Larsen & Toubro Limited Performance for FY 2003 May 2003 1
Disclaimer This presentation contains certain forward looking statements concerning L&T s future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but not limited to, risks and uncertainties, regarding fluctuations in earnings, our ability to manage growth, competition ( both domestic and international), economic growth in India and the target countries for exports, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, our ability to manage our international operations, government policies and actions with respect to investments, fiscal deficits, regulations, etc., interest and other fiscal costs generally prevailing in the economy. The company does not undertake to make any announcement in case any of these forward looking statements become materially incorrect in future or update any forward looking statements made from time to time by or on behalf of the company. 2
Strong performance in a difficult environment 3 Good growth in order booking in difficult circumstances Revenue growth reflects the strong order backlog at the beginning of the year Drop in PBDIT lower cement prices lower margin on exports higher provisioning requirements additional provision for retirement benefits PBT improves smartly with lower interest cost reduction in funds employed active management of loan portfolio significant gains from hedging activities Good growth in PAT Rs. Billions FY 03 FY 02 % Change Order Booking 132.11 108.20 22% Sales 98.70 81.67 21% Other Income 2.54 2.18 17% Total Income 101.24 83.85 21% PBDIT 9.92 10.42 (5%) PBIDT/Total Inc. 9.8% 12.4% Depreciation 3.05 3.26 PBIT 6.87 7.16 (4%) Interest 1.77 3.16 (44%) PBT 5.10 4.00 28% Tax Current 0.88 0.24 Tax Deferred (0.11) 0.29 PAT 4.33 3.47 25% Order Backlog 136.87 111.36 25%
Balance Sheet Marginal reduction in total assets despite a 21% increase in sales Focus on containing working capital Capital expenditure contained to Rs. 970 million Reduction in loans by Rs. 2.87 billion (FY 03 Rs. 7.2 bn.) Regrouping due to accounting change for integrated JVs Net funds employed of Rs. 490 million (FY 03 Rs. 333 million) accounted as investments Net Debt to Equity (incl. Deferred Tax Liability) goes down to 58% from 76% Rs. Billions 31-Mar-03 31-Mar-02 SHAREHOLDERS' FUNDS Share Capital 2.49 2.49 Reserves 33.14 30.95 Net Worth 35.63 33.44 LOAN FUNDS 31.76 34.63 Secured Loans 27.03 27.10 Unsecured Loans 4.73 7.53 Deferred Tax Liabilities 8.41 8.52 TOTAL SOURCES 75.80 76.59 Net Block incl. CWIP 40.49 42.64 Investments 11.60 9.18 Current Assets 61.60 53.87 Less: Current Liab. 38.59 29.74 NCA 23.01 24.13 Misc. Expenditure 0.70 0.64 TOTAL APPLICATION 75.80 76.59 4
Segment-wise revenues FY 03 FY 02 Elect. 8% Others 4% Elect. 8% Others 5% Cement 26% E&C 62% Cement 30% E&C 57% 5
Segment-wise share of EBITDA Elect. 11% Others 3% FY 03 FY 02 Elect. 9% Others 1% Cement 38% E&C 48% Cement 45% E&C 45% 6
Segment-wise share of EBIT Elect. 14% Others 1% FY 03 FY 02 Elect. 11% Others 1% Cement 24% E&C 61% Cement 36% E&C 52% 7
A challenging economic environment Growth % 98-99 99-00 00-01 01-02 02-03 (E) GDP 6.5 6.1 4.4 5.6 4.4 Industrial Growth 4.1 6.6 5.1 2.8 5.8 Manufacturing Sector 4.4 7.2 5.4 2.9 5.8 Capital Goods 12.6 7.0 1.7 (3.4) 10.7 Agriculture 8.1 (0.7) (6.7) 7.3 (3.1) Falling growth rates in India Low level of investments in the economy Severe competition for the limited opportunities Talent acquisition and retention was a key concern 8
A vision to meet the challenges.l&t shall be an.indian multinational committed to enhancing shareholder value.. constantly creating value and attaining global benchmarks.. 9
How we responded Thrust on internationalization of operations to diversify markets Build L&T as an international brand by creating awareness about L&T and its capabilities Approved vendor status from owners, contractors, process licensors and inspection agencies Formation of consortia with global majors Expansion of product range and global network Improve cost competitiveness and enhance skills Institutionalisation of risk management practices Initiatives to retain, attract and motivate talent 10
Strong growth in international business Equipment exports to more than 45 countries including North America, UK, Europe, Middle East.. Success in securing turnkey contracts Two gas based power plants in Oman and Sri Lanka Gas processing and Pipeline project in Tanzania Platform in Qatar Qualified to do turnkey projects in oil & gas, refinery sectors International construction business with focus on Middle East, SAARC, ASEAN & CIS JV/ Subsidiary in Saudi Arabia, Oman, Malaysia Experience of executing large construction jobs in USSR, Middle East, Malaysia Export margins are improving Acceptability by customer Learning from experience Increasing order sizes Growth in international business Rs. million 16330 11240 7200 3840 2750 98-99 99-00 00-01 01-02 02-03 11
Enhancing capabilities Front-end Engineering and Design group at Vadodara ISO 9001/ISOm1401 certified Serves the process engineering requirements of Refinery, Petrochemicals and Fertilizer industries Service capabilities include feasibility studies, process licensor selection, basic engineering packages Basic and Detailed Engineering centres at Mumbai and Vadodara Engineering, Design and Research Centre at Chennai serving the construction activities Several innovation introduced in construction engineering Engineering JVs with world majors to meet capability gaps Chiyoda, Sargent & Lundy, Ramboll R&D centres to support product development and upgradation efforts of Electrical & Electronics segment Several new designs and awards Provides the competitive edge Thrust on export of engineering services 12
Improving cost competitiveness Thrust on cost reduction Global Sourcing E-procurement Value Engineering Efficiency improvement in plant operations Delivery cycle reduced from 18-25 months to 8-11 months for many critical equipment Six Sigma processes in manufacturing activities to reduce rejection and rework Supply Chain Management covering materials, sub-contracts, manpower, plant & machinery Working Capital Management All out effort to reduce levels of working capital levels Inventory levels reduced Fuller utilisation of vendor credits 13
Institutionalizing risk management Size and complexity of orders are increasing even as delivery periods are becoming longer Exposure to international business is increasing Target to increase international business to 25% of sales by 2006 Risk management module being evolved concomitantly as business is scaling up Risk management model incorporating state-of-the art tools and techniques has been developed Training programs for risk identification and management Risk management is a key focus area for E&C Business 14
Several HR initiatives for talent acquisition and management Creating a Performance Driven Culture Focus on Value Creation Capability building and enhancement Training as a conscious strategy and business decision for growing talent Management Development Centre at Lonavla a temple of true learning Capability and Leadership Development/GLOPAT Programmes Contemporary Program to benchmark Global Management Practices for Top Management Global Business Strategy program for key employees involved in internationalization of businesses Management/Technology/Executive Leadership Programs to identify potential business and technology leaders Sharper differentiation in compensation to reward performance and attract talent 15
16 Tracking the results
Sector-wise Order Booking 100% 80% 60% 40% 20% 0% 14 15 28 31 46 31 18 43 26 11 6 18 12 17 24 11 26 7 24 25 8 21 24 9 5 '98-99 '99-00 '00-01 '01-02 '02-03 Process Oil & Gas Power Infrastructure Others 17
Sector-wise Order Backlog 100% 80% 29 37 13 9 17 60% 29 17 46 48 35 40% 20% 0% 10 16 19 21 25 21 10 16 8 17 17 17 10 8 5 '98-99 '99-00 '00-01 '01-02 '02-03 Process Oil & Gas Power Infrastructure Others 18
Cash Flow Statement Rs. Billion 1998-99 1999-00 2000-01 2001-02 2002-03 Operating Profit 8.06 9.34 9.44 9.76 9.02 Changes in Working Capital (3.64) (5.42) (3.14) 2.65 3.06 Operating Cash Flow 4.42 3.92 6.30 12.41 12.08 Direct Taxes Paid (1.49) (0.69) (0.68) 0.70 (0.41) Investments in Fixed Assets (6.28) (3.45) (3.82) 0.33 (0.80) Interest (Net) (1.51) (3.17) (3.71) (3.69) (1.94) Investments in Subs./JVs (2.08) (3.58) (0.75) (0.05) (0.29) Dividends from Subs./JVs 0.43 0.24 0.12 0.52 0.39 Net Free Cash Flow (6.51) (6.73) (2.54) 10.22 9.03 19
Snapshot of historical performance 140 Rs Billion Rs. Billion 12 120 10 100 8 80 6 60 40 4 20 2 0 1998-99 1999-00 2000-01 2001-02 2002-03 Order Booking Total Income Total Assets PBDIT 0 20
21 Segmental review
22 Engineering & Construction
Engineering & Construction 23 Good order booking in a slack investment climate Strong growth in export order booking A few path breaking orders PTA project for IOC Platform order for Qatar Petroleum Gas pipeline project - Tanzania Received 4 industrial licenses in defence sector Margin drops due Retirement provisions Lease charges for Plant & Machinery Additional provisioning Rs. Billion FY 03 FY 02 Change Order Booking 95.02 73.54 29.2% Domestic 75.65 64.68 17.0% Export 19.37 8.86 118.6% Sales (1) 61.48 45.98 33.7% Domestic 48.72 37.50 29.9% Exports 12.76 8.48 50.5% Order Backlog 136.87 110.63 EBITDA 5.00 4.78 4.6% EBITDA/ External Sales 8.1% 10.4% EBIT 4.45 4.03 10.4% Net Segment Assets 21.02 20.64 (1)Excl. inter-segment sales 0.07 1.16
E&C - Major orders received - Domestic 24 IOCL PTA Project DHDT and Hydrogen Package for IOCL, Panipat Water Distribution System at Vizag Jaipur Kishengarh Expressway Karnataka State Highways-Improvement Project Orders for Water/Effluent/Sewerage Treatment Plants Road Upgradation for PWD, Uttar Pradesh Sulphur Block and associated facilities, BPCL, Mumbai Road Project-J&K State Power Corporation Ltd. PTA Project/Elec.Work for Panipat Refinery, Petrochem LPG Cavern construction for South Asia LPG.Co.Ltd. Laboratory & Animal House Noida, U.P. Rs. Mio 12420 6120 3360 2960 2690 2160 1980 1700 1370 1250 1200 1140
E&C- Major orders received - International Rs. Mio Songo Songo- Gas processing and pipeline Project, Songas Ltd. Tanzania 5160 Platform for Qatar Petroleum 4700 Equipment for OMIFCO, Oman 1560 400 KV Transmission Line, Fujairah, UAE 1520 Turnkey Services for Sulphur Recovery Unit for Kuwait National Petroleum Corporation 1210 Overhead Transmission Line for Abu Dhabi Water & Electricity Authority Limited 1200 Conveyor Belt/detailed engineering for Lafarge Surma Cement 1170 25
26 Electrical & Electronics
Electricals and Electronics Impressive sales growth in the face of competition from MNCs Helped by Metering Instruments and Petrol dispensing products Margins improve Several cost reduction measures Market share maintained at 44% for low tension switchgear New product intensity maintained at a high 35% Continuing efforts to reduce funds employed Rs. Billion FY 03 FY 02 Change Sales (1) 7.81 7.05 10.8% Domestic 7.45 6.67 11.7% Exports 0.36 0.38 (5.3)% EBITDA 1.14 0.93 22.6% EBITDA/ External Sale 14.6% 13.2% EBIT 1.04 0.81 28.4% Net Segment Assets 4.45 4.36 (1)Excl. inter-segment sales 0.84 0.31 27
28 Cement
Cement Strong consumption growth of 9.5% Industry capacity utilisation at 85% Large supply overhang L&T volume grows by 11.7% Rs. Billion FY 03 FY 02 % change Sales-Mio Tonnes 13.32 11.93 11.7% Domestic 10.56 9.52 10.9% Exports 2.76 2.41 14.5% Segment Sales (1) 25.83 24.86 29 Domestic prices remained low for most part of the year Some improvement during Q4 Average sales realisation for the year dropped by 10% Ongoing cost improvement efforts Efforts on logistics beginning to show results External Sales 22.99 22.50 Exports 2.84 2.36 20.3% Net realisation * 1276 1420 (10.1)% (Domestic) EBITDA 3.92 4.79 (18.2)% EBITDA /Sales 15.2% 19.3% EBIT 1.78 2.71 (34.3)% Segment Assets(Net) 33.16 35.37 Excl. Inter-segment Sales 1.32 1.25
Continuous improvement in Operations L&T Heat Consumption K.Cal/ Kg.Clinker L&T Power consumption KWh/Tonne of Cement 740 100 99 730 726 94 720 710 714 708 701 699 91 91 88 700 690 98-99 99-00 00-01 01-02 02-03 80 98-99 99-00 00-01 01-02 02-03 Industry Comparison FY 2002 Coal Cost (Rs/T of Cement) Heat Consumption (Kcal/Kg Clinker) L&T Group 235 709 ACC 242 782 Ambuja 261 747 Grasim 258 714 Madras Cement 282 776 India Cement 376 850 FY 2002 Industry Comparison FY 2002 Power Cost (Rs/T of Cement) Power Consumption (kwh/t of cement) L&T Group 240 91 ACC 262 92 Ambuja Group 203 89 Grasim Group NA 91 Madras Cement 238 78 ICL Group 291 92 Source - Director's report, CMA report 30 Lowest in the Industry Comparable with industry
The ICBM Initiative Initiative launched in January 2002 to Increase Cement Business Margins Covered the following elements: Network Optimisation: Analysis of Price / Demand / Constraints/ Cost of Constraints Total Delivered Cost : Plant-Market Link ; How to serve at lowest possible cost Sales & Distribution: Market analysis ; Focus on increasing market share Consumer Research: Understand Consumer Behaviour ; Increase L&T Brand pull Benefit Tracking & Monitoring What gets measured gets done 31 Addressing multiple facets of the supply chain
The ICBM Initiative : Gains so far Entire Cement Division aligned towards objective Achievement of agreed tangible targets Motivation to achieve ongoing improvements Some results: Consistently improving jetty performance : Utilisation % projected to increase to 96% in FY04 vs. 87% in FY02 Distribution cost reduced by Rs. 350 mn. over FY 02 Freight cost level maintained in spite of steep increase in diesel prices Making ICBM a way of life 32
33 Outlook FY 2003 04
E&C Outlook Healthy order backlog at Rs. 136.87 billion Good visibility of revenue and margins Growing international presence Order prospects in the refinery, oil & gas and infrastructure sectors Large investments in Oil & Gas in public and private sector Investments in pipelines by GAIL/IOC more than 2500 kms Large investments by government bodies in water/water related projects Passing of Electricity Bill and reform related central assistance to accelerate reforms in the power sector and catalyse investment Prospects of more than Rs. 150 billion in the infrastructure sector Heightened investment activity in the Middle East and Africa Rebuilding of Iraq and Afghanistan 34
Cement - Outlook Consumption growth expected at 8 10% with large investments in infrastructure and strong demand from housing sector Improving demand-supply situation No major addition to capacity in the next two years Artificial incentives for new capacity addition are withdrawn Most new capacity creation by larger players aiding consolidation Cement prices to stabilise and improve in the current year Continuing effort to reduce costs and improve efficiencies Parivartan ( Change ) an initiative to involve all levels of employees in improvement Six sigma and Total Productive Maintenance Programme for enhanced plant performance, availability and reduced maintenance costs Further benefits expected from logistics optimisation Margin improvement to be better than the industry as volumes grow Lowest variable cost Domestic despatches are only 70% of capacity, allowing volume growth without further investment/commitment to fixed costs 35
Electricals & Electronics - Outlook Growth opportunities in transmission and distribution resulting from the ongoing reform process New Electricity Bill Accelerated Power Development Programme New opportunities in Metering-demand for intelligent meters Petrol Pumps business will see growth from new products and strengthening of the distribution network by oil majors 36
37 Thank you