At the FLS Industries Annual General Meeting today in the Falconer Center, Frederiksberg, Board Chairman Jørgen Worning submitted the following report:
"Welcome to the FLS Industries Annual General Meeting. As newly appointed Board Chairman of FLS
Industries it is a special pleasure to address the Company in General Meeting for the first time from this rostrum. It is gratifying to see so many of our shareholders attending today's meeting.
The Board of Directors has selected Mr Axel Kirkegaard, lawyer, as Chairman of the meeting to guide us through the business to be transacted. I now give Mr Kirkegaard the floor.
On 20 December POTAGUA, FLS Industries' principal shareholder, issued a Stock Exchange Message. At the Extraordinary General Meeting on 7 March this year, the Chairman at the time, Mr Ib Christensen, explained the contents of that message.
After 120 years of ownership, POTAGUA has reached the conclusion that it will not be the ideal main shareholder of the FLS Group in a longer perspective. It was therefore decided to put the shares in FLS Industries up for sale.
This historic decision has subsequently been given much consideration in the FLS Industries Board of Directors. It is the Board's opinion that in order to maximise the return to the Group's owners each of the activities will be sold separately within a time frame of three to five years. This will generate greater shareholder value than selling the entire Group as a whole. It is also very important that each of the undertakings are taken over by an owner who is able to maintain progress and expand the business so that synergies are created for the benefit of the company.
To optimise these efforts and to strengthen the composition of the Board in every possible way, Directors possessing great experience have been selected, reflecting the tasks to be carried out during the next few years. The extraordinary general meeting in March meant a significant change in the composition of the Board. It was also decided that I, as newly elected Chairman, should undertake the task of safeguarding maximum value creation for the owners of FLS Industries.
Report
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But first to the report for 2001. I would like to draw attention to the printed report and accounts. In the following I shall only elaborate on specific areas, whilst referring to the printed report on all other matters. It is evident that the year under review was a difficult one for the FLS Group. The earnings before interest and tax marked an improvement on the previous years. The loss for the year, at DKK 13 million, is a highly unsatisfactory result.
Business trends were unfavourable during the past year. Most of the markets served by the FLS Group saw slower or even negative growth - and in some areas these trends were aggravated by the tragic events on 11 September. We have faced major challenges requiring adaptability and resolution at all levels - and we continue to do so.
Throughout 2001 focusing and streamlining of the company structure and business methods have been the guiding principles of the FLS Group.
The improvement in operating results from a deficit in excess of DKK 450m in 2000 to a surplus of DKK 195m in 2001 primarily reflects better results achieved by F.L.Smidth Group and FLS Aerospace.
The merger of F.L.Smidth & Co. and Fuller Company and the intensified teamwork between the three engineering centres in USA, India and Denmark have ensured better utilisation of capacity at lower cost.
Meanwhile, 2001 showed the first gratifying results of FLS Aerospace's radical turnaround process until the events of 11 September temporarily halted the progress achieved.
Other initiatives that contributed to improved earnings include the merger between FLS Industries and Aalborg Portland Holding at the beginning of 2001, simplifying the corporate structure and enhancing the visibility and results of the Group.
In FLS Building Materials, the most notable events were Unicon's focusing on ready-mix concrete and Aalborg Portland's activities in white cement. These initiatives have strengthened the basis for future earnings.
In line with the overall focusing strategy, a number of activities considered non-core business for the FLS Group were sold .
In March 2001, the RM Industrial Group metal perforation business was sold at a price of DKK 350m. In addition, several precast concrete product facilities at home and abroad plus land and buildings in Valby have been disposed of.
The difficult market situation and unsatisfactory earnings have prompted the FLS Group to intensify its focus on reducing interest-bearing debt.
The trimming of the Group and the efforts to reduce debts meant that investments in 2001 were at a considerably lower level than the year before. Acquisitions amounted to merely DKK 89m as against nearly DKK 2bn the year before, whilst disposals generated income slightly in excess of half a billion Danish kroner as against zero million the year before.
Improved cash flow is one of the preconditions for reducing debt. During 2001, the Group managed to lower its interest-bearing net debt by DKK 0.7bn to slightly below DKK 5bn. The aim is to further reduce debt to a maximum level of DKK 4bn by the end of the first six months of 2002.
FLS Industries is active in three lines of business:
- Engineering which covers the activities of F.L.Smidth Group and FLS miljø, providing equipment and services to the cement and minerals industries plus the power generating industry.
- Building Materials which covers the Aalborg Portland cement plant, Unicon, Dansk Eternit Holding and Densit, serving the construction industry with building materials, and
- Aircraft Maintenance which covers FLS Aerospace, one of the industry's major players worldwide.
Again this year, the associated undertakings contributed positively to the FLS Group's earnings and cash flow. As shown in Note 9 on page 82 of the printed report, Secil was the largest contributor, providing DKK 147m in income.
The cash flow was improved by the nearly one billion DKK worth of dividend received from NKT Holding.
F.L.Smidth Group
----------------
F.L.Smidth Group has focused its activities on the cement and mineral industries which today account for some 90% of turnover. F.L.Smidth Group now consists of eight undertakings that are increasingly integrating their activities with regard to project processing and customer service.
F.L.Smidth Group, whose operating result amounted to DKK 194m, achieved the anticipated level of earnings despite losses on projects in USA and Portugal. These results reflect the efficient processing of orders, a decline in capacity costs and rising earnings from a number of subsidiaries such as FFE Minerals, Ventomatic and Pfister that supply equipment to the mining and cement industries.
At the beginning of 2001 the two cement engineering companies, F.L.Smidth & Co. and Fuller Company, were combined into F.L.Smidth.
One integrated engineering business lowers the level of costs and the synergies achieved have enabled the company to much more effectively serve its customers in the cement industry.
Against the current market of recession, it is gratifying that F.L.Smidth Group achieved its highest intake of orders ever, amounting to more than DKK 8bn.
During the year, F.L.Smidth won significant contracts in the UK, Vietnam, USA, Spain, India and Malaysia. By the end of 2001, F.L.Smidth's order book had reached a total of DKK 6.6bn. F.L.Smidth is facing good opportunities in North Africa and the Middle East where the massive development of infrastructure is contributing to higher standards of living. Only in March this year, F.L.Smidth again won a new major contract in Algeria, at a total value of some DKK 1bn.
The global market for new cement plants shrank to its lowest level for the past fifteen years. The recession is due to vigorous consolidation of the industry and rapidly declining economic growth. It is encouraging that F.L.Smidth managed to increase its market share in 2001.
F.L.Smidth's leading position in the cement market is primarily based on innovation and optimisation of production technology. Considerable resources are being spent on research and development of environmentally compatible processes and equipment. A key issue in these activities is the use of alternative fuels in cement manufacture by way of waste products from other industries. These initiatives are helping to address an environmental problem and, at the same time, improve cement production efficiency.
The significant after market for services and spare parts generated a higher turnover, rising to DKK 2.2bn in 2001, representing 11 per cent growth. A focused sales effort has been made in the after market which comprises spare parts, rehabilitation of old plants and technical services, the latter in particular being a strong growth area.
Slow global economic growth and consolidation of the cement industry are curbing overall demand. F.L.Smidth Group foresees a slightly lower level of activity in 2002 and an operating result on a par with that for 2001.
FLS miljø
---------
FLS miljø posted a highly unsatisfactory operating loss of DKK 183m for 2001. The financial result negatively reflects budget overruns on a number of major projects and a lower-than-anticipated order intake. The orders received reached a total of DKK 1.7bn as against DKK 1.1bn in 2000.
At the beginning of the year, a new CEO was appointed bringing with him wide experience from the global power generation and environmental sector. The management team has directed its efforts towards focusing the company on selected products and markets whilst phasing out non-strategic operations.
As a result of these efforts, costs have been lowered by about DKK 50m on an annual basis. Since 2000, the staff has been reduced by about 10% to some 800 persons.
FLS miljø today consists of three global business units focusing on biomass, fossil fuel and air pollution control equipment.
FLS miljø's research and development efforts in 2001 focused on the testing of two new technologies that are expected to contribute successfully to FLS miljø's future business. A commercial facility based on the company's environmentally sound wood proofing process was inaugurated in the autumn. Used car tyres as a replacement for traditional fuel in cement production is another technology offering great potential. A pilot installation is now being tested at Aalborg Portland.
FLS miljø is continuing its turnaround process. The company is pursuing opportunities for strong international partnerships that may secure optimum use of its expertise, knowhow and technology. The recent signing of a flue gas desulphurisation contract in excess of DKK 500m in the USA is an example of international teamwork. FLS miljø anticipates a deficit for 2002.
FLS Building Materials
----------------------
In the FLS Building Materials group both Aalborg Portland and Densit improved their earnings on the year before. These achievements, however, did not match the decline in Unicon and Dansk Eternit Holding earnings. Accordingly, FLS Building Materials operating profits fell from DKK 429m in 2000 to DKK 294m in 2001, and are thus not satisfactory.
2001 was a gratifying year for Aalborg Portland despite difficult market conditions. The satisfactory result was mainly due to the consolidation of the company's position as the world's leading exporter of white cement which is distributed in over 70 markets. During 2002 Aalborg White's two new white cement facilities in Egypt and Malaysia will boost annual production capacity to approximately 1.5bn tonnes.
"Welcome to the FLS Industries Annual General Meeting. As newly appointed Board Chairman of FLS
Industries it is a special pleasure to address the Company in General Meeting for the first time from this rostrum. It is gratifying to see so many of our shareholders attending today's meeting.
The Board of Directors has selected Mr Axel Kirkegaard, lawyer, as Chairman of the meeting to guide us through the business to be transacted. I now give Mr Kirkegaard the floor.
On 20 December POTAGUA, FLS Industries' principal shareholder, issued a Stock Exchange Message. At the Extraordinary General Meeting on 7 March this year, the Chairman at the time, Mr Ib Christensen, explained the contents of that message.
After 120 years of ownership, POTAGUA has reached the conclusion that it will not be the ideal main shareholder of the FLS Group in a longer perspective. It was therefore decided to put the shares in FLS Industries up for sale.
This historic decision has subsequently been given much consideration in the FLS Industries Board of Directors. It is the Board's opinion that in order to maximise the return to the Group's owners each of the activities will be sold separately within a time frame of three to five years. This will generate greater shareholder value than selling the entire Group as a whole. It is also very important that each of the undertakings are taken over by an owner who is able to maintain progress and expand the business so that synergies are created for the benefit of the company.
To optimise these efforts and to strengthen the composition of the Board in every possible way, Directors possessing great experience have been selected, reflecting the tasks to be carried out during the next few years. The extraordinary general meeting in March meant a significant change in the composition of the Board. It was also decided that I, as newly elected Chairman, should undertake the task of safeguarding maximum value creation for the owners of FLS Industries.
Report
-------
But first to the report for 2001. I would like to draw attention to the printed report and accounts. In the following I shall only elaborate on specific areas, whilst referring to the printed report on all other matters. It is evident that the year under review was a difficult one for the FLS Group. The earnings before interest and tax marked an improvement on the previous years. The loss for the year, at DKK 13 million, is a highly unsatisfactory result.
Business trends were unfavourable during the past year. Most of the markets served by the FLS Group saw slower or even negative growth - and in some areas these trends were aggravated by the tragic events on 11 September. We have faced major challenges requiring adaptability and resolution at all levels - and we continue to do so.
Throughout 2001 focusing and streamlining of the company structure and business methods have been the guiding principles of the FLS Group.
The improvement in operating results from a deficit in excess of DKK 450m in 2000 to a surplus of DKK 195m in 2001 primarily reflects better results achieved by F.L.Smidth Group and FLS Aerospace.
The merger of F.L.Smidth & Co. and Fuller Company and the intensified teamwork between the three engineering centres in USA, India and Denmark have ensured better utilisation of capacity at lower cost.
Meanwhile, 2001 showed the first gratifying results of FLS Aerospace's radical turnaround process until the events of 11 September temporarily halted the progress achieved.
Other initiatives that contributed to improved earnings include the merger between FLS Industries and Aalborg Portland Holding at the beginning of 2001, simplifying the corporate structure and enhancing the visibility and results of the Group.
In FLS Building Materials, the most notable events were Unicon's focusing on ready-mix concrete and Aalborg Portland's activities in white cement. These initiatives have strengthened the basis for future earnings.
In line with the overall focusing strategy, a number of activities considered non-core business for the FLS Group were sold .
In March 2001, the RM Industrial Group metal perforation business was sold at a price of DKK 350m. In addition, several precast concrete product facilities at home and abroad plus land and buildings in Valby have been disposed of.
The difficult market situation and unsatisfactory earnings have prompted the FLS Group to intensify its focus on reducing interest-bearing debt.
The trimming of the Group and the efforts to reduce debts meant that investments in 2001 were at a considerably lower level than the year before. Acquisitions amounted to merely DKK 89m as against nearly DKK 2bn the year before, whilst disposals generated income slightly in excess of half a billion Danish kroner as against zero million the year before.
Improved cash flow is one of the preconditions for reducing debt. During 2001, the Group managed to lower its interest-bearing net debt by DKK 0.7bn to slightly below DKK 5bn. The aim is to further reduce debt to a maximum level of DKK 4bn by the end of the first six months of 2002.
FLS Industries is active in three lines of business:
- Engineering which covers the activities of F.L.Smidth Group and FLS miljø, providing equipment and services to the cement and minerals industries plus the power generating industry.
- Building Materials which covers the Aalborg Portland cement plant, Unicon, Dansk Eternit Holding and Densit, serving the construction industry with building materials, and
- Aircraft Maintenance which covers FLS Aerospace, one of the industry's major players worldwide.
Again this year, the associated undertakings contributed positively to the FLS Group's earnings and cash flow. As shown in Note 9 on page 82 of the printed report, Secil was the largest contributor, providing DKK 147m in income.
The cash flow was improved by the nearly one billion DKK worth of dividend received from NKT Holding.
F.L.Smidth Group
----------------
F.L.Smidth Group has focused its activities on the cement and mineral industries which today account for some 90% of turnover. F.L.Smidth Group now consists of eight undertakings that are increasingly integrating their activities with regard to project processing and customer service.
F.L.Smidth Group, whose operating result amounted to DKK 194m, achieved the anticipated level of earnings despite losses on projects in USA and Portugal. These results reflect the efficient processing of orders, a decline in capacity costs and rising earnings from a number of subsidiaries such as FFE Minerals, Ventomatic and Pfister that supply equipment to the mining and cement industries.
At the beginning of 2001 the two cement engineering companies, F.L.Smidth & Co. and Fuller Company, were combined into F.L.Smidth.
One integrated engineering business lowers the level of costs and the synergies achieved have enabled the company to much more effectively serve its customers in the cement industry.
Against the current market of recession, it is gratifying that F.L.Smidth Group achieved its highest intake of orders ever, amounting to more than DKK 8bn.
During the year, F.L.Smidth won significant contracts in the UK, Vietnam, USA, Spain, India and Malaysia. By the end of 2001, F.L.Smidth's order book had reached a total of DKK 6.6bn. F.L.Smidth is facing good opportunities in North Africa and the Middle East where the massive development of infrastructure is contributing to higher standards of living. Only in March this year, F.L.Smidth again won a new major contract in Algeria, at a total value of some DKK 1bn.
The global market for new cement plants shrank to its lowest level for the past fifteen years. The recession is due to vigorous consolidation of the industry and rapidly declining economic growth. It is encouraging that F.L.Smidth managed to increase its market share in 2001.
F.L.Smidth's leading position in the cement market is primarily based on innovation and optimisation of production technology. Considerable resources are being spent on research and development of environmentally compatible processes and equipment. A key issue in these activities is the use of alternative fuels in cement manufacture by way of waste products from other industries. These initiatives are helping to address an environmental problem and, at the same time, improve cement production efficiency.
The significant after market for services and spare parts generated a higher turnover, rising to DKK 2.2bn in 2001, representing 11 per cent growth. A focused sales effort has been made in the after market which comprises spare parts, rehabilitation of old plants and technical services, the latter in particular being a strong growth area.
Slow global economic growth and consolidation of the cement industry are curbing overall demand. F.L.Smidth Group foresees a slightly lower level of activity in 2002 and an operating result on a par with that for 2001.
FLS miljø
---------
FLS miljø posted a highly unsatisfactory operating loss of DKK 183m for 2001. The financial result negatively reflects budget overruns on a number of major projects and a lower-than-anticipated order intake. The orders received reached a total of DKK 1.7bn as against DKK 1.1bn in 2000.
At the beginning of the year, a new CEO was appointed bringing with him wide experience from the global power generation and environmental sector. The management team has directed its efforts towards focusing the company on selected products and markets whilst phasing out non-strategic operations.
As a result of these efforts, costs have been lowered by about DKK 50m on an annual basis. Since 2000, the staff has been reduced by about 10% to some 800 persons.
FLS miljø today consists of three global business units focusing on biomass, fossil fuel and air pollution control equipment.
FLS miljø's research and development efforts in 2001 focused on the testing of two new technologies that are expected to contribute successfully to FLS miljø's future business. A commercial facility based on the company's environmentally sound wood proofing process was inaugurated in the autumn. Used car tyres as a replacement for traditional fuel in cement production is another technology offering great potential. A pilot installation is now being tested at Aalborg Portland.
FLS miljø is continuing its turnaround process. The company is pursuing opportunities for strong international partnerships that may secure optimum use of its expertise, knowhow and technology. The recent signing of a flue gas desulphurisation contract in excess of DKK 500m in the USA is an example of international teamwork. FLS miljø anticipates a deficit for 2002.
FLS Building Materials
----------------------
In the FLS Building Materials group both Aalborg Portland and Densit improved their earnings on the year before. These achievements, however, did not match the decline in Unicon and Dansk Eternit Holding earnings. Accordingly, FLS Building Materials operating profits fell from DKK 429m in 2000 to DKK 294m in 2001, and are thus not satisfactory.
2001 was a gratifying year for Aalborg Portland despite difficult market conditions. The satisfactory result was mainly due to the consolidation of the company's position as the world's leading exporter of white cement which is distributed in over 70 markets. During 2002 Aalborg White's two new white cement facilities in Egypt and Malaysia will boost annual production capacity to approximately 1.5bn tonnes.
Aalborg Portland's development centre for white cement was strengthened in 2001 with the setting up of the Aalborg White Technical Team. Working worldwide, the Team will provide sales support and promote knowledge of the many applications for white cement. Its aim is to support the Aalborg Portland growth strategy of becoming one of the world's largest producers of white cement.
Densit continued its gratifying development and increased profitability. Progress was centred on the off-shore market which provided business both in the oil and gas industry and in the wind turbine sector. The choice of Densit as a supplier of high-strength concrete for the off-shore Horns Rev wind farm project attracted international attention.
In September 2001, Unicon announced its plan to focus exclusively on production, development and sale of ready-mix concrete. Unicon has disposed of non-core activities in USA, Denmark and Spain.
Unicon's total operating result was lower than the year before. This reflects declining activity in the Danish and Swedish construction markets combined with a drastic downturn in the Polish economy. The anticipated improvements in earnings in the USA were not achieved.
Dansk Eternit Holding experienced a much lower level of activity in the Danish market than anticipated. The suspension of payments in DEF 1994 attracted great media attention which contributed significantly to the decline in sales. The company posted a highly unsatisfactory operating loss.
In November 2001, judgment was delivered in the socalled Eternit case. The Court relieved DEF 1994 from liability for damages in connection with the complaints received.
Dansk Eternit has launched new products in the European marekts and anticipates gratifying growth in the coming years.
FLS Building Materials expects to achieve a turnover of DKK 5.5bn in 2002. The 2002 operating profit is forecast to grow on 2001.
FLS Aerospace
-------------
2001 showed the first positive results of FLS Aerospace's thorough restructuring and efficiency improvement process which led to positive earnings during the first three quarters of the year. The terrorist attack on the World Trade Center, however, quickly reduced turnover and the year as a whole generated an operating loss.
Since 11 September, the industry has experienced a significant reduction in demand for aircraft maintenance as many aircraft are grounded and air traffic is declining. The number of unused aircraft has risen dramatically, and FLS Aerospace has therefore had to reduce its workforce.
Despite the general decline in the aviation industry, the crisis has led to a change in the competitive situation, with low-cost airlines, in particular, experiencing pronounced success.
Low-cost carriers and charter airlines account for a large part of FLS Aerospace's customer base.
Higher profitability was high on the agenda at FLS Aerospace in 2001 and the company management was strengthened at several levels during the year. Improved efficiency in heavy aircraft maintenance, which is carried out in Dublin, Stansted and Manchester, has cut resource spending and enhanced profitability. Shorter turntimes are providing signficant improvements in cash flow. The change process is being supported by ongoing development of the professional competencies of the workforce.
Throughout 2001, FLS Aerospace has strived actively to strengthen its relationship with existing customers while expanding its portfolio of clients. In October, the British airline easyJet extended its contract with FLS Aerospace for a ten year period, comprising maintenance of the carrier's 44 aircraft. The contract is the company's largest to date, at a total value of DKK 3.1bn. This and other contracts have helped to cushion the effects of 11 September. The backlog of orders at 31 December 2001 amounted to DKK 8.3bn.
The receding market for aircraft maintenance is not expected to reach a turning point until in 2003. The adjustments made and the strong portfolio of existing business give reason to expect a profitable result for FLS Aerospace in 2002.
Prospects for the future
------------------------
As to the future prospects for the entire FLS Group, the ongoing process of focusing and restructuring will continue throughout 2002. Despite better prospects for the world economy in general, FLS Industries' market situation still appears difficult.
When the year's results were released it was announced that turnover was expected to reach DKK 19bn with earnings above the level of 2001. Disposal of non-core activities may significantly change the level of earnings, both negatively and positively. So the projection of earnings for 2002 is subject to great uncertainty. It is the aim of the new Board of Directors to curb the Group's debt through disposals, reducing it to a satisfactory level that will give the FLS Group the necessary financial leeway. It is the Board's intention to effect the disposals over a period of time to maximise return for the benefit of shareholders. The present price level of FLS Industries shares on the Copenhagen Stock Exchange is considered non-commensurate with the real value of the Group. The more recent price rises have contributed to a limited extent.
A condition for improvement of the valuation of the company is successful improvement of its earnings. The Board is convinced that we shall be able to achieve such growth in the coming years.
The FLS Group today employs some 13,500 people whose efforts are vital to the company's successful and ongoing achievement of its short and long-term goals. I would to thank all our employees, our management and Board members for the efforts you have made. 2001 was a difficult year, but we are confident that we are on the right track.
As stated in the printed report, page 77, the Board of Directors proposes to the Company in General Meeting that no dividend be distributed for 2001."
FLS Industries A/S
Corporate Public Relations