FLSmidth has announced a strategic change to enhance long-term profitability and to accelerate growth in its core Mining business, which could see it offload its portfolio of port systems, stockyard equipment, “standard bucketwheel excavators”, “continuous surface mining equipment”, and mine & overland conveyors.
The decision, which comes seven weeks after closing the acquisition of TK Mining, is the result of a planned strategic review of the combined FLSmidth Mining and former TK Mining technology product portfolio against FLSmidth’s long-term strategic direction and ambitions, FLSmidth said.
“With this change, FLSmidth is creating a new platform for improved profitability, lower risk and strategic focus on the core value creating parts of the Mining business,” it said.
The company clarified that the overall strategic rationale for the acquisition of TK Mining has been reconfirmed and the acquired business is overall in line with its expectations. Furthermore, the cost synergy potential from acquiring TK Mining has been revisited, and further cost synergies have been uncovered, FLSmidth claimed. Additionally, the pace to realise these synergies will be accelerated.
The annual cost synergy target is now expected to be around DKK 560 million ($74 million), instead of the previous DKK360 million, with the annual cost synergy run-rate now expected to be achieved by end of 2023 (previously first two years after closing of the acquisition).
The aforementioned review intended to assess all combined mining activities and products from a strategic, financial and sustainability perspective against FLSmidth’s long-term strategic direction and ambitions, the company said. 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:
A continuing Mining segment focused on profitability, growth and sustainability;
A new Non-Core Activities segment, where activities will be fully exited either by way of divestment or wind-down of the order backlog.
The new segment split will ensure sharpened strategic focus and stronger execution of the continuing Mining activities that are key to accelerate long-term profitability and growth for FLSmidth, it said. At the same time, dedicated focus and resources will be allocated to the Non-Core Activities to ensure transparency and effective execution of the divestment or wind-down and to minimise losses from these activities.
Group CEO, Mikko Keto, said this split would reduce engineering risk, while setting the company up to become the leading technology and service solutions supplier to the global mining industry
“For years FLSmidth has been focused on engineering and large-scale projects with inherently high risks, challenging execution and volatile profitability,” he 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.”
FLSmidth’s Mining segment is dedicated to provide customers with best-in-class full flowsheet technologies and services solutions to enhance their productivity and sustainability agenda. A key focus for FLSmidth Mining is to enhance profitability through a significant service and aftermarket potential, low execution risks, high technology content and process know-how, and a strong sustainability impact
This could see the company offer single services or products, as well as projects with lower risk consisting of product bundles with related performance guarantees in accordance with FLSmidth’s risk management approach.
The continuing Mining segment encompasses, but is not limited to, FLSmidth’s key products within conveying (former TK Mining’s conveyor systems); milling & grinding (including former TK Mining’s high pressure grinding rolls); crushing & feeding; separation, thickening & filtration; pumps, cyclones & valves; sizers, screens & centrifuges; pyro-processing; sampling, preparation & analysis; and mine shaft systems.
The Non-Core Activities segment comprises specific loss-making mining activities and products that are no longer deemed to be of core strategic importance to FLSmidth, the company said. The selection criteria for these activities and product types have been that either they offer limited or no aftermarket potential, are characterised by high execution risks, are highly engineered and/or lack standardisation, and the company sees 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.
Consequently, FLSmidth will either divest or wind-down the following activities and products:
All legacy FLSmidth and former TK Mining brands: port systems, stockyard equipment and standard bucketwheel excavators;
Legacy FLSmidth Mining brands: continuous surface mining equipment and mine & overland conveyors; and
Former TK Mining activities: oil extraction technology and aggregate products.
Existing contracts and ongoing activities in the order backlog will be executed and honoured, if not divested, yet FLSmidth will not take new orders for the Non-Core Activities segment, it said.
A designated organisational structure will be established to oversee the Non-Core Activities segment, with the head of the segment reporting directly to the group CFO. Around 450 employees are expected to be included in the Non-Core Activities segment.
The Non-Core Activities segment comprises of an order backlog of around DKK3.6 billion as of the end of the September quarter of 2022, of which approximately half originates from FLSmidth and half from the former TK Mining. The vast majority of the order backlog relates to capital orders.
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, FLSmidth said. The estimate is based on historical performance and costs associated with the wind-down or divestment decision. This estimate is subject to uncertainty due to the nature of winding the business down and may change depending on which of parts of the business are divested, it clarified.