* Firm cuts 1,100 jobs and lowers outlook
* Mining capital spending deteriorates
* Shares up 7 pct in heaviest trading volume since May
(Adds CEO, analyst comment)
By Teis Jensen
COPENHAGEN, Aug 23 Danish engineering group
FLSmidth said it will shed 1,100 jobs and lowered its
financial forecasts as miners spend less on equipment.
FLSmidth reported a surprise 40 percent drop in
second-quarter operating profit on Friday, as it booked 323
million Danish crowns ($57.8 million) in one-off costs at its
division that sells gear for cutting, crushing and transporting
The company, which operates mainly outside Denmark in
locations including Africa, the United States and Australia,
warned it will take 1.35 billion crowns of writedowns and
one-off costs by the end of the year.
Miners led by BHP Billiton and Rio Tinto
are slashing billions of dollars of capital expenditure in
response to lower metals prices and shareholder pressure to
boost returns, after a decade of expansion.
This hurts engineers that build and sell the gigantic
ore-handling equipment, like FLSmidth and its Nordic peers,
Metso, Sandvik and Atlas Copco.
"We expect mining capex will hit bottom in 2014," said
FLSmidth Chief Executive Thomas Schulz, who took the reins on
April 1, told a conference call with analysts.
FLSmidth said it will cut about 7 percent of its staff
which, along with other efficiency measures, will result in
350 million crowns of costs to be booked by the end of the year.
It will take another 150 million of efficiency costs after 2013.
The company said it will cut its 200 locations by about 10
The firm hopes the job cuts and other measures will boost
earnings before interest, tax and amortisation (EBITA) by 750
million crowns annually from 2015. EBITA was 287 million crowns
in financial second quarter, hit by 323 million crowns of
FLSmidth shares jumped nearly 7 percent on Friday, in the
busiest trading since mid-May and the second-biggest volume in
more than a year.
Before the job cuts announcement, the shares were down 11
percent in the year to date, making them the worst performers in
the Danish OMXC20 index.
FLSmidth expects to write down inventories for 200 million
crowns in the third quarter and book an impairment of about 800
million crowns on Australian minerals processing group Ludowici,
which it acquired in 2012 for 388 million Australian dollars
(2.46 billion crowns).
"Looking at the risks associated with these old projects, I
took the decision to clean that out," Schulz said.
Analysts say it makes sense for new chief executives to book
any charges or restructuring costs at the beginning of their
"It looks like a real spring cleaning to me," Sydbank
analyst Jacob Pedersen said.
The company cut its full-year revenue outlook to 26-28
billion crowns from 27-30 billion crowns and halved its EBITA
margin guidance to 4-5 percent.
"From the picture they paint of the state of the markets,
particularly mining, it sounds like they have some difficult
years coming," Sydbank's Pedersen said.
Earnings before interest and tax (EBIT) fell to 195 million
Danish crowns in May-July against a forecast rise to 384 million
crowns in a Reuters poll.
"We are positively surprised by the cost initiatives
announced by the new CEO," Jyske Bank analyst Janne Kjaer said
in a note to clients. "This should help bring margins back
towards the 10-11 percent range."
Morgan Stanley said in a research note that capex spending
for five major miners including BHP, Rio Tinto, Anglo American
, Glencore and Vale is set to fall 28
percent between the end of 2012 and 2014.
FLSmidth - which is also the world's leading builder of
cement factories - scrapped plans to sell its building materials
unit Cembrit as it was not possible to "reach a satisfactory
($1 = 5.5891 Danish crowns)
($1 = 5.5891 Danish crowns)
(Reporting by Teis Jensen; Editing by Geert De Clercq and Erica