FLSmidth is carving US$60-80 million of sales and 430 people out of its enlarged mining equipment arm to focus on what it sees as the more profitable, more “sustainable” core of the recently combined thyssenkrupp Mining-FLSmidth business.
The Danish company said Friday it had completed a strategic review of TK Mining, which it bought for €280 million (cUS$318m) earlier this year, and other parts of its legacy mining business.
“As a result of the strategic review, it has been decided to split the mining business into two separate segments for operational and reporting purposes,” FLSmidth said in a statement. “[One] a continuing mining segment focused on profitability, growth and sustainability. [The second] a new non-core activities segment, where activities will be fully exited either by way of divestment or wind-down of the order backlog.”
Management suggested a three-year exit window for “non-core”, which will have a segment head appointed to run it in the interim. No new orders will be taken.
The division will have about 450 employees and expected 2022 sales of at least DKK500 million (US$66m). FLSmidth said the roughly DKK3.6 billion (US$480 million) of segment orders at the end of September were about half-and-half, FLSmidth and former TK Mining business, and mostly capital equipment.
“The non-core activities order backlog is expected to be divested or wound down within the next three years with an expected total EBITA loss over the period of around DKK1.2 billion [US$160m] … based on historical performance and costs associated with the wind-down or divestment decision,” FLSmidth said.
Selection of the non-core port systems, stockyard equipment, standard bucket wheel excavators, continuous surface mining equipment, mine and overland conveyors, and oil extraction technology and aggregate products, was based on their limited aftermarket potential, high execution risks and lack of standardisation.
“We see no viable commercial model for FLSmidth to turn these around. Furthermore, these products are not aligned with or important for FLSmidth’s sustainability agenda,” it said.
The manufacturer’s primary mining portfolio features the former TK Mining’s conveyor systems and high-pressure grinding roll (HPGR) units, other FLSmidth milling and grinding equipment, crushing and feeding, separation, thickening and filtration equipment, pumps, cyclones and valves, sizers, screens and centrifuges, pyro-processing equipment, sampling, preparation and analysis products, and mine shaft systems.
FLSmidth said significant service and aftermarket potential, low execution risks, high technology content and process know-how, and a strong sustainability impact, characterised the line-up.
It is expected to underpin 2022 mining revenues of DKK14.5-15 billion (US$1.9-2 billion) and an adjusted EBITA margin in the 10.5-11.5% range.
FLSmidth’s cement equipment business is forecast to generate DKK6-6.5 billion of revenue to the end of 2022.
The company said “improved business momentum” in the core mining equipment business was expected to translate into a DKK500-1000m (US$66-132m) sales tailwind.
It had also reviewed potential annual cost synergies from the TK Mining integration and said these could now total up to US$74m (previously US$48m). However, integration costs to realise the synergies were now estimated to be about DKK800m (US$106m) compared with the DKK560m (US$74m) earmarked earlier.
“For years FLSmidth has been focused on engineering and large-scale projects with inherently high risks, challenging execution and volatile profitability,” CEO Mikko Keto said.
“We are now taking decisive action to further strengthen the focus on our core business, to ensure stronger execution and to drive value creation.
“The world must undertake a significant green transition over the coming years and the mining industry plays a crucial part in this. With today’s strategic change, FLSmidth is better positioned than ever before to become the leading technology and service solutions supplier to the global mining industry.”
Copenhagen-listed FLSmidth’s share price is down from circa-DKK260 at the start of the year to around DKK180 now, capitalising the company at DKK10.4 billion (US$1.38b).