LV Technology Plc (LVT) was founded in 1996 by Hans Jorgen Nielsen, a Danish engineer with more than 20 years of experience in developing technology for material sorting machines.
It operates as an engineering services specialist in the cement industry, designing and applying new concepts for the grinding of raw materials and the flow of gas in order to improve production efficiency, reduce electricity consumption and improve profitability. Mr Nielsen, who is LVT’s managing director, discusses the company’s strategy and outlook.
Nielsen: “LVT helps clients save costs”.
Please explain LVT’s business model.
LV Technology’s main business is offering consultancy services to cement manufacturers for engineering and design and builds equipment to improve machinery and production efficiency as well as reducing electricity consumption. Our services lead to effective cost reductions of 15-30% for cement manufacturers and improve capacity by 10-25%. Almost all of our revenues are from overseas contracts, and we are now involved in projects in Saudi Arabia, Yemen, Iran and Mongolia among others.
Could you provide more detail into the type of services that LVT provides?
We categorise our services into four parts. Firstly, technology improvements for vertical mills that increases production by 15-30% and saves 1-3 kilowatts of electricity per tonne. Secondly, technology improvements for ball mills which decreases energy usage by 1-3 kilowatts per tonne. Thirdly, technology improvements for rotary kilns that lowers energy consumption and increases capacity by 15-30%. And finally we combine our knowledge and expertise of the above three to provide a fully constructed cement plant to customers.
Why would a cement manufacturer employ your services over building a new plant?
A new cement plant today costs $100 million, which is a substantial investment regardless of a company’s size. Our services cost from $100,000 to $5 million depending upon the type of work required, and we can improve the production capacity by 15% while reducing energy production costs by 20%. Thus, as a cement plant owner you are weighing up the options between opening a new cement plant to double your capacity or to improve the efficiency of a current plant by 20% at a 1% to 5% cost of a new plant. The answer is simple.
LVT has several companies in different countries. Why is this the case and how effectively can management oversee all these separate businesses? How does management account for the revenue and earnings of these subsidiaries back to LVT?
LVT has five subsidiaries/associate companies globally, in Europe, China, Brazil, India and the USA. Each of our partners are colleagues in the industry that we have known for the past 20 years and have strong local market knowledge. They all perform independently and focus within the regions in which they are located. Currently, the company in India has more employees than we do at LVT, which demonstrates the huge growth coming from there. India has already successfully delivered two fully operating cement plants, which we feel are the most efficient in the world, and from Brazil we expect a positive future because of the upcoming Olympic Games and World Cup events that will require massive investment in cement plants.
What is LVT’s market share in the industry?
Over the past 20 years, each year there is an average of 20-40 million tonnes of new cement production capacity. This year we will be involved in 4 million of the new capacity; that is approximately 10% of the market. Going forward we should be having a larger market share because of ability to now provide cement plants to customers instead of purely modifying current cement plants.
LVT has grown tremendously over the past five years but in the first quarter of 2010 turned in a poor financial performance. Please explain this.
Our business is project-based; therefore, there is a natural delay between when a contract is signed and when revenues are recognised in our accounts. Thus when looking at our performance on a quarterly basis, it is volatile. The most appropriate way to look at how LVT has performed is to average our last two to three years of revenues because our projects can last up to 18 months. In the first quarter of 2010, our revenue dropped due to the aforementioned reasons and the financial crisis in Europe affecting the euro devaluation. Therefore, we also had a significant unrealised loss on the exchange rate. However, we expect 2010 to be another one of our best years, with 2 billion baht in sales orders.
LVT has several warrants outstanding that would increase capital by 30% if all were fully exercised. Can you explain the reasons for this?
Over the past decade, LVT has been awarded larger and larger projects. As a result of this, LVT is required to show a stronger capital base to our customers. Quite simply one cannot bid for a project with a value of 500 million baht when its capital base is 10 million baht, for example. Thus LVT is looking to continuously grow its business, and with larger capital this provides customers with the confidence we are strong enough to meet their requirements.
Where do you see LVT five years from now?
If a new customer comes to start a cement plant, it is a substantial investment. Within the next five years, LVT plans to provide further assurances to its clients about the quality of the cement plants that it can provide by taking a minority stake in the plant itself. This is beneficial because it potentially cuts the investment cost. It proves to the customer that we as a supplier are confident in our technology and services.