execution of a_cement_project_from_az[1]
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Capital Market Day 2009 1
Execution of a cement project from A-Z
Per Mejnert KristensenVP, Head of Project Division EMEA/APAC, Cement
Capital Market Day 2009 2
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
Agenda
Capital Market Day 2009 3
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 4
FLSmidth Cement Project Divisions
Capital Market Day 2009 5
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
Agenda
Capital Market Day 2009 6
Growing need for cement remains despite current global crisis !
Long term trends
Capital Market Day 2009 7
Expected futureaverage:
~ 60-75 mty
New global contracted cement kiln capacity(excl. of China)
0
20
40
60
80
100
120
140
160
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
E
mty
2009E: 25-50 mty
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
Capital Market Day 2009 8
Growing need for cement remains despite current global crisis !
Emerging markets will continue to be the driver - now also Africa
Long term trends
Capital Market Day 2009 9
0
20
40
60
80
100
120
140
160
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Asia (excl. China & India)IndiaRussiaEuropeNorth AmericaSouth AmericaMiddle EastAfrica
Geographical distribution of new global contracted cement kiln capacity
(excl. China)mty
Capital Market Day 2009 10
Growing need for cement remains despite current global crisis !
Emerging markets will continue to be the driver - now also Africa
Cement kiln sizes growing
Long term trends
Capital Market Day 2009 11
Wet kilns1892: 1.8x18 m
35 tpd1967: 7.6x232 m
3500 tpd
Preheater kilns1970: 6.0x96 m
4000 tpd
Precalciner kilns1984: 5.0x80 m
5500 tpd1990: 6.0x96 m
≥10,000 tpd2006 →: 6.6x93 m
≥12,000 tpd
History of kiln capacity development
Capital Market Day 2009 12
Cement kiln sizes continue to grow
Capital Market Day 2009 13
Cement kiln sizes continue to grow
1000
2000
3000
4000
5000
6000
1970 1980 1990 2000 2010
Year
Ave
rage
pla
nt c
linke
r cap
acity
(t/d
)
Capital Market Day 2009 14
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
Long term trends
Capital Market Day 2009 15
Half of the fuel used in Germancement plants is alternative fuel
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 capacity0
10
20
30
40
50
60
1999 2000 2001 2002 2003 2004 2005
Alternative fuel energy coverage in %
Capital Market Day 2009 16
The trends
Going from here
To there ☺
Increased focus on emissions
Capital Market Day 2009 17
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
Agenda
Capital Market Day 2009 18
A cement plant from A to Z
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
FLSmidth strengthsand capabilities
FLSmidth strengthsand capabilities
Customer requirementsCustomer
requirements
Capital Market Day 2009 19
Feasibility stage
Budget proposalsfor various sizes
Budget proposalsfor various sizes
Market size, cement prices,investment costs ?
Market size, cement prices,investment costs ?
? ?
Capital Market Day 2009 20
Proposal stage and signing of contract
Leadtime as a conse-quence of requirementsLeadtime as a conse-
quence of requirementsTender requirements
on main features or technical specialities
Tender requirementson main features
or technical specialities
Basic plant
Adapted plant
Taylor made
24 mthContract
Capital Market Day 2009 21
Proposal stage and signing of contract
FLSmidth tests the raw materials
FLSmidth tests the raw materials
Raw material samples to FLSmidth
Raw material samples to FLSmidth
R&D and test centre in Denmark and India
Capital Market Day 2009 22
Proposal stage and signing of contract
Advanced process designAdvanced process designOptimal process and low production cost
Optimal process and low production cost
FLSmidth has in house laboratory with all modern testing facilities.
FLSmidth process designers are carrying a heritage of more than 100 years of experience and know how.
FLSmidth is constantly increasing investments in research and development
Capital Market Day 2009 23
Proposal stage and signing of contract
FLSmidth has equipment for the entire proces
FLSmidth has equipment for the entire proces
Can we get the complete package from FLSmidth ?Can we get the complete package from FLSmidth ?
Main machines & auxuilary equipment of FLSmidth design
Electrical equipment Vendor equipment
Capital Market Day 2009 24
Proposal stage and signing of contract
FLSmidth offers split-supplyFLSmidth offers split-supplyLocal supply and manufacturing
Local supply and manufacturing
1
2
4
6
5
18
3
12
740% imported
60% local manufactured
Capital Market Day 2009 25
Proposal stage and signing of contract
Typical cost compositionTypical cost compositionWhat are the total cost?What are the total cost?
Machinery40%
Buildings30%
Erection15%
Supervision 5%
Transport 5%
Others5%
Capital Market Day 2009 26
Proposal stage and signing of contract
Different options are possible
Different options are possible
Equipment, civil design or turnkey?
Equipment, civil design or turnkey?
Equipment
Civil design
Construction
Erection
Capital Market Day 2009 27
Proposal stage and signing of contract
All information sources are used such as Google Earth etc.
All information sources are used such as Google Earth etc.
Finding the right site information?
Finding the right site information?
Capital Market Day 2009 28
Proposal stage and signing of contract
3D layouts and models3D layouts and modelsVisualisation to customer
Visualisation to customer
Capital Market Day 2009 29
Proposal stage and signing of contract
3D layouts incorporated in actual landscape
3D layouts incorporated in actual landscapeVisualisation to authoritiesVisualisation to authorities
Capital Market Day 2009 30
Proposal stage and signing of contract
Quick order startQuick order startSigning the contractSigning the contract
Capital Market Day 2009 31
Design and order execution
A strong project teamA strong project teamSafe order handlingSafe order handling
Experience + skills + tools
Capital Market Day 2009 32
Design and order execution
Company size and strengths in marketCompany size and strengths in market
Security in a changing worldSecurity in a
changing world
Long track record
Global presence
Customer FLSmidth
Supply chain
Buying power
Vendor relations
Capital Market Day 2009 33
Design and order execution
World wide designWorld wide designClose contact to the supplier
Close contact to the supplier
Global design centres
design 24 hours a day
Capital Market Day 2009 34
Design and order execution
Fast civil designFast civil design Integrated technical and civil design
Integrated technical and civil design
Capital Market Day 2009 35
Manufacturing, inspection and expediting
High quality equipmentHigh quality equipment Close co-operation withlarge workshops
Close co-operation withlarge workshops
Capital Market Day 2009 36
Shipping
Safe transportSafe transport Odd-size equipment or in containers
Odd-size equipment or in containers
Capital Market Day 2009 37
Construction and installation
Swift and trouble free con-struction and installation
Swift and trouble free con-struction and installation
Experienced and skilled supervisorsExperienced and skilled supervisors
Capital Market Day 2009 38
Training of client’s staff
Training of staffTraining of staff FLSmidth Institute- good training programme
FLSmidth Institute- good training programme
Capital Market Day 2009 39
Commissioning, handover and guarantees
Vi har en god track rekord mht at opfylde garantierne. Har vi evt nogle kurver eller lignende?
A swift start of the plantA swift start of the plant FLSmidth has a good record for reaching all guarantees
FLSmidth has a good record for reaching all guarantees
FLSmidth
Capital Market Day 2009 40
Operation of the plant
A safe and economicaloperation of the plant
A safe and economicaloperation of the plant
FLSmidth offers full operation and maintenance
FLSmidth offers full operation and maintenance
Capital Market Day 2009 41
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
Agenda
Capital Market Day 2009 42
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 !
Factors contributing to uncertainty about project income
Capital Market Day 2009 43
Project Income Flow
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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
Con
trac
t
POC Net Sales CM SG&A EBIT
Typical project progress and income recognition
Down payment
Letter of Credit
Engineering
Procurement
Manufacture
Shipping
Installation
Capital Market Day 2009 44
Project Income Flow
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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
Con
trac
t
POC Net Sales CM SG&A EBIT
Typical project progress and income recognition
Down payment
Letter of Credit
Engineering
Procurement
Manufacture
Shipping
Installation
Capital Market Day 2009 45
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
Risks in execution of a cement project
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 46
Project Cash Flow
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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 29th30
th (PAC)31
st
Period of Execution
Con
trac
t
Client payments Total Project Cost Payments SG&A payments Net Cash
Typical project cash flow
Capital Market Day 2009 47
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 48
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
Status of our existing cement project portfolio
Capital Market Day 2009 49
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
Agenda
Capital Market Day 2009 50
We have the strongest brand in the market !
We have a global reach – present in every corner of the world !
Strong belief in future prospects, because:
Capital Market Day 2009 51
Project centres Rep. officesProduction
Global undertaking with a local presence
Capital Market Day 2009 52
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 !
Strong belief in future prospects, because:
Capital Market Day 2009 53
Cement plant flow sheet
3Cementsilo
Cementsilo Cement
silo
Cement mill
Separator
Roller pressGear unit
ClinkerSilo
2 Packers
Ship loading
Ship unloading
Limestone Clay Sand Iron
1 2 3 4
1234
Storage
CrusherAnalyzer
Filter Filter
Gratecooler
Raw mealsilo
Raw mill
Coal mill
Capital Market Day 2009 54
Cement kiln sizes continue to grow
ATOX mills
OK mills
MMC Cooler
ILC preheater
3-support kiln
DUOFLEX burner
Holcim Ste. GenevieveThe world’s first 12,000 tpd single kiln line
Capital Market Day 2009 55
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 !
Strong belief in future prospects, because:
Capital Market Day 2009 56
VKu/15.03.2007
Ozarow 27000 tpd
Ain Soukna5000 tpd
Kursk3500 tpd
Holcim5500 tpd
Carribean Cement3250 tpd
ACC, Rabigh7000 tpd
Jovein3900 tpd
Lappeenranta1800 tpd
CIBA (Orascom)1500 tpd
Unicem, Calabar6250 tpd
Dwaalboom3300 tpd
Natal Simuma1500 tpd
EMCC (Orascom)7500 tpd
Ash Grove foreman4200 tpd
Rio Grande Pueblo3000 tpd
Ha Long5500 tpd
ABG Kutch10000 tpd
CIBA Grey6250 tpdArabian CC, Ramliya
6000 tpdSinai, Gabal Lebni 24200 tpd
Sinai White 21300 tpd
Madras Cement7600 tpdAbyek Cement
4500 tpdKhuzestan, Ramhormoz5500 tpd
Karcement3200 tpd
AUCC 25000 tpdTepeaca
10000 tpd Dalmia3x4500 tpd
Cimsa Eskisehir2100 tpd
Ivano-Frankivsk2300 tpd
Star Cement6500 tpd
Ash Grove, Moapa4350 tpd Essroc, Martinsburg
5000 tpd Keystone, Bath3000 tpdSte. Genevieve
12000 tpdHoang Thach 33300 tpd
Sanghi, Kutch10000 tpdOrient, Adilabad
4000 tpd
Platin4000 tpd
Kokshe Cement5500 tpd
Cem. Andorra2350 tpd
Marquesado3300 tpd
Al Takamol4500 tpd Indocement
700 tpd
Fancesa750 tpd
ACC Chanda7000 tpd
CSN2 x OK 39
Binani 26500 tpd
LSR Slantsy5000 tpd
Volyn6000 tpd
Golden Bay350 tpd
Lafarge Joppa7200 tpd
Gulf Cement5000 tpd
Molins4100 tpd
Argos4500 tpd
Aleppo7500 tpdAit Baha
5000 tpd
Podgorensky6000 tpd
Akbulak6000 tpdJP Kutch
10000 tpd
Projects the last 4 - 5 years !
> 100 new production lines> 150 mtpy capacity !
Capital Market Day 2009 57
CIS>45
Africa>96
India>141
South America>162
Central America>94
Middle East>55
Australia>25
North America>356
Rest of Asia>269
FLSmidth has built ~ 2000 cement kilns worldwide since 1898
Europe>674
Capital Market Day 2009 58
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 !
Strong belief in future prospects, because:
Capital Market Day 2009 59
The cement industry’s largest R&D centre
Capital Market Day 2009 60
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
Strong belief in future prospects, because:
We are very well positioned for the future !
Capital Market Day 2009 61
Questions
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