSmidth s role in a cement project from A-Z Uncertainties and risks in execution of cement projects Outlook in Cement Capital Market Day 2009 49
Strong belief in future prospects, because: We have the strongest brand in the market! We have a global reach present in every corner of the world! Capital Market Day 2009 50
Global undertaking with a local presence Project centres Production Rep. offices Capital Market Day 2009 51
Strong belief in future prospects, because: We have the strongest brand in the market! We have a global reach present in every corner of the world! We have a complete product portfolio! Capital Market Day 2009 52
Cement plant flow sheet Crusher Filter Filter Limestone Clay Sand Iron Analyzer 1 2 3 4 Storage Raw meal silo Coal mill 4 3 2 1 Grate cooler Raw mill Clinker Silo Separator 2 3 Cement silo Cement silo Packers Cement silo Roller press Cement mill Gear unit Ship loading Ship unloading Capital Market Day 2009 53
Cement Holcim kiln sizes Ste. continue Genevieve to grow The world s first 12,000 tpd single kiln line ILC preheater DUOFLEX burner ATOX mills OK mills 3-support kiln MMC Cooler Capital Market Day 2009 54
Strong belief in future prospects, because: We have the strongest brand in the market! We have a global reach present in every corner of the world! We have a complete product portfolio! We have an unsurpassed reference list! Capital Market Day 2009 55
Projects the last 4-5 years! Platin Lappeenranta 4000 tpd 1800 tpd Ash Grove, Moapa Cem. Andorra Ash 4350 Grove tpd Essroc, foreman Martinsburg 2350 tpd Ozarow 2 4200 tpd 5000 tpd Keystone, Bath Marquesado 7000 tpdholcim Ivano-Frankivsk Ste. Genevieve KarcementKursk 3000 tpd 3300 tpdmolins 5500 Jovein 2300 tpd Hoang Thach 3 12000 tpdlafarge Joppa 4100 tpd LSR Slantsy Akbulak 3200 Podgorensky 3500 tpd Cimsa Eskisehir tpd 3900 3300 tpd 7200 tpd 5000 tpd 6000 Rio Grande Pueblo CIBA (Orascom) Aleppo Madras Cement 2100 tpd JP tpd Kutch 6000 tpd Ait Baha Ha Long 3000 tpd 1500 CIBA tpd Abyek Cement 7600 tpd Sinai White Grey 7500 5500 tpd 6250 Arabian 2 4500 Khuzestan, tpd tpd CC, tpd Ramhormoz 10000 tpd Kokshe Cement 5000 tpd AUCC 2 5500 Ramliya Gulf Cement 5500 tpd tpd 1300 Sinai, tpd6000 Gabal Lebni 2ACC, Rabigh ABG Kutch Tepeaca 5000 tpd Star Volyn 5000 tpd Cement Sanghi, Kutch 4200 tpd 10000 ACC tpd 10000 tpd 7000 6000 6500 tpd tpd 10000 Chanda tpd Carribean Cement Ain Soukna EMCC (Orascom) 7000 Dalmia tpd Orient, Adilabad 3250 tpd 50007500 tpd tpd 3x4500 4000 tpd tpd Binani 2 Unicem, Calabar Al Takamol 6500 tpd 6250 tpd Argos 4500 tpd 4500 tpd Indocement 700 tpd Fancesa 750 tpd CSN 2 x OK 39 Natal Simuma 1500 tpd Dwaalboom 3300 tpd > 100 new production lines > 150 VKu/15.03.2007 mtpy capacity! Golden Bay 350 tpd Capital Market Day 2009 56
FLSmidth has built ~ 2000 cement kilns worldwide since 1898 North America >356 Europe >674 CIS >45 Central America >94 Middle East >55 Africa >96 India >141 Rest of Asia >269 South America >162 Australia >25 Capital Market Day 2009 57
Strong belief in future prospects, because: We have the strongest brand in the market! We have a global reach present in every corner of the world! We have a complete product portfolio! We have an unsurpassed reference list! We are investing most in R&D! Capital Market Day 2009 58
The cement industry s largest R&D centre Capital Market Day 2009 59
Strong belief in future prospects, because: We have the strongest brand in the market! We have a global reach present in every corner of the world! We have a complete product portfolio! We have an unsurpassed reference list! We are investing most in R&D! We are the strongest Group Cement & Minerals We are very well positioned for the future! Capital Market Day 2009 60
Questions Capital Market Day 2009 61