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Q1 2008 FLSmidth & Co. Earnings Conference Call - Final

Copyright:CCBN, Inc. and FDCH e-Media, Inc.
Source:FD (FAIR DISCLOSURE) WIRE
Wordcount:8660

OPERATOR: Good afternoon ladies and gentlemen. Welcome to the FLSmidth Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Jorgen Huno Rasmussen, Group CEO.

JORGEN HUNO RASMUSSEN, CEO, FLSMIDTH & CO: Good afternoon, and welcome to the presentation of our first quarter in 2008. Together with me are my colleagues and executive management, and we'll briefly take you through our presentation, and then answer any questions that you may have.

Our most important message today is that we enjoyed the decoupling of any financial crisis from our markets. And if you turn to slide two, you'll see that this reflected in the highest quarterly order intake that we've ever had in the 126-year history of our company.

And it is especially interesting that for the first time, order intake in Minerals is higher than that in Cement, which underlines the reality in our aspiration to grow our Minerals activities as to the same level as that of Cement.

And this is in spite of the fact that, again, there's a surprisingly strong demand for new cement capacity, which we're increasing now to a potentially new all time high for this year.

Our full year guidance for the turnover remains unchanged, but now, of course, the usual fluctuations between the quarters with prolonged execution due to suppliers and customers, which we consider positive, because it drives up our order backlog, and it improves our visibility for the coming years even further.

Turning to slide 3, the trends in the key financial figures underline the positive development. Turnover up 41%, and the EBIT up 77%, almost two times as much due to further margin improvement.

It should be noted that this quarter alone, we've had purchase price allocations from the GL&V acquisition of DKK 103 million, and this will soon be drawing to a lower level for the next year.

Turning to slide 4. Seen over 12 months period at Group level, there's continuing progress on all counts, with sales up DKK 21 billion, and EBITDA of DKK 2.3 billion. The EBIT is approximately DKK 2 billion, and the cash flow is now, for the first time, above DKK 2 billion.

As mentioned, the most promising facts for our future are the new historical records in order intake and backlog, illustrated on slide 5, with an order intake for the first time above DKK 9 billion for one quarter, which means up 119% from last year.

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The order intake is--sorry, the order backlog is now almost DKK 29 billion, or up 60%. And summarizing on slide 6, we have sales up 41%, EBITDA up 69%, and we have the EBIT ratio now about 10%, but we must remember the purchase price allocations that I mentioned earlier, of DKK 103 million, which leaves an EBIT of--increase by 43%. And the earnings per share is up 50%, compared to last year.

Turning to slide 7, taking a closer look at our three business areas, and first in Cement, where we enjoyed the increasingly strong market. Hence, the main markets are all independent of the financial crisis. So sales are up, but earnings much more, due to changed product mix, improved order execution, and higher sales prices.

We continue to have a strong order intake, and this is lately primarily from Russia, Poland, Egypt and Brazil.

Turning to slide number 8, we see the quarterly developments in Cement, and they all demonstrate the same trend, with the largest growth in order intake, up 54% from last year, and the second largest development is in the EBIT, which is up 45%.

Turning to slide 9, where we look ahead. We must admit that we've not been optimistic enough, because our global market, outside China, is this year now heading for a new all-time high, which could be 150 million tons of new capacity. So we upgrade our previous expectations with 25 million tons capacity. So we are now postponing the return to the expected future average of, say, 60 to 75 million tons for another couple of years.

Turning to slide number 10. The geographical distribution further strengthens the previous development, with India as the biggest single market, which is very satisfying, since we have a much strong position than our competitors in this particular market, and we have also a higher market share in India than anywhere else.

Please note the reduction in the Middle East, but remember that these quarterly developments are too small snapshots in our industry, and they can change considerably over the next quarter.

However, looking at slide 11, we can't help enjoying the fact that India, Africa and Russia, where we are especially--have especially strong positions, now together account for three-fourths of the whole global market.

On slide 12, it's still the same picture, that the only signs of slowdown in the global cement markets are in the USA, and parts of western Europe. And on the other hand, new markets keep expanding, such as, for instance, Indonesia, where we, over this first quarter, signed our first contract in seven years.

In slide 13, we have compared with our cement peers and their financial performance, and you'll see that there is a size difference in turnover last year between us and Sinoma, our biggest competitor, of approximately 42%. But this gap is being reduced, as can be seen from their higher order intake. This is, however, only due to the fact that Sinoma is primarily taking in turnkey contracts, which also includes a loss of activities in construction and civil works.

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Then, turning to slide 14, and the Minerals activities. I'll turn it over to my colleague, Christian Jepsen.

CHRISTIAN JEPSEN, GROUP EXECUTIVE VP, FLSMIDTH & CO: Talking about the Minerals side of our business, the demand for commodities continues to be at a very high level, driven by the developing countries, in particular, in China. And looking at the Chinese growth, it seems to be quite sustainable despite the subprime crisis in the United States. And as such, the gap between demand and supply of commodities calls for additional capacity expansion.

The sound market environment in the first quarter of 2008 was evidenced by the record order intake, particularly on the equipment side, but also on the customer services, made progress in the first quarter. Our new concept One Source--One Partner seems to be accepted by the market, and as such, we will be able to announce three major projects in the first quarter, selling into iron ore and copper in particular, in countries such as Australia, Chile and Peru.

Turning to page 15, where our performance in the first quarter is expressed in financial figures. Compared with the same period in 2007, you'll see on all accounts that there has been a significant improvement, starting on the turnover, with more than 125% increase. EBITDA was almost 200%, and EBIT before purchase price allocations was more than 200%, DKK 276 million, all equating into a realized EBIT ratio of 11.2%, explained, among others, by--through leverage, better execution, and better sales prices obtained in the marketplace.

The previous mentioned purchase price allocation of DKK 103 million, which leaves us with an EBIT of DKK 133 million, and an EBIT ratio of 6.3%.

Turning to page 16, we display here the quarterly developments. Both order intake, where compared to the last period last year, we are talking about almost 270% up, a total booking of more than DKK 4.6 billion, which is twice as much in the previous three quarters.

Out of that, we executed, if we look at the turnover, DKK 2.1 billion, up 125%. And since we booked DKK 4.6 billion in the first quarter, executed DKK 2.1 billion, we are adding another DKK 2.5 billion to the backlog, that now ends up at DKK 10.9 billion, a record, at the end of the first quarter.

That all mirrors through the P&L, and leaves us with an EBIT, before the purchase accounting, of DKK 236 million.

Page 17, we have made an attempt to compare sales to our Scandinavian peers, in this case, Metso and Outotec. And if you look at the bookings for the first quarter '08, it tells you that efforts made (inaudible) as such captured market share. If you add together the order intake for these three companies, we took close to 50% of the bookings in the first quarter. And compared to turnover, again, in first quarter '08, we are all [on path].

Page 18 talks about the value chain, and the (inaudible) to be found when we talk about the typical mining site--the processing plant, in particular. And you can see that we are also moving outside the box into the extraction part, and also the refining here. And so, we mentioned the acquisition that was announced Friday, with Pneumapress, where we have basically broadened our offering in the filter side of the business, adding the pressure filter site to our offerings.

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Page 19. Since we now have the most complete flow sheet in the industry, that now allows us to offer full scope through the combination of the leading brands, and as such, we married ourselves now with the One Source--One Partner slogan.

And page 20 just talks about some of the successes that follows along, that One Source--One Partner, by the--in this case, the announcement made last year, where we sold two mobile overburden handling systems to a customer in Australia, where we bundled leading brand names as RAHCO, MVT and KOCH. So just an example that confirms our aspirations, and what advantage it is for a company like FLSMinerals, when we take up a product company and allow that product company to be part of our global distribution, when it comes to sales.

Page 21 talks about the announcement mid-February, where we announced the contract, the first contract, in FLS, FLSMinerals history, where we're going to supply a complete minerals processing plant for treatment of magnetite iron ore in Australia, once again validating the new concept.

And then on page 22, the announcement from March, where we proudly announced our relation--our new partnership with xstrata and Bechtel, where we, in partnership, are going to develop six identical copper plants throughout different parts of the world. Investments have now been made over the next five years.

On page 23, we added a slide, making reference to the current financing crisis, just to--well, what this slide basically confirms is that funding among our customers seems not to be an issue. And here, you can see the cash generation in 2008 among the mining companies--close to $140 billion, where they basically reuse roughly $60 billion of the cash generated for CapEx. The interesting part is here, the line graph, that shows you that the relationship between the CapEx and cash flow earned is going south, whereas five years ago, it was a 17% relationship. Now they basic reinvest one-third of the cash flow generated.

So all in all, a very healthy industry.

And with that, I turn it over to Bjarne Moltke Hansen.

BJARNE MOLTKE HANSEN, GROUP EVP, FLSMIDTH & CO: Thank you. Page 24, it appears we still continue to grow our Customer Service businesses. In Cement, order intake was down 5%, but (inaudible) for currency, we actually realized a small increase. Turnover, nice increase, by 25%. And in Minerals, both turnover and order intake had a dramatic increase.

So all in all, we grew our turnover by more than 50% compared to last first quarter, and that really underlines our growth target of 10% to 15% per annum.

Going to Cembrit on page 25, we have a new capacity in the pipeline, and good progress as planned in Poland, as we will be on-stream in this year, and in Finland, our flagship plant, mid next year. We have filled one of the white--few white spots in Europe, by starting a joint venture in Belgium, (inaudible) company, and we have acquired the remaining 50% of the shares in our joint venture in Hungary.

We--the new name symbol was well received during the first quarter. Results are down compared to last year, due to product mix and also due to an exceptional good first quarter last year.

Turning to page 26, you see the development of turnover and EBIT, and it's still so that our turnover is capped by the current capacity.

And by that, I will give the word to Jorgen Huno Rasmussen.

JORGEN HUNO RASMUSSEN: Looking at slide 27, we are quantifying the positive expectations for our three business areas for the full year, and they're all better than last year. The only change compared to our last announcement being in Minerals, where DKK $0.5 billion turnover is postponed, but the margin is improved, so that the result remains the same.

And on slide 28, adding it up at Group level, the only changes are upwards. We are adjusting the expectation for the total global cement market with 25 million tons new capacity, and we are adjusting upwards the cash flow from operations, with another DKK 300 million, to now DKK 1.5 billion.

On slide 29, the long-term growth and earnings prospects are all unchanged compared to the last announcement. So our only comment here is, an even stronger confidence than the last quarter, due to the further strengthening of the cement market.

And on slide 30, events occurring after the end of the quarter--again, they are only positive events. At our General Meeting in April, our Board was strengthened in the Minerals activities by our new member, Mr. Martin Ivert, a Swedish citizen, former CEO of LKAB, which is a world-leading producer of upgraded iron ore.

We have paid out the dividends as planned, and we have changed the Articles of Association, but these are all formalities.

We have, since the end of the quarter, announced two major orders--one Cement order in Egypt, and the Minerals order in Mexico. Both are in promising markets, and the Minerals order regards maintenance contracts, so it's further strengthening our Customer Services aspect, which is strengthening the continuity in our activities.

Finally, as also mentioned by Christian Jepsen, we consider our acquisition of Pneumapress for quite a scoop, as we hereby overnight moved into the world-leading position also in pressure filters. And we believe that this particular filter is the most important in the future for the industry, actually for both the Minerals and the Cement industries, and it was the only remaining product in a typical mining site plant where we were not in a leading position.

So then, turning to slide 31, in conclusion, we have experienced for the first quarter a satisfactory performance, confirming our expectations in another strong year. We have had an especially promising order intake, which illustrates that market activities and customer demand is not a limiting factor in our development of the company, as we have continued favorable market outlook in both Cement and Minerals, and all signs are that this situation will continue in both markets.

The One Source--One Partner is strengthening our position further. It has been accepted in the industry.

And with these words, I thank you for your attention, and we are prepared to answer any questions.

OPERATOR: Thank you. We will now begin the question and answer session. (Operator instructions).

The first question comes from Kitty Gron, from Handelsbanken.

KITTY GRON, ANALYST, HANDELSBANKEN CAPITAL MARKETS: Yes, good afternoon. I would like to ask, in terms of your raised projections for the cement market, how should we translate that into your expected order intake for the year in Cement? If you are looking at a 20% growth in cement plant ordering, do you also see your own order intake rising by the same magnitude? Or possibly more or less than that?

JORGEN HUNO RASMUSSEN: I can say that it will, of course, increase our order intake, but we can't quantify it for you at this stage. What we can say is that over the first quarter, our experience has been that we've maintained our market share.

KITTY GRON: Yes. And your market protection concerns the kiln capacity--how important is that for the overall, sort of, order intake potential?

JORGEN HUNO RASMUSSEN: It's an indicator of the total market for new plants. And this is, of course, an important part of the market for us. And as I said, our experience has been that we maintain our market share here, and we expect to do so in the future also.

The consequence of the upgrade here is to be seen not so much in this year, because of the prolonged delivery time from subsuppliers, and thereby, also from ourselves. So the consequence will primarily be that it will influence our order intake, and thereby our visibility for the years to come.

KITTY GRON: But if you--

JORGEN HUNO RASMUSSEN: In addition to that, there are, of course, many other aspects of the market, and the role of Customer Services, which is not so much reflected by this indicator of kiln capacity. And how that develops over the year is--we can't quantify it at this stage.

KITTY GRON: Okay, but you have internally raised your expectations for order intake after the Q1 results?

JORGEN HUNO RASMUSSEN: We have realistic hopes for this. As I said, maintaining our market share--yes, we believe there will be a positive influence.

KITTY GRON: Thank you.

JORGEN HUNO RASMUSSEN: Welcome.

OPERATOR: The next question comes from Lars Topholm from Carnegie.

LARS TOPHOLM, ANALYST, CARNEGIE BANK CAPITAL: Yes, Lars from Carnegie. Congratulations with another good quarter. I have a few questions.

One thing, in connection with what Kitty just asked, if you look at the value of one contract, it's Cement Kiln (inaudible) in capacity. How has that developed, because presumably, with much higher steam prices, one ton in capacity reflects a higher amount of money.

And then, referring to your slide 23, with the CapEx forecast for the Minerals industry, that would suggest to me you're expecting a declining order intake in Minerals. Could you please comment on that?

And then finally, a household question. What level of PPA do you see in Q2, Q3 and Q4, separately, just to get a prioritization of purchase price allocations right?

Thanks.

JORGEN HUNO RASMUSSEN: Thank you. Let me start out by saying that yes, we can confirm that the sales prices of new cement capacity is increasing, primarily due to an increase in steel and other raw materials. Also, increases in margins in our activities. And so, there is a constant positive development in the sales prices put on, yes. And then, it varies, of course, also, very much, between the different geographical markets.

Concerning the--

LARS TOPHOLM: But on average, Jorgen, can you try to quantify how much one ton is increasing in price?

JORGEN HUNO RASMUSSEN: No, I can't, and it wouldn't help you very much, either, because there are so very big differences between the different geographical markets. So you--

LARS TOPHOLM: But you can confirm that in spite of this, there's still room to expand the gross margin, through better pricing?

JORGEN HUNO RASMUSSEN: We do that constantly--not dramatically, but constantly, yes.

LARS TOPHOLM: Okay.

JORGEN HUNO RASMUSSEN: And then, regarding the CapEx, the slide that we have illustrated, the source is Citigroup. And the--it primarily goes to illustrate that from this, according to this source, there is very high CapEx, but at the same time, it accounts for a smaller portion of the cash flow. So it goes to illustrate that they have the necessary funds.

Then, regarding whether that's going to drop in--from 9 to 10, well, that's a guess, and there are other equally qualified analysts that have opposite guesses, so we don't put too much importance to that.

LARS TOPHOLM: But what's your own guess?

JORGEN HUNO RASMUSSEN: Poul Erik Tofte has a comment.

POUL ERIK TOFTE, GROUP EVP AND CFO, FLSMIDTH & CO. A/S: Okay, and here's the result, Lars. On the PPA, I mean, it will be trending down towards this 100 per year in 2009, so a good guess would be, 100 Q1, 100 Q2, 50 Q3, and 25 Q4. So that's the sort of level.

LARS TOPHOLM: Fantastic. And then, I would like to get back to the question, do you see increasing order intake in Minerals in 2009 and 2010?

JORGEN HUNO RASMUSSEN: Yes, we do.

LARS TOPHOLM: Okay. Thanks.

JORGEN HUNO RASMUSSEN: Welcome.

OPERATOR: Torsten Bech from LD Markets is on line with a question.

TORSTEN BECH, ANALYST, LD MARKETS: Yes, hi. It's Torsten Bech from LD Markets. A few questions left. First of all, if we take the currency effect that you discussed in relation to Minerals, could we get an indication of the level of the currency effect, both on revenue and also on the costs?

Secondly, if--you previously mentioned some price increases within the Minerals division. Could you quantify the level of--yes, the indicated price levels, price increases on orders in Minerals, adjusting for commodity price increases, which Lars talked about earlier?

And finally, if you look at the cement market, cement capacity market for Iraq, how far away do you see the first order in Iraq, in country for your site?

That was it.

POUL ERIK TOFTE: Regarding your question number one, the currency impact. As you can see, the full year guidance is down by DKK 500 million on revenue in Minerals, so DKK 500 million, of which we state that by far, the majority comes from currency. The second explanation is a postponement, so most--by far, most of the DKK 500 million, that's the revenue impact.

And then you can sort of take that revenue impact and multiply with some contribution margin percent, a lower contribution margin percent than average, because we are not going to be hit fully by that.

TORSTEN BECH: Okay.

UNIDENTIFIED COMPANY REPRESENTATIVE: Yes, you also asked about the sales prices and the margin increases, and part of the increase on sales prices have caused the underlying cost structure that is going up, but at the same time, we also allow ourselves to ask for higher prices for the hard work we extend to our customers each and every day. But also, as we mentioned before, we do believe that we have an offering, in particular on the systems side, that allows for higher pricing, as it does save our customers costs on their end.

JORGEN HUNO RASMUSSEN: And the only quantification--quantifying of this is, I think, what you would get out of the accounts. But I can't answer your question regarding Iraq. There is potentially in Iraq, eventually--we build most of the plants that are there, and they need to be brought back in shape, and eventually, when this piece, they'll need to develop the country also, they'll need more capacity.

So yes, there's a potential market, only we haven't budgeted anything for neither this nor next year.

TORSTEN BECH: Okay, thank you.

OPERATOR: The next question comes from Daniel Patterson from Danske Bank.

DANIEL PATTERSON, ANALYST, DANSKE BANK: Yes, hello there. Daniel Patterson from Danske. I have three separate questions.

First of all, your net working capital is up significantly, and you're stating that GL&V is a major contributor to this. What is the reason that GL&V needs a higher net working capital, sort of operationally?

Secondly, I can see your receivables are down 13% since New Year. I was wondering, is this just seasonal and doesn't mean anything, or does it mean that you have greater bargaining power over your customers, and can actually demand shorter credit lines? Should we read anything into that?

And then finally, sort of a more blurry question concerning wage inflation and engineers, I'm thinking wage inflation seems to be an increasing problem in the West, probably also in Asia, perhaps in India as well. What is sort of the situation here? Is it easy to get new and qualified engineers, and what is sort of the wage inflation impact for you?

UNIDENTIFIED COMPANY REPRESENTATIVE: Well, on the net working capital side, it is correct that normally, our traditional Minerals business has not been having a lot of working capital, but GL&V has much more, and that's because the GL&V is not huge, single machines, where you could ask for a down payment. It's normally things that--where you sell, more or less, on normal credit terms. And then--so therefore, you have the traditional inventory, receivable, payable, that sort of cycle, which you don't see on the big orders, because there is no inventory--I mean, it's all work in progress. And there's no receivables, because most of the customers pay up front.

So I would say it's just more traditional working capital business.

DANIEL PATTERSON: All right.

JORGEN HUNO RASMUSSEN: Regarding the salaries and the recruitment picture for engineers, we have the advantage that we operate globally, and we have three major engineering centers in different regions of the world, so we have a large network for recruiting. And there are (inaudible) here and there, but overall, we get the engineers that we need.

And because they are regional inflations and salary increases, but there are no salary increases above the normal relations to inflation, so it's not in any way influencing our cost structure or competitive position.

DANIEL PATTERSON: All right, thank you.

JORGEN HUNO RASMUSSEN: Welcome.

OPERATOR: Jacob Pedersen from Sydbank is online with a question.

JACOB PEDERSEN, ANALYST, SYDBANK: Yes, good afternoon. I just have a couple of questions here. First of all, your acquisition of GL&V. Now that customers have had more time to absorb your new product offering, One Source--One Partner, could you give us a status on the benefits? Has the outcome so far been better or worse than you had expected? And also, maybe a comment on the expected cost synergies going forward from this acquisition?

That's my first question. The second question, you talked a lot about the deferred order execution in this quarter. Could you maybe comment a bit on the main issues, and when these issues will be resolved? Thanks.

JORGEN HUNO RASMUSSEN: In terms of the GL&V acquisition and the amount of synergies we talked about when we announced the deal in August, I can confirm that we see a lot more synergies than we anticipated going in on the sales side. And in particular, when we get the audience talking to customers, when we get the opportunity to basically explain the overall offering and how we can help our customers improve their bottom line and their project execution when they deal with one partner that can supply the entire flow sheet.

And then you had a second question, there was cost synergies--

JACOB PEDERSEN: Cost synergies.

JORGEN HUNO RASMUSSEN: I mean, as we mentioned before, the acquisition of GL&V, it did not happen as part of an industry consolidation. It was actually in order to grow the business. And as such, we need all men on deck.

So there has not been any reduction in force, but there has been, and there will be, further cost savings as we consolidate some of the footprints in the different parts of the world where we had several offices in the same country, where we're now consolidating into, one and the same.

And that actually happens in several countries, including the activities on the Cement side. We'll be pooling the footprint.

So we--there has been, and there will be, cost savings going forward.

JORGEN HUNO RASMUSSEN: Regarding the deferred turnover, it's fairly simple, actually. Our--the whole industry is at a historical boom, and we experienced that subsuppliers, they are increasing their lead times. And we, of course, are doing the same.

So a plant from our side, if booked today, will be delivered one or two years later than it would have been if it had been ordered three years ago.

So that increased the lead time for all the product, and it does mean that--we see it as a positive situation, because it only means that our order backlog increases, and the duration for the execution of it is extended. And so is our visibility for the coming years.

So those are the consequences.

JACOB PEDERSEN: Okay, and could you maybe comment a bit on the component? I guess, it's not all components and all engineers, that's a big issue.

JORGEN HUNO RASMUSSEN: Yes. No, it's--we track a list monthly of about 18 to 20 key components that we can consider critical, and that have long lead times. And for all of these critical components, we ensure that we book the necessary slots for the coming two to three years, so that we have what we need for the execution. And we enter into a different sort of strategic cooperation with suppliers, to ensure that we have the first right of refusal for these components.

And this is the setup that seems to be operating fairly efficient.

JACOB PEDERSEN: And it--this is also what's caused the fall short on the full year, that your suppliers have not been able to deliver on the terms that you have agreed with them?

JORGEN HUNO RASMUSSEN: As I said, there's a general trend that all lead times are increased, and therefore, it will extend the backlog for a longer period. That's part of the explanation.

JACOB PEDERSEN: Okay. Thanks.

JORGEN HUNO RASMUSSEN: Welcome.

OPERATOR: The next question comes from Klaus Kehl from Kaupthing.

KLAUS KEHL, ANALYST, KAUPTHING: Yes, hello, Klaus Kehl from Kaupthing. First, a question related to the Cement business. We know that 2007 was affected by a lot of turnkey projects, and you have previously said that this element should approach around 10% here in '08 and '09. But can you comment on how it looks here in the first quarter of the year?

And secondly, your order intake has been quite fantastic in Q1. However, you have not announced that many orders here in the second quarter, at least so far. So would it be fair to expect a clear downturn in the order intake in the second quarter compared to Q1, or have you simply just started to get a lot of smaller orders that doesn't--yes, that's below, say, DKK 200 million? Thank you.

JORGEN HUNO RASMUSSEN: Regarding the turnkey element, we don't have actually a measurement on the percentage for the first quarter. But I can tell you that it's as expected, and as indicated early on, and there are no changes to this, neither for the first quarter nor as for the year as a whole.

KLAUS KEHL: Okay.

JORGEN HUNO RASMUSSEN: And regarding--yes?

KLAUS KEHL: Okay, so we should not expect a gradual uptick in the margins due to a lower turnkey element in the coming quarters?

JORGEN HUNO RASMUSSEN: In this relation, the third quarter is comparable to the rest of the year.

KLAUS KEHL: Okay.

JORGEN HUNO RASMUSSEN: And then, the other question--

UNIDENTIFIED COMPANY REPRESENTATIVE: Q2.

JORGEN HUNO RASMUSSEN: On Q2, on the order intake. As we have said previously, one quarter is too short a period to evaluate our business, and that there a lot of fluctuations. We have big orders and small orders coming at random, and we have no indication that there should be a slowdown or that, say, a quarter should be weaker than any other quarters this year.

KLAUS KEHL: So you think that it--we could expect that Q2 should be equally strong, in terms of order intake?

JORGEN HUNO RASMUSSEN: We can't tell you yet. We'll tell you in August.

KLAUS KEHL: Okay. Thank you.

JORGEN HUNO RASMUSSEN: Thank you.

OPERATOR: [Diu Xiang] from Exane is online with a question.

DIU XIANG, ANALYST, EXANE BNP PARIBAS: Hi, Mr. Rasmussen, and good afternoon, and well done on the wonderful Q1 results. I have three questions, if I may. Number one is a follow up on currency effect, and you mentioned that you actually tuned down a little bit on sales in Mineral division. But am I right to suggest that there will be some similar currency effect (inaudible) through Cement element?

JORGEN HUNO RASMUSSEN: No. Thank you for your kind words. The currency influence is primarily in Minerals due to geographical reasons. So we don't see the same effect in Cement.

DIU XIANG: Okay. So in terms of geographical regions, you're talking about more order intake, or sales, in U.S. dollar, or Latin America currency, or Canadian dollar? Can you give us some more specifics on that?

JORGEN HUNO RASMUSSEN: Well, I can tell you, there's a tendency in Cement, in particular, towards more and more contracts being in euros.

DIU XIANG: Okay. And this should compare to more and more orders in U.S. dollar, in the Mineral order intakes, then--or, Mineral turnover. Am I right to say that?

JORGEN HUNO RASMUSSEN: Well, we have a higher maintenance activity in the U.S., so that's part of the picture.

DIU XIANG: Okay, thank you for that. And my second question is basically, in slide 10, you sort of give us an indication where you expect additional demand for cement plants coming from, and they are India, Africa and Russia. So can you please comment on your market position versus your competitors, and then maybe your pricing power in those markets? That would be great.

JORGEN HUNO RASMUSSEN: Yes, but I'm afraid we'll get too close to competitive issues that--where we are careful in disclosing too much. So I can just say, slightly broader picture that--in all of the three areas where we see a strong market, that is, India, Russia and Africa, we are in a strong position in all these three regions, so it fits neatly with the development in the market trends.

DIU XIANG: Okay, that's fair enough. My last question is, can you please comment on your financial item in P&L and should we expect a similar amount of number in the coming quarters?

POUL ERIK TOFTE: No, there has been some one-off currency gains, and that's the reason why we are in plus on the financial items in Q1. There will not be a repeat. So you should assume that you take, more or less, our net interest bearing debt times a certain interest percent, and then, that would be the picture for the following three quarters.

DIU XIANG: Okay. Thank you very much.

JORGEN HUNO RASMUSSEN: Welcome.

OPERATOR: Christian Reinholdt from Small Cap Denmark is online with a question.

CHRISTIAN REINHOLDT, ANALYST, SMALL CAP DENMARK: Yes, hello. It's Christian Reinholdt here. When you read the report, it's very hard to see any negative from your side--

JORGEN HUNO RASMUSSEN: We feel the same way.

CHRISTIAN REINHOLDT: But I just wondered about the order execution. You also say there is--one of the reasons why you improve your margins here, but could you give us a bit more flavor on how it is working, and how solid the order execution is, and how sure you are that you can stay on track and don't come up with any surprises here?

JORGEN HUNO RASMUSSEN: As I think we have been discussing early on, we did change our Cement organization in 2005, and it has had a very strong effect, that its established ownership to the execution of Cement, that made the Cement contracts. And we see this positive development continuing.

And we are now going through change in Minerals, where we are moving towards larger contracts, and we are building on the same product management execution, and utilizing--you could say, best practices, that we built up in Cement.

And we are in the process of integrating our organizations in Cement and Minerals in all functions, where it's relevant. And this includes product management also. And the attempt here is to ensure that we use and transfer best practices also.

So it's an issue that we are very focused on, and we will continue to be, because we see ourselves as in a product business.

CHRISTIAN REINHOLDT: But could you give us any idea, if there any products--if any at all, that is not following the plans that you have?

JORGEN HUNO RASMUSSEN: It's--there are always variations in products, and that's why we do calculate the contingencies and make reservations for that in each of the products. And what I can say, and the reassuring fact is, that so far, any deviations have been kept within these contingencies.

CHRISTIAN REINHOLDT: Okay, thank you very much.

JORGEN HUNO RASMUSSEN: Thank you.

OPERATOR: The next question comes from [Ben Sykes] from (inaudible).

UNIDENTIFIED PARTICIPANT: Hi, it's Dan (inaudible). Just a quick question on the--on your order intake. I've seen a fairly noticeable change in where those orders are coming from. You had, what, DKK 3.8 billion of announced orders, but obviously, a fairly meaningful increase in the smaller, unannounced orders.

Is this kind of a trend that's like to continue, first of all? The first question, and the second is a follow up. To what extent are these smaller orders higher margin? Thank you.

JORGEN HUNO RASMUSSEN: Yes, I can say, one of the reasons is that we mentioned earlier the different traditions between geographical and cultural areas, and one fact, for instance, is that in India, the typical order for a given capacity is smaller than in certain other markets, by tradition. And it means that the boom in India at present, we will see a relatively higher proportion of smaller orders that don't pass the threshold for announcements. So that is--that's an example of a reason for this.

Another aspect is, of course, that we are, since mainly increasing the Customer Services and any activities there will typically not be announced, due to the size of the single order.

UNIDENTIFIED PARTICIPANT: And those orders are typically higher margin?

JORGEN HUNO RASMUSSEN: Yes.

UNIDENTIFIED PARTICIPANT: Because you're getting more--high--smaller orders that are higher margin. Okay, thank you very much.

JORGEN HUNO RASMUSSEN: You're welcome.

OPERATOR: The next question comes from Roger Merz, from Goldman Sachs.

ROGER MERZ, ANALYST, GOLDMAN SACHS: Yes, hello, good afternoon. I have a couple of follow up questions on your currency exposure. First of all, can you give a sort of a bit of a breakdown, how much is actually in--are costs, and how much are sales in U.S. dollar, within the Minerals business? Just to sort of give us an idea of understanding, going forward, how this could be impacted.

Secondly, I'd like to ask, what's your current hedging strategy? Did you change anything, or--and what is the detail to that, what are the details to that hedging strategy?

And my last question would be, if you could quantify once more the synergies on GL&V, both sales and costs, and if you see any changes to that? Thanks.

POUL ERIK TOFTE: Okay. Most of our currency sales--sorry, most of our sales in Minerals comes no surprise in the Minerals producing countries. I mean, there are about 15 or so of them.

Most of these countries are sort of dollar related. I mean, we can talk about the South African rand, the Australian dollar, the Brazilian cruzeiros. Many of these currencies, North--the Canadian dollar, the U.S. dollar. So I would say most of them are sort of swinging like the dollar, but you know better than me, what are the currencies for each of these countries. And it also depends on the individual relations, like, if the country is strong, and (inaudible) surplus. So that's the overall picture.

Then, if we talk about hedging, what we do is, we have sort of--

ROGER MERZ: If we maybe just quickly can go back to the cost side? Sort of, how much, then, when you say most of your sales are in U.S. dollar, how much of your costs, then, are in U.S. dollar now on the Mineral side?

POUL ERIK TOFTE: Yes, but most of the costs will also be in the same currency. So however, we see a trend towards that, that we buy some of the machinery denominated in euro, but whenever we take the order, we sort of freeze the ratio between U.S. dollar and euro. But at the end of the day, it would all be dollar.

ROGER MERZ: And was then, that hit now, a one-off just because of the acquisition, or--because I am a little bit puzzled then, because when you say most of the sales and most of the costs are in U.S. dollars, at least U.S. dollar linked currencies, why was then that currency impact?

POUL ERIK TOFTE: Well, if you compared to, let's say, what was the average dollar rate in Q1 2007--

ROGER MERZ: Right.

POUL ERIK TOFTE: The average dollar rate Q1 2008, then the dollar is down. So is the South African rand, so is the Australian dollar, so is a number of other currencies.

ROGER MERZ: Right.

POUL ERIK TOFTE: So it is, when we convert, let's say, U.S. dollar revenue and U.S. dollar EBIT into Danish kroner.

ROGER MERZ: Right.

POUL ERIK TOFTE: Then it becomes less Danish kroner. The dollar is still the same, but converting into Danish kroner, it's a smaller amount.

ROGER MERZ: But would not that be on the Cement side as well?

POUL ERIK TOFTE: Not really, because Cement is mainly euro denominated. Most of the customers are euro denominated, most of the subsuppliers are euro denominated, and most of the supplies are euro--this is an euro industry, like Minerals is a U.S. dollar industry.

ROGER MERZ: Okay, okay. Got the point.

POUL ERIK TOFTE: And as far as hedging is concerned, well, then we hedged the specific contracts. But what we don't hedge is the sort of net profit in a given country, and we can't hedge the revenue, and we don't hedge the EBIT. So it is converting the P&L of a U.S. denominated legal entity into Danish kroner. That is where we get the hit.

ROGER MERZ: Right, okay. So do you have any specific threshold for contracts, that you start hedging?

POUL ERIK TOFTE: No, we go down to a very low level.

ROGER MERZ: Okay.

POUL ERIK TOFTE: Then there was GL&V synergies.

JORGEN HUNO RASMUSSEN: Yes, I think you may--you asked about the sales synergies, I guess. And as I mentioned before, we actually do see additional opportunities when it comes to combining the previous--the old FLS (inaudible) Minerals product line with the GL&V, (inaudible) and (inaudible). And what we also see now, which we could not foresee at the time of the acquisition, it is so that in the mining industry, it happens to be the crushers and the mills that today are the so-called [long lead] items, which also means that FLSMinerals, since we have a strong program within those specific products, we do get invited to the table, to discuss in particular, mills and crushers early on, which allows us to open up the entire toolbox, and offer the customer the entire flow sheet.

And by doing that, we do see higher sales synergies going forward, combined also with the One Source--One Partner concept.

Are you there?

OPERATOR: The next question comes from Kitty Gron from Handelsbanken.

KITTY GRON: I actually already had that answered through the other questions, so I don't have any more.

OPERATOR: Kasper Larsen from SEB Enskilda is now online with a question.

KASPER LARSEN, ANALYST, SEB ENSKILDA: Yes, hello. Just a little more on the whole situation with longer lead times at subsuppliers, especially in the Minerals. You used to say that the execution of orders in the Minerals business was somewhere around 6 to 18 months, dependent on the size of the machinery. Taking into consideration that now there is--seems to be longer lead times, what do you expect to be the execution length in time (inaudible) now?

JORGEN HUNO RASMUSSEN: If we, today, enter into a contract where there happens to be a mill and a crusher, I mean, that particular contract will sit on our books for the next 200 weeks, until we supply--

UNIDENTIFIED COMPANY REPRESENTATIVE: Four years.

JORGEN HUNO RASMUSSEN: Four years, is now the--but that's when you talk about crushers and mills. We also have other contracts where you do not find those products, and they are typically--delivery is around 18 months.

KASPER LARSEN: All right. And a little bit, the same question, within the Cement business, actually. Do you experience longer lead times there, and then you previously said, you had two to three years to deliver full plant? Has that changed as well, or are we still talking two and three years?

JORGEN HUNO RASMUSSEN: It is increasing also. Add another half year or so to the average duration.

KASPER LARSEN: Okay, thank you very much, and that's all for me.

JORGEN HUNO RASMUSSEN: Welcome.

OPERATOR: Daniel Patterson from Danske Bank is now online with a question.

DANIEL PATTERSON: Yes, I have one follow up question, concerning the xstrata copper partnership. To my knowledge, this was really an industry first partnership. Could you perhaps elaborate a little bit, and enlighten us in how this actually works, and what's the progress, what is--what's been going on for you, it's been going on for around two, three months now? How does this work, and so on?

JORGEN HUNO RASMUSSEN: Well, in the announcement we sent out in March, we indicated that the--part of the--what--that we were talking about six copper concentrators. And the execution of same will happen over the next five years. So what is happening is that we are now--the customer is now developing the first copper plant, the one we announced, which happens to be in Peru. And part of that announcement was also the--us securing the mill package, which means that we are now in the process of talking to the customer about the remaining--of the flow sheet on that particular line. and that's going to basically be copied up to six times, as the customer embark on the overall investment, as we discussed at the time we entered into the partnership.

DANIEL PATTERSON: All right, so right now, it's mostly the customer that's actually doing the work, so to speak? And you're waiting for flow sheets and designs and so on?

JORGEN HUNO RASMUSSEN: Correct.

DANIEL PATTERSON: All right, excellent. Thanks.

OPERATOR: The next question comes from Lars Topholm from Carnegie.

LARS TOPHOLM: Yes, just a follow up question in relation to the extended order execution times. Do you have symmetry between the delivery schedules you have with your subcontractors compared to what you promised your customers? In other words, do you have a caution here, or is the risk of delayed delivery and resulting fines higher today than it has been in previous quarters?

JORGEN HUNO RASMUSSEN: It is not higher, because we don't book an order unless we have a commitment from our subsupplier.

LARS TOPHOLM: But maybe the subsupplier commits to more than he will be able to deliver.

JORGEN HUNO RASMUSSEN: And that's why we add a little bit to be on the safe side.

LARS TOPHOLM: So there is a caution.

JORGEN HUNO RASMUSSEN: Yes.

LARS TOPHOLM: Okay, thank you.

JORGEN HUNO RASMUSSEN: You're welcome.

OPERATOR: Roger Merz from Goldman Sachs is online with a question.

ROGER MERZ: Yes, I have a follow up question on Cembrit. Can you talk a little bit through Cembrit, in terms of what your plans there are in terms of capacity increases? Also, why margins have been coming in at significantly--just to give us a bit of flavor, because ultimately, I thought that business was actually, at some stage, for sale. And I guess it's no longer for the time being, which I fully understand, because I think you said, you want to sort of still continue restructuring that business.

But sort of give us a bit more of details, if you may, on Cembrit, please.

JORGEN HUNO RASMUSSEN: In the high level, I can say that--when we announced the sale of Density last year, we said it was our last company that was for sale. And Cembrit, we have successfully turned this company around, and a part of improving the business is also to focus on Eastern Europe, and that's the reason why we are number one in fiber cement in Eastern Europe, now at number two in the Western part of Europe.

But we are more or less sold out in all products, and that's the reason why we have this new capacity on-stream. So the goal for the business is that we will keep it, and it's not, of course, a core business within Cement and Minerals, but we will keep it until--I mean, the timing is correct, and we have developed it as much as we can, actually.

So we will continue to do well. The company--that's also the reason why we announced, or told about these two small acquisitions today. And we will continue doing that.

ROGER MERZ: And what was the reason for the margin decline, that one-off same sales?

POUL ERIK TOFTE: You're talking about the EBIT?

ROGER MERZ: Yes, the EBIT, yes.

POUL ERIK TOFTE: Yes, this was product mix.

ROGER MERZ: Okay.

POUL ERIK TOFTE: And again, an exceptional, very, very good first quarter last year. But we haven't changed our guidance.

ROGER MERZ: Okay. Thank you.

OPERATOR: There are no further questions.

JORGEN HUNO RASMUSSEN: Okay, then we thank you very much for your interest.

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