LV Technology Plc was founded in 1996 by Hans Jorgen Nielsen, a Danish engineer who has more than 30 years of experience in the cement industry. LVT was founded based on a new and revolutionary power-saving technology for the grinding process, for which it has supplied more than 700 units in 75 countries. It has since developed into a company that supplies complete cement plants worldwide. Mr Nielsen discusses the company's strategy and outlook.What is LVT's business model?
We compete‘on L‘VT’s ability as a smaller company to be fast in servicing and providing quicker and flexible feedback to customers HANS JORGEN NIELSEN Founder, LV Technology Plc
LVT is an engineering company within the cement industry. Over the past few years we have made a natural progression from providing pure cement plant engineering services to incorporating our engineering skill and technological know-how into delivering completely built cement plants to our customers.
What types of engineering services does LVT provide?
The services involve engineering designs and production of equipment intended to improve production efficiency and to reduce consumption of fuel and electricity, which is the largest cost component in cement plants. The combination of these improvements allows cement plants to increase productivity by 15-30%.
Please break down the types of projects that LVT does.
Basically, there are four types of projects. The first is modification of a single machine, typically the vertical roller mill. We target 15 to 20 of these projects per year with an average value of $100,000 per project and a duration of up to six months. Second, we do upgrading of more than one machine within a cement plant, for example increasing the capacity of the kiln department. We target three to five of these projects per year with an average value of $1-2 million and duration of 6-12 months. Third, we supply the complete department of the cement mill. We target two to three of these jobs per year with an average value of $3-8 million and duration of 12-18 months. Finally, we supply a complete cement plant where all of our modifications are fully built-in, which will make these plants the most energy-efficient in the world. Today we have three such projects under execution: one in Myanmar and two in Brazil with an average value of $20-50 million and duration up to 24 months. When combining all these jobs, we target $100 million in revenues per year.
What differentiates LVT from its competitors?
Within the industry there aren't many competitors for the smaller projects but for the full delivery of cement plants there are five major players globally, Sinoma, which is Chinese, has 40% of the global market share with all of its projects in China today. Fl Smidth has 24%, Krupp and KHD, both German companies, have 24% combined, and finally LVT with a 6-8% market share. We cannot compete against Sinoma and Fl Smidth in terms of resources but instead we compete on LVT's ability as a smaller company to be fast in servicing and providing quicker and flexible feedback to customers.
Could you provide more information on LVT's new shareholder, CG Cement Global?
CG Cement is a company based in Nepal that is focused on investments in infrastructure throughout Asia and together we are able to source projects in Nepal as well as operate the plants going forward.
LVT recently invested in Global Cement Capital Partners (GCCP). What is the purpose of this investment?
LVT directly holds 20% in GCCP, and if you include LVT China and LVT India, then LVT holds indirectly 30% in GCCP. The aim of GCCP is to invest in cement plants, thus the benefit to LVT is that we will be able to generate business in delivering a full cement plant, have a contract to operate the plant once it is completed, and finally to receive dividends from the operation of the plant. Also, because LVT now has the ability to invest in projects, this shows our customers that we are confident in our abilities to deliver a fully operational and efficiently run cement plant. Today GCCP has investments in Cambodia, Myanmar, Nepal and Mozambique. Starting from 2013, LVT will begin to receive dividends from these investments.
LVT's financial performance in the past has been poor. Could you explain why?
There are two main reasons. In 2009 because of the global recession the number of projects declined and our backlog at the start of 2010 was only 1.5 billion baht, although in 2010 we had a very good year for sales, which is why our revenues for the second half of 2011 and 2010 are improving. Also there in issues with older projects, where the project management was not executed as well as it should have been, resulting in a reduction in our gross profit margin. Our main target today is to strengthen project management to ensure that our gross profit margins meet our targets.
What are the biggest risks facing your business?
Competition against the Chinese within Asia. Because Sinoma is backed by the Chinese government it is difficult to compete with them on price which is why we strongly emphasise our ability to be customisable for our customers.
Where do you expect to see LVT in five years?
LVT has grown from a company with four staff to one that today employs 180 staff in its head office in Bangkok, and another 250 in JV companies in India, China, Brazil and the United States. We have developed from providing pure engineering services to being able to provide a full cement plant. Our aim is to firstly stabilise our current position within the global market, where we hold about 8% of the total world market, and to use our profits generated to invest further in cement projects. We plan for LVT to be able to grow through strategic alliances with other companies. Besides this, we shall continue investments, as well as a combination of our current projects, which will yield recurring income to our company.
The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media and technology company and the largest investor relations network in the region, with more than 400 listed clients. This interview was conducted by Pisithr Niyomtammakij. For more information, email pisithr@gvc-capital.com or supat@shareinvestor.com or visit www.thailistedcompany.com