KHD Humboldt Wedag International AG

Earnings Release • May 15, 2012

News Details

Ireland | 15 May 2012 07:52

KHD Humboldt Wedag International AG: Interim Report Pursuant to Section 37x of the German Securities Trading Act (WpHG) as of May 15, 2012

KHD Humboldt Wedag International AG / Release of an announcement according to Article 37x of the WpHG [the German Securities Trading Act]

15.05.2012 07:52

Interim report according to Article 37x of the WpHG, transmitted by
DGAP - a company of EquityStory AG.
The issuer is solely responsible for the content of this announcement.

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KHD Humboldt Wedag
International AG, Cologne

Interim Report Pursuant to Section 37x of the German Securities Trading Act
(WpHG)
as of May 15, 2012

ISIN: DE0006578008
Securities identification number (WKN): 657800
Ticker symbol: KWG
www.khd.com

Highlights Q1 2012

• Considerable increase in order intake to approximately EUR 160 million

• Order backlog at its highest level since 2008 at EUR 404.0 million

• Group revenue falls by 16,9% to EUR 48,8 million as customers delay
  execution of projects

• EBIT almost break even: EUR -0.6 million, EBT of EUR 0.4 million

• Higher equity ratio, reduction in liquidity

• Confirmation of outlook for the financial year 2012

Key Figures at a Glance

in EUR million 31.03.2012 31.03.2011 Variance in %
Order Intake 159.1 36.0 341.9
Revenue 48.8 58.7 -16.9
Gross Profit 8.4 11.4 -26.3
EBIT -0.6 2.9 -120.7
EBT 0.4 4.5 -91.1
Net result -0.2 2.9 -106.9
EPS in EURO, Cent 0.00 0.06 -100.0
Cash flow from operating
activities -22.0 -17.4 26.4
Cash flow from investing
activities -1.5 -0.9 66.7
Cash flow from financing
activities 12.2* 75.0 -83.7
in EUR million 31.03.2012 31.12.2011 Variance in %
Equity 233.6 233.5 0.0
Equity ratio (in %) 56.9 54.1 5.2
Cash 277.1 300.3 -7.7
Order Backlog 404.0 293.7 37.6

* Return of restricted cash (collateral for bank guarantees)

Market Environment

The pace of global economic growth slowed during the first three months of
the year according to the latest information available. Due to the
continued lack of a solution to the sovereign debt crisis and austerity
measures in place in the affected EU countries, the euro zone has slipped
into a mild recession. This also affected the EU's main trading partners.
Additional risks exist in the form of inflationary tendencies in
fast-growing economies, which are intensified further by the hike in energy
prices.

The general expectation is that growth will pick up again in the second
half of the year, provided that the euro crisis does not escalate. The
International Monetary Fund (IMF) forecasts global economic growth of 3.5%
for 2012 (2011: 3.9%); this rate is expected to reach 5.7% (2011: 6.2%) for
developing and emerging economies.

The key sales markets of KHD Humboldt Wedag International AG (hereinafter
referred to as 'KHD' or 'Group') were affected to varying degrees by the
economic slowdown:

• China's growth rate remains healthy in line with expectations thanks to
  robust consumer spending and investment, despite slowing slightly to
  8.2% compared to the previous year (9.2%). Cement consumption is
  expected to rise further in spite of a decline in investment in
  infrastructure. The government initiated reorganization of the cement
  industry, together with decommissioning of old plants and tighter
  emission controls, presents a number of opportunities for KHD.

• 6.9% growth is forecast for India (previous year: 7.2%), although there
  are a number of risks caused by the high rate of inflation. Margins in
  the cement industry remain under downward pressure and the industry
  continues to suffer from below-average capacity utilization.

• In other Asian economies, moderately decelerating growth rates are
  expected. For instance, Malaysia predicts GDP to increase by 4.4%
  (previous year: 5.1%). However, a rise in building and infrastructure
  construction projects should stimulate the cement consumption.

• The IMF predicts the growth rate in Russia to slow down to 4.0%.
  Nevertheless, an increase in infrastructure investments should lift
  cement consumption back to levels seen before the crisis began (2008).

• Indications are increasingly pointing to a moderate improvement in the
  US economy, which is also having an effect on the labor market.

• Latin America is less affected by the euro crisis than other regions.
  IMF economists forecast that the Brazilian and Venezuelan economies
  will see faster growth rates than in the previous year.

In the medium-to-long term, factors such as ongoing urbanization,
demographic trends, and infrastructural needs in developing and emerging
economies will continue to drive construction activities and boost cement
consumption. The BRIC and IST countries (Indonesia, South Africa, Turkey)
in particular have contributed significantly to the growth of the cement
market and are forecast to remain key drivers of growth in the future.
China remains the largest single market with a 56% share of global cement
consumption.

Business Development

Despite signs of encouragement from the long-term trends seen in several
markets, adverse economic conditions in KHD's business troubled the Group
in the first quarter of 2012. Muted expectations regarding demand for
cement, combined with surplus capacity in a number of regions, resulted in
modest investment activity on the part of cement producers. Furthermore,
difficult conditions for financing had a negative impact and led to delays
in the awarding of orders as in the financial year 2011.

Nevertheless, KHD was able to win new orders with a volume of EUR 159.1
million. This represents more than a four-fold increase over the
unsatisfactory amount of EUR 36.0 million in the first quarter of the
previous year. This jump in new orders was primarily due to KHD's
collaboration with, strategic partner and shareholder AVIC International
Beijing (AVIC).

• In Malaysia, KHD received an order from Straits Cement to construct a
  fully integrated cement production facility with a daily production
  capacity of 5,000 tons and an order volume of EUR 100 million. KHD's
  scope of supply comprises of a five stage preheater with a Low-NOx
  calciner system, PYRORAPID(R) rotary kiln with PYROJET(R) burner,
  PYROFLOOR(R) cooler, and the energy-efficient COMFLEX(R) system for
  grinding limestone and clinker. Roughly 60% of this order will be
  channeled through to KHD partner AVIC, who will supply the entire steel
  structure, steel structure erection as well as various electrical and
  mechanical packages.

• In Venezuela, the AVIC - KHD partnership won its first tender for an
  EPC plant. The order from Invecem Cement involves installing a new line
  in the cement plant in San Sebastian with a capacity of 2,400 tons per
  day. KHD will provide process know-how, key equipment, engineering and
  supervision services.

Smaller orders included the supply of COMFLEX(R) grinding plants in
Malaysia and - in cooperation with Weir Minerals, - the supply of roller
presses (HPGR as they are known the minerals industry) for mines in Canada
and Peru. The spare parts and service business contributed to the higher
order intake compared to the previous year.

As a result of the positive order intake, the order backlog of EUR 404.0
million was significantly higher than at the end of 2011 (EUR 293.7
million).

Results of Operations

In the first three months of 2012, KHD generated revenue of EUR 48.8
million, which was primarily the result of projects in India and Russia.
Revenue declined by 16.9% in a year-on-year comparison (previous year: EUR
58.7 million). The reason for this is largely customers delaying awarding
and execution of projects, due to the uncertain market situation. The new
orders in Malaysia and Venezuela will start to contribute to revenues at
the earliest in the second half 2012.

In the reporting period, gross profit totaled EUR 8.4 million (previous
year: EUR 11.4 million), corresponding to a gross margin of 17.2%.

Sales expenses increased by 9.7% to EUR 3.4 million in the quarter under
review (previous year: EUR 3.1 million), due to increased tendering
activities for new cement plants, notably in Malaysia. In contrast, general
and administrative expenses declined by 4.5% to EUR 4.2 million (previous
year: EUR 4.4 million). The increase in other expenses from EUR 1.5 million
to EUR 2.0 million was, in particular caused by increasing expenses for
research and development.

Profit before interest and taxes (EBIT) was almost break even, at EUR -0.6
million and did not reach the previous year's figure (EUR 2.9 million),
which was influenced by the execution of a high-margin project.

Net finance income also fell short of the previous year's figure (EUR 1.6
million) at EUR 1.0 million. The key factor here was lower interest income,
which reflected the fall in liquidity and the drop in market interest
rates.

Profit before tax (EBT) totaled EUR 0.4 million (previous year: EUR 4.5
million), representing a modestly positive result. The net result for the
period of EUR -0.2 million (previous year: EUR 2.9 million) translates into
diluted and basic earnings per share of EUR 0.00 (previous year: EUR 0.06).

Financial Position and Net Assets

Unrestricted cash and cash equivalents at KHD decreased by approximately
EUR 11 million to EUR 276.6 million in the first quarter of 2012. Cash flow
from operating activities decreased by EUR 22.0 million. The execution of
construction contracts led to cash outflows of EUR 17.0 million. On the
other hand, customer postponements in awarding new projects led to lower
cash inflows.

Cash flow from investing activities was considerably higher than the
previous year's figure of EUR -0.9 million at EUR -1.5 million. The primary
investment was in the SAP project, which is also evident from the additions
to other intangible assets. Cash flow from financing activities totaling
EUR 12.2 million results in particular from a reduction in the restricted
cash position, i.e. cash and cash equivalents that have been pledged as
collateral for bank guarantees, and therefore, are not freely available.
The decrease in current assets and liabilities was the primary cause for
the decline in the balance sheet total from
EUR 431.9 million as of the end of 2011 to EUR 410.8 million, as of March
31, 2012. On the assets side of the balance sheet, the decline in
receivables, inventories, and payments made in advance had an impact, aside
from the reduction in gross amount due from customers for contract work.
These decreases were caused by the lower business volume.

Besides the fall in commitments under construction contracts, declining
trade payables and the decrease of provisions had an impact on the
liabilities side of the balance sheet.

Equity remained virtually unchanged at EUR 233.6 million, corresponding to
an equity ratio of 56.9%, compared to 54.1% at the end of 2011.

In March 2012, the existing consortium agreement was replaced by a new
credit facility with a total volume of EUR 130 million and a term of three
years provided by a consortium of banks led by Deutsche Bank AG and
Raiffeisenbank International AG.

Risks and Opportunities

There has been no material change in either the risks or the opportunities
facing KHD since publication of the 2011 Group Annual Report.

Outlook

Following the predicted slow start into the 2012 financial year, KHD
largely confirms the expectations for the year as a whole as indicated in
its 2011 Group Annual Report. We believe that the global economic slowdown
will not halt before the middle of 2012, provided that the euro crisis does
not escalate and the impact of other risk factors such as inflation and
increasing raw materials prices is limited. The long-term outlook for
cement markets remains positive, although surplus capacities and financing
difficulties continue to hamper construction and modernization projects.

Nevertheless, order intake is expected to exceed the level of the previous
year. KHD managed to achieve a good starting position in the first quarter.
In contrast, our expectations for revenue are modest, given that the trend
among customers to delay project execution is foreseen to continue. As a
result, gross profit and EBIT margin will remain under pressure and will
not reach the level seen in 2011. The newly acquired projects in Malaysia
and Venezuela are not expected to have a material impact on revenue and
profit in the current year. However, they will have a positive influence on
liquidity.

Developments after March 31, 2012

On April 30, 2012, leading Russian cement producer EUROCEMENT placed an
order with KHD for more than EUR 80 million for a new cement plant to be
built in Stavropol, Russia. The Moscow-based EUROCEMENT group is among the
top ten cement producing companies in the world.

The contract between Stavropolsky Zavod Stroitelnih Materialov, a member of
the EUROCEMENT group, and ZAB Zementanlagenbau GmbH Dessau, a subsidiary of
KHD Humboldt Wedag International AG, is for a new cement plant with an
annual output of 1.3 million tons.

KHD' scope will cover the EP supply of production equipment, starting from
raw material crushing all the way up to cement loading / packing. KHD will
also supply automation and control equipment for the new production line.
In addition, the companies concluded a separate contract for erection and
commissioning supervision services, which is part of the total order
volume.

The project will be booked as order intake immediately upon receipt of down
payment.

Cologne, Germany, May 15, 2012

The Management Board

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Language: English
Company: KHD Humboldt Wedag International AG
Colonia-Allee 3
51067 Köln
Germany
Internet: www.khd.com

End of Announcement DGAP News-Service

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