FLSmidth & Co.

Annual Report (ESEF) • Feb 10, 2021

WE DISCOVER POTENTIAL ANNUAL REPORT 2020 1 January – 31 December 2020 Annual Report 2020 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby CVR No. 58180912 FLSmidth  Annual report 2020 2 Management review Highlights Management review Highlights           Business               Financial performance           Governance           Financial statements           Integrated reports       CONTENTS Towards zero emissions in mining and cement Read more on page 18 FLSmidth  Annual report 2020 3 Management review Highlights Highlights 2020 2020 was impacted operationally and fi- nancially by the pandemic, which has pre- sented both challenges and opportunities for FLSmidth. Our financial results were negatively impacted by the rapidly deteri- orating business environment which af- fected order intake, revenue and EBITA. Still, we secured four large orders and a book-to-bill of 113% for the year, represent- ing an organic order intake on par with 2019. As a result of our strong cash focus, the net working capital ratio decreased from 13.3% to 10.7% and free cash flow more than doubled to DKK 1bn in 2020. The Board of Directors proposes a divi- dend of DKK 2 per share for the year. Our Group business improvement pro- gramme was completed by the end of the third quarter with an EBITA improvement run-rate of DKK 150m annually, and we are taking additional steps to improve Ce- ment profitability. We entered into several strategic partner- ships and received a range of orders di- rectly related to sustainability improve- ments and digital optimisation for our customers. To support our ambition to de- carbonise the cement and mining indus- tries and put FLSmidth on the path to car- bon neutrality, we have also committed to set science-based targets (see page 20). Highlights Q4 2020 Group order intake grew 15% organically with growth in both Mining and Cement. Cement order intake included the book- ing of a large project. Group revenue de- clined 24% organically related to both Mining and Cement. Gross margin improved due to a higher share from service during the quarter but earnings were impacted by the sharp de- cline in revenue. The EBITA margin de- creased to 5.5% from 8.1% in Q4 last year. This decrease was entirely related to Ce- ment, while Mining EBITA margin was up slightly year on year. Net working capital decreased for the third consecutive quar- ter. Free cash flow was DKK 232m, on par with Q4 last year. Net debt to EBITDA in- creased to 1.6x  trailing EBITDA. In Q4, we acquired KnowledgeScape, a global leader in digital optimisation solu- tions for the mineral processing industry, and we announced two divestments in Cement as part of the ongoing process to simplify and prune  Cement business. In January 2021, we announced that we are in negotiations with ThyssenKrupp concerning an acquisition of their mining business. There can be no assurances as to whether and when a transaction will transpire. Guidance 2021 FLSmidth guides for group revenue of DKK 15.5-17.0bn and a group EBITA mar- gin of 5-6%. The guidance is based on ex- pected different developments in the two individual businesses, Mining and Ce- ment, and continued impact from the pan- demic in the first half of 2021. Mid- and long-term financial targets The structural changes in the cement in- dustry and the pandemic have increased uncertainty around our mid- and long-term target levels and the timing for achieving these targets. Consequently, it has been decided to withdraw the mid- and long- term financial targets. Targets for capital structure, including financial gearing, eq- uity ratio and dividend policy remain un- changed. We will resume communication on the longer-term prospects for our Mining and Cement businesses when we have suffi- cient visibility. Please refer to page 11. FLSmidth  Annual report 2020 Highlights HIGHLIGHTS Guidance 2021     Capital structure targets, through-the- cycle        FLSmidth  Annual report 2020 4 Management review Highlights FINANCIAL PERFORMANCE HIGHLIGHTS Order intake DKKbn Revenue DKKbn EBITA & EBITA margin DKKm - % Revenue split by Mining and Cement Revenue split by Service and Capital business 18.5  5% 16.4  20% 771 4.7%  54% Organic order intake was on par with last year, comprising growth in Mining and a decrease in Cement. Book-to-bill was 112.7% Revenue declined 16% organically due to a severe pan- demic impact and a low Cement backlog entering the year Earnings were impacted by the pandemic and the sharp decline in revenue. Profitability in Mining was quite resili- ent, whereas Cement was loss-making CFFO DKKm Earnings per share DKK Net working capital ratio % 1,421  50% 4.2  73% 10.7%  2.6%-point Despite the pandemic causing a reduction in adjusted EBITDA, cash flow from operating activities increased with the cash inflow from net working capital as the key con- tributor Profit for the year decreased as a result of the lower oper- ating income and, in particular, a challenging cement mar- ket A strong cash focus led to a significant reduction in net working capital and net debt in 2020  not least due to a 32% (DKK 1.6bn) decline in trade receivables Mining 65% Cement 35% EBITA margin -2.0% EBITA margin 8.4% Capital 40% Service 60% 19.6 18.5 2019 2020 20.6 16.4 2019 2020 1,663 8.1% 771 4.7% 2019 2020 948 1,421 2019 2020 15.5 4.2 2019 2020 13.3% 10.7% 2019 2020 FLSmidth  Annual report 2020 5 Management review Highlights SUSTAINABILITY PERFORMANCE HIGHLIGHTS Safety (TRIR) Total Recordable Incident Rate/million working hours Quality (DIFOT) % Relative carbon footprint Tonnes CO 2 per DKKm revenue Scope 1 & 2 location based emissions Safety Total Recordable Incident Rate Carbon Intensity Tonnes CO 2 per DKKm revenue 1.0  0.6 improvement 88.3  0.3% point improvement 2.2  13% improvement Safety has top priority at FLSmidth and in 2020 our safety KPI improved for the 7th consecutive year in a row to a record low Despite the pandemic making planning and logistics ex- traordinarily challenging, we improved our quality KPI, DIFOT (Delivery in Full on Time) marginally in 2020 The reduction in our carbon intensity was a reflection of our strong focus on minimising emissions combined with the global lockdown of facilities and offices due to COVID-19 Water withdrawal m 3 Suppliers assessed for sustainability Women managers % 197,346  11% improvement 390  43% deterioration 13.1  1.9%-point improvement We continually strive to reduce our in-house water con- sumption, however we have the biggest impact with our customers. In 2020, we successfully installed a tailing management system which re-circulates over 86% of the process water at a Zinc mine in India Travel restrictions and lockdowns related to the pandemic unfortunately reduced our ability to visit suppliers and conduct sustainability screenings since March 2020 At the end of the year, we set a new long-term target for gender equality in our workforce. By 2030, we want 30% of our entire white-collar workforce and 25% of our peo- ple managers to be women. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2016 2017 2018 2019 2020 Safety 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2016 2017 2018 2019 2020 Relative carbon footprint 1.6 1.0 2019 2020 88.0 88.3 2019 2020 2.6 2.2 2019 2020 221,613 197,346 2019 2020 689 390 2019 2020 11.2 13.1 2019 2020 FLSmidth  Annual report 2020 6 Management review Highlights KEY FIGURES DKKm 2016 2017 2018 2019 2020 INCOME STATEMENT                                                                  ORDERS                  EARNING RATIOS                                     CASH FLOW                                      BALANCE SHEET                                    Use of alternative performance measures   DKKm 2016 2017 2018 2019 2020 FINANCIAL RATIOS                                                                  SHARE RATIOS                                                SUSTAINABILITY KEY FIGURES                                                               LETTER TO OUR SHAREHOLDERS We help our customers to increase their production, lower their operating costs and reduce their environmental footprint. Our business model is anchored around a unique combination of projects, products and services. However, we have a strategic focus to expand the share of services and standardised products relative to the share of large projects which represent our process competence. This focus  mix and a less cyclical business with a lower level of risk. we established crisis management teams in the company headquarters as well as in our regions with the main priority to secure the health and safety of our employees through a reorganised  secure credit lines, ensure our global supply chain and help our customers sustain production. Our employees have done a tremendous job adapting to the changed situation. The year began with good market outlook for mining and stable for cement. We proved our increased customer focus by booking three large orders in Mining. Faced with high uncertainty from the pandemic and low visibility in global conditions, we suspended  dividend. During April and May, a growing share of customers temporarily shut down or restricted access to their sites following guidelines from local authorities or through their own safety precautions. Global and local  chain, access to customer sites as well our own operations. During the summer, the situation improved in some regions but deteriorated elsewhere. Despite ongoing uncertainty, we  made the working assumption that business sentiment would improve gradually throughout the remainder of the year. As business sentiment failed to improve, we unfortunately had to let go of more than 1,700 colleagues during the year to adjust for a weaker outlook in Cement and a changed way of doing business due to the pandemic. We ended the year within our reinstated 2020 guidance. FLSmidth strives to be the leading supplier of sustainable productivity to the global mining and cement industries, and we are already well-positioned in this endeavour The pandemic presented a number of opportunities for FLSmidth. The demand for  increasing commodity prices. Especially copper and gold, which are traditional FLSmidth strongholds, enjoy favourable market conditions. Faced with a low activity level in cement, our  on sustainability and digitalisation to be well Vagn Ove Sørensen Chairman Thomas Schulz CEO Another outcome of the pandemic has been the increased global awareness of health, safety and the environment. With around 96% of our overall emissions derived from customers’ use of our sold products (scope 3), MissionZero is where we can have the greatest positive impact on emissions reduction.  by the pandemic, which has presented both challenges and opportunities for FLSmidth. Our company has operated globally for around 140 years and has a vast experience with crisis management which was proven in the year 2020. In January, we assembled teams to cope with the supply chain situation in China, and subsequently Management review Highlights FLSmidth ■ Annual report 2020 7 positioned for multiple future infrastructure projects, resulting from government’s stimulus programmes. Another outcome of the pandemic has been the increased global awareness of health, safety and the environment. Some of the world’s largest, most densely populated and most polluted cities have experienced weeks or months with closed factories, car-free streets  blue skies. This has sparked fresh momentum in the battle against climate change. It has accelerated the green energy transition and industrial decarbonisation, both of which favour FLSmidth as a premium supplier to the mining and cement industries with huge potential to reduce their environmental footprint. Combined, cement and minerals production currently account for approximately 10% of all global CO 2 emissions. With growing populations, a larger middle class, and a transition to greener energy, the demand for cement and minerals – and thus the environmental impact - will only increase in the next decade. A more sustainable future requires action from the industries. We will lead this action towards zero emissions in mining and cement, without compromising quality or our customers' commercial competitiveness. The pandemic has also underscored the importance of our agile supply chain, and it has proven the strengths of our regional business structure that was implemented in 2018. Today, LETTER TO OUR SHAREHOLDERS we have a higher share of local sales and  has served us well through the lockdowns. Another cornerstone in our 2018 reorganisation was an improved focus on digitalisation. Over the past year we have seen a step-change in customers’ willingness to adopt our remote support solutions and digitalised optimisation of operations. Strong in-house sustainability performance Emissions from FLSmidth’s own operations (scope 1 and scope 2 emissions) account for less than 1% of our overall emissions, while scope 3 emissions from our supply chain and customers’ use of our equipment represent the vast majority. Therefore, our approach to sustainability is to take responsibility for our own environmental footprint while helping our customers reduce theirs through our MissionZero programme (covered in the next section). In 2020, we delivered a strong in-house sustainability performance. The carbon intensity of FLSmidth’s operations declined from 2.6 to 2.2 tonnes/DKKm revenue. Our water withdrawal declined from 222 to 197 thousand m 3 . Our share of women in management positions increased from 11% to 13%, and our safety KPI improved for the 7th consecutive year in a row. December, 2020 FLSmidth announces the sale  technology and its Möller pneumatic conveying systems business. November, 2020 New Strategic Partnership Agreement with TITAN Cement Group. November, 2020 FLSmidth receives a EUR 5.4m grant from the European Institute of Innovation and Technology to help accelerate innovation. November, 2020 Order to deliver two FLSmidth HOTDISC’s to replace coal at Sungshin Cement in Korea. December, 2020 New HOTDISC® solution for a cement production line in Turkey which will achieve 86% substitution of fossil fuels. October, 2020 Order for the BulkExpert™ digital solution for two export terminals in Brazil. October, 2020 Acquisition of the  KnowledgeScape. February, 2020 FLSmidth secures large equipment order in Belarus. February, 2020 FLSmidth and VICEM announces cooperation to jointly work towards sustainable cement production in Vietnam. February, 2020 FLSmidth receives two major Russian orders, at a combined value of DKK 1.9 billion. December, 2020 Order for a tailing management system which recirculates over 86% of the process water to a lead-zinc mine in Rajasthan. Key events Management review Highlights FLSmidth ■ Annual report 2020 8 Towards zero emissions in mining and cement In November 2019, we announced our sustainability programme, MissionZero, to enable our customers in cement and mining to move towards zero emissions by 2030. With around 96% of our overall emissions derived from customers’ use of our sold products (scope 3), MissionZero is where we can have the greatest positive impact on emissions reduction.  MissionZero. Amongst others, we launched an innovative clay calciner system which reduces CO 2 emissions in cement production by up to 40% compared to traditional clinker production. We signed a contract to substitute coal with our alternative fuels solution, the FLSmidth HOTDISC®, for two cement production lines in Korea, and in Turkey we are building a HOTDISC® solution for a new cement production line which will achieve 86% substitution of fossil fuels. Additionally, we started a cooperation with the Vietnam National Cement Corporation with the goal of implementing technologies that radically reduce greenhouse gas emissions, and developing pioneering solutions for the use of alternative fuels and the improvement of air quality. In support of our ambition to reduce energy  mining industry, FLSmidth is driving a number of research and development partnerships with customers, third parties and academic institutions around the world. One of the most promising joint projects led by FLSmidth recently received a EUR 5.4m grant from the European LETTER TO OUR SHAREHOLDERS Institute of Innovation and Technology to help accelerate innovation. On a separate track, we have seen increasing demand for our water recycling solutions from the global mining industry. Following FLSmidth’s successful installation of a tailing management system which recirculates over 86% of the process water at Hindustan Zinc Limited’s mine in Rajasthan, India, we were awarded an additional contract to deliver an integrated dry stack tailings solution to recover the process water at one of their other mines in Rajasthan. To further our ambition to decarbonise the cement and mining industries and put FLSmidth on the path to carbon neutrality, in early January 2021 we committed to set science-based targets according to the Science Based Targets initiative. We are also aligning our practices and reporting  recommendations. As part of this, we conducted a climate risk and opportunities analysis in late 2020 facilitated by an external advisor. Step change in digitalisation Digitalisation is an important lever to accelerate the journey towards zero emissions in cement and mining and the pandemic has accelerated customer adoption of digitalised operations and remote support. A good example of this is our new partnership with TITAN Cement Group to increase digitalisation and sustainability across  Earlier in 2020, we received an order for our BulkExpert™ digital solution from a customer in Brazil. The solution will fully automate the stockyard operation of two large iron ore shipping export terminals in the south of the country, improving the throughput, quality and safety of the customer’s operations. On the innovation front, we launched the world’s most  gyratory crusher, and we took a major step in  of our latest ProcessExpert system applicable for both mining and cement. Furthermore, we supplemented our in-house innovation through the acquisition of KnowledgeScape, a global leader in digital optimisation solutions for the mineral processing industry. Market developments in 2020 Although demand for more digitalised and sustainable mine sites and cement plants is rising, the pandemic severely impacted our end markets in 2020. In particular, the cement industry was marked by travel restrictions and restricted site access. Customers deferred non- critical investments due to uncertainty and lower production rates which also caused reduced demand for spare and wear parts. Following the shutdown of about 20% of the world’s cement plants outside of China in April, the share of cement plants in operation has since climbed back up above 95%. However, many plants continue to run at reduced capacity and cement customers will need to see improved cash generation before they ramp up investments. The mining industry has been more resilient – albeit not immune – to the pandemic. After approximately 10% of the world’s mine sites were shut down in April, nearly all sites have since restarted production and most are Throughout the year we have been executing our Group business improvement programme, including site consolidation, an improved logistical setup and headcount reductions. The programme was completed by the end of the third quarter with an EBITA improvement run-rate of DKK 150m annually. running at high production rates. Under normal circumstances this would mean good conditions for our service business but travel restrictions and limited site access have continued to impact on-site technical services, resulting in reduced demand. On the positive side, commodity prices have rebounded strongly following their sharp decline earlier in the year.  despite the healthy industry fundamentals, they have continued to defer large capital investments due to pandemic-induced uncertainty and delays related to prolonged environmental and other regulatory approval processes. Financial performance  impacted by the pandemic and the rapidly deteriorating business environment which  Still, we achieved an organic order intake on par with 2019, comprising growth in Mining Management review Highlights FLSmidth ■ Annual report 2020 9 LETTER TO OUR SHAREHOLDERS including site consolidation, improved logistical setup and headcount reductions. The programme was completed by the end of the third quarter with an EBITA improvement run- rate of DKK 150m annually. To further address the challenging cement market, we have taken additional steps to increase outsourcing, simplify the Cement business and adjust the cost   pneumatic conveying systems businesses as a step towards simplifying our Cement business.  regions, Sub-Saharan Africa and Middle East (SSAME) and Sub-Continental India (SCIndia), have been merged to further reduce costs and complexity. Looking ahead With continued high COVID-19 infection rates and lockdowns in many parts of the world, market uncertainty remains high. The ongoing vaccination programmes provide a likely path  when and how fast this will support our business. At present, our working assumption is that market  that of the second half of 2020. From the summer of 2021, we expect a gradual improvement in business sentiment and increasing access to customer sites, returning to a more normalised situation by the end of the year. The market  markets, mining and cement. We are positive on the outlook for mining. Most commodities have seen a strong rebound in prices, surpassing pre-pandemic levels. Mine sites, overall, are running at high production rates and industry fundamentals are healthy. In the longer term, the switch to green energy and electric-powered transportation will create increasing demand for copper and battery metals for which the mining industry will need to scale up investments in order to meet. The cement market, on the other hand, is faced with ongoing overcapacity and we see no short- to medium-term recovery. Thus we continue activities to reshape our Cement business. Large economic stimulus programmes, combined with an increasing focus on lower-carbon cement, will create good opportunities in the medium- to long-term but the timing and extent of an overall rebound in the cement market remain uncertain. It is, however, clear that the cement industry will need substantial investments to meet the emissions reduction targets set by a growing number of cement producers as well as the recent commitments to carbon neutrality made by the Global Cement and Concrete Association and the European Cement Association. Based on the need to decarbonise, we foresee a multi-commodity cement industry in the future, utilising a range of cement production processes and a variety of raw materials. As the industry’s leading and most innovative premium supplier with strong process know-how, we  development. In the short- to medium-term, we are nevertheless faced with the challenge of managing two industries, Mining and Cement, Every crisis presents challenges as well as opportunities. The current health (and economic) crisis is no dierent and we will seek to capture those opportunities, whether they entail organic or acquisitive growth. with diverging end markets. Consequently, we are further strengthening our two industries setup, while keeping focus on leveraging synergies and ensuring clear capital allocation to capture growth opportunities and maximise value creation within both businesses. In parallel, we are considering acquisitions to  and within the areas of sustainability and digitalisation. It is highly uncertain as to whether and when acquisitions will materialise. Every crisis presents challenges as well as opportunities. The current health (and economic)  those opportunities, whether they entail organic or acquisitive growth. Vagn Ove Sørensen, Chairman Thomas Schulz, CEO and a decline in Cement. The contraction in Cement revenue was both a consequence of the pandemic and the low backlog entering the year. We have carried out activities to adjust the cost base accordingly but in some countries we were constrained from doing so by local labour restrictions related to COVID-19. Also, mobility  the utilisation of our global service technicians and resulted in more complex and costly logistics. Though not immune to the pandemic, our Mining business was relatively resilient whereas the sharp decline in revenue had a  business.  secured four large orders and a book-to-bill of 113% for the year. As a result of our strong cash focus, the net working capital ratio decreased  than doubled to DKK 1bn in 2020. Business improvements Throughout the year we have been executing our Group business improvement programme, Management review Highlights FLSmidth ■ Annual report 2020 10 FLSmidth  Annual report 2020 11 Management review Highlights FLSmidth guides for group reve- nue of DKK 15.5-17.0bn and a group EBITA-margin of 5-6%. The guidance is based on expected different developments in the two individual businesses, Mining and Cement, and continued impact from the pandemic in the first half of 2021. Guidance 2021 The guidance for 2021 is subject to uncertainty due to the COVID-19 pandemic. Lockdowns and mobility restrictions continue to impact suppliers, customers and our workforce. Restricted access to customer sites, in particular, is creating uncer- tainty around the timing of our order backlog conversion and the activity level for our service business. A gradual improvement in business sentiment and access to customer sites is, how- ever, expected in the second half of the year. The outlook for the mining industry remains posi- tive. For 2021, the Mining business revenue and EBITA are expected to grow in the second half of the year as COVID-19 restrictions are expected to ease. EBITA-margin for Mining is expected to be high-single digit. The outlook for the cement industry remains im- pacted by overcapacity and slow recovery. The Cement business revenue is expected to decline further in 2021, and as a consequence, initiatives to reshape the Cement business will continue during the year. The Cement business is not ex- pected to be EBITA positive in 2021 due to con- tinued Cement reshaping costs and low capacity utilisation in the service business until the pan- demic eases. Cash flow from investments (excluding acquisi- tions and divestments) is expected to be largely in line with 2020. Mid- and long-term financial targets In recent years, cement industry dynamics have diverged from those of the mining industry. Whereas fundamentals for the mining industry re- main positive, overcapacity in the cement indus- try has put pressure on the returns of the cement producers, a development which has been fur- ther accelerated by the ongoing pandemic. The structural changes in the cement industry and the pandemic have increased uncertainty around our mid- and long-term target levels and the timing for achieving these targets. Conse- quently, it has been decided to withdraw the mid- and long- term financial targets. Targets for capi- tal structure, including financial gearing, equity ratio and dividend policy remain unchanged. We will resume communication on the longer- term prospects for our Mining and Cement busi- nesses when we have sufficient visibility. FINANCIAL OUTLOOK 2021 guidance     2020 guidance Realised Reinstated Initial              Capital structure targets, through-the- cycle        FLSmidth  Annual report 2020 12 Management review Highlights WHY INVEST An investment in the green transition Technology leader Unique business model with high service share An investment in the green transition With economic growth and urbanisation comes the demand for infrastructure and modern con- veniences, such as consumer electronics. Re- newable energy, electric cars, wind and solar en- ergy all require cement and minerals. The transitions of the mining and cement indus- tries to sustainable forms of production are criti- cal to solving the challenges of climate change. Energy-intensive industries, such as mining and cement, are indispensable to the global econ- omy and essential to making the green transition a reality. That is why it is critical to de-carbonise and modernise these sectors. The transition to- wards sustainable production requires innovative solutions and both regulators as well as custom- ers are increasingly setting new or stricter emis- sions-reduction targets. As a technology leader in the mining and cement industries, we already have a strong portfolio of sustainable solutions and we recognise our role to lead these indus- tries into a sustainable future. Unique business model with high service share Through our unique combination of engineering, products and services, we can outgrow the mar- ket by helping our customers increase their pro- duction output, lower their operating costs and reduce their environmental impact. Our decen- tralised organisation and global service footprint ensure that all FLSmidth offerings are available to every one of our customers and allows for a 50- 60% share of relatively resilient service business. This, in combination with our asset-light business model, outsourced manufacturing and a flexible cost structure, allows us to manoeuvre safely through the cycles and periods of extreme uncer- tainty, such as the current pandemic. Our life cy- cle approach combined with a strong focus on sustainability and digitalisation is what makes us stand out from competitors and differentiates us from mid-market and single-equipment suppliers. Technology leader The growing focus on sustainability is increas- ingly important for our customers and we are strongly positioned to address challenges such as tighter regulations, societal expectations and increasing costs. By minimising environmental impacts, we can help resolve challenges with community relations, while at the same time con- tributing to more sustainable production. With MissionZero, we are leveraging our digital and innovative solutions to offer our customers the required technology to operate zero-emissions processing plants for minerals and cement by 2030. Please see the Innovation section on page 26-29 if you would like to learn more about our solutions that are driving sustainable produc- tivity. FLSmidth  Annual report 2020 13 Management review Business Global provider of sustainability productivity We are a leading provider of engineering, equipment and service solutions to the global mining and cement industries. We enable our customers to improve performance, drive down costs and reduce environmental impact. Our business model is based on three strong strategic pillars: Life cycle approach, full service provider, and full flow-sheet. With our sustainability ambition, MissionZero, we enable our customers to move towards zero emissions by 2030. Our focus is clear  by using innovative technology, digital solutions and strong partnerships, we are committed to build a sustainable future for all of us. Business FLSmidth  Annual report 2020 BUSINESS We are A supplier of solutions from single machinery to complete cement and minerals processing plants, including services before, during and after the construction. MissionZero We enable our customers in cement and mining to move towards zero emissions by 2030. 60+ Countries A truly global company with local presence in more than 60 countries and customers in more than 150 countries. 10,639 Employees Our employees use their unique process knowledge about products, projects and  technical innovations, digitalisation and sustainable life cycle management. Our vision We drive success through sustainable productivity enhancement Our brand promise We discover potential 2 1 4 3 7 5 6 Australia Share of revenue: 9% (2019: 7%) Share of employees: 5% (2019: 5%) Europe, North Africa & Russia Share of revenue: 19% (2019: 19%) Share of employees: 25% (2019: 26%) Sub-Saharan Africa & Middle East Share of revenue: 11% (2019: 10%) Share of employees: 8% (2019: 7%) Asia Share of revenue: 9% (2019: 7%) Share of employees: 5% (2019: 5%) Subcontinental India Share of revenue: 8% (2019: 13%) Share of employees: 23% (2019: 25%) 1 FLSMIDTH IN THE WORLD 2 43 5 6 7 North America Share of revenue: 21% (2019: 20%) Share of employees: 16% (2019: 16%) South America Share of revenue: 23% (2019: 24%) Share of employees: 18% (2019: 16%)  we have six regions, as two of the smaller regions, Sub-Saharan Africa and Middle East (SSAME) and Sub-Continental India (SCIndia), have been merged. FLSmidth ■ Annual report 2020 14 Business Management review FLSmidth  Annual report 2020 15 Management review Business The COVID-19 pandemic had a significant impact on our industries, customers, company and employees. We continue to monitor the situation and take swift action where necessary to ensure the safety of our employees, protect the interests of our customers and secure our supply chain. Customer impact Most of our customers have maintained business continuity during the pandemic. However, in or- der to reduce the risk of COVID-19 transmission within their workforces, many of them have cho- sen to run their operations with minimal staff on- site, and several have closed site access to sup- pliers. Roughly 97% of mine sites and 95% of ce- ment plants are currently back in operation, but many cement plants run at reduced capacity utili- sation and access to sites remains difficult for suppliers. The pandemic has accelerated customer de- mand for digital optimisation, with the number of hours spent on digital troubleshooting for cus- tomers doubling since the beginning of the year. A growing number of customers are now enjoy- ing the benefits of our remote condition monitor- ing tools and services and are in regular contact with our 24/7 remote technical support staff. Our on-site solutions have also proved their value to customers during the pandemic. For example, with our SiteConnect mobile app, customers are able to monitor asset performance and health data without having to be on site or in the control room. Though restricted site access has made it challenging to install new digital solutions on-site, we have successfully implemented remote soft- ware upgrades and plant improvements. Supply chain impact As a global business, the timing and extent of the  across our locations. In response, we have en- deavoured to maintain resilience and flexibility within our global supply chain and the ability to source from suppliers across all regions. As a re- sult, while we have incurred some additional costs, there has been very little disruption within our global supply chain during the pandemic. Where sub-suppliers have struggled to deliver, we have been able to successfully switch to sup- pliers in other parts of the world. To simplify and focus the supply base, we have been steadily reducing the number of suppliers we work with. In total, we have halved our num- ber of suppliers over the past few years to 7,500. Of these, fewer than 1,500 suppliers now collec- tively account for 90% of our global supplies. These suppliers are evenly split among geogra- phies to reduce transportation, lead-time and im- prove agility with stronger delivery capability. Two thirds of the suppliers are based in low-mid- dle income countries. Along with the partnership approach, this allows for better screening of sup- pliers and improved customer experience. Internal operational impact Ensuring the safety of our employees has always been our most important priority. Following the outbreak and spread of the pandemic, we estab- lished crisis management teams at group and re- gional levels and undertook continuous risk as- sessments in order to ensure that actions taken were proving effective in minimising infection rates. These measures included providing per- sonal protective equipment, ensuring safe em- ployee transportation and implementing travel bans, contact tracing programmes, temperature screenings and entrance testing, depending on location. As of end-2020, almost 100% of our blue-collar employees where on-site at our manufacturing, assembly and warehouse sites, while around 50% of our global office employees were work- ing from home. We have unfortunately had to re- duce our workforce significantly during the year. In light of the pandemic, the increased degree of flexible working arrangements and an expected slow recovery within cement, we have decided to revisit our plans for building a new campus in Copenhagen, Valby. Travel restrictions continue to impact the capac- ity utilisation for our global service technicians, and the lockdowns and travel restrictions put in place as a result of the latest wave of COVID-19 cases will continue to impact our business during the first half of 2021. Our regional offices, which are responsible for compliance to local regula- tions, are monitoring the situation and reporting weekly to Group Management on changes to lo- cal restrictions. PANDEMIC IMPACT AND ACTIONS COVID-19 Customers  Travel restrictions and limited site access  Deferred capital investments  Operation at reduced capacity Operational impact  Reduced operational activity  Travel restrictions  Working from home  Reduced capacity Supply chain impact  Largely undisrupted  Reduction in number of suppliers  Resilient and flexible supply chain FLSmidth  Annual report 2020 16 Management review Business While the global economy was impacted by the COVID-19 pandemic, the mining industry has re- mained relatively resilient during the course of 2020 with the majority of mines operational across regions.  sites were shut down in April, but nearly all sites have since restarted production and most are running with high production rates. Under normal circumstances this would stimulate investments and deliver good conditions for our service busi- ness, but travel restrictions and limited site ac- cess have continued to impact on-site technical services, resulting in reduced demand. Mines are often remotely located and many customers are still enforcing safety protocols and restricting site access to external service providers in order to protect employees and safeguard production, which impacts their equipment and service spend. On the positive side, commodity prices have re- bounded strongly from the spring when the first pandemic wave hit, and the industry is expected to recover to pre-pandemic activity levels within a relatively short time. In December, copper prices reached a seven-year high of USD 8,000 per tonne, which represents a 70% increase compared to the low point in March 2020. Min- ers are generating good cash flows, but despite the healthy industry fundamentals, they have continued to defer large capital investments due to pandemic-induced uncertainty and delays re- lated to prolonged environmental and other reg- ulatory approval processes. In many of our re- gions, refurbishment and maintenance has been postponed, which is expected to translate into new opportunities when the market comes back. However, the timing of converting opportunities to orders remains unpredictable and with infec- tion cases currently surging in many parts of the world, it is still difficult to predict the shape of the recovery curve. It is, however, expected that the pandemic will continue to impact the industry in the first half of 2021. The second wave that is currently sweeping across the globe is impacting regions at different times and to varying extent. National lockdowns continue to reduce activity in many South Ameri- can countries, where quarantines have halted or slowed numerous mines and development pro- jects. In North America, the pandemic led to a sharp drop in business activity in the spring, and while the situation improved over the summer, it deteriorated again towards the end of the year as infection rates increased and caused renewed uncertainty. Despite high infection rates, the ac- tivity level in Eastern Europe has held up well, whereas the second wave has triggered new site closures and very restricted access to mines in Sub-Saharan Africa and the Middle East. In India, market activity has improved compared to the low levels in previous quarters and we are see- ing an increase in demand for solutions within tailings management and water recovery. Iron ore and gold production remain strong in Aus- tralia, supported by record-high production vol- umes. All things considered, the pandemic has dis- rupted the mining industry to a lesser degree than many other industries. The outlook for in- vestments in mining remains positive, and we have a healthy pipeline of both small and large opportunities. Further, the switch to green en- ergy and electric-powered transportation will re- quire a massive increase in infrastructure and the mining industry will need to scale up investments in copper, battery metals and other minerals to meet this growing demand. MINING MARKET TRENDS Capex trend in mining USDbn Source: Bloomberg Global copper consumption Million tonnes Source: Bloomberg, FLSmidth estimates 0 20 40 60 80 100 120 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 4 8 12 16 20 24 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 FLSmidth  Annual report 2020 17 Management review Business The cement market entered 2020 with substan- tial overcapacity and has been severely im- pacted by the pandemic and we do not antici- pate a recovery in the short- to medium-term. Large economic stimulus programmes, com- bined with an increasing focus on lower-carbon cement, are expected to create good opportuni- ties in the medium- to long-term but the timing and extent of an overall rebound in the cement market remain uncertain. Following the shutdown of about 20% of the  the share of cement plants in operation has since climbed back up above 95% at year-end. How- ever, many plants continue to run at reduced ca- pacity and sites remain difficult to access due to restrictions and preventative measurements taken by authorities and plant operators. This has affected service activity and curbed investments. As economic growth is one of the most important drivers for cement demand, our customers are sensitive to market fluctuations and typically re- spond through cash preservation. Cement con- sumption continues to be impacted by reduced construction activity, and across regions most large investments have been suspended pend- ing an improvement in the business outlook. Op- erating expenditures have also declined as ce- ment companies endeavour to stay profitable during a period of reduced demand and high un- certainty. In North America, the outcome of the US presi- dential election should help remove the uncer- tainty that has held back investments, allowing the industry to begin planning ahead again. The  bill, which earmarks more than USD 1 trillion to upgrade national infrastructure, could be passed in the first half of 2021 which would help to boost optimism among cement producers and increase confidence in the market. In India, market activity has improved compared to the low levels seen in previous quarters and the Indian government is pushing for infrastructure investments and hous- ing. The Chinese economy is nearly back to nor- mal but most other Asian countries continue to be severely impacted by COVID-19 from either a health or economic perspective. Market activity in Africa and the Middle East remains significantly lower and lockdowns continue to reduce activity at cement plants across South America. Most of our cement customers in Europe, North-Africa and Russia will need to see improved cash gen- eration before they ramp up investments. Any capital investments in the foreseeable future are anticipated to be allocated towards more sustain- able cement production. During the last weeks of 2020, the EU Commis- sion agreed on a 55% reduction target for green- house gas emissions by 2030, and a budget that allows for a green recovery following COVID-19 restrictions. The green recovery will fuel demand for emissions-reducing technologies and the ce- ment industry will need to undertake substantial investments to meet recent commitments to car- bon neutrality by the Global Cement and Con- crete Association and the European Cement As- sociation. The US re-joining the Paris climate accord and the coming implementation of phase IV of the EU Emissions Trading System (ETS) are other factors likely to encourage cement produc- ers to invest in emissions-reducing technologies  nated clay system. CEMENT MARKET TRENDS Capex trend in cement USDbn Source: Bloomberg Global Cement consumption Billion tonnes Source: Bloomberg 0 3 6 9 12 15 18 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 1 2 3 4 5 6 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 THE ROAD TO ZERO EMISSIONS Combined, cement and minerals production currently account for approximately 10% of all global CO emissions. With growing populations, a larger middle class, and a transition to greener energy, the demand for cement and minerals - and thus the environmental impact - will only increase in the next decade. A more sustainable future requires action from the industries. We will lead this action towards zero emissions in mining and cement, without compromising quality or our customers' commercial competitiveness. FLSmidth  environmental footprint but more work, often in partnership is needed to ensure the right pathway for decarbonisation. Our MissionZero programme is aimed to deliver and implement these solutions. The goals that underpin the MissionZero programme are inspired by and contribute directly to some of the UN Sustainable Development Goals (SDGs), including those related to water,  innovation, responsible consumption and climate  to our own operations and for our suppliers including targets on gender equality that are in  to decarbonise the cement and mining industries and put FLSmidth on the path to carbon neutrality, in early 2021 we committed to set science-based targets according to the Science Based Targets initiative. In addition to targets for our suppliers and our own operations, we have committed to a 7% year-on-year reduction in downstream (customer) emissions relative to revenue from 2019 to 2030. This is pivotal as around 96% of our overall emissions are derived from customers’ use of our sold products (scope 3). We are also aligning our practices and reporting  for Climate Related Financial Disclosure (TCFD) recommendations. As part of this, we conducted a climate risk and opportunities analysis in late 2020 facilitated by an external advisor. Concurrently with the Annual Report, FLSmidth has published its annual Sustainability Report,  environmental and socio-economic impacts. The 2020 Sustainability Report is in full compliance with both Sections 99a, 99b and 107d of the Danish Financial Statements Act and in accordance to the Global Reporting Initiative (GRI) core requirements, and also serves as the Advanced Communication on Progress to the United Nations Global Compact. The report has been subject to limited assurance performed by Ernst & Young. The report is available at  With MissionZero, we aim to deliver solutions that make it possible to operate zero-emissions cement plants and manage zero-emissions mining processes by 2030. Cement The three main levers to reduce a cement plant’s environmental footprint are calcination, fuel for heating, and electric power consumption. With existing solutions and our current technology roadmap, we are already capable of reducing emissions by 70 percent. Mining Challenges such as water use, emissions, and energy waste are at the top of the mining agenda. If these issues are not addressed, access to investment, regulatory compliance, license to operate and the industry's own reputation are all at risk. ZERO EMISSIONS Reduce emissions from fuel burning and reduce process emissions from calcination. 100% FUEL SUBSTITUTIONS Eliminate the need for fossil fuels and deliver solutions for 100 percent alternative fuel. ZERO WASTE No waste heat, use of waste streams as raw material and circular processes. ZERO WATER WASTE Enable zero discharge and 100% re-use. ZERO EMISSIONS Eliminate emissions from use of fossil fuels in transportation and minerals processing. ZERO ENERGY WASTE Reduce energy costs and energy waste, especially from energy intensive mills. KEY GOALS IN MISSIONZERO FLSmidth ■ Annual report 2020 18 Business Management review of total emissions ~1% Suppliers Purchased goods and services OF TOTAL EMISSIONS Customers Suppliers SCOPE 3 UPSTREAM SCOPE 3 DOWNSTREAM SCOPE 1 OUR OPERATIONS SCOPE 2 HEATING AND POWER < 0.1% WASTE < 0.1% BUSINESS TRAVEL < 0.1% TRANSPORT AND DISTRIBUTION Downstream of total emissions of total emissions ~96% OF TOTAL EMISSIONS Use of sold products ~3% OF TOTAL EMISSIONS End-of-life treatment of sold products < 0.1% TRANSPORT Upstream < 0.1% EMPLOYEE COMMUTING of total emissions of total emissions < 0.1 % OF TOTAL EMISSIONS Our operations (direct own emissions) and heating and power  assumptions. Examples include the expected utilisation and lifetime of sold products, and as such   Greenhouse Gas Protocol, we intend to validate our data as an iterative process ongoingly. We calculate our GHG emissions based on the standards of the Greenhouse Gas Protocol, which provides a standardised framework to measure greenhouse gas (GHG) emissions, both for direct emissions from our own company and from our entire value chain. The GHG Protocol includes impacts for a number of GHGs, expressed as CO 2 -equivalents (CO 2 e). This means they are expressed as the amount of CO 2 that would give the same GHG impact. In short, the GHG Protocol divides a company’s value chain GHG emissions into three scopes: 1. Direct GHG emissions from own facilities and vehicles 2. Indirect GHG emissions from purchased electricity, steam, heating and cooling 3. Indirect GHG emissions from the value chain, including both upstream emissions (e.g. purchased goods and services, upstream transportation and distribution, and business travel) and downstream emissions (e.g. downstream transportation and distribution, use of sold products and end-of-life treatment of sold products) Customers use of our products make up around 96% of our total scope 1-3 emissions. OUR IMPACT ACROSS THE VALUE CHAIN As a leading supplier of equipment and service solutions to the mining and cement industries, we have a substantial inuence on our value chain. FLSmidth ■ Annual report 2020 19 Business Management review n early 2021, we committed to and submitted science-based global carbon reduction targets which are now pending validation by the Science Based Targets initiative. Having an independent body validate our targets reinforces our long-term commitment and our determination to reach our targets. The systematic approach helps us break the main target into tangible, yet ambitious steps. Targets across the value chain Downstream is where we have our largest impact. That is why with MissionZero, our target is to enable our customers to produce cement and minerals with zero emissions. However, we are including science-based targets for the entire value chain. I What are science-based targets  reduce greenhouse gas emissions. Targets are considered science-based if they are in line with what the latest climate science deems necessary to meet the goals of the 2015 Paris Agreement. The Science Based Targets initiative is a partnership between CDP Disclosure Insight Action, the United Nations Global Compact, the World Resources Institute and World Wildlife Fund (WWF). Upstream We work with our suppliers to move towards greenhouse gas emission reductions by 2030. By 2025, 30% of our suppliers, based on spend, need to have set their own targets for reducing greenhouse gas emissions. Downstream Our downstream target is a 7% year-on-year reduction in carbon emissions per unit of revenue from a 2019 baseline until 2030. It is calculated as tonnes of CO 2 -equivalents divided by revenue in DKK. By far our largest environmental impact stems from the use of our products by our customers. At the time of reporting, our targets have been submitted for validation and are pending approval from the Science Based Targets initiative. Own operations From our own direct emissions, we have set a target to reduce our Scope 1 and Scope 2 emissions to 0 and be carbon-neutral by 2030. Those emissions stem from our manufacturing and transportation, and the energy we  SCIENCE-BASED TARGETS AND HOW THEY WILL LEAD US TOWARDS ZERO With MissionZero, we have a clear ambition to do our part in limiting global warming to 1.5°C. Fullling this ambition requires a systematic approach to reducing greenhouse gases. We are now setting science-based targets. FLSmidth ■ Annual report 2020 20 Business Management review FLSmidth  Annual report 2020 21 Management review Business FLSmidth strives to be the leading supplier of sustainable productivity to the global mining and cement industries, and we are already well-positioned in this endeavour. We help our customers to increase their production, lower their operating costs and reduce their envi- ronmental footprint. With a local presence in more than 60 countries and customers in more than 150 countries, FLSmidth is truly a global company. The geo- graphical footprint reflects our diverse customer base, composed primarily of global and regional mining and cement companies which invest in new capacity or in expanding, upgrading, main- taining and servicing existing production facili- ties. Our business model is anchored around a unique combination of projects, products and services. However, we have a strategic focus to expand the share of services and standardised products relative to the share of large projects. This focus will help us obtain a more profitable business mix and a less cyclical business with a lower level of risk. While the process expertise we gain from projects is key to delivering produc- tivity improvements to our customers, we remain selective in taking on large projects to ensure that terms and conditions support our profitability targets. To further strengthen our position as Sustaina- ble Productivity Provider #1, we have iden- tified five key strategic focus areas (illustrated on next page). Customers FLSmidth has vast experience in working with a broad range of customers around the world. Our customers consist of both global majors and mid- sized regional players. The latter account for a relatively large amount of our project sales, whereas the global majors account for a consid- erable share of our service business. Being close to our customers is key. Combining local presence with global support and expertise makes it possible to deliver premium solutions where our customers need them. Our large num- ber of local sales and service offices ensures fre- quent customer interaction and high speed of delivery, and we continue to open sales and ser- vice offices around the world to cover new geo- graphical regions and overcome the increasing challenge of trade barriers. While expanding and localising our service footprint, we have pursued a strategy of consolidating our supply chain and STRATEGY FLSmidth  Annual report 2020 22 Management review Business project centres to ensure the leanest possible or- ganisation. Despite cyclical end markets, we consistently pri- oritise maintaining and developing a strong and competent sales force, ever aware that the strength of our customer relationships during the downturn will help to define our success in the industry upturn. We constantly seek to minimise administrative functions and allocate resources to sales and service. As a result, a large proportion of our employees has direct contact with customers. Our customers recognise us for our high quality and reliability, which is also reflected in our quality KPI, DIFOT (Delivery in full on time). DIFOT has risen from 84% in 2016 to 88% in 2020. Sustainability FLSmidth's relatively asset-light business model means that the environmental footprint from our own operations is very modest compared to that of our customers. A large cement producer has a carbon footprint about 4,000 times that of FL- Smidth, and our annual water consumption equals roughly two weeks of water consumed by a copper mine (100,000 tpy). Therefore, our ap- proach to sustainability is to take responsibility for our own environmental footprint while helping our customers reduce theirs, where we can have a much greater positive impact on emissions re- duction. For this reason, we launched Mission- Zero in 2019, which is an integral part of our busi- ness strategy and explained in more detail on page 18-20. Innovation & digitalisation Our efforts in innovation and digitalisation are an important sustainability enabler. Greater scarcity of resources such as energy, water and raw ma- terials leads to more complex and costly opera- tions that challenges the performance of mining and cement companies. This calls for innovation, digitalisation and high-end technical solutions, which is where FLSmidth has a leading position and a competitive edge. Our strong digital capa- bilities are founded on our extensive experience in automating plants, which positions us as a market leader in analysing and understanding performance data. An increasing share of our products and solutions offered to the cement and mining industries is becoming intelligent and self-learning. Mining and cement have historically been conservative industries but the needs of our customers are changing more rapidly today. Their constant hunt for productivity, reduced en- vironmental footprint and higher returns makes them more receptive to innovation and new ways of working, which is fuelling a growing interest in digitalisation. Digitalisation offers huge potential but first and foremost we see it as an enabler. It has become a natural and integral part of our product portfolio and the benefits to our customers are clear: in- creased productivity through optimisation, more reliable operations, increased uptime as well as proactive, predictive and increasingly prescrip- tive maintenance. Our ability to deliver productiv- ity improvements is anchored in a full flowsheet of premium sustainable technologies (see page 24-25), combined with strong process knowhow and a broad range of services. Read more about innovation and digitalisation at FLSmidth on page 26-29. Strategic focus areas Customers Sustainability Innovation & digitalisation Life cycle approach Standardisation Values Competences, Co-operation and Responsibility FLSmidth  Annual report 2020 23 Management review Business Life cycle approach To achieve a sustainable productivity improve- ment, companies need to adopt an end-to-end process and integrate the whole value chain. Forces must be activated simultaneously from multiple directions and across the organisation to create the kind of momentum that leads to sus- tainable change. Through a life cycle approach, we enable our customers to lower their total cost of ownership. Our digitalisation efforts will help pave the way for growing our spare and wear parts business in the years to come, as customers increasingly buy solutions rather than single parts and equipment. Over the years, we have successfully built a large service business focusing on spare parts, up- grades and maintenance. Our customers benefit from the most comprehensive product portfolio in the industry, allowing them to increase the productivity of their complete value chain. A full flowsheet facilitates digital access to all key pro- cesses and equipment. To be able to address is- sues before equipment breaks down, we create powerful connections between physical and digi- tal systems which lay the foundation for analytics- driven predictive maintenance. We can then digi- talise the entire supply chain to provide proactive condition monitoring and data collection, identify- ing damage or wear ahead of any failure. Standardisation Through value engineering and modularisation, we re-think the designs of our products to in- crease reliability and reduce cost and complexity without compromising on quality and functional- ity. Our standardisation programme has yielded sub- stantial results. We have, in recent years, stand- ardised products such as our vertical roller mills, coolers, burners, feeders and concentrators al- lowing for a higher degree of configuration and less customisation. We will continue standardis- ing more products. Reducing our procurement costs through stand- ardisation represents a huge potential. Produc- tion costs account for about 75% of our overall revenue, of which 70-80% relates to procure- ment from sub-contractors. Smarter product de- sign enables us to significantly reduce our pro- curement costs, and we achieve other benefits such as reduced engineering hours, enhanced product reliability and simpler maintenance pro- cedures  to the benefit of our customers and ourselves. Our values Based on our values  competence, co-op- eration and responsibility  we earn the trust and respect of our customers, business partners, suppliers, employees and shareholders in the communities in which we live and operate. FLSmidth  Annual report 2020 24 Management review Business Mining We are one of the market leaders in mining with one of the strongest brands and broadest offerings. FLSmidth is a supplier of premium technology to the global mining industry. We offer a complete array of products, systems and services, ranging from single engineered or standardised equip- ment, such as crushers, ball mills, pumps, gravity concentrators, thickeners, flotation cells and au- tomated laboratories to bundled equipment, full production plants and maintenance solutions. We increase the product complete "pit to plant" operation by integrating upstream mining with downstream processing. Our broad offering ranges all the way from 'in-pit- crushing-and-conveying' (IPCC) to recovery and refining of minerals and tailings management. In Salt Lake City, USA, we have a laboratory with state-of-the-art materials testing capabilities to  This ensures an early dialogue with the customer and, not least, an in-depth knowledge of their material, including material hardness and the minerals concentration which is used to deter- mine the optimal grinding and separation pro- cess. The current mining cycle is a productivity cycle which clearly favours premium suppliers that have the flowsheet, process knowledge and ser- vice skills to help customers optimise existing production facilities and minimise their environ- mental footprint. 1. Extraction and size control Ore is defined as materials that con- tain minerals financially viable to ex- tract. Ore is extracted through meth- ods such as drilling and blasting and transported to a crusher or crushed in-pit and conveyed out, a method usually more energy efficient. The ore is crushed to reduce the par- ticle size. 2. Comminution Crushed ore is fed into a mill and ground to a powder. Most often a wet process that facilitates transportation as a slurry. Once milled, the material goes through screens and cyclones that separate the coarse and fine ma- terial. Coarse material is sent back to the mill. Mills are highly energy-inten- sive, representing about half of the energy consumed by an entire mine and estimated to account for 3% of all global electricity use. Novel comminution such as FLS- midth's HPGRs can reduce water and energy consumption. 3. Beneficiation and recovery The valuable minerals are then sepa- rated and concentrated. This involves flotation, concentration, clarification, and thickening. A flotation cell re- moves impurities, producing a more concentrated product. Chemicals and oils coat the mineral content so it sticks to air bubbles. The bubbles form froth containing the concentrate, which is skimmed off the top. The concentrate is sent for further upgra- ding. 4. Thickening and filtration The left-over materials called tailings accumulate at the bottom, and it is separated to recover the water. Tail- ings are moved to clarifiers and thick- eners, where the particles settle at the bottom and the water can be re- covered and re-used. Filter presses remove additional water, leaving filter cake. Recycled water is re-used mini- mising fresh water intake. 5. Tailings management In the most environmentally sound method of managing tailings, the filter cake is mixed with waste rock and stored a This solution with filtered tailings removes the risk of dam failures. FLSmidth  Annual report 2020 25 Management review Business Cement We are the market leader in the premium segment of the cement industry with the most complete offering and the strongest brand. We supply the widest array of products, systems and services, ranging from single engineered and customised equipment, such as mills, kiln systems and clinker coolers, to more standard- ised products such as feeding and packaging machines as well as complete cement plants, maintenance and remote online support. Years ago, the cement market divided into a pre- mium market and a mid-market. The premium market consists of customers valuing lower total cost of ownership, more flexible and environ- mentally friendly cement plants and local con- struction. FLSmidth caters to the premium market with equipment, services and complete plants and is the clear market leader in this segment. The mid-market is dominated by Asian suppliers and is characterised by customers preferring the lowest initial investment. However, customers of- ten require a combination of low cost (mid-mar- ket) construction combined with premium engi- neering and procurement. FLSmidth has part- nered with Asian suppliers to accommodate such customer requests and most Asian suppliers are, in reality, partners as well as good customers of FLSmidth. Therefore, we are working to offer not only the best complete cement plants but to be- come the preferred brand for all key equipment in a cement plant. 1. Quarrying and Crushing The main raw materials needed to make cement are limestone and clay. Limestone is calcium carbonate, CaCO3, and is 44% CO2 by weight. Deposits are drilled, blasted or ripped using heavy machinery, and the mate- rials are then transported to the crusher to reduce the size of the rocks. This is the first step where FLSmidth equipment is involved. 2. Drying and raw grinding The materials are fed to the raw mill, ground to the right particle size and dried to the right moisture content. The outcome, raw meal, is stored in a silo and further mixed to ensure a consistent chemical composition. This is a main driver for better perfor- mance of the kiln system and final clinker quality. The process requires a lot of power. 3. Pyro-processing When the raw meal reaches the cal- ciner at the bottom of the pre-heater tower, it has a temperature of 1000°C. Heating the materials releases the CO2 contained in the limestone. These are inevitable calcination emis- sions. The material then enters the rotary kiln and is heated to 1450°C. The heating melts the rocks to form clinker, the main component of cement. 4. Clinker and cement grinding The clinker is ground in a mill to re- duce its particle size. Clinker has a high carbon footprint, and a focus area is to reduce the amount of clinker in the final product. This can be achieved by mixing it with addi- tives. Different cements are used for different applications, so clinker and additives are mixed in the right quan- tities to get the right type and quality. 5. Dispatching The cement is then ready to be dis- patched. It can be packed in 50 kg bags and loaded onto trucks, or it can be shipped by 25t bulk tankers. It is shipped by rail or ship. Ultimately it is mixed with water, sand and gravel to form concrete, which is used to build the infrastructure around us. Digitalisation is a major driver for change that is accelerating the pace of sustainable productivity improvements. Our strong focus on sustainable innovations enables our customers to improve their operations and helps us to expand the gap to mid-market and single equipment suppliers. At FLSmidth, we leverage digital technologies to empower our business strategy, and our digital premium oering will enable us to capture a larger share of the market for services. INNOVATION & DIGITALISATION Digital and innovative solutions are the levers to deliver on our MissionZero commitment to  to operate zero-emissions cement plants and mining processes by 2030. By utilising the power of digitalisation we can increase our customers’ productivity and at the same time lead these industries into a sustainable future. Achieving this goal requires a paradigm shift in collaboration, innovation and adoption of new technology. Innovation at FLSmidth takes place at three levels: in-house in our technology centres, on-site with customers and through partnerships with third parties. Looking  programme, we have received strong interest from several parties to co-create solutions and we will continue to co-develop technology with customers, universities and other partners. An example of partnership innovation is our cooperation with VICEM, the leading cement producer in Vietnam. In February 2020, we jointly announced a partnership with the goal of developing breakthrough innovations that will  Vietnamese cement industry. A key focus will be on the utilisation of municipal and other waste streams as alternative fuel sources, thereby reducing air pollution by replacing the burning of fossil fuels. While management of waste is a growing concern in Vietnam, FLSmidth is FLSmidth ■ Annual report 2020 Business Management review 26 INNOVATION & DIGITALISATION developing solutions that enable a 100% switch to alternative fuels, which can reduce about one-third of carbon emissions. Other areas of the partnership will focus on solutions related to  partnership is an important step for the sector and the people of Vietnam. In addition to innovation and partnerships, we consider acquisitions to supplement  FLSmidth announced the acquisition of KnowledgeScape, a global leader in digital optimisation solutions for the mineral processing industry. The addition of KnowledgeScape’s advanced solutions will deliver an expanded  expert control solutions and advanced sensor technologies for automating, optimising and increasing the reliability of minerals processing circuits. These solutions are leading-edge technologies that serve as an important   in line with our focus on creating sustainable and environmentally friendly solutions to our customers in Mining and Cement. Seen  combination of our two digital portfolios means that FLSmidth is now one of the few suppliers  optimisation solution that enables our customers to reduce costs and environmental impact.  has become even more apparent during the COVID-19 pandemic. Given current priorities, the advantages of remotely controlled operations and predictive maintenance have been highly appreciated by customers. We have hundreds of sites connected to an online network and the number of measurements received per day has  around 105 million data measurements per day  cost savings, sustainability and increased uptime. The data is analysed to provide detailed information on our customers’ equipment, allowing us to suggest optimisations and  the full spectrum from running an analysis   weakness and is about to break. This allows it to be replaced before it causes more problems, extending downtime and potentially impacting machinery downstream. In addition to the productivity improvements,  strengthened by digitalised solutions. Remote operating centres mean fewer employees on site that are exposed to potentially hazardous situations. When logistics are severely  impossible to be on site, suddenly all the value of digitalisation becomes crystal clear. During COVID-19, digital sceptics have been forced to work through online platforms and software solutions have gained more acceptance. 2020 has clearly seen a digital breakthrough and the ongoing growth of digitalised solutions will unquestionably outlast the global pandemic. 310m (DKK) In 2020, we increased our spend on innovation and digitalisation by 3% to DKK 310m 105m We have hundreds of sites connected to an online network and receive around 105 million data measurements per day 100% While management of waste is a growing concern, FLSmidth is developing solutions that enable a 100% switch to alternative fuels FLSmidth ■ Annual report 2020 27 Business Management review Related to MissionZero goals Zero emissions Zero energy waste Zero emissions Related to MissionZero goals DIGITAL SOLUTIONS TO POWER YOUR PRODUCTIVITY Digital solutions to power your productivity ENABL INNOVATIONS IN MINING AND CEMENT THE CHALLENGE Reduce the environmental impact by optimising the plant to   consumption of energy and fuels THE BENEFITS  Increased production and   Reduced downtime, equipment wear and maintenance costs ECS/PROCESSEXPERT® V8.5 SELF-LEARNING CONTROL SOLUTIONS BASED ON ARTIFICIAL INTELLIGENCE New cognitive technologies empowers productivity and sustainability ■ Intelligent process control solutions stabilise and optimise processes, enabling increased use of alternative fuels, 5% lower energy consumption and increased production of up to 6% – whilst maintaining product quality THE SOLUTION State-of-the-art process  intelligence enables the site to raise production, reduce costs and extend equipment life AUGMENTED FIELD ENGINEER DIGITAL SOLUTIONS TO POWER PRODUCTIVITY Customers are increasingly using FLSmidth’s digital solutions to support day-to-day operations, optimise production, reduce CO 2 emissions and prevent breakdowns ■ The advantages of remotely controlled operations and predictive maintenance have been highly appreciated by customers during the COVID-19 pandemic, with Remote Services increasing over 100% during the crisis THE CHALLENGE Connecting the customer with the full knowledge base of FLSmidth when logistics are severely challenged and it  THE BENEFITS  Real time data providing a range  cost savings, sustainability and increased uptime THE SOLUTION Predictive maintenance and remotely controlled operations, allowing to guide critical actions and share information in real time FLSmidth ■ Annual report 2020 28 Business Management review Related to MissionZero goals Zero emissions INNOVATIONS IN MINING AND CEMENT THE CHALLENGE Producing clinker is energy and emissions intensive, and therefore, the less clinker used, the less impact on the environment THE BENEFITS  Complete testing by our laboratory and pilot plant  Excellent color control  Lower capital and operating costs CEMENT: CLAY CALCINER SYSTEM – A MISSIONZERO FLAGSHIP INNOVATION REDUCE CO 2 EMISSIONS BY UP TO 40% COMPARED TO CLINKER PRODUCTION ■ Increasing the percentage of calcined clay in cement reduces the need for clinker produced from limestone ■  potential, maintaining the high strength and quality standards of cement The FLSmidth clay calciner system is currently patent pending THE SOLUTION   cementitious potential, replacing clinker and reducing CO 2 emissions MINING: TSUV GYRATORY CRUSHER DIGITAL, OPTIMISED CRUSHING Next-generation primary crusher – completely re-engineered to get more from lower grade ores ■ The unique top-service design prioritises safety, ease of maintenance and increased availability ■ Delivers 7% greater speed and 10% increased capacity, while reducing planned downtime by up to 74% ■  reduced environmental impact THE CHALLENGE Lower grade ore requires higher power crushing and higher throughputs than ever before THE BENEFITS  Higher power, greater capacity and speed  Safer, simpler maintenance  Lowest total cost of ownership THE SOLUTION With more power and greater capacity, the digitally-enabled TSUV is the world’s most OPEX and  FLSmidth ■ Annual report 2020 29 Business Management review FLSmidth  Annual report 2020 30 Management review Financial Performance Financial performance Q4 2020 Group order intake grew 15% organically with growth in both Mining and Cement. Cement order intake included the booking of a large project. Group revenue declined 24% organically. Gross margin improved due to a higher share from service during the quarter but earnings were impacted by the sharp decline in revenue. The EBITA margin de- creased to 5.5% from 8.1% in Q4 last year, entirely related to Cement. Mining EBITA margin was up slightly year on year. Group EBITA increased by 33% compared to Q3 2020. Net working capital decreased for the third consecutive quarter. Free cash flow was DKK 232m, on par with Q4 last year. Net debt to EBITDA increased to 1.6 due to  Q4 included the acquisition of KnowledgeScape and two announced divestments in Cement. FINANCIAL PERFORMANCE Financial Performance FLSmidth  Annual report 2020 31 Management review Financial Performance GROWTH Group order intake grew 15% or- ganically with growth in both Min- ing and Cement. Cement order in- take included the booking of a large project. Group revenue de- clined 24% organically related to both Mining and Cement and both capital and service business. Order intake Order intake in Q4 increased 7% to DKK 4,695m (Q4 2019: DKK 4,389m) and grew 15% organically. Foreign exchange translation effects had an 8% negative impact on order intake. Service orders accounted for 49% of the total order intake. Mining order intake increased 2% organically thanks to higher capital order intake, whereas service order intake continued to be negatively impacted by restricted access to mine sites. Ser- vice orders accounted for 59% of the Mining or- ders and acquisitions had a 1% positive impact. Order intake in Cement increased 39% organi- cally and included a large contract for engineer- ing, procurement and supervision on a greenfield cement plant in Ethiopia valued at around DKK 750m. Excluding this contract, Cement order in- take declined on Q4 last year, due to the contin- ued impact of the pandemic and a generally sub- dued market which resulted in lower activity levels for service and equipment. Order backlog and maturity Despite a book-to-bill of 111% in Q4, the order backlog was largely unchanged from the previ- ous quarter at DKK 14,874m (Q3 2020: DKK 14,839m, as foreign exchange and divestments led to a reduction of the backlog. 64% of the backlog is expected to be converted to revenue in 2021, 29% in 2022, and 7% in 2023 and be- yond. The large Cement project booked in Q4 2020 is scheduled for delivery mainly in 2022- 2023. Revenue Revenue declined 30% to DKK 4,236m in Q4 2020 (Q4 2019: DKK 6,022m) and declined 24% organically, comprising a 15% decrease in Mining and a 37% decline in Cement. The decline in rev- enue was explained by an exceptionally strong comparison quarter, a low Cement backlog en- tering the year and restricted access to customer sites because of the pandemic. Consequently, we did not see the usual seasonality during which Q4 is typically the strongest quarter by far in the year, although revenue did pick up 10% quarter on quarter thanks to slightly higher year- end activity. QUARTERLY FINANCIAL PERFORMANCE Order intake DKKm 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Mining Cement Growth in order intake in Q4 2020 (vs. Q4 2019) Mining Cement FLSmidth Group             Total growth -8% 34% 7% Growth in revenue in Q4 2020 (vs. Q4 2019) Mining Cement FLSmidth Group             Total growth -22% -40% -30% Group – continued activities (DKKm) Q4 2020 Q4 2019 Change 2020 2019 Change Order intake (gross) 4,695 4,389 7% 18,524 19,554 -5%               Order backlog 14,874 14,192 5% 14,874 14,192 5% Revenue 4,236 6,022 -30% 16,441 20,646 -20%               Gross profit 1,022 1,327 -23% 3,865 4,849 -20%        SG&A cost (685) (747) -8% (2,731) (2,841) -4%        EBITA 235 487 -52% 771 1,663 -54%        EBIT 145 393 -63% 428 1,286 -67%               FLSmidth  Annual report 2020 32 Management review Financial Performance PROFIT Gross margin improved due to a higher share from service during the quarter but earnings were im- pacted by the sharp decline in rev- enue. The EBITA margin de- creased to 5.5% from 8.1% in Q4 last year, entirely related to Ce- ment, whereas Mining EBITA mar- gin was up slightly year on year. Group EBITA increased by 33% compared to Q3 2020. Gross profit and margin Gross profit declined 23% to DKK 1,022m (Q4 2019: DKK 1,327m), explained entirely by the 30% decline in revenue. Gross margin improved to 24.1% (Q4 2019: 22.0%) due to a higher share from service in both Mining and Cement. In Q4 2020, total research and development costs (R&D) amounted to DKK 115m (Q4 2019: DKK 93m), representing 2.7% of revenue (Q4 2019: 1.6%), of which DKK 67m was capitalised (Q4 2019: DKK 59m) and the balance of DKK 48m expensed as production costs (Q4 2019: DKK 34m). R&D costs in Q4 related to several projects, including new sustainable cement tech- nologies and mining equipment within various parts of the value chain. In addition, project-fi- nanced developments are taking place in coop- eration with customers. SG&A costs Sales, general and administrative costs (SG&A) and other operating items decreased 8% to DKK 685m (Q4 2019: DKK 747m), explained by busi- ness improvement savings and foreign ex- change. Despite the reduction in SG&A, costs in- creased to 16.2% of revenue (Q4 2019: 12.4%), due to the sharp decline in revenue. We manage and adjust the cost base against the level of business we see ahead of us, and our practice is not to make significant cost reductions in areas where we expect activity to return in the very short term. Since there is no recovery in sight for the cement market, we continue to right- size our Cement business (please refer to page 37). EBITA and margin EBITA decreased by 52% to DKK 235m com- pared to the same quarter last year (Q4 2019: DKK 487m), but increased by 33% compared to Q3 2020. The year-on-year decrease was a re- sult of the sharp decline in revenue which could not be offset by the higher gross margin and lower SG&A costs. The year-on-year decrease in Q4 EBITA margin to 5.5% (Q4 2019: 8.1%), was due entirely to Cement and included DKK 19m costs related to Cement reshaping. There was a slight increase in Mining EBITA margin year-on- year. Amortisation of intangible assets amounted to DKK 90m (Q4 2019: DKK 94m). The effect of pur- chase price allocations amounted to DKK 24m (Q4 2019: DKK 36m) and other amortisation to DKK 66m (Q4 2019: DKK 58m). Earnings before interest and tax (EBIT) de- creased 63% to DKK 145m (Q4 2019: 393m). Financial items Net financial items amounted to DKK 6m (Q4 2019: DKK -71m), of which foreign exchange and fair value adjustments amounted to DKK 18m (Q4 2019: DKK -43m) and net interest amounted to DKK -12m (Q4 2019: DKK -28m). Tax Tax for Q4 2020 totalled DKK -65m (Q4 2019: DKK -94m), corresponding to an effective tax rate of 43.6% (Q4 2019: 29%). Impairment of deferred tax assets has caused the increase in the effec- tive tax rate in Q4. Profit for the period Because of the lower EBIT, profit for the period decreased to DKK 78m (Q4 2019: DKK 227m), equivalent to DKK 1.7 per share (diluted) (Q4 2019: DKK 4.5). Discontinued activities had a DKK -6m impact on profit and loss in Q4 2020 (Q4 2019: DKK -2m). Employees The number of employees decreased by 307 to 10,639 at the end of 2020 (end of Q3 2020: 10,946). The decrease mainly related to right-siz- ing activities in Cement and divestment of the Möller business (60 people). Backlog DKKm Revenue & EBITA margin DKKm EBITA% EBITA DKKm 0 3,000 6,000 9,000 12,000 15,000 18,000 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Mining Cement 0% 2% 4% 6% 8% 10% 12% 0 1,500 3,000 4,500 6,000 7,500 9,000 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Service Capital EBITA margin (100) 0 100 200 300 400 500 600 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Mining Cement FLSmidth  Annual report 2020 33 Management review Financial Performance CAPITAL Net working capital decreased for the third consecutive quarter. Free cash flow was DKK 232m, on par with Q4 last year. Net debt to EBITDA increased to 1.6 due to  trailing EBITDA. Q4 included the acquisition of KnowledgeScape and two an- nounced divestments in Cement. Net working capital Net working capital decreased for the third con- secutive quarter and amounted to DKK 1,752m at the end of Q4 2020 (end of Q3 2020: DKK 1,981m). The reduction related mainly to invento- ries and a DKK 71m reduction from divestments. The net working capital ratio was 10.7% of reve- nue (Q3 2020: 10.9% of revenue). In line with previous quarters, utilisation of supply chain financing decreased in Q4, driven by a lower activity level and a lower share of Cement business relative to Mining (see note 3.6). Cash flow from operations Despite a reduction in adjusted EBITDA of more than 40%, cash flow from operating activities (CFFO) was on par with Q4 last year and amounted to DKK 329m (Q4 2019: DKK 327m). In addition to EBITDA, the main positive contributor to CFFO was the net working capital inflow of DKK 161m as compared to a net working capital outflow of DKK 138m in Q4 2019. Discontinued activities amounted to DKK -32m in Q4 2020 (Q4 2019: DKK -42m) due to timing dif- ference between cash paid and cash received related to the net working capital and provision balances (see note 2.11). Cash effect from provisions was DKK 66m inflow in Q4 2020 (Q4 2019: DKK 55m inflow). The change related to recognition of additional un- certainties in the execution of the project portfo- lio and provisions for reshaping Cement. The im- pact on provisions from discontinued activities was negative DKK 5m in Q4. Cash flow from investments Cash flow from investing activities amounted to DKK -97m (Q4 2019: DKK -92m), of which acquisi- tions and disposals amounted to DKK 12m (Q4 2019: DKK 18m). Free cash flow Free cash flow (cash flow from operating and in- vesting activities) amounted to DKK 232m in Q4 (Q4 2019: DKK 235m). Net interest-bearing debt Due to a positive free cash flow, net interest- bearing debt (NIBD) decreased to DKK 1,808m (end of Q3 2020: DKK 1,936m). Financial gearing, however, increased to 1.6 (end of Q3 2020: 1.4) due to lower trailing 12 months EBITDA. Gearing remains below our internal long term maximum threshold of two times NIBD to EBITDA. Financial position By the end of 2020, FLSmidth had DKK 7.0bn of available committed credit facilities of which DKK 4.8bn was undrawn. The committed credit facili- ties have a weighted average time to maturity of 4.2 years. DKK 1.7bn of credit facilities will mature in 2022 and the majority, DKK 5.0bn, will mature in 2026. The remaining DKK 0.3bn matures in later years. Equity ratio Equity at the end of Q4 2020 decreased slightly to DKK 8,130m (end of Q3 2020: DKK 8,237m), due to currency adjustments regarding transla- tion of entities that more than offset the profit for Q4 2020. The equity ratio was 39.7% (end of Q3 2020: 40.0%), well above the long-term target of minimum 30%. Acquisitions and divestments On 2 October 2020, FLSmidth signed the acqui- sition of KnowledgeScape, a global leader in dig- ital optimisation solutions for the mineral pro- cessing industry. On 23 December 2020, FLSmidth announced the sale of its fabric filter technology, a non-core  ogy (AFT). On 30 December 2020, FLSmidth announced the sale of its Möller pneumatic conveying sys- tems business, which has been serving mainly adjacent industries. Both divestments were part of the ongoing process to simplify and prune business. On 15 January 2021, FLSmidth announced that it is in negotiations with ThyssenKrupp concerning an acquisition of ThyssenKrupp's mining busi- ness. The negotiations are at a non-binding stage. Accordingly, there can be no assurances as to whether and when a transaction will tran- spire. Cash flow DKKm Net interest-bearing debt DKKm Net working capital DKKm NWC% (100) 0 100 200 300 400 500 600 700 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Cash flow from operating activities 0 500 1,000 1,500 2,000 2,500 3,000 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Net interest bearing debt (NIBD) 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 18.0% 0 1,000 2,000 3,000 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Net working capital Net working capital ratio, end FLSmidth  Annual report 2020 34 Management review Financial Performance QUARTERLY KEY FIGURES DKKm 2018 2019 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 INCOME STATEMENT                                        Gross profit 1,074 1,181 1,126 1,312 1,081 1,315 1,126 1,327 1,047 912 884 1,022              EBITDA before special non-recurring items 396 440 408 582 395 574 459 580 319 223 255 337                           EBITA 343 381 350 511 312 487 377 487 228 131 177 235              EBIT 248 299 254 419 218 381 294 393 146 46 91 145                           EBT 213 283 237 326 215 349 284 323 150 (7) 89 149              Profit/loss on continuing activities for the period 147 188 171 305 145 234 190 229 106 (12) 48 84              Profit/loss for the period 136 168 162 169 136 223 190 227 101 (17) 43 78              Gross margin 25.4% 25.0% 26.0% 24.1% 24.5% 24.0% 23.8% 22.0% 23.1% 23.7% 23.1% 24.1% EBITDA margin before special non-recurring items 9.4% 9.3% 9.4% 10.7% 8.9% 10.5% 9.7% 9.6% 7.0% 5.8% 6.7% 8.0% EBITA margin 8.1% 8.1% 8.1% 9.4% 7.1% 8.9% 8.0% 8.1% 5.0% 3.4% 4.6% 5.5% EBIT margin 5.9% 6.3% 5.9% 7.7% 4.9% 6.9% 6.2% 6.5% 3.2% 1.2% 2.4% 3.4%                                                                                                                       Unaudited figures FLSmidth  Annual report 2020 35 Management review Financial Performance DKKm 2018 2019 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SEGMENT REPORTING Mining                                                                                                        Gross margin before allocation of shared costs 27.0% 26.6% 31.7% 27.4% 26.7% 26.1% 25.2% 23.4% 24.9% 26.4% 25.0% 25.1% EBITA margin before allocation of shared costs 18.0% 17.8% 20.3% 18.9% 17.1% 16.8% 16.3% 14.9% 15.1% 16.0% 16.8% 16.4% EBITA margin 9.4% 9.9% 13.3% 12.4% 9.5% 10.4% 9.2% 9.1% 7.3% 7.8% 9.0% 9.3% EBIT margin 6.8% 7.9% 10.2% 10.4% 7.0% 8.5% 6.9% 7.2% 5.2% 5.4% 6.8% 7.2%                                                                               Cement                                                                                                        Gross margin before allocation of shared costs 23.5% 22.9% 21.2% 20.4% 22.2% 22.0% 22.8% 21.9% 21.8% 21.0% 19.5% 23.3% EBITA margin before allocation of shared costs 16.5% 14.8% 7.4% 13.7% 12.8% 14.1% 13.8% 13.3% 11.0% 6.9% 6.7% 9.7% EBITA margin 6.3% 4.9% 2.0% 5.4% 3.7% 6.3% 5.8% 6.6% 1.8% -4.9% -4.8% -1.9% EBIT margin 4.5% 3.6% 0.8% 4.2% 2.2% 4.4% 4.9% 5.5% 0.4% -6.7% -7.1% -4.1%                                                                  Unaudited figures FLSmidth  Annual report 2020 36 Management review Financial Performance GROWTH Organic order intake was on par with last year, comprising growth in Mining and a decrease in Cement. Book-to-bill was 113%. Revenue de- clined 16% organically due to a se- vere impact from the pandemic and a low Cement backlog enter- ing the year. Order intake Organically, the order intake in 2020 was on par with last year, comprising a 13% growth in Mining and a 22% decline in Cement. Including currency effects and acquisitions, order intake decreased by 5% to DKK 18,524m (2019: DKK 19,554m). Capital order intake increased by 5%, whereas service orders decreased by 13%. Service ac- counted for 53% of the order intake. Mining order intake increased by 13% organically and by 6% including currency effects and acqui- sitions. Mining capital orders increased by 31% due to the booking of three large mining con- tracts in the first quarter of the year. The three or- ders had a combined value of around DKK 2.4bn and were awarded in Russia and Belarus, a re- gion where we have successfully expanded our presence in recent years. Following a double digit growth in the first quarter of the year, Mining service orders decreased 9% for the full year, ex- plained by currency headwind and restricted ac- cess to customers sites due to the pandemic. Cement order intake declined 22% organically and by 24% including currency effects. Service accounted for 51% of Cement order intake. Capi- tal orders contracted by 26%. The cement indus- try has seen a prolonged period of subdued pro- ject activity and along with the severe impact from the pandemic, there are no signs of a recov- ery for new cement capacity in the short- to me- dium-term. Cement service orders declined 21% as the pandemic led to the shutdown of up to  earlier in the year. Many cement plants continue to operate at reduced production rates, which re- duces the need for technical services and parts. Growth in order intake in 2020 vs. 2019 Mining Cement FLSmidth Group             Total growth 6% -24% -5% Order backlog In 2020, the order backlog increased by 5% to DKK 14,874m (2019: DKK 14,192m), comprising an 18% increase in Mining and an 11% contraction in Cement. The book-to-bill was 113% but currency effects had a DKK 1bn negative impact on the backlog. Revenue Organic revenue declined 16% in 2020, compris- ing a 7% decrease in Mining and a 30% fall in Cement. Including currency effects, revenue de- creased by 20% to DKK 16,441m (2019: DKK 20,646m). Service revenue accounted for 60% of total revenue (2019: 52%). The sharp decline in Cement revenue related mainly to the capital business and was due to a low backlog entering the year and the severe im- pact of the pandemic on the cement industry. The decline in Mining revenue related to both the capital and service businesses. Despite healthy industry fundamentals, project and ser- vice activity were both impacted by restricted ac- cess to mine sites due to pandemic related pre- cautions. Growth in revenue in 2020 vs. 2019 Mining Cement FLSmidth Group             Total growth -13% -31% -20% ANNUAL FINANCIAL PERFORMANCE Mining and Cement Revenue DKKm Order intake and book-to-bill DKKm % Order intake by commodity % Backlog maturity DKKm 0 5,000 10,000 15,000 20,000 25,000 2016 2017 2018 2019 2020 Mining Cement 0% 20% 40% 60% 80% 100% 120% 0 4,000 8,000 12,000 16,000 20,000 24,000 2016 2017 2018 2019 2020 Order intake Book-to-bill 31% 27% 12% 6% 7% 3% 14% Cement Copper Gold Coal Iron ore Fertilizer Other 10,316 9,519 2,585 4,313 1,291 1,042 0 3,000 6,000 9,000 12,000 15,000 18,000 2019 2020 Within next year Within next year +1 Later than next year +1 FLSmidth  Annual report 2020 37 Management review Financial Performance PROFIT Earnings were impacted by the pandemic and the sharp decline in revenue. The EBITA margin de- creased to 4.7% from 8.1% last year. Cement was loss-making, whereas profitability in Mining was quite resilient. The Group business improvement programme was completed and additional activities to improve profitability in Cement are ongoing. Business improvement programme At the end of 2019, we announced business im- provement initiatives that include site consolida- tion, an improved logistical setup, and headcount reductions. In April 2020, we extended these ac- tivities to accommodate a more challenging mar- ket environment due to the pandemic. The Group business improvement programme was completed at the end of Q3 2020 with an annual EBITA improvement run-rate of DKK 150m. The realised EBITA improvement in 2020 was DKK 110m and an incremental improvement of around DKK 40m is expected to be realised in 2021. The implementation costs amounted to DKK 192m, of which DKK 40m were incurred in 2019 and DKK 152m were incurred in 2020. The programme included improvements that are expected to be sustained. It did not include any temporary COVID-19 related savings, such as employees on furlough and reduced travel ex- penses. Financial impact 2020 DKKm Group Mining Cement   150                    Cement reshaping In addition to the Group business improvement programme, we took additional steps during the year to simplify our Cement business and adjust its cost structure. These activities included re- duced in-house manufacturing and increased sourcing from local suppliers and reducing the size of the project organisation. As part of this ongoing process to simplify our Cement busi- ness, two businesses were sold in December 2020 (see page 33). The implementation cost related to the additional activities in Cement amounted to DKK 40m in 2020 (previously estimated around DKK 70m). The activities will mitigate underabsorption due to the lower level of Cement business which we see ahead, and consequently, we will not report an EBITA improvement from these measures. Further activities to right-size and simplify our Ce- ment business are expected during 2021. Timing and costs related to this is under evaluation. Taking both the completed Group business im- provement programme and the additional measures in Cement into account, total imple- mentation costs in 2020 were DKK 192m (previ- ously estimated around DKK 220m). In total, the Group workforce was reduced by 1,707 employ- ees in 2020, of which the majority related to Ce- ment. The workforce adjustment has not impaired our ability to capture future growth. Gross profit and margin Gross profit decreased 20% in 2020 to DKK 3,865m (2019: DKK 4,849m), in line with the 20% decline in revenue. Gross margin remained at 23.5% (2019: 23.5%). The positive impact on gross margin from a higher service share of 60% (2019: 52%) was offset by business improvement costs, low capacity utilisation and the higher costs of doing business during the pandemic. Mobility restrictions continue to affect the utilisa- tion of our global service technicians, resulting in more complex and costly logistics and increased costs related to quality control. In 2020, research and development costs were DKK 310m (2019: DKK 302m), of which DKK 150m were capitalised (2019: DKK 142m) and the bal- ance of DKK 160m reported as production costs. The R&D costs related to several innovations, in- cluding new sustainable cement technologies, tailings management, digital solutions, and vari- ous equipment across the mining value chain. SG&A costs Sales, general and administrative costs and other operating items declined by 4% in 2020, repre- senting a cost percentage (SG&A ratio) of 16.6% of revenue (2019: 13.8%). SG&A was negatively impacted by business improvement implementa- tion costs of DKK 89m and additional cost relat- ing to reshaping in Cement. Gross profit and Gross margin DKKm % SG&A cost and SG&A ratio DKKm % EBITA by Mining and Cement DKKm 20% 22% 24% 26% 28% 3,000 3,500 4,000 4,500 5,000 2016 2017 2018 2019 2020 Gross profit Gross margin 12% 14% 16% 18% 20% 1,500 2,000 2,500 3,000 3,500 2016 2017 2018 2019 2020 SG&A cost SG&A ratio (500) 0 500 1,000 1,500 2,000 2016 2017 2018 2019 2020 Mining Cement FLSmidth  Annual report 2020 38 Management review Financial Performance EBITA and margin Despite the stable gross margin and lower SG&A costs, EBITA decreased by 54% to DKK 771m in 2020 (2019: DKK 1,663m), as a result of the sharp decline in revenue. The EBITA margin declined to 4.7% (2019: 8.1%). Cement was loss-making, whereas profitability in Mining was quite resilient. EBITA included implementation costs related to the Group business improvement programme of DKK 152m and costs related to additional Ce- ment reshaping of DKK 40m. Financial items Net financial items amounted to DKK -47m (2019: DKK -118m), of which net interest cost including interest from leasing amounted to DKK -59m (2019: DKK -65m) and foreign exchange and fair value adjustments accounted for the remaining balance. Tax Tax for the year amounted to DKK -155m (2019: DKK -373m), corresponding to an effective tax rate of 40.7% (2019: 31.9%). The higher effective tax-rate was due to Impairment of deferred tax assets, in particular related to the weaker outlook for the cement market. Profit for the year Profit for the year decreased to DKK 205m (2019: 776m) as a result of the lower earnings and higher effective tax rate. Profit from continuing activities decreased to DKK 226m (2019: DKK 798m). Loss from discontinued activities amounted to DKK -21m (2019: DKK -22m), related to adminis- tering legacy projects in our non-mining bulk ma- terial handling business. The projects were from a revenue perspective completed at year end 2018. Subsequent handling of claims and collec- tion of receivables is ongoing (refer to note 2.11). Return on capital employed ROCE decreased to 5.1% (2019: 10.9%) as a result of the lower EBITA for the year. Average capital  Profit for the year DKKm Earnings per share DKK Profit distribution DKKm DKK 0 200 400 600 800 1,000 2016 2017 2018 2019 2020 Group Continuing activities -10 -5 0 5 10 15 20 2016 2017 2018 2019 2020 Earnings per share, continued activities Earnings per share, discontinued activities 0 2 4 6 8 10 0 100 200 300 400 500 2016 2017 2018 2019 2020 Dividend paid, shareholders of FLSmidth Proposed dividend per share FLSmidth  Annual report 2020 39 Management review Financial Performance CAPITAL A strong cash focus led to a signifi- cant reduction in net working capi- tal and net debt. Financial gearing increased to 1.6 from 1.2 in 2019 due to lower EBITDA for the year. Free cash flow more than doubled to DKK 1bn. Balance sheet Total assets decreased to DKK 20,456m at the end of 2020 (2019: DKK 23,532m), mainly due to currency effects and a reduction in activity and net working capital. Assets and liabilities held for sale at the end of 2020 amounted to DKK 33m. Capital employed Average capital employed decreased slightly to DKK 15,195m (2019: DKK 15,251m) as a result of the decrease in working capital. At the end of 2020, capital employed amounted to DKK 14,520m, consisting primarily of intangible assets of DKK 10,447m, which is mostly historical goodwill as well as patents and rights and cus- tomer relations. Property, plant and equipment amounted to DKK 2,009m, lease assets were DKK 312m and net working capital was DKK 1,752m at the end of 2020. Net working capital Net working capital decreased to DKK 1,752m at the end of 2020 (2019: DKK 2,739m), represent- ing 10.7% of revenue (2019: 13.3% of revenue). The decrease related mainly to a lower activity level and strong cash collection from accounts receivables, which declined by DKK 1.6bn. The strong underlying improvement was partly coun- terbalanced by a DKK 0.5bn reduction in prepay- ments from customers due to the low level of large capital orders, as well as reduced utilisation of supply chain finance. DKK 158m of the de- crease in net working capital related to currency. Supply chain financing As communicated in previous quarters, utilisation of supply chain financing has decreased during 2020, driven by a lower level of activity and, in particular, by a lower share of Cement business relative to Mining. Consequently, the trade paya- bles covered by the supply chain financing pro- gramme amounted to DKK 273m at the end of 2020 (2019: DKK 1,083m). Net interest-bearing debt Net interest-bearing debt decreased to DKK 1,808m at the end of 2020 (2019: DKK 2,492m) as a consequence of a strong positive free cash flow. Despite the reduction in net debt, the financial gearing (NIBD/ EBITDA) increased to 1.6 (2019: 1.2), due to lower EBITDA for the year. The gear- ing remains below our internal long-term maxi- mum target of two times NIBD to EBITDA. Equity Despite the positive profit for the year, equity at the end of 2020 decreased to DKK 8,130m (2019: DKK 8,793m) as a result of currency ad- justments regarding translation of foreign enti- ties. The equity ratio was 39.7% (2019: 37.4%), well above the long-term target of minimum 30%. Treasury shares The holding of treasury shares was 1,097,718 shares at the end of 2020 (2019: 1,193,538 shares), representing 2.1% of the total share capi- tal (2019: 2.3%). Treasury shares are used to hedge our share-based incentive programmes. Dividend Given the global uncertainty caused by the COVID-19 pandemic, the Board of Directors of FLSmidth & Co. A/S decided to withdraw the pro- posal to pay a dividend of DKK 8 per share in 2020 to ensure resilience in a period of market  financial position. Based on the financial results for 2020, the current financial situation and ongoing negotia- tions regarding potential acquisitions, the Board of Directors will propose at the upcoming Annual General Meeting that a dividend of DKK 2 per share corresponding to a dividend yield of 0.9% and a pay-out ratio of 50%, in line with our tar- geted pay-out ratio, will be distributed for 2020. The total dividend proposed amounts to DKK 103m. Return on capital employed DKKm % Net working capital DKKm % Net interest-bearing debt DKKm Equity ratio and target % 0% 4% 8% 12% 16% 0 5,000 10,000 15,000 20,000 2016 2017 2018 2019 2020 Capital employed, average ROCE 0% 3% 6% 9% 12% 15% 18% 0 500 1,000 1,500 2,000 2,500 3,000 2016 2017 2018 2019 2020 Net working capital NWC as % of revenue 0 1,000 2,000 3,000 4,000 5,000 2016 2017 2018 2019 2020 Net interest-bearing debt 0% 8% 16% 24% 32% 40% 2016 2017 2018 2019 2020 Equity ratio Target FLSmidth  Annual report 2020 40 Management review Financial Performance Cash flow from operating activities Despite significantly lower EBITDA for the year, cash flow from operating activities (CFFO) in- creased to DKK 1,421m (2019: DKK 948m), mainly as a result of CFFO from continuing activities of DKK 1,473m (2019: DKK 1,139m). The cash inflow from net working capital of DKK 706m (2019: Cash outflow of DKK 448m) was the key contrib- utor to the positive development. 2020 also had a positive impact from change in provisions of DKK 63m (2019: DKK -230m). Cash flow from investing activities Cash flow from investing activities (CFFI) amounted to DKK -376m in 2020 (2019: DKK -661m). CFFI in 2019 was impacted by the acqui- sition of IMP Automation Group, whereas CFFI in 2020 included the acquisition of Knowledge- Scape as well as divestments in the Cement business. Excluding acquisitions and disposals, CFFI was DKK -339m in 2020 (2019: DKK -374m). Free cash flow Free cash flow increased to DKK 1,045m (2019: DKK 287m) as a result of the higher cash flow from operating activities and the lower level of in- vestments. Free cash flow adjusted for business acquisitions and disposals was DKK 1,082m com- pared to DKK 574m in 2019. Cash flow from financing activities Cash flow from financing activities was DKK -956m (2019: DKK -156m), primarily related to re- payment of debt and to a lesser extent due to re- payment of lease liabilities. Cash position Cash and cash equivalents amounted to DKK 976m, a small decrease from DKK 1,001m in 2019. Restricted cash Cash and cash equivalents included cash with currency restrictions amounting to DKK 781m (2019: DKK 824m). The reduction in restricted cash compared to 2019 related mainly to Brazil. The cash and cash equivalents with currency re- strictions were primarily related to bank deposits located in countries with currency restrictions. The deposits are part of local daily cash manage- ment in countries where we have operating activ- ities. Acquisitions On 31 January 2020, FLSmidth acquired the business Mill-Ore Group, an Eastern Canadian provider of equipment and services to the mining industry. The acquisition was part of our long- term commitment to increase the level of local service and support for our customers. In the fourth quarter of 2020, FLSmidth acquired an additional company, KnowledgeScape, and announced the sale of two Cement businesses (please refer to page 33). On 15 January 2021, FLSmidth announced that it is in negotiations with ThyssenKrupp concerning an acquisition of ThyssenKrupp's mining busi- ness. The negotiations are at a non-binding stage. Accordingly, there can be no assurances as to whether and when a transaction will tran- spire. 2020 included costs related to the ongo- ing due diligence process, and additional costs are expected in 2021. CFFO DKKm CFFI DKKm Free cash flow DKKm Net cash flow from business acquisitions and disposals DKKm 0 200 400 600 800 1,000 1,200 1,400 1,600 2016 2017 2018 2019 2020 Cash flow from operating activities -700 -600 -500 -400 -300 -200 -100 0 2016 2017 2018 2019 2020 Cash flow from investing activities -100 100 300 500 700 900 1,100 1,300 2016 2017 2018 2019 2020 Free cash flow Free cash flow adjusted for business acquisitons and disposals -400 -300 -200 -100 0 100 200 2016 2017 2018 2019 2020 Net cash flow from acquisition and disposal of activities FLSmidth  Annual report 2020 41 Management review Financial Performance Financial performance in Q4 2020 Organic mining order intake increased 2% com- pared to Q4 2019. Including effects from cur- rency and acquisitions the order intake in Q4 2020 decreased by 8% to DKK 2,608m (Q4 2019: DKK 2,833m), comprising 5% growth in capital orders and a 15% decrease in service or- ders. Travel restrictions and limited site access have continued to impact on-site technical ser- vices, resulting in reduced service demand. The 5% increase in capital order intake is a result of a number of medium-sized capital orders that are proceeding based on the healthy industry funda- mentals. During the quarter, currency had an 11% negative impact on order intake and acquisitions had a 1% positive impact on order intake. Revenue decreased 15% organically and by 22% including the effects of currency and acquisitions, to DKK 2,749m in Q4 2019 (Q4 2019: DKK 3,537m). Capital revenue decreased by 37% as a result of the lumpiness of the capital business with fluctuating revenue recognition, and due to restricted site access which impacts progress on projects. Service revenue decreased by 10%, ex- plained by restricted access to mine sites and currency effects. Currency effects had a 7% neg- ative impact on revenue in the quarter. Gross profit, before allocation of shared cost de- creased by 17% to DKK 689m (Q4 2019: DKK 829m), largely in line with the decline in revenue. The corresponding gross margin increased to 25.1% (Q4 2019: 23.4%) due to a higher service share as well as a positive effect from the busi- ness improvement programme. EBITA decreased by 21% to DKK 256m (Q4 2019: DKK 323m) due to the lower revenue in the quar- ter, while the EBITA margin increased to 9.3% (Q4 2019: 9.1%). Financial performance in 2020 In 2020, Mining order intake increased 13% or- ganically, mainly due to the exceptionally strong capital order intake in the first quarter of 2020 which was related to the three large orders re- ceived in Russia and Belarus, with a combined value of around DKK 2.4bn. During the year, cur- rency had an 8% negative impact on order intake and acquisitions had a 1% positive impact on or- der intake. Accordingly, order intake increased by 6% to DKK 12,811m (2019: DKK 12,064m) The organic decrease in revenue was 7% in 2020. Revenue decreased by 13% to DKK 10,620m (2019: DKK 12,169m), mainly due to capi- tal revenue which decreased by 18%. EBITA de- creased by 24% to DKK 888m (2019: DKK 1,166m), and the corresponding EBITA margin de- creased to 8.4% (2019: 9.6%). EBITA included im- plementation costs of DKK 91m related to the Group business improvement programme. MINING Growth in order intake in Q4 2020 (vs. Q4 2019) Order intake Revenue          Total growth -8% -22% Service and capital order intake 2020 % Revenue and EBITA margin DKKm EBITA % 59% 41% Service Capital 0% 2% 4% 6% 8% 10% 12% 14% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Service revenue Capital revenue EBITA margin Mining (DKKm) Q4 2020 Q4 2019 Change 2020 2019 Change Order intake (gross) 2,608 2,833 -8% 12,811 12,064 6%               Order backlog 9,085 7,683 18% 9,085 7,683 18% Revenue 2,749 3,537 -22% 10,620 12,169 -13%               Gross profit before allocation of shared cost 689 829 -17% 2,688 3,071 -12%        EBITA before allocation of shared cost 452 528 -14% 1,710 1,974 -13%        EBITA 256 323 -21% 888 1,166 -24%        EBIT 199 256 -22% 655 905 -28%               FLSmidth  Annual report 2020 42 Management review Financial Performance Financial performance in Q4 2020 The order intake in Q4 2020 increased by 34% to DKK 2,087m (Q4 2019: DKK 1,556m), driven by the large Ethiopian order, valued at around DKK 750 million, that became effective in the quarter. Service order intake decreased by 28% to DKK 780m compared to the same quarter last year (Q4 2019: DKK 1,083m), but increased by 13% compared to the previous quarter (Q3 2020: DKK 688m). Service order intake is still impacted by restricted site access and reduced demand for spare parts as a result of plant shutdowns and cement plants operating at reduced capacity. Currency effects had a 5% negative impact on the order intake compared to the same quarter last year. Accordingly, the organic increase in the order intake was 39%. Revenue decreased by 40% to DKK 1,487m in Q4 2020 (Q4 2019: DKK 2,485m), due to the contin- ued impact of the pandemic and a low backlog entering the year. Service revenue decreased by 13% while capital revenue declined by 57%. Cur- rency effects had a 3% negative impact on reve- nue, which meant the organic decrease in reve- nue was 37%. Gross profit, before allocation of shared cost, de- creased by 36% to DKK 347m (Q4 2019: DKK 543m), largely in line with the decline in revenue, but increased by 46% compared to the previous quarter (Q3 2020: DKK 238m). The correspond- ing gross margin increased to 23.3% (Q4 2019: 21.9%) due to a higher share from service. Ce- ment profitability is, however, still affected by the large decline in revenue, and increased costs re- lated to the pandemic and ongoing reshaping. Consequently, EBITA amounted to DKK -28m (Q4 2019: DKK 163m) and the corresponding EBITA margin was -1.9% (Q4 2019: 6.6%). Financial performance in 2020 The order intake decreased 24% to DKK 5,713m in 2020 (2019: DKK 7,490m), due to a continua- tion in the subdued market conditions for new cement capacity and customers postponing in- vestments, but also due to lower service activity as a result of the pandemic. Currency had a 2% negative impact on order intake. Revenue in 2020 decreased by 31% to DKK 5,821m (2019: DKK 8,477m), mainly due to the lower capital revenue during the year. Currency effects had a 1% negative impact on revenue. Earnings were severely impacted by the pan- demic and the sharp decline in revenue as well as costs of DKK 61m related to the Group busi- ness improvement programme and additional costs of DKK 40m specifically related to reshap- ing the Cement business. EBITA came in at DKK - 118m (2019: DKK 486m). The corresponding EBITA margin was -2.0% (2019: 5.7%). Activities to restore profitability in Cement have been in- tensified during 2020 and are ongoing. CEMENT Growth in order intake in Q4 2020 (vs. Q4 2019) Order intake Revenue          Total growth 34% -40% Service and capital order intake 2020 % Revenue and EBITA margin DKKm EBITA % 64% 36% Service Capital -6% -4% -2% 0% 2% 4% 6% 8% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 Q2 Q3 Q4 Service revenue Capital revenue EBITA margin Cement (DKKm) Q4 2020 Q4 2019 Change 2020 2019 Change Order intake (gross) 2,087 1,556 34% 5,713 7,490 -24%               Order backlog 5,789 6,509 -11% 5,789 6,509 -11% Revenue 1,487 2,485 -40% 5,821 8,477 -31%               Gross profit before allocation of shared cost 347 543 -36% 1,255 1,881 -33%        EBITA before allocation of shared cost 144 331 -56% 515 1,148 -55%        EBITA (28) 163 -117% (118) 486 -124%        EBIT (61) 136 -145% (228) 370 -162%               FLSmidth  Annual report 2020 43 Management review Governance GOVERNANCE Governance FLSmidth  Annual report 2020 FLSmidth  Annual report 2020 44 Management review Governance Risk is an inherent part of our busi- ness and managing risks is a top prior- ity at FLSmidth. Our approach to risk is aligned with our strategy and finan- cial targets and managing potential impacts has high priority across the organisation. Risk management framework Our risk management framework consists of a simple Enterprise Risk Management Practice with annual top-down and bottom-up risk mapping to identify the Group's key risks across the organi- sation. We assess the risks based on the poten- tial impact on our reputation, values, integrity, and our short- and long-term strategic goals. Our Enterprise Risk Management Practice aims to identify, monitor, assess and mitigate risks as early as possible to manage the likelihood and potential impact. The most significant risks are reviewed by the Risk Committee, Group Execu- tive Management and the Board of Directors. The Industries and Regions own their respective risk management process and are responsible for the identification and mitigation of the key risks that pose potential threats to their opera- tions. Risk assessment The annual assessment was primarily dominated by discussion surrounding the COVID-19 pan- demic. However, as operations continued in var- ying degrees for the Industries and each Region,  tion of the following key risks and/or opportuni- ties:  Safety  mitigate severe impact on health and safety of our employees, further complicated by the pandemic.  Compliance  importance of compliance with a wide-range of trade and anti-corruption laws and regulations.  Workplace Engagement  ability to keep the workforce engaged to adapt to constant change.  Cement Market Conditions  lack of global growth and decreasing general consumption.  Sustainability  leverage the opportunity for development and adoption of sustainable solu- tions. For more information, please refer to our sustainability report.  Projects  ability to deliver on time and as promised to our customers.  Digitalisation  create value and optimise pro- cesses that drive productivity.  Geopolitical  tensions between key nations and volatile risk environments could lead to in- creased costs or disruptions in operations.  Cyber Threats  as technology advances, com- puter crime is becoming increasingly sophisti- cated.  Supply Chain  pandemic lockdown and result- ing decline in on-site activities has increased concerns regarding supply chain reliability when demand to deliver increases.  Financial Risk  liquidity, credit and fluctuation in foreign exchange rates. For more infor- mation on the financial risks and mitigation ac- tivities, please refer to note 5.3. RISK MANAGEMENT HIGH IMPACT LOW IMPACT HIGH LIKELIHOOD LOW LIKELIHOOD 2019 Digitalisation Projects 2020 Compliance Safety Cement Market Conditions Cyber Threats Workplace Engagement Financial Risk Supply Chain Geopolitical Risks Sustainability FLSmidth  Annual report 2020 45 Management review Governance RISK MITIGATION Risk Potential impact Mitigation Digitalisation Digital transformation is necessary to ensure customer expec- tations for innovative and value added services are met. Keep- ing up with the speed of change presents both challenges in maintaining cutting edge solutions as well as opportunities for optimising growth through innovative digital offerings and ser- vices. The Group has invested heavily in mitigation efforts, leading to a positive impact on the Company's internal productivity as well as with customers. The Company has continued to improve sustainable productivity through the launch of digitally-enabled products and digital offerings aimed at increasing productivity at cus- tomer sites, the appointment of Regional Product Line Managers and the implementation of AI in parts of Pro- curement, Finance and other Group Functions. Sustainability The success of our business depends on our ability to develop sustainable products and solutions. Failure to take advantage of the opportunity to help drive this change in the Cement and Mining Industries will have a detrimental effect on our organisa- tion. Sustainability is an inte, and we see the need for sustainable so- lutions in the cement and mining industries as a significant business opportunity for FLSmidth. For more infor- mation on our MissionZero sustainability programme and product innovation, please refer to pages 18-20 and 26-29 in this report and our sustainability report at www.flsmidth.com/SustainabilityReport2020. Geopolitical Risks Increasing instability and polarisation in many countries as well as tensions between major world economies pose a threat to the Company's ability to carry out projects in some jurisdictions, increasing risk of delays and disruptions. The Company's local footprint continues to expand with strategic investments placing FLSmidth closer to cus- tomers around the world. Group Procurement optimisation continues to focus on strategic, global sourcing and building relationships with multiple suppliers to protect supply chain and logistics operations. Safety The risk of serious injury or death due to failure to ensure healthy and safe working conditions for employees and con- tractors at a customer site is a serious issue that could result in a loss of trust with customers and long-term impact on the well- being of our employees. The domino effect that such an event would have on the organisation's reputation as a premium sup- plier and trustworthy employer would be catastrophic. This risk has been further complicated by the current pandemic which has created significant turbulence for our employees all over the world. The Group has zero tolerance for safety risks, whether at third party sites or in its own. Safety is a high priority for everyone. Our focus remains on improving LTIFR/TRIFR, and the last seven years in a row, we have im- proved our safety performance. Safety audits are conducted by top management, all employees are required to participate in safety training annually, safety shares and recording of near-misses are mandatory and the President's Safety Award is granted annually to those demonstrating great safety practices. A COVID-19 Se- curity Team meets regularly to review the latest developments and each Region is following the guidance as defined by the local health and government authorities. Internal communication has top priority as we contin- ual evaluate and navigate around the pandemic as it evolves. Projects The Company continuously execute a multitude of projects across the world, and in some cases face challenges in the ex- ecution. With ownership anchored in the Industries, project management is now managed from Hubs where expertise and experience has been consolidated to make the most of our capabilities. FLSmidth  Annual report 2020 46 Management review Governance Risk Potential impact Mitigation Cement Market Conditions Lack of global growth, decreasing consumption and overca- pacity in the Cement Industry has the potential to drastically change our Cement business. During 2020, we have executed our Group business improvement initiatives that include site consolidation, an improved logistical setup, and headcount reductions. In addition to the Group business improvement pro- gramme, we took additional steps during the year to simplify our Cement business and adjust its cost struc- ture. These activities included reduced in-house manufacturing and increased sourcing from local suppliers and reducing the size of the project organisation. Cyber Threats The constantly evolving threat of cyber security, data leakage and data security is a key area of focus. A sophisticated cyber- attack could result in an extended period of down-time result- ing in delays to customers and additional costs for the organi- sation. The Group is focused on IT Security and awareness; conducting regular audits, analysis of current controls and security updates. Migration to cloud-based solutions, cyber awareness training across the organisation and an IT Security Committee all help to mitigate the potential impact of this risk. We are also taking steps to increase cybersecurity of the delivered equipment. Supply Chain High demands on internal and external trusted supply chains could result in delays in deliveries to customers which could lead to penalties and disruptions in executing projects  this threat has been further complicated by the impact of the pan- demic. Group Procurement is on a strong path towards increased operational efficiencies through new tools and more uniform processes. The Group's global sourcing strategy allows for more flexibility and agility in working with external supply chains to help alleviate potential disruptions. Compliance Compliance is a top-priority in FLSmidth with zero tolerance for violation that could impact the FLSmidth brand and reputation with customers. As the Company continues to expand through acquisitions and the establishment of local offices in challeng- ing environments, the focus on mitigating compliance risks re- mains high. The Group has a dedicated Compliance Department that has established rules and procedures to ensure a common understanding of ethical behaviour. There are policies in place to support the Organisation with day-to-day compliance issues such as the Code of Business Conduct and Anti-Bribery policy, as well as tools and procedures to identify individual issues that may pose a threat including the Whistleblower Hotline, screening of third party agents and sign-off protocols. New online training was added to the current cata- logue of compliance training this year and is compulsory for all employees. Workplace Engagement The demands of a fast-changing world put pressure on our workforce to stay agile and adapt to new challenges faster than ever. The collective ability to keep our employees motivated and engaged has been further complicated by the global pan- demic which has forced many of our employees to work re- motely and virtually. In response to the pandemic, the Company has established flexible work arrangement guidelines and is in the process of conducting engagement surveys to ensure our employees have a platform to voice their con- cerns and ideas. Initiatives and processes are also in place to promote productivity at work. FLSmidth  Annual report 2020 47 Management review Governance The following statutory statement (including the Corporate Governance section, the Remunera- tion section, as well as the overview of the Board of Directors and Group Executive Management) is provided pursuant to the Danish Financial Statements Act Sections 107a and 107b. In the Board of Directors opinion, FLSmidth fully complies with all recommendations on corporate governance applicable to Danish listed compa- nies, except for one. Capital and share structure FLSmidth & Co. A/S is listed on NASDAQ Copen- hagen. At the end of 2020, FLSmidth had ap- proximately 46,000 registered shareholders and a free-float of around 90%. One shareholder had flagged a major shareholding in FLSmidth & Co. A/S at the end of 2020. Lundbeckfond Invest A/S' investment exceeded 10%. FLSmidth's hold- ing of treasury shares at the end of 2020 ac- counted for 2.1% of the share capital. The Board of Directors is authorised until the next Annual General Meeting to let the Company acquire treasury shares up to a total nominal capital in accordance with Section 12 of the Danish Com- panies Act. The adoption of a resolution to amend the Com-  Company requires that the resolution is passed by not less than two thirds of the votes cast as well as of the share capital represented at the General Meeting. Management structure According to general practice in Denmark, FLSmidth maintains a clear division of responsi- bility and separation between the Board of Direc- tors and the Group Executive Management. The Group Executive Management is responsible for the day-to-day business of the company, and the Board of Directors oversees the Group Executive Management and handles overall managerial is- sues of a strategic nature. For additional infor- mation please refer to: https://www.flsmidth.com/en-gb/company/inves- tors/governance. The Board of Directors Composition of the Board of Directors The Board of Directors is elected at the Annual General Meeting apart from those Board mem- bers who are elected pursuant to the provisions of the Danish Companies Act on employee rep- resentation. Board members elected at the Annual General Meeting constitute not less than five and not more than eight members, currently six mem- bers, in order to maintain a small, competent and quorate Board. The members of the Board elected at the Annual General Meeting retire at each Annual General Meeting. Re-election may take place. The Nomination Committee identifies and recommends candidates to the Board of Di- rectors. Pursuant to the provisions of the Danish Compa- nies Act regarding employee representation,  on the Board by three members who are elected for terms of four years. The next election will take place in the near future. Immediately after the Annual General Meeting, the Board of Directors elects, among its own members, a Chairman and a Vice chairman. A job and task description has been created and out- lines the duties and responsibilities of the Chair- man and the Vice chairman. CORPORATE GOVERNANCE CORPORATE GOVERNANCE HIGHLIGHTS 2020 2019                               FLSmidth  Annual report 2020 48 Management review Governance Board meetings are called and held in accord- ance with the Board rules of procedure and its annual plan. In general, between six and eight or- dinary Board meetings are held every year. How- ever, when deemed necessary, additional meet- ings may be held, and due to the COVID-19 situation the meeting frequency was higher in 2020. To enhance Board meeting efficiency, the Chair- man conducts a planning meeting with the CEO and CFO prior to each Board meeting. Seventeen Board meetings were held in 2020. Apart from contemporary business issues, the most important issues dealt with in 2020 were: The impact of COVID-19 on our business, cash flow, capital structure, financial risks, sustainabil- ity, reshaping of our Cement business, diversity and acquisitions. All members of the Board of Di- rectors participated, physically or virtually, in all relevant board and committee meetings in 2020, except one member who was unable to attend one of the 17 Board meetings due to a conflicting appointment. To achieve a highly informed debate with the Group Executive Management, the Company strives for a Board membership profile reflecting substantial managerial experience from interna- tionally operating industrial companies. At least one member of the Board must have CFO experience from a major listed company and all other members must preferably have CEO experience from a major internationally op- erating and preferably listed company. To the ex- tent possible, all members elected at the Annual General Meeting hold competencies in the acqui- sition and sale of companies, financing and stock market issues, international contracts and ac- counting. In addition, a majority of the Board members should preferably possess technical expertise on process plants and process technol- ogy, including from the minerals industries and/or the cement industry. All members of the Board elected at the Annual General Meeting are independent as defined by the Committee on Corporate Governance, which is an independent Danish body promoting corpo- rate governance best practice in Danish listed companies. As part of its annual plan, the Board of Directors performs an annual self-evaluation to evaluate the contribution, engagement and competencies of its individual members. The Chairman is re- sponsible for the evaluation. The Nomination Committee The nomination committee consists of Mr. Vagn Ove Sørensen, Mr. Tom Knutzen and Mr. Thra- syvoulos Moraitis. In 2020, the committee met three times. Its main activities in 2020 were re- lated to assessing the composition and compe- tencies of the Board of Directors. The Compensation Committee The Compensation Committee consists of Mr. Vagn Ove Sørensen, Mr. Tom Knutzen and Mr. Thrasyvoulos Moraitis. The Compensation Com- mittee met five times in 2020 and the commit-  approval of incentive plans and overall remuner- ation schemes for Group Executive Management and the management layer reporting to the Group Executive Management. MEETING ATTENDANCE IN 2020 Board of directors Board meetings attended Audit Committee meetings attended Compensation Committee meetings attended Nomination Committee meetings attended Technology Committee meetings attended                                  1) Voluntary participation (not member of Audit Committee) FLSmidth  Annual report 2020 49 Management review Governance The Audit Committee The Audit Committee consists of Mr. Tom Knutzen (Chairman), Ms. Anne Louise Eberhard and Ms. Gillian Dawn Winckler who are all inde- pendent and have considerable insight and experience in financial matters, accounting and auditing in listed companies. In 2020, the Audit Committee met seven times  sider specific financial risk, including tax risk, ac- counting and auditing matters, as well as paying special attention to financial processes, internal control environment and cyber security. A partic- ular focus area in 2020 has been to assess the fi- nancial risks associated with the COVID-19 pan- demic and the related impact on liquidity and cash flow. The Technology Committee The Technology Committee consists of three Board members, Mr. Richard Robinson Smith (Chairman), Mr. Thrasyvoulos Moraitis and Mr. Søren Dickow Quistgaard. The Technology Com- mittee met three times in 2020. The main tasks in 2020 were to monitor the major development projects across the two industries, to ensure the right and appropriate KPIs are set for R&D across both industries and to approve the strategic fo- cus areas for the coming years. Group Executive Management Composition of the Management The officially registered Executive Management of FLSmidth consists of the Group CEO and the Group CFO. In the first half year our Head of Group Legal and Strategy was registered as part of Executive Management on an interim basis. Group Executive Management holds overall responsibility for the day-to-day operations of the Group and consists of nine Group Executive Vice Presidents, including the CEO. The members of the Group Executive Management are all experienced business executives, each possessing insights and hands-on experience that match the practical issues and challenges currently facing FLSmidth. Effective June 2020, Mikko Tepponen joined FLSmidth as Chief Digital Officer and a member of the Group Executive Management. Tepponen arrives with proven experience in driving trans- formation journeys in other large industries, in- cluding Wärtsilä and Outotec. He has a track rec- ord of employing digital solutions as an enabler for more sustainable and resource-efficient prac- tices. In July 2020, Roland M. Andersen joined FLS- midth as Group CFO and a member of the Group Executive Management. Roland brings 25 years of solid experience and competences through his time as CFO with public as well as private eq- uity owned companies, including Torm, Telenor, A.P. Moller Maersk and most recently NKT where he played a key role in leading the company through strategic transformation and acted as CEO for a period of time. In August 2020, Chief Procurement Officer, As- ger LauritsenGroup Executive Management team. For the past four years, Asger has been responsible for our global supply chain, which includes both our own facto- ries and external suppliers. Prior to joining FLSmidth in 2016, Asger had an accomplished international career within opera- tions, procurement and supply chain in senior leadership roles at Norden, Maersk Line, DISA and Rosti. Due to family reasons Jan Kjaersgaard has de- cided to leave FLSmidth. Jan joined FLSmidth in March 2018 as President of the Product Com- pany Division. In July 2018, he was appointed as President of the Cement Industry, where he had an instrumental role in establishing the operating model for our Cement business. Effective November 2020, Carsten Riisberg Lund has been appointed as the new Cement Industry President and member of Group Executive Man- agement. Carsten has been with FLSmidth for 33 years in various roles, most recently as the Presi- dent for Region Europe, North Africa and Russia (ENAR). Carsten has also  mer Material Handling division and spent three years as Managing Director in India. Effective January 2021, Mikko Keto joined FLS- midth as President, Mining Industry and member of Group Executive Management. Mikko joins FLSmidth from Metso, where he has worked for 10 years of which the last two years as President, Minerals Services and Pumps, where he deliv- ered growth in Services along with profitability improvement. He also served as a member of t The appointment follows  cision to retire, having contributed strongly to FLSmidth's Mining business since 2014. To en- sure a smooth transition, Manfred has kindly of- fered to stay with FLSmidth as an advisor for a period of time. Diversity in Board and Management The Board of Directors of FLSmidth continually evaluates the diversity of the Board and the Group Executive Management as well as among managers and employees. In connection with recommendations and appointments, diversity is deliberately taken into account when considering the profiles and qualifications of potential candi- dates. At the end of 2020, women accounted for 33% (end 2019: 33%) of the shareholder-elected Board members, fulfilling the target that a mini- mum of 25% of the members elected at the An- nual General Meeting should be women. At the end of 2020, women accounted for 16% (end 2019: 16%) of the total workforce, while 13% of all managers were women (end 2019: 11%). At the end of the year, we set a new long-term tar- get for gender equality in our workforce. By 2030, we want 30% of our entire white-collar workforce and 25% of our people managers to be women. When filling management vacancies externally, at least one female candidate must be in the short list.  countries, the overall workforce naturally reflects a multitude of cultures and nationalities. The Board of Directors has set a long-term goal ac- cording to which global managers (top 70) should to a greater extent reflect the representa- tion of nationalities among all employees and the  centres in Denmark (9% of the total workforce), the USA (15% of the total workforce) and India (24% of the total workforce). FLSmidth  Annual report 2020 50 Management review Governance Today 56% (2019: 67%) of Group Executive Man- agement and 90% (end 2019: 91%) of the total number of employees have a nationality other than Danish. FLSmidth is a learning organisation, and our peo- ple are our most valuable resource. 50% of the workforce is below the age of 40. 43% have less than 5 years seniority, which is a reflection of the transition FLSmidth has gone through over the past several years. Presentation of financial statements and internal controls To ensure the  cial reporting, the Board of Directors and the Group Executive Management have adopted a number of policies, procedures and guidelines for the presentation of the financial statements and internal controls which can be found on FL- https://www.flsmidth.com/en- gb/company/investors/governance. Compliance with recommendations for corporate governance Pursuant to Section 4.3 of the rules for issuers of shares listed on Nasdaq Copenhagen, Danish companies must provide a statement on how they address the recommendations on Corpo- rate Governance issued by the Committee on Corporate Governance in November 2017 based https://corpo- rategovernance.dk/english).  position on each specific recommen- dation is summarised in the corporate govern- ance statement available at: https://www.flsmidth.com/en-gb/company/inves- tors/governance/governance-reports.  all recommendations on corporate governance applicable to Danish listed companies, except 3.5.1 related to external assistance in connection with evaluation of the performance of the Board of Directors, where the company only complies partially. On 2 December 2020, the Committee on Corpo- rate Governance issued updated recommenda- tions for Corporate Governance, which will enter into force for the financial year starting January 1, 2021. corporate governance state- ment includes comments to some of the updated recommendations. Employees Geographical distribution Employees Length of service Employees Age distribution 16% 18% 25% 8% 5% 23% 5% North America South America Europe, North Africa, Russia Sub-Saharan Africa and Middle East Asia Subcontinental India Australia 22% 21% 27% 30% <2 years 2-4 years 5-10 years >10 years 13% 37% 28% 16% 6% <30 years 30-39 years 40-49 years 50-59 years >59 years FLSmidth  Annual report 2020 51 Management review Governance GROUP EXECUTIVE MANAGEMENT    Name Thomas Schulz Roland M. Andersen Mikko Keto Carsten Lund Mark Clifford Title Group Chief Executive Officer Employed by FLSmidth since 2013 Group Chief Financial Officer Employed by FLSmidth since 2020 Mining Industry President Employed by FLSmidth since 2021 Cement Industry President Employed by FLSmidth since 1988 President of Regions Employed by FLSmidth since 2014 Age 55 52 53 58 58 Nationality German Danish Finnish Danish Australian Gender Male Male Male Male Male Education MSc (Engineering), PhD (Mining Engi- neering with dissertation in Mineral Min- ing and Quarrying) MSc Corporate Finance, Executive Man- agement Programme, London Business School MSc Economics from Helsinki School of Economics Executive MBA, Scandinavian Interna- tional Management Institute (SIMI) B.Sc. in Mechanical and Process Engi- neering, Danish Technical University Studied BSc Mining Engineering at Univer- sity of NSW Sydney, IFL executive educa- tion, IMD strategic development Number of shares in FLSmidth 28,138 0 0 3,634 2,619 Past experience Various managerial positions in Sandvik: Member of Group Executive Manage- ment (2011-2013), Chairman of SJL Shaan Bao (2011-2012), President of the Business Area Construction (2011-2012), President, Construction, and SVP, Mining and Construction (2005-2011), Regional President Mining and construction Cen- tral Europe (2001-2002), With Svedala, Germany (1998-2001). CFO with NKT (2015-2020), Interim CEO with NKT (2018-2019). Prior to that various CFO roles in A.P. Moller  Maersk, Telenor/Cybercity and Torm. Numerous senior management posi- tions with Metso 2010-2020, most re- cently President for Services and Pumps business areas. Head of Sales, KONE corporation 2008-2009. Various management positions in multi- ple countries with Nokia Networks 1994- 2007. Regional President, Europe, North Africa and CIS. Managing Director & CEO, FLS- midth India Private Limited. President Material Handling Division, FLSmidth A/S. CEO, FLSmidth Airtech a/s Country Head Australia, FLSmidth (2014-2018), Numerous manage- ment roles with Sandvik Mining and Con- struction: Vice President, Underground hard rock & Surface Mining Region Aus- tralia (2012-2014), Global Aftermarket Man- ager, Sandvik Construction Division (2008- 2012), General Manager underground Hard Rock Mining Region Australia (2005- 2008). Non-Executive positions Member of the Board of Directors Norsk Hydro ASA (Norway). None Member of Board of Directors Normet Group. Member of the Board of Directors Dinex a/s. Member of the Board of Directors Dall Energy ApS. None * Registered with Erhvervsstyrelsen (The Danish Business Authority) FLSmidth  Annual report 2020 52 Management review Governance GROUP EXECUTIVE MANAGEMENT - CONTINUED Name Annette Terndrup Cori Petersen Asger S.B. Lauritsen Mikko Tepponen Title Head of Group Legal & Strategy Employed by FLSmidth since 2004 Head of Group HR and HSE Employed by FLSmidth since 2016 Chief Procurement Officer Employed by FLSmidth since 2016 Chief Digital Officer Employed by FLSmidth since 2020 Age 51 51 54 41 Nationality Danish American Danish Finnish Gender Female Female Male Male Education Master of Law (Denmark) and LLM (Eng- land) B.S. in Business administration: Human Re- source management, Senior Professional in Human Resources. Certified by Human Resource Certification Institute MSc University of Copenhagen, MBA (IMD), GMP (INSEAD) MSc Automation Technology Number of shares in FLSmidth 2,546 618 1,335 0 Past experience Head of Group Legal (2013-2016). Vari- ous managerial positions in FLSmidth (2006-2013). Corporate counsel FLS- midth (2004-2006). Lawyer Ashurst 1998-2003. Trainee lawyer Lett, Vilstrup & Partnere 1994-1997. Director Human Resources, US, FLSmidth (2016), Director, Human Resources, North America, FLSmidth (2017). Various managerial posi- tions in Rio Tinto (2011  2016). Various managerial and specialist positions (1987- 2011). Various managerial positions; Head of Operations, Technical, and Supply Chain in DS NORDEN (2014- 2016); Executive Committee, Danish Shipowners Association and Intertanko (2014-2016); Maersk Line (2006-2014) - CPO, Head of Operations Execution & Supply Chain; A.P. Møller-Maersk (2004- 2006), e.g. CEO of regional cluster Paki- stan/Afghanistan; CEO, ROSTI Contain- ers (2001-2004); Executive Vice presi- dent, Sales & Marketing, DISA (1997- 2001); Company Secretary, Business Unit Head of various A.P. Møller-Maersk entities (1992-1997). Vice President, Digital Product Develop- ment at Wartsila. Director Digitalisation at Wartsila. Senior Manager, Product Management, Digital Services at Ou- totec Non-Executive positions None None None Member of Board of Directors Etteplan Oyj FLSmidth  Annual report 2020 53 Management review Governance      Name Vagn Ove Sørensen Chairman Tom Knutzen Vice chairman Richard Robinson Smith Anne Louise Eberhard Gillian Dawn Winckler Age 61 58 55 57 58 Nationality Danish Danish German/American Danish British/Canadian Gender Male Male Male Female Female Member of the Board since 2009, Chairman since 2011 (elected at the AGM). Member of the Nomination and Compensation Committees 2012 (elected at the AGM). Chairman of the Audit Committee. Member of the Nomination and Compensation Commit- tees 2016 (elected at the AGM). Chairman of the Technology Committee 2017 (elected at the AGM). Member of the Audit Committee 2019 (elected at the AGM). Member of the Audit Committee Number of shares in FLSmidth 16,965 20,000 1,000 2,000 1,000 Executive and non-executive po- sitions in Denmark Chairman of the Boards of Directors of TIA Technology A/S, Zebra A/S and Scandlines. Member of the Board of Di- rectors of CP Dyvig & Co. A/S. Senior Ad- visor to EQT Partners Chairman of the Board of Directors of Tivoli A/S and Chr. Augustinus Fabrikker A/S None Chairman of the Boards of Directors of Moneyflow Group A/S. Vice Chairman of the Boards of Directors of Finansiel Sta- bilitet SOV. Member of the Board of Di- rectors of Bavarian Nordic A/S, Topdan- mark A/S, Knud Højgaards Fond. Faculty Member at Copenhagen Business School (CBS Executive, Board Education) None Executive and non-executive po- sitions outside Denmark Chairman of the Board of Directors of Air Canada (Canada). Member of the Board of Directors of Braganza AS (Sweden), Unilode Aviation Solutions (Switzerland), Royal Caribbean Cruises Ltd. (USA), VFS Global (Switzerland) and CNH industrial (NL). Member of the Strategic Advisory Board of Nordic Aviation Capital. Senior Advisor to Morgan Stanley CEO at Jungbunzlauer Suisse AG (Switzerland) President & Chief Executive Officer of Kone Cranes PLC (FIN) None Member of the Board of Directors at Pan American Silver Corporation (CA) and West Fraser Timber Limited (CA), and member of the Board of Directors for Trans Canada Trail (CA) and BC Parks Foundation (CA), both non-profit organi- sations BOARD OF DIRECTORS FLSmidth  Annual report 2020 54 Management review Governance     Name Thrasyvoulos Moraitis Mette Dobel Søren Dickow Quistgaard Claus Østergaard Age 58 53 42 54 Nationality British/Greek Danish Danish Danish Gender Male Female Male Male Member of the Board since 2019 (elected at the AGM). Member of the Technol- ogy Committee, Nomination Committee and Com- pensation Committee. 2009 (elected by the employees) 2013 (elected by the employees) Member of the Technology Committee. 2016 (elected by the employees) Number of shares in FLSmidth 1,000 864 65 429 Executive and non-executive po- sitions in Denmark None None None None Executive and non-executive positions outside Denmark Chief Development Officer and member of the Man- agement Board of EuroChem. Member of the Board of Directors of Reload Greece Foundation None None None BOARD OF DIRECTORS - CONTINUED BOARD COMPETENCIES Board of directors CEO (operatio- nal) experience Finance, Audit Committee, Accounting, Treasury Strategy Develop- ment M&As, Joint ventures, Alliances Capital markets, Listed company experience Risk Manage- ment, Legal, Compliance HR, Total Rewards & Labour Safety, Health, Environ- ment, Sustaina- bility Digital transfor- mation, Technology advance- ment Cement and Mining Industry Knowledge/ Experience Commercial and Project excellence Related Industrial experience Service, Aftermarket experience  X X X X X  X X X X X  X X X X X  X X X X X  X X X X X X  X X X X  X X   X X  X X X X FLSmidth  Annual report 2020 55 Management review Governance The pandemic severely impacted our financial performance and target fulfilment in 2020. As a result, total management remuneration decreased significantly compared to 2019. Base salary Due to the challenging situation no annual ad-  in 2020, which was voluntarily decided by the members of the Group Executive Management. Short-term incentive programme There will be no pay-out on any of the financial KPIs (order intake, EBITA margin and CFFO) 1) re- lated to the 2020 short-term incentive plan (80% of STIP) 1) . Any pay-out on individual KPIs (20% of STIP) 1) will be reduced by 50% due to a STIP modifier. Long-term incentive programme In 2020, management received pay-out for the 2017-2019 long-term incentive plan (LTIP) slightly above target level (75%). It is expected that pay- out for two of the three active LTIP programmes will be unachievable. The KPIs planned for the 2021 LTIP grant are: EBITA-margin, total shareholder return and a sus- tainability-linked KPI, which is a change to the years before. 1) KPIs and thresholds applicable for the Group CEO and Group CFO Remuneration of Executive Management The Board has adopted overall guidelines for in- centive pay for the Group Executive Manage- ment establishing a framework for variable salary  short- and long-term goals. The purpose is to en- sure that the remuneration structure does not lead to imprudence, short-term behaviour or un- reasonable risk acceptance on the part of the Group Executive Management.  on a regular basis the Group Executive Manage-  The total remuneration of the Group Executive Management consists of the following compo- nents:  Base salary  Short-term incentives in the form of a cash bo- nus (up to 75% of annual base salary)  Long-term incentives in the form of perfor- mance shares (up to 100% of base salary)  Other incentives up to 150% of the annual base salary in cash and/or in shares  Severance payment, if any, corresponding to - mum period of 24 months  Customary benefits such as company car, tele- phone, etc. Remuneration of the Board of Directors  sists of an annual cash payment for the current fi- nancial year, which is submitted for approval at the Annual General Meeting. The Board of Direc- -approved by the Gen- eral Meeting for the year in question and then fi- nally approved by the shareholders at the following year's General Meeting. In approving the final fees, shareholders may take unexpected workload into consideration and increase the preliminarily approved fees for all or some mem- bers of the Board of Directors. The Board of Di- -based re- muneration. Cash payment currently consists of a base fee of DKK 450,000 to each Board member, graded in line with additional tasks and responsibilities as follows:  Ordinary Board members 100% of the base fee  Board Vice chairman 200% of the base fee  Board Chairman 300% of the base fee  Committee Chairman fee DKK 225,000  Committee members fee DKK 125,000 The Chairman and Vice chairman do not receive payment for committee work. The fee structure was last adjusted in 2017. The remuneration report can be found here: www.flsmidth.com/RemunerationReport2020 REMUNERATION Remuneration facts A detailed description of the remuneration of individual members of the Board of Directors and Executive Management is disclosed in the remuneration report which is considered an integrated part of this report. Total remuneration of the Board of Di- rectors, DKKm Total remuneration of Executive Man- agement registered with The Danish Business Authority, DKKm 6.5 6.4 6.4 2018 2019 2020 23.1 25.2 18.6 2018 2019 2020 FLSmidth  Annual report 2020 56 Management review Governance Total shareholder return was negative 12% in 2020, impacted by the pandemic which has presented both challenges and opportunities for FLSmidth. Capital and share structure FLSmidth & Co. A/S is listed on Nasdaq Copen- hagen. The share capital is DKK 1,025,000,000 (end of 2019: DKK 1,025,000,000) and the total number of issued shares is 51,250,000 (end of 2019: 51,250,000). Each share entitles the holder to 20 votes. The FLSmidth & Co. A/S share is in- cluded in roughly 150 Danish, Nordic, European and global share indices, including the leading Danish stock index C25. The company had approximately 46,000 share- holders at the end of 2020 (end of 2019: approxi- mately 38,000). In addition, roughly 1,750 pre- sent and former employees hold shares in the company (end of 2019: approximately 2,000). The FLSmidth & Co. A/S share has a free float of around 90%. Lundbeckfond Invest A/S' invest- ment exceeded 10% in FLSmidth & Co. A/S at the end of 2020. As of end-2019, the investments of Novo Holding A/S and Bestinver Gestión S.A SGIIC both exceeded 5%, but in 2020 both of these investors reduced their positions to below 5%. 2020 saw an increase in the share of Danish pri- vate investors to approximately 28% (2019: 21%). The share of Danish institutional investors, in- cluding Lundbeckfond Invest A/S, decreased to  shares declined to 2.1% (2019: 2.3%). Return on the FLSmidth share in 2020 The total return on the FLSmidth & Co. A/S share in 2020 was -12% (2019: -6%), calculated as share price appreciation and dividend paid. Given the global uncertainty caused by the COVID-19 pan- demic, the Board of Directors of FLSmidth & Co. A/S decided on 23 March 2020 to withdraw the previous proposal to pay a dividend of DKK 8 per share to ensure resilience in a period of market  financial position. The share price ended 2020 at 232.8 compared to 265.4 at the end of 2019, having ranged be- tween 134.3 and 274.8 during the year. Total shareholder return will be one of the financial KPIs for the planned 2021 long-term incentive plan. SHAREHOLDER INFORMATION Development in shareholder structure % Shareholder structure 2020 % Share price developments in 2020 Volume, 1,000 Share price DKK Finance calendar 2021             0 10 20 30 40 50 60 70 80 90 100 2016 2017 2018 2019 2020 Bestinver Gestión S.A SGIIC Franklin Mutual Advisors Novo A/S Lundbeckfond Invest A/S Foreign FLSmidth & Co. A/S Non-registered Danish (institutional) Danish (private) 28% 7% 10% 2% 43% 10% Danish (private) Danish (institutional) Non-registered FLSmidth & Co. A/S Foreign Lundbeckfond Invest A/S 100 120 140 160 180 200 220 240 260 280 300 0 200 400 600 800 1,000 1,200 1,400 1,600 Daily volume Share price FLSmidth  Annual report 2020 57 Management review Governance Capital structure and dividend for 2020 FLSmidth takes a conservative approach to capi- tal structure, with the emphasis on relatively low debt, gearing and financial risk. The Board of Di- structure and capital al- location is as follows:  Well-capitalised (NIBD/EBITDA < 2)  Stable dividends (30-50% of net profit)  Invest in organic growth  Value adding M&As  Share buyback or special dividend As announced on 15 January 2021, FLSmidth is currently in negotiations concerning an acquisi-  gotiations are at a non-binding stage. Accord- ingly, there can be no assurances as to whether and when a transaction will transpire. The Board of Directors will propose at the Annual General Meeting that a dividend of DKK 2 per share (2019: No dividend), corresponding to a dividend yield of 0.9% and a pay-out ratio of 50%, in line with our targeted pay-out ratio, to be distributed in 2021. Given the global uncertainty caused by the COVID-19 pandemic, the Board of Directors of FLSmidth & Co. A/S decided to withdraw the pro- posal to pay a dividend of DKK 8 per share in 2020 to ensure resilience in a period of market  financial position. FLSmidth Investor Relations Through the Investor Relations function, the Board of Directors maintains an ongoing dia- logue between the company and the stock mar- ket and ensures that the positions and views of the shareholders are reported back to the Board. The purpose of FLSmidth's Investor Relations function is to contribute to ensuring and facilitat- ing that:  All shareholders have equal and sufficient ac- cess to timely, relevant and price-sensitive in- formation  The share price reflects FLSmidth’s underlying financial results and a fair market value  The liquidity and the day-to-day trading turno- ver of the FLSmidth share is sufficiently attrac- tive for both short- and long-term investors  The shareholder structure is appropriately di- versified in terms of geography, investment profile and time horizon. To achieve these goals, an open and active dia- logue is maintained with the stock market both  website and electronic com- munication services and via investor presenta- tions, investor meetings, webcasts, teleconfer- ences, roadshows, the Annual General Meeting and Capital Markets Days. In 2020, the COVID-19 pandemic changed the way Investor Relations and Management inter- acted with the financial markets, as restrictions and travel bans limited the usual travel activity. Since March, nearly all investor and analyst meet- ings have been conducted virtually. We have re- mained connected and engaged with investors through high-definition video and audio. We plan to resume travel activity when the pandemic al- lows for it but virtual meetings will remain an inte- grated part of how we will engage with the finan- cial markets in future. FLSmidth & Co. A/S is generally categorised as a capital goods or industrial company and is cur- rently being covered by 17 equity analysts, 10 of which are based outside Denmark. For further details regarding analyst coverage, please see the company website (http://www.FLSmidth.com/analysts). All investor relations materials and investor rela- tions contact information are available to inves- tors at the company website (http://www.FLSmidth.com/investor). Share and dividend key figures Share and dividend figures 2016 2017 2018 2019 2020                                                                    FLSmidth  Annual report 2020 58 Consolidated financial statements Consolidated financial statements Primary statements           Notes Key accounting estimates and judgements 63 1. Operating profit & segments 65               2. Capital employed and other balance sheet items 73                           3. Working capital 88               4. Tax 93            5. Financial risks & capital structure 97                 6. Other notes 106           7. Basis of reporting 112                 CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements FLSmidth  Annual report 2020 59 Consolidated financial statements Consolidated financial statements Notes DKKm 2020 2019 1.4  16,441 20,646  (12,576) (15,797) Gross profit 3,865 4,849  (1,367) (1,479)  (1,400) (1,414)  36 52 EBITDA before special non-recurring items 1,134 2,008 1.7  (24) 0 2.4, 2.5   (339) (345) EBITA 771 1,663 2.2  (343) (377) EBIT 428 1,286 2.6  0 3 5.4  952 821 5.4  (999) (939) EBT 381 1,171 4.1  (155) (373) Profit for the year, continuing activities 226 798 1.2, 2.11  (21) (22) Profit for the year 205 776    210 775  (5) 1  205 776  5.2   4.2 15.5  4.2 15.5  4.6 15.9  4.6 15.9 Notes DKKm 2020 2019 Profit for the year 205 776  Items that will not be reclassified to profit or loss:  (19) (44) 4.3, 4.4  1 32  Items that are or may be reclassified subsequently to profit or loss:  (832) 154   35 4  (11) 21 4.3, 4.4  (7) (3) Other comprehensive income for the year after tax (833) 164  Comprehensive income for the year (628) 940    (622) 939  (6) 1  (628) 940 INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME FLSmidth  Annual report 2020 60 Consolidated financial statements Consolidated financial statements Accounting policy The cash flow statement is presented using the indirect method and shows the composition of cash flow divided into operating, investing and fi- nancing activities for both continued and discon- tinued activity and the changes in cash and cash equivalents during the year. Cash flow from operating activities consists of earnings before special non-recurring items, de- preciation, amortisation and impairment (EBITDA) adjusted for non-cash operating items, changes in provisions and net working capital, financial items as interests paid from the lease liabilities and taxes paid. Cash flow from investing activities comprises payments made in connection with the acquisi- tion and disposal of businesses and non-current assets. Cash flow from financing activities comprises changes in the size or composition of equity and loans, repayment of interest-bearing debt includ- ing lease liabilities, acquisitions and disposal of non-controlling interests, movements in shares and payment of dividend to shareholders. Cash and cash equivalents mainly consist of bank deposits. CASH FLOW STATEMENT Notes DKKm 2020 2019  1,134 2,008  (15) (19) EBITDA 1,119 1,989   (48) 7 Adjusted EBITDA 1,071 1,996 2.7  63 (230) 3.1  706 (448) Cash flow from operating activities before financial items and tax 1,840 1,318 5.4  (51) (59) 4.2  (368) (311) Cash flow from operating activities 1,421 948  2.10  (99) (287) 2.2  (178) (242) 2.4  (171) (177)  (7) (2) 2.12  62 0  3 35  7 0 2.6  7 12 Cash flow from investing activities (376) (661)  (14) (450)  0 7  0 21 5.7  (120) (106) 5.7  (822) (1,968) 5.7  0 2,340 Cash flow from financing activities (956) (156)  Change in cash and cash equivalents 89 131  1,001 875  (114) (5) Cash and cash equivalents at 31 December 976 1,001 The cash flow statement cannot be inferred from the published financial information only Notes DKKm 2020 2019 2.12  30 0  946 1,001 Cash and cash equivalents at 31 December 976 1,001 DKKm 2020 2019  1,045 287   1,082 574 FLSmidth  Annual report 2020 61 Consolidated financial statements Consolidated financial statements Notes DKKm 31/12/2020 31/12/2019 ASSETS  4,194 4,376  875 967  466 609  172 94  234 203  299 362 2.2 Intangible assets 6,240 6,611   1,414 1,575  369 439  89 106  137 80 2.4 Property, plant and equipment 2,009 2,200  2.5 Lease assets 312 312  4.3  1,248 1,246 2.6  159 165  43 44 Other non-current assets 1,450 1,455  Non-current assets 10,011 10,578  3.2  2,368 2,714 3.3  3,453 5,068 3.4  2,175 2,612  333 591  178 164 3.5  868 804  946 1,001 Current assets 10,321 12,954  2.12  124 0  Total assets 20,456 23,532 Notes DKKm 31/12/2020 31/12/2019 EQUITY AND LIABILITIES 5.1  1,025 1,025  (1,131) (300)  (4) (28)  8,246 8,082 Shareholders in FLSmidth & Co. A/S 8,136 8,779  (6) 14 Equity 8,130 8,793  4.3  200 352 2.8  375 362 2.7  426 467 5.7  209 204 5.7  2,250 2,890  240 251  139 135 3.7  125 90 Non-current liabilities 3,964 4,751  2.8  3 4 2.7  589 551 5.7  113 114 5.7  183 285  1,026 1,517 3.4  1,834 1,578 3.6  3,055 4,350  162 180 3.7  1,306 1,409 Current liabilities 8,271 9,988  2.12  91 0  Total liabilities 12,326 14,739  Total equity and liabilities 20,456 23,532 BALANCE SHEET FLSmidth  Annual report 2020 62 Consolidated financial statements Consolidated financial statements EQUITY STATEMENT 2020 2019 DKKm Share capital Currency adjust- ments Cash flow hedging Retained earnings Shareholders in FLSmidth & Co A/S Minority interests Total Share capital Currency adjust- ments Cash flow hedging Retained earnings Shareholders in FLSmidth & Co A/S Minority interests Total Equity at 1 January 1,025 (300) (28) 8,082 8,779 14 8,793 1,025 (454) (53) 7,738 8,256 10 8,266   Comprehensive income for the year   210 210 (5) 205  775 775 1 776   Other comprehensive income   (19) (19) (19)  (44) (44) (44)  (831) (831) (1) (832)  154 154 154    35 35 35  4 4 4  (11) (11) (11)  21 21 21  (6) (6) (6)  29 29 29 Other comprehensive income for the year 0 (831) 24 (25) (832) (1) (833) 0 154 25 (15) 164 0 164 Comprehensive income for the year 0 (831) 24 185 (622) (6) (628) 0 154 25 760 939 1 940     0 0 (14) (14)  (450) (450) (450)  (21) (21) (21)  13 13 13  0 0 0  21 21 21  0 0  0 7 7  0 0  0 (4) (4) Equity at 31 December 1,025 (1,131) (4) 8,246 8,136 (6) 8,130 1,025 (300) (28) 8,082 8,779 14 8,793 FLSmidth  Annual report 2020 63 Consolidated financial statements Consolidated financial statements When preparing the financial statements we are required to make several estimates and judge- ments. This note includes the areas that involve a higher degree of judgement or complexity and where changes in assumptions and estimates will likely have a significant impact on the financial statements. These areas are categorised as key accounting estimates and judgements. The sig- nificance of these material implications is catego- rised into three levels: Key accounting estimate Key accounting estimates are expectations of the future based on assumptions, that we to the ex- tent possible support by historical trends or rea- sonable expectations. Our assumptions may change to adapt to the market conditions and changes in political and economic factors. We believe that our estimates are the most likely out- come of future events. Key accounting judgements Key accounting judgements are made when applying accounting policies. Key accounting judgements are the judgements made, that can have a significant impact on the amounts recog- nised in the financial statements. The COVID-19 pandemic has imposed significant uncertainty to the financial statements. The pandemic has changed our reality and we have continuously adapted to new ways of doing business. Navigating in a market environment that has continuously changed to adapt to gov- ernment imposed restrictions, new customary business practices etc., has had an impact not only on us but on our entire value chain. One of the uncertainties in the early phase of the pandemic was related to the liquidity position. Looking ahead was with poor visibility and the length and magnitude of the impact was hard to predict. To mitigate the potential liquidity risk we decided early in the pandemic to bolster our li- quidity position by adding an additional DKK 500m credit facility. During the year we have monitored our activity closely and the uncertainties have impacted our key accounting estimates and judgements as fol- lows: Valuation of inventories The unstable market conditions and complex lo- gistics have made it more difficult to get orders shipped in to and out from our warehouses, with a risk of increase in slow-moving items. Other than the risk of slow-moving items, uncertainties have related to the building up for an increased service activity and customers not being able to receive the goods as agreed. As part of managing the more complex setup we took the following actions during the year:  Ensuring a sound inventory turn with a strict fo- cus on inventory ageing  Clear split between inventory specifically dedi- cated for orders and inventory available for sale The active measures taken during 2020 have re- duced the inventory level by the end of the year and the levels of impairments have also been re- duced. For additional description of the estimates, please refer to note 3.2 Inventories. Valuation of receivables The increased market uncertainty has increased the counterparty risk, and deterioration in credit quality of receivables has led to a risk adjustment of our expected credit loss (ECL) measurement. For additional description of the estimates, please refer to note 3.3 Trade receivables. As part of managing the increased credit risk we took the following actions during the year:  Reassessment of customer payment terms  Renegotiation of payment terms with our large project customers and suppliers where the cash flows were imbalanced  Increased focus on cash collection The active measures taken throughout 2020 have reduced the trade receivables balance by the end of 2020 and contributed to strong cash collection. Estimate total cost to complete Our cost forecasts on projects have been more uncertain due to the unpredictable development in logistics and execution. The project planning has been more difficult, due to especially the im- posed restrictions and the adaption to global and local changes in the restrictions. Further the cost forecasts have also been im- pacted by increased costs to cover a challenged supply chain. This has led to more frequent reas- sessments of cost to complete our projects, as our execution of projects has been impacted by the disruptions. The prolonging of project completion and changes in the project plans have had a negative effect on the total project costs. The lack of visi- bility and unpredictable project planning has im- posed increased uncertainty to the cost fore- casts. Estimate variable transaction price Site restrictions and operations running at re- duced capacity has imposed uncertainty to the estimate on operation and maintenance con- tracts where the transaction price varies partly with the production. KEY ACCOUNTING ESTIMATES AND JUDGEMENTS                FLSmidth  Annual report 2020 64 Consolidated financial statements Consolidated financial statements Additionally, the site and travel restrictions com- bined with a more difficult supply chain has im- posed uncertainty to meeting of our contractual obligations in a timely manner which has caused a risk of penalties. For additional description of the estimates, please refer to note 3.4 Work in progress. Deferred tax assets The uncertain market situation and development has made it more difficult to predict the level of business activity and earnings in the future. The recoverability of the deferred tax assets is dependent on the generation of sufficient future taxable income to utilise tax losses. COVID-19 has increased the uncertainty. The changing lo- cal and regional restrictions has made it difficult to predict the levels for the jurisdictions and the expected utilisation of deferred tax assets against future taxable income. For additional description of the estimates, please refer to note 4.3 Deferred tax. The financial impact of COVID-19 requires signifi- cant judgement and is included in the estimates of the activity of the group. The financial impact of COVID-19 is embedded into the valuation of our entire balance sheet and in the aforementioned we have described the uncertainties that can have the most significant impact on the financial statements also going for- ward. Additional information about the nature of the key accounting estimates and judgements can be found in the notes. Note Key accounting estimates and judgements Nature of accounting impact Impact of estimates and judgements                                               FLSmidth  Annual report 2020 65 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                      SECTION 1 OPERATING PROFIT & SEGMENTS BACKLOG  5% MINING SHARE REVENUE 65% FLSmidth  Annual report 2020 66 Consolidated financial statements Consolidated financial statements 1.1 INCOME STATEMENT BY FUNCTION It is our policy to prepare the income statement based on an adjusted classification of the cost by function in order to show the earnings before special non-recurring items, depreciation, amorti- sation and impairment (EBITDA). Depreciation, amortisation, and impairment are therefore sepa- rated from the individual functions and presented in separated lines. Amortisation of patent and rights is presented as production costs and the comparative figures have been adjusted as the amortisation was in- cluded in administrative costs in previous years. 1.2 SEGMENT INFORMATION Mining and Cement Industries are our operating and reporting segments. Our Industries have technology ownership and develop and drive the life cycle offering and product portfolio. This is supported by a seven region structure driving customer relations, sales and service for both In- dustries. The organisational structure helps create a productivity-driven organisation with a strong, unified digital approach and fewer touchpoints strengthening our local presence, customer ori- entation, and life cycle offering in order to cap- ture growth. The Mining and Cement Industries front our cus- tomers in the global industries with all the knowhow technologies, products, processes and systems used to separate commercially viable minerals from their ores and to cement produc- tion. With the responsibility of our total life cycle offer- ings firmly anchored in the Mining and Cement Industries, we are capable of improving our cus- tomer specific offerings. Offerings range from first time sale of single products to turn-key pro- jects, subsequent services, operation & mainte- nance, upgrades and rebuilds of existing equip- ment, plants and sale of spare parts and wear parts. The segmentation reflects the internal reporting and management structure applied. The seg- ments are primarily managed on EBITA before al- location of shared costs. Accounting policy Segment income and costs include transactions between divisions. Such transactions are carried out on market terms. The transactions are elimi- nated upon consolidation. Administrative functions such as finance, HR, IT and legal are shared by the divisions. Additionally, the divisions are supported by Group Functions related to procurement, logis- tics and marketing. Shared costs are allocated to business segments based on assessment of usage. Other companies consist of eliminations, compa- nies with no activities, real estate and the parent company, while discontinued activities consist of bulk material handling activities and run-off on activities sold in previous years. Geographical information is based on the seven Regions that support the Industries. Revenue is presented in the Region in which delivery takes place. Non-current assets and employees are presented in the Region in which they belong. DKKm 2020 2019       Gross profit 3,521 4,496                EBIT 428 1,286    Depreciation, amortisation and impairment consist of:          (682) (722)  Depreciation, amortisation and impairment are divided into:            (682) (722) FLSmidth  Annual report 2020 67 Consolidated financial statements Consolidated financial statements 1.2 SEGMENT INFORMATION  continued 2020 2019 DKKm Mining Cement Shared costs Other compa- nies Continuing activities Discon- tinued activities FLSmidth Group Mining Cement Shared costs Other compa- nies Continuing activities Discon- tinued activities FLSmidth Group Revenue 10,620 5,821 0 0 16,441 0 16,441  12,169 8,477 0 0 20,646 0 20,646                 Gross profit 2,688 1,255 (78) 0 3,865 0 3,865 3,071 1,881 (103) 0 4,849 (4) 4,845                 EBITDA before special non-recurring items 1,860 607 (1,335) 2 1,134 (15) 1,119  2,141 1,219 (1,364) 12 2,008 (19) 1,989                                  EBITA before allocation of shared costs 1,710 515 (1,456) 2 771 (16) 755  1,974 1,148 (1,471) 12 1,663 (19) 1,644                 EBITA 888 (118) 0 1 771 (16) 755  1,166 486 0 11 1,663 (19) 1,644                 EBIT 655 (228) 0 1 428 (16) 412  905 370 0 11 1,286 (19) 1,267                                 Gross margin 25.3% 21.6% 23.5% 23.5% 25.2% 22.2% 23.5% 23.5% EBITDA margin before special non-recurring items 17.5% 10.4% 6.9% 6.8%  17.6% 14.4% 9.7% 9.6% EBITA margin before allocation of shared costs 16.1% 8.8% 4.7% 4.6%  16.2% 13.5% 8.1% 8.0% EBITA margin 8.4% -2.0% 4.7% 4.6%  9.6% 5.7% 8.1% 8.0% EBIT margin 6.2% -3.9% 2.6% 2.5%  7.4% 4.4% 6.2% 6.1% Number of employees at 31 December 5,176 4,118 1,345 10,639 0 10,639  5,658 5,123 1,562 12,343 3 12,346                 Reconciliation of profit/(loss) for the year                                                                             EBT     381 (18) 363     1,171 (26) 1,145                Profit/(loss) for the year     226 (21) 205     798 (22) 776 FLSmidth  Annual report 2020 68 Consolidated financial statements Consolidated financial statements 1.3 GEOGRAPHICAL INFORMATION Revenue, non-current assets and number of employees are disclosed for all Regions, home country of our Headquarter and countries that account for more than 5% of Group revenue.  NORTH AMERICA Revenue: DKK 3,440m (2019: DKK 4,199m) Non-current assets: DKK 3,435m (2019: DKK 3,696m) Employees: 1,672 (2019: 1,934) USA Revenue: DKK 2,258m (2019: DKK 2,732m) Non-current assets: DKK 2,840m (2019: DKK 3,069m) 1 EUROPE, NORTH AFRICA & RUSSIA Revenue: DKK 3,067m (2019: DKK 3,830m) Non-current assets: DKK 3,540m (2019: DKK 3,623m) Employees: 2,628 (2019: 3,017) Denmark Revenue: DKK 35m (2019: DKK 108m) Non-current assets: DKK 1,275m (2019: DKK 1,394m) 3 SOUTH AMERICA Revenue: DKK 3,875m (2019: DKK 4,978m) Non-current assets: DKK 265m (2019: DKK 323m) Employees: 1,905 (2019: 1,911) Chile Revenue: DKK 1,780m (2019: DKK 1,872m) Non-current assets: DKK 132m (2019: DKK 279m) 2 SUB-SAHARAN AFRICA & MIDDLE EAST Revenue: DKK 1,783m (2019: DKK 2,043m) Non-current assets: DKK 159m (2019: DKK 217m) Employees: 896 (2019: 767) 4 AUSTRALIA Revenue: DKK 1,558m (2019: DKK 1,432m) Non-current assets: DKK 818m (2019: DKK 862m) Employees: 582 (2019: 593) 7 SUBCONTINENTAL INDIA Revenue: DKK 1,280m (2019: DKK 2,650m) Non-current assets: DKK 247m (2019: DKK 289m) Employees: 2,449 (2019: 2,926) India Revenue: DKK 1,136m (2019: DKK 2,273m) Non-current assets: DKK 247m (2019: DKK 289m) 6 ASIA Revenue: DKK 1,438,m (2019: DKK 1,514m) Non-current assets: DKK 99m (2019: DKK 113m) Employees: 507 (2019: 617) 5 FLSmidth  Annual report 2020 69 Consolidated financial statements Consolidated financial statements 1.4 REVENUE Revenue arises from sale of life cycle offerings to our customers. We sell a broad range of goods and services within the Mining and Cement In- dustries split into the main categories projects, products and services. Products The sale of products comprise sale of standard- ised and customised equipment, such as pre- heaters, cyclones, mills and kilns. Products will usually have a lead time of less than one year. Each product is considered as one performance obligation. Most of the products are sold at a fixed price and revenue is usually recognised over time, applying the cost-to-cost method. Products that are standardised or customised to a low degree are recognised at the point in time when control of the products transfers to the cus- tomers, usually upon delivery. A highly customised product sale will often enti- tle us to receive a down payment from the cus- tomer, followed by several progress payments linked to our performance progress. Upon com- pletion or delivery we will usually be entitled to the final payment. To the extent possible we ob- tain payment guarantees to minimise our risk during execution. For standardised products we will usually be en- titled to payment upon delivery. Projects The sale of projects comprise sale of plants, plant extensions, process systems and process system extensions. Projects are usually significant in amount, have a long lead time affecting the financial statements of more than one financial year, have a high de- gree of project management and involve more than one FLSmidth entity in the delivery to the customer. A project is usually considered one performance obligation as a project typically includes highly in- terrelated and interdependent physical assets and services, like engineering, installation and supervision. Dependent on the contract structure one performance obligation can consist of more than one contract. Most of the projects are sold as fixed price con- tracts and revenue from projects is usually recog- nised over time; applying the percentage of com- pletion cost-to-cost method. A project contract will often entitle us to receive a down payment from the customer, followed by several progress payments linked to our perfor- mance progress. Upon completion and customer acceptance we will usually be entitled to the final payment. To the extent possible we obtain pay- ment guarantees to minimise our risk during exe- cution. Services Services comprise various service elements to support the life cycle offerings portfolio. The sale can consist of spare parts, wear parts, service hours, long-term maintenance contracts, opera- tion & maintenance contracts and sale of up- grades and retrofits. The sale of service hours includes amongst oth- ers sale of supervision, electronic or mechanical service of equipment or plants. Each spare part and wear part is considered one performance obligation. The sale is usually agreed at a fixed price and revenue is usually recognised at the point of delivery. We are nor- mally entitled to payment once we have deliv- ered the parts. The performance obligation for service sales and maintenance contracts is either each service hour or the full contract, depending on the con- tract wording. Most service contracts are fixed price contracts, if not for the full service, then for the hourly rate. Service sales are recognised over time as the services are provided to the cus- tomer based on the cost-to-cost method. We are normally entitled to payment once the service has been provided or on a monthly basis. Revenue split by Regions Revenue by Revenue stream Revenue by Mining and Cement 21% 23% 19% 11% 9% 8% 9% North America South America Europe, North Africa, Russia Sub-Saharan Africa and Middle East Asia Subcontinental India Australia 16% 24% 60% Products Projects Service 65% 35% Mining Cement Revenue split on industry and category 2020 2019 DKKm Mining Cement Group Mining Cement Group                 Capital business 3,944 2,613 6,557 4,799 5,070 9,869 Service business 6,676 3,208 9,884 7,370 3,407 10,777 Total revenue 10,620 5,821 16,441 12,169 8,477 20,646 FLSmidth  Annual report 2020 70 Consolidated financial statements Consolidated financial statements 1.4 REVENUE - continued Each operation & maintenance contract is deter- mined as one performance obligation. The trans- action price is usually variable, depending on the produced output, and revenue is recognised over time, using the cost-to-cost method. In cases of significant uncertainties with measuring the revenue reliably we recognise revenue upon cash receipt. We are usually entitled to payment on a monthly basis. Service projects, such as upgrades and retrofits are defined as one performance obligation. The transaction price is usually fixed and revenue is typically recognised over time using the cost-to- cost method. The payment pattern for upgrades and retrofits are very similar to the pattern for projects and products. Backlog The order backlog at 31 December 2020 amounts to DKK 14,874m (2019: DKK 14,192m) and represents the value of outstanding perfor- mance obligations on current contracts, com- bined of contracts where we will transfer control at a future point in time and the remaining perfor- mance obligations on contracts where we trans- fer control over time. Based on the order backlog maturity profile, the majority, 64% (2019: 73%) of the order backlog is expected to be converted into revenue in 2021, while 36% (2019: 27%) is expected to be con- verted to revenue in subsequent years. Accounting policy Revenue comprises sale of projects, products and service within the Mining and Cement Indus- tries. Revenue from contracts with customers is recog- nised when control of the goods or services are transferred to our customers at an amount that reflects the transaction price to which we expect to be entitled in exchange for these goods or services. Revenue from projects, products, and services (with the exception of sale of service hours) is recognised over time, using the cost-to-cost method, when we have no alternative use for the goods or services to be delivered and we have an enforceable right to payment for work com- pleted. If we do have an alternative use for the goods or services to be delivered, e.g. products with a low degree of customisation, such sales will be rec- ognised at the point in time when control trans- fers to the customer, usually upon delivery. Revenue declined 20% due to a severe pandemic impact and a low Cement backlog entering the year Backlog DKKm Backlog maturity DKKm 0 3,000 6,000 9,000 12,000 15,000 18,000 2016 2017 2018 2019 2020 Backlog 10,316 9,519 2,585 4,313 1,291 1,042 0 3,000 6,000 9,000 12,000 15,000 18,000 2019 2020 Within next year Within next year +1 Later than next year +1 Revenue split on timing of revenue recognition principle 2020 2019 DKKm Mining Cement Group Mining Cement Group                         Total revenue 10,620 5,821 16,441 12,169 8,477 20,646 Key accounting judgements Judgement regarding performance obli- gations Judgement is performed when determin- ing if a contract for sale of projects, prod- ucts or services, or a combination hereof, involves one or more performance obliga- tions. The complexity arises when selling bun- dled goods and services, and the conse- quence of the key accounting judgement is related to the timing of revenue recog- nition, especially for point in time sales. Judgement regarding recognition method Judgements are made when determining if a project, product or service is recog- nised as revenue over time or at a point in time. The judgements relate to if we have an al- ternative use of the assets sold and if we have an enforceable right to payment throughout the contractual term. When assessing if an asset has no alter- native use we estimate the alternative use cost amount. We have limited historical data as we rarely redirect our assets. The estimate is based on the specifics of each contract. When assessing if we are entitled to pay- ment throughout the contract term, a judgement is made based on the contract wording, legal entitlement and profit esti- mates. FLSmidth  Annual report 2020 71 Consolidated financial statements Consolidated financial statements 1.4 REVENUE - continued Additionally, if we do not have an enforceable right to payment for work completed through-out the contract term, such sales will also be recog- nised at the point in time when the control trans- fers to the customer, usually upon customer ac- ceptance. In the case of significant uncertainties with the collectability of contract consideration, revenue is recognised upon cash receipt. Service sales (sale of service hours) are recog- nised over time, using the cost-to-cost method, as the customer receives and consumes the ben- efits as we perform the services. In determining the transaction price revenue is reduced by probable penalties, payment of liqui- dated damages and any other claims that are payments to our customers. The transaction price is also adjusted for any variable elements, where we estimate the amount of the variable transaction price. The variable amount is estimated at contract in- ception and re-estimated periodically throughout the contract term. The variable amount is recog- nised as revenue when it is highly probable that reversal will not occur. Warranties are granted in connection with the sale of equipment and systems and are classified as assurance-type warranties that are not ac- counted for as separate performance obligations. Please refer to section 2.7, Provisions, for ac- counting policy on warranties provisions. Revenue is recognised less rebates, cash dis- counts, value added tax and duties and gross of foreign withholding taxes. 1.5 STAFF COSTS The average number of employees in 2020 in the continuing activities was 11,567 (2019: 11,669). Staff costs consist of direct wages and salaries, remuneration, pension cost, share-based pay- ments, training, etc., related to the continuing ac- tivities. The decrease in staff costs are positively af- fected by decrease in currencies of approxi- mately DKK 200m. DKKm 2020 2019                  4,541 4,878                 4,541 4,878 During 2020 the remuneration of the Board of Directors and Group Executive Management was as follows: DKKm 2020 2019    Total remuneration of Board of Directors 6 6 DKKm 2020 2019                   Total remuneration of Group Executive Management 51 43 The number of members in Group Executive Management has in- creased from 2019 to 2020 Two members of the Group Executive Manage- ment are registered with The Danish Business Authority. During 2020, the registered members of the Group Executive Management have re- ceived remuneration as follows: DKKm 2020 2019                   Total remuneration of registered executives 19 25 Number of employees per region % Staff cost per region % Remuneration of Group Executive Management DKKm 16% 18% 25% 8% 5% 23% 5% North America South America Europe, North Africa, Russia Sub-Saharan Africa and Middle East Asia Subcontinental India Australia 25% 14% 37% 5% 4% 7% 8% North America South America Europe, North Africa, Russia Sub-Saharan Africa and Middle East Asia Subcontinental India Australia 0% 20% 40% 60% 80% 100% 2019 2020 Wages and salaries Bonus Benefits Severance package Incentive programmes FLSmidth  Annual report 2020 72 Consolidated financial statements Consolidated financial statements 1.5 STAFF COST - continued Each member of the Group Executive Manage- ment is, other than the base salary, entitled to customary benefits. Additionally, the members of Group Executive Management are eligible to par- ticipate in a short-term- and a long-term incentive programme. The short- and the long-term incen- tive programmes are capped at 75% and 100% of the annual base salary, respectively. In addition  tion, receive an additional incentive of up to 150% of the annual base salary, which can be cash and/or share based. The individual maxi- mum and target levels are fixed as part of the on- going remuneration adjustment cycle. The members of the Group Executive Manage-  termination of employment and severance pay- ment may correspond to a maximum of 6  For details related to the remuneration of the Board of Directors and Group Executive Manage- ment, please refer to the Remuneration Report 2020: www.flsmidth.com/RemunerationReport2020. 1.6 GOVERNMENT GRANTS Governments in many countries have introduced measures to support entities during the pan- demic. During 2020 we have been entitled to the following government grants and fulfilled the conditions attached to receiving the grants. The grants have primarily been received to compen- sate for salary expenses and the majority of the grants have been received in Switzerland, Den- mark, Germany and Italy. The COVID-19 related government grants have been included in the following line items in the income statements: DKKm 2020 2019          21 0 We have during 2020 received other govern- ment grants, which are not COVID-19 related. The grants are included in other operating in- come by DKK 24m (2019: DKK 26m). Accounting policy Government grants are recognised when there is reasonable assurance that the grant will be re- ceived and all attaching conditions will be com- plied with. The government grants will be recog- nised according to their purpose. Government grants intended to compensate for costs are recognised in the income statement over the periods in which the entity recognises the related costs. The government grant is de- ducted in the related expense. 1.7 SPECIAL NON-RECURRING ITEMS DKKm 2020 2019     Total special non-recurring items (24) 0 Costs for 2020 relate to closedown of produc- tion facilities in the US. Accounting policy Special non-recurring items consist of costs and income of a special nature in relation to the main activities of the continued activities, including closedown of facilities, gains and losses from ac- quisition and disposal of enterprises and activi- ties. FLSmidth  Annual report 2020 73 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                                       SECTION 2 CAPITAL EMPLOYED AND OTHER BALANCE SHEET ITEMS During 2020, we have acquired the businesses of Mill-Ore Group and Knowl- edgeScape Our Fabric Filter business and Möller Pneumativ Conveying Systems business are held for sale in accordance with the announcement on 30 December 2020 ROCE 5.1% CAPITAL EMPLOYED 14,520 DKKM FLSmidth  Annual report 2020 74 Consolidated financial statements Consolidated financial statements 2.1 RETURN ON CAPITAL EMPLOYED DKKm 2020 2019               Capital employed 14,520 15,870    Capital employed, average 15,195 15,251 Capital employed has decreased from last year, and the average capital employed has followed. The decrease was related to lower net working capital as well as investments in intangible as- sets, including goodwill, research and develop- ment projects and software. Assets classified as held for sale had an effect of DKK 71m decrease in net working capital and from that a DKK 35m on average capital employed. DKKm 2020 2019          ROCE, average 5.1% 10.9% Our return on capital employed is calculated based on average capital employed to reflect the annual development. ROCE has decreased dur- ing the year, driven by the decreased EBITA. 2.2 INTANGIBLE ASSETS Goodwill arising from business acquisitions is recognised in the financial statements. Carrying amount of goodwill decreased during 2020, de- spite the acquisitions of Mill-Ore Group and KnowledgeScape LLP. The decline is due to translation effects of foreign currencies. Patents and rights acquired through business ac- quisitions is recognised in the financial state- ments. The patents and rights include patents, trademarks, technology and other rights. Our intangible assets under development consist of research and development (R&D) projects and software. The transfer from intangible assets un- der development to completed development projects primarily relates to R&D projects final- ised in 2020. Much of the knowhow we generate originates from work performed for customers. In 2020, R&D costs totalled DKK 310m (2019: DKK 302m). The addition of intangible assets under develop- ment amounts to DKK 177m (2019: DKK 242m), where capitalised development cost accounts for DKK 150m (2019: DKK 142m). R&D costs not capi- talised are included in production costs. The re- maining capitalisation relates to IT related pro- jects. Internally generated cost capitalised amounts to DKK 115m (2019: DKK 98m). Other intangible assets consist of software and completed software implementation projects, whereas completed development projects pri- marily consist of R&D. Goodwill is considered to have an indefinite use- ful life. The carrying amount of goodwill per seg- ment is shown in note 2.3. Accounting policy Goodwill Goodwill is measured in the balance sheet at cost in connection with initial recognition. Subse- quently, goodwill is measured at cost less accu- mulated impairment losses. Goodwill is allocated to the cash generating units as defined by the Management. The determination of cash gener- ating units complies with the managerial struc- ture and the internal financial reporting in the Group. Goodwill is not amortised but is tested for impairment at least once a year or sooner if im- pairment indication arises. Intangible assets other than goodwill Patents and rights including trademarks, cus- tomer relations, and other intangible assets with a finite useful life are measured at cost less accu- mulated amortisation and impairment losses. Development projects, for which the technical rate of utilisation, sufficient resources and a po- tential future market or application in the Group, can be demonstrated and which are intended to be manufactured, marketed or used, are recog- nised as completed development projects. This requires that the cost can be determined and it is sufficiently certain that the future earnings or the net selling price will cover production, sales and administrative costs plus development costs. Other development costs are recognised in the income statement when costs are incurred. De- velopment costs consist of salaries and other costs that are directly attributable to develop- ment activities. Amortisation of completed development projects is charged on a straight line basis during their es- timated useful life. Development projects are written down for impairment to recoverable amount if lower. Development projects in pro- gress are not amortised but are tested for impair- ment at least once a year. Goodwill is considered to have indefinite useful life and is not amortised. For other intangible assets amortisation takes place systematically over the estimated useful life of the assets which is as follows:  Patents and rights, including trademarks, up to 30 years  Customer relations up to 30 years  Other intangible assets up to 20 years  Software applications up to 5 years  Development costs up to 8 years Change in accounting estimate In prior years trademarks, which are part of pa- tents and rights, were considered to have indefi- nite useful life. As part of our periodic reassess- ment of useful lives we have in 2020 estimated that the useful life for trademarks is not indefinite, but up to 30 years, as this better reflects the pe- riod in which we expect to gain benefits from the assets when considering all relevant factors. The change in accounting estimate has increased the amortisation in 2020 by 26m, which is largely the level expected going forward. Trademarks are tested for impairment as part of the CGUs to which they belong, refer to note 2.3. FLSmidth  Annual report 2020 75 Consolidated financial statements Consolidated financial statements 2.2 INTANGIBLE ASSETS  continued DKKm Goodwill Patents and rights Customer relations Other intangible assets Completed development projects Intangible assets under development Total                                                 Cost at 31 December 2020 4,194 2,108 1,832 850 1,164 299 10,447                                         Amortisation and impairment at 31 December 2020 0 (1,233) (1,366) (678) (930) 0 (4,207) Carrying amount at 31 December 2020 4,194 875 466 172 234 299 6,240 DKKm Goodwill Patents and rights Customer relations Other intangible assets Completed development projects Intangible assets under development Total                                                 Cost at 31 December 2019 4,376 2,118 1,963 765 1,035 362 10,619                                         Amortisation and impairment at 31 December 2019 0 (1,151) (1,354) (671) (832) 0 (4,008) Carrying amount at 31 December 2019 4,376 967 609 94 203 362 6,611 FLSmidth  Annual report 2020 76 Consolidated financial statements Consolidated financial statements 2.3 IMPAIRMENT OF ASSETS Result of annual impairment test We perform an annual impairment test of our in- tangible assets with indefinite useful life. In 2020 the test showed no impairment need (2019: DKK 0m). Intangible assets are primarily related to ac- quisition of enterprises and activities, software and research and development projects. When performing the annual impairment test of assets, an assessment is made as to whether the cash generating units to which assets are allocated will be able to generate sufficient positive net cash flow in the future to support the value of the assets. Management believes that no changes in the key assumptions are likely to reduce the headroom in any of the cash generating units to zero or less. Carrying amounts of intangible assets included in the impairment test are specified below: 2020 DKKm Mining Cement Group                           Total 5,374 866 6,240 Cash generating units The cash generating units equal our operating and reportable segments, Mining and Cement, these being the smallest group of assets which together generate incoming cash flow from con- tinued use of the assets and which are independ- ent of cash flow from other assets or groups of assets. The definition of the cash generating units is reconsidered once a year, and the defini- tion is unchanged compared to last year. Key assumptions An estimate is made of the present value of the future free net cash flow based on budgets and strategy for the coming eight years as well as projections for the terminal period. The eight year period is used to better reflect the business cycle. Significant parameters in these estimates are discount rate, revenue growth, EBITA margin, expected investments and growth expectations for the terminal period. The discount rate applied reflects the latest mar- ket assumptions for the risk-free rate based on a 10-year Danish government bond, the equity risk premium and the cost of debt. The expected annual growth rate and the ex- pected margins in the budget period are based on historical experience and the assumptions about expected market developments as de- tailed above. From 2028 and onwards, the long- term growth rate for the terminal period is based on the expected growth in the world economy, specifically for the industries. Due to the current negative interest rate environ- ment, a conservative approach regarding the long-term growth rate for the terminal period has been applied. This methodology has been ap- plied to ensure consistency with the level of the risk-free rate applied as a basis for the estimation of discount rate (WACC) and the long-term growth rate. Based on these factors, a long term annual growth rate for the terminal period of 1.5% has been applied. Investments reflect both maintenance and ex- pectations of organic growth. Key assumptions Mining Cement                      FLSmidth  Annual report 2020 77 Consolidated financial statements Consolidated financial statements 2.3 IMPAIRMENT OF ASSETS - continued Mining The COVID-19 pandemic has impacted the global economy across industries, but the mining indus- try has remained relatively resilient during the course of 2020 with the majority of mines opera-  mine sites were shut down in April, but nearly all sites have restarted production and most sites run with high production rates. Mines are, how- ever, often remotely located and to protect em- ployees and safeguard production, many cus- tomers are still enforcing safety protocols and do not permit site access to external service provid- ers, which impacts their equipment and service spend. With infection cases currently surging in many parts of the world, it is still difficult to pre- dict the shape of the recovery curve. It is, how- ever, expected that the pandemic will continue to impact the industry in the first half of 2021. On the positive side, commodity prices have re- bounded strongly from the spring when the first pandemic wave hit, and the industry is expected to recover to pre-pandemic activity levels within a relatively short time horizon. All things consid- ered, the pandemic has disrupted the mining in- dustry to a lesser degree than many other indus- tries. For 2021, the Mining business revenue and EBITA are expected to grow in the second half of the year as COVID-19 restrictions are expected to ease. The outlook for investments in mining remains positive, and we have a healthy pipeline of both larger and smaller opportunities. Further, the switch to green energy and electric powered transportation will require a massive increase in infrastructure and the mining industry will need to scale up investments in copper, battery metals and other minerals to meet this growing demand. Cement The cement market was subdued already enter- ing 2020 and has been severely impacted by the pandemic in 2020. Following shutdown of about  China in April, the share of cement plants in operation has climbed back up above 95% at the end of the year. However, many plants continue to run at reduced capacity and sites are often dif- ficult to access due to restrictions and preventa- tive measurements taken by authorities and plant operators. The Cement business revenue is ex- pected to decline further in 2021, and as a con- sequence, initiatives to reshape the Cement business will continue during the year. The Ce- ment business is not expected to be EBITA posi- tive in 2021 due to continued Cement reshaping costs and low capacity utilisation in the service business until the pandemic eases. We do not anticipate a recovery in the short- to medium-term but the large economic stimulus programmes that have been announced in parts of the world, combined with an increasing focus on lower-carbon cement production, is expected to create good opportunities in the mid- to long- term. The timing and extent of such rebound re- main uncertain but during the last weeks of 2020, the EU Commission agreed on a 55% re- duction target of greenhouse gas emissions by 2030, and a budget that allows for a green re- covery following COVID-19 restrictions. The green recovery will fuel demand for emission-re- ducing technologies and the cement industry will need to undertake substantial investments to meet recent commitments to carbon neutrality by the Global Cement and Concrete Association and the European Cement Association. Sensitivity analysis Based on current assumptions we see no impair- ment indications, and our key assumptions are not sensitive to reasonable changes to an extent that will result in an impairment loss neither indi- vidually nor in combination. Accounting policy Goodwill and intangible assets not yet available for use are tested for impairment at least once a year, irrespective of whether there is any indica- tion that they may be impaired. Assets that are subject to amortisation, such as intangible assets in u and other non-current assets are reviewed for impairment whenever events or changes in cir- cumstances indicate that the carrying amount may not be recoverable. Factors that could trigger an impairment test in- clude the following:  Changes of R&D project expectations  Lower than predicted sales related to particular technologies  Changes in the economic lives of similar assets  Relationship with other intangible assets or property, plant and equipment For impairment testing, assets are grouped into the smallest group of assets that generates largely independent cash inflows (cash generat- ing unit) as determined based on the manage- ment structure and the internal financial report- ing. If the carrying amount of intangible assets ex- ceeds the recoverable amount based on the ex- istence of one or more of the above indicators of impairment, any impairment is measured based  are reviewed at each reporting date for possible reversal. Impairment of goodwill is not reversed. Recogni- tion of impairment of other assets is reversed to the extent that changes have taken place in the assumptions and estimates that led to the recog- nition of impairment. FLSmidth  Annual report 2020 78 Consolidated financial statements Consolidated financial statements 2.4 PROPERTY, PLANT AND EQUIPMENT Land and buildings with a carrying amount of DKK 48m (2019: DKK 48m) are pledged against mortgage debt of DKK 256m (2019: DKK 273m). Accounting policy Property, plant and equipment are measured at cost less accumulated depreciation and impair- ment losses. The cost of self-constructed assets includes the cost of materials and direct labour costs. Depreciation is charged on a straight-line basis over the estimated useful life of the assets until they reach the estimated residual value. Estimated useful life is as follows:  Buildings, 20-40 years  Plant and machinery, 3-15 years  Operating equipment and fixtures and fittings, 3-15 years  Leasehold improvements, mainly related to land and buildings, up to 5 years or following the corresponding lease agreement Land is not depreciated. Newly acquired assets and assets of own con- struction are depreciated from the time they are available for use. Where acquisition or use of the asset places the Group under an obligation to incur the costs of re-establishing the asset, the estimated costs for this purpose are recognised as part of the cost of  useful life. 2020 2019 DKKm Land and buildings Plant and machinery Operating equipment, fixtures and fittings Property, plant and equipment under construction Total Land and buildings Plant and machinery Operating equipment, fixtures and fittings Property, plant and equipment under construction Total                                                                                     Cost at 31 December 2,306 1,543 892 137 4,878 2,498 1,620 1,000 80 5,198                                                                                     Depreciation and impairment at 31 December (892) (1,174) (803) 0 (2,869) (923) (1,181) (894) 0 (2,998) Carrying amount at 31 December 1,414 369 89 137 2,009 1,575 439 106 80 2,200 FLSmidth  Annual report 2020 79 Consolidated financial statements Consolidated financial statements 2.5 LEASES We are party to several lease contracts as les- see, by which we lease offices, warehouses, manufacturing facilities and vehicles. We enter into lease contracts due to the flexibility it pro- vides as it may ease the scalability to always adapt the asset base to the operational activity. The majority of the lease assets relate to land and buildings and the lease contracts are typi- cally made for fixed periods of 1 to 10 years, with a weighted average lease term of 5 years. The average discount rate applied for land and build- ings is 3.13% at the end of 2020 (2019: 3.66%). In some property lease contracts extension and termination options are included. These are used to maximise operational flexibility in terms of  tions. The amounts included in the income statement related to expensed leases are presented at the bottom of the page. Depreciation on lease assets amounted to DKK 124m (2019: DKK 112m) and write downs on as- sets held for sale DKK 4m (2019: DKK 0m). Inter- est on lease debt was DKK 11m (2019: DKK 12m), see note 5.4. During 2020 we have had total cash outflow for leases of DKK 131m (2019: DKK 118m), of which DKK 11m (2019: DKK 12m) was interest related to leases (included in CFFO) and DKK 120m (2019: DKK 106m) repayment of lease debt (included in CFFF). Please refer to note 5.8 Financial assets and liabilities for maturity analysis of lease liabili- ties. Further to the above cash outflow DKK 11m (2019: DKK 15m) was included in CFFO for costs relating to short term, low-value and variable lease pay- ments not recorded on the balance sheet. During 2019, we entered into a contingent sale and leaseback transaction of the headquarters in Valby, Denmark. In light of the COVID-19 pan- demic, plans are being revisited, please refer to note 2.9 Contractual obligation for further infor- mation. We are not party to any significant lease con- tracts as lessor. 2020 2019 DKKm Land and buildings Plant and machinery Operating equipment Total Land and buildings Plant and machinery Operating equipment Total                                                                                            Carrying amount at 31 December 260 9 43 312  260 8 44 312 DKKm 2020 2019           Expensed lease costs in the income statement 11 15           Expensed lease costs in the income statement 11 15 FLSmidth  Annual report 2020 80 Consolidated financial statements Consolidated financial statements 2.5 LEASES - continued Accounting policy Assets and liabilities arising from a lease are ini- tially measured on a present value basis. Lease liabilities include the net present value of the payments, which are fixed or variable dependent on an index or a rate. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the lease asset. Service components are excluded from the lease liability. The lease payments are discounted using an in- cremental country specific borrowing rate, based  margin. The lease payments have been split into an inter- est cost and a repayment of the lease liability. Lease assets are measured at cost comprising the following:  the amount of the initial measurement of lease liability  any lease payments made at or before the commencement date less any lease incentives received  any initial direct costs, and  restoration costs The lease assets are depreciated over the term of the lease contract on a straight-line basis. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The following factors are normally the most rele- vant:  How the asset supports the direction of the group, from a strategic standpoint, location of the asset, timing of the option being exercisa- ble  If there are significant penalties to terminate (or not extend), the group is typically reasonably certain to extend (or not terminate)  If any leasehold improvements are expected to have a significant remaining value, the group is typically reasonably certain to extend (or not terminate) Payments associated with short-term and low value leases are recognised on a straight-line ba- sis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture at a low value. 2.6 INVESTMENTS IN ASSOCIATES Investments in associates includes investment in Intertek Robotic Laboratories Pty Ltd, Australia, with a 50% share. The investment is accounted for in accordance with the equity method. Although we hold 50% of the shares and voting rights, we do not share the control, hence the investment is not treated as a joint venture. As we do have significant influence the investment is treated as an investment in as- sociates. Name of activity acquired Country Date of acqui- sition Owner- ship interest Voting share         The primary activity of the company is to provide automated and robotic sample preparation, fu- sion and analytical testing services, including the procurement, construction and commissioning of laboratories. DKKm 2020 2019                Carrying value at 31 December 159 165 Financial information of 100% of Intertek Robotic Laboratories Pty Ltd, prepared in accordance with FLSmidth accounting policies, is as follows : DKKm 2020 2019                            Equity 176 188     DKKm 2020 2019       Carrying value at 31 December 159 165 FLSmidth  Annual report 2020 81 Consolidated financial statements Consolidated financial statements 2.7 PROVISIONS Provisions are liabilities of uncertain timing or amount. Our provisions consist of:  Provision for warranty claims in respect of goods or services already delivered  Provisions for cost related to restructuring  Provisions for loss-making contracts (included in other provisions)  Provisions for losses resulting from disputes and lawsuits (included in other provisions)  Provisions for indirect tax risks (included in other provisions) Total provisions are at the same level as last year. Warranty provisions have decreased to DKK 496m at 31 December 2020. The decrease is mainly a result of the lower activity and products running out of the warranty period, resulting in a reversal of the unused warranty provision. Restructuring provisions have increased slightly to DKK 60m due to the continued restructuring measures in right-sizing the organisation. Other provisions have increased to DKK 459m due to additional uncertainties in the execution of the project portfolio. The uncertainties have in- creased the expected cost level, hence an in- creased level of loss-making contracts. Addition- ally, the provisions relate to ongoing legal disputes, including provisions related to discon- tinued activities. The level of used and reversed provision is largely unchanged from last year.  shown below. The provisions from continued and discontinued activities add up to our total provi- sions. In cash flow the changes in provisions are com- bined with the changes in pensions and em- ployee benefits. The changes in provisions, pen- sions and employee benefits have the following cash flow effect as an adjustment-amount to re- ported profit in the income statement: DKKm 2020 2019          Cash flow effect 63 (230) 2020 2019 DKKm Warranties Restructuring Other Total Warranties Restructuring Other Total                                                                        Provisions at 31 December 496 60 459 1,015 578 40 400 1,018 Key accounting estimates Estimated warranty provision When estimating the warranty provision we take into consideration several years of warranty cost information, any spe- cific project related risks, knowledge about defects and functional errors in the product portfolio, risks associated with newly launched products as well as customer losses in connection with sus- pension of operation. We include all of these factors as relevant, to estimate a warranty provision that to the best of our knowledge reflects our responsibil- ity towards our customers in the future. DKKm 2020 2019                      Continued activities share of Group provisions 833 807 FLSmidth  Annual report 2020 82 Consolidated financial statements Consolidated financial statements 2.7 PROVISIONS  continued Accounting policy Provisions are recognised when we, due to an event occurring before or at the balance sheet date, have a legal or constructive obligation and outflow of resources is expected to settle the ob- ligation. Provisions for warranty claims are estimated on a project-by-project basis based on historical real- ised cost related costs of completion, subse- quent warranty supplies and unsettled claims from customers or subcontractors. Provisions for restructuring costs are made only if the restructuring has been decided at the bal- ance sheet date in accordance with a specific plan, and only provided that the parties involved have been informed about the overall plan. The cost of loss-making projects covering pro- jects expected to result in a loss, is recognised immediately in the income statement. Losses not yet incurred are provided for as other provisions. Provisions regarding disputes and lawsuits are  outcome settling the cases based on the infor- mation at hand at the balance sheet date. 2.8 PENSION OBLIGATIONS Defined contribution plans The majority of our pension plans are defined contribution plans and we have no further pay- ment obligations once the contributions are paid. Under these pension plans, we recognise regular payments, e.g. a fixed amount or a fixed percent- age of the salary. Pension costs related to de- fined contribution plans are recognised in staff costs (note 1.5) and amounted to DKK 439m (2019: DKK 596m). Defined benefit plans We also have defined benefit plans where the re- sponsibility for the pension obligation towards the employees rests with us. Under a defined benefit plan, we have an obligation to pay a spe- cific benefit, e.g. retirement pension in the form of a fixed proportion of the exit salary. Under these plans, we carry the risk in relation to future developments in interest rates, inflation, mortal- ity, etc. A change in the assumptions upon which the calculation is based results in a change in the actuarial present value. In the event of changes in the assumptions used in the calculation of de- fined benefit plans for existing and former em- ployees, actuarial gains and losses are recog- nised in other comprehensive income. The majority of the total pension obligations are partially funded with assets placed in pension funds and through insurance. In 2021 we expect to make a contribution to the defined benefit plans of DKK 8.5m (2020: 4.6m). The weighted average duration of the obligations is 13 years (2019: 13 years). 2020 2019 DKKm Present value of pension obligations Fair value of plan assets Net obligations Present value of pension obligations Fair value of plan assets Net obligations                                 Recognised in the income statement (51) 20 (31) (87) 26 (61)                  Recognised in other comprehensive income (66) 47 (19) (126) 82 (44)                                         Other changes 139 (105) 34 61 (39) 22                 Value at 31 December (1,127) 749 (378) (1,152) 787 (365)     FLSmidth  Annual report 2020 83 Consolidated financial statements Consolidated financial statements 2.8 PENSION OBLIGATIONS  continued Actuarial assumptions applied (weighted): 2020 2019        Sensitivity analysis Below shows a sensitivity analysis based on changes in the discount rate, all other things be- ing equal. A change in the discount rate will result in the fol- lowing changes in the net pension obligation: DKKm 2020 2019       Accounting policy Contributions to defined contribution plans are recognised in staff costs when the related ser- vice is provided. Any contributions outstanding are recognised in the balance sheet as other lia- bilities. For defined benefit plans, annual actuarial calcu- lations are made of the present value of future benefits payable under the pension plan using the projected unit credit method. The present value is calculated based on as- sumptions about future developments in varia- bles such as salary levels, interest, inflation and mortality rates. The present value is only calcu- lated for benefits earned by the employees through their employment with the Group to date. The actuarial calculation of present value less the fair value of any plan assets is recog- nised in the balance sheet as pension obliga- tions. The pension costs for the year, based on actuar- ial estimates and financial forecasts at the begin- ning of the year, are recognised in the income statement. The difference between the forecast development in pension assets and liabilities and the realised values is called actuarial gains or losses and is recognised in the statement of comprehensive income through other compre- hensive income. If a pension plan constitutes a net asset, the as- set is recognised only to the extent that it equals the value of future repayments under the plan or it leads to a reduction of future contributions to the plan. Pension contributions by plan types % Pension obligations by country % Fair value of plan assets by Instruments 0% 20% 40% 60% 80% 100% 2019 2020 Defined contribution plans Defined benefit plans 0% 20% 40% 60% 80% 100% 2019 2020 USA Switzerland Germany India Other 0% 20% 40% 60% 80% 100% 2019 2020 Equity instruments Debt instruments Other assets FLSmidth  Annual report 2020 84 Consolidated financial statements Consolidated financial statements 2.9 CONTRACTUAL OBLIGATIONS AND CONTINGENT ASSETS AND LIABILITIES Sale and leaseback of headquarters FLSmidth has entered into a conditional agree- ment to sell all and lease back part of its head- quarters in Valby, Denmark. In light of the COVID-19 pandemic, the 2020 business adjust- ments, the increased degree of flexible working arrangements and an expected slow recovery within cement, it has been decided to revisit the plans for the headquarter in Valby. All possibili- ties will be revisited, including amongst others whether to sell part of the property and renovate the existing buildings or look to find a headquar- ter somewhere else in the Copenhagen area. The parties involved in the conditional agree- ment are currently exploring the possibilities, and the timing and outcome of the agreement is therefore uncertain. Contractual commitments As part of our digital strategy, FLSmidth has made a fund investment in Chrysalix, a venture capital firm that specialises in transformational in- dustrial innovation. Our participation provides priority access, builds capabilities and shares risk when working with early stage start-ups across the globe. Our objec- tive of engaging with disruptive and deep tech- nology start-ups is to create differentiated value propositions and accelerate being Productivity Provider #1, while delivering strategic and finan- cial returns. We have made a capital commitment of USD 10m. The capital can be called up until 2029, in- vestment period being the first 5 years. The tim- ing and amounts of each capital call are uncer- tain. The undrawn part of the capital commitment at 31 December 2020 amounted to DKK 52m (2019: DKK: 62m). Contingent assets In a customer contract, our customer failed to meet its obligations to an extent that has caused material breach of the contract. An arbitration case has been settled in our favour in 2020 and during 2020 we have received payments ac- cording to the settlement agreement and have recognised DKK 34m in the income statement. Guarantees To cover project-related risks, such as perfor- mance, payment, quality and delay, we issue usual security in the form of performance and payment guarantees for projects and supplies to- wards our customers. At 31 December 2020, the value of issued guarantees amounted to DKK 2,376m (2019: DKK: 2,474m). In the event a guar- antee is expected to materialise, a provision is recognised to cover the risk. Other contingent liabilities We are involved in legal disputes, certain of which are already pending with courts or other authorities and others of which some may or may not lead to formal legal proceedings being insti- gated against us, including by public authorities. The outcome of such proceedings and disputes is by nature unknown, but is not expected to have significant impact on our financial position. Other contingent liabilities amount to DKK 284m (2019: DKK 333m). 2.10 BUSINESS ACQUISITIONS On 31 January 2020, FLSmidth acquired the business Mill-Ore Group, an Eastern Canadian provider of equipment and aftermarket services to the mining industry. The acquisition is part of our long-term commitment to increase the level of service and support to our customers in East- ern Canada. On 30 October 2020, FLSmidth acquired the business KnowledgeScape LLC, a US-based de- veloper of software, smart sensors and real time image analysis. KnowledgeScape develops digi- tal solutions aimed at increasing the efficiency of mining processing plants. This transaction allows FLSmidth to deliver a wider range of benefits to its mining customers. These benefits include in- creased productivity in processing plants and re- duced consumption of power, water and rea- gents. Following the acquisitions of the Mill-Ore and KnowledgeScape businesses we are working on realising the synergies between the aftermarket and digital initiatives of FLSmidth and the Mill- Ore aftermarket footprint and the Knowledge- Scape digital solutions to further enhance mining processing efficiency. All enabling a greater value to our customers. 2020 Name of activity acquired Primary activity Date of consoli- dated from Owner- ship interest Voting share             2019 Name of activity acquired Primary activity Date of consoli- dated from Owner- ship interest Voting share        Both acquisitions are integrated into the Mining segment. Mill-Ore has been included in the con- solidated financial statement from 1 February and KnowledgeScape since 30 October 2020. In 2019 the IMP business was integrated into the Mining segment and was included in the consoli- dated financial statement from 1 June  31 De- cember 2019. The acquisitions have in the acquisition year im- pacted the financials as follows: DKKm 2020 2019          FLSmidth  Annual report 2020 85 Consolidated financial statements Consolidated financial statements 2.10 BUSINESS ACQUISITIONS  continued Acquisition related costs amounted to DKK 1m (2019: DKK 5m) and are recognised in the in- come statement as administrative cost. Had the acquired activities been included in the consolidated financial statements from 1 January 2020, the revenue and net profit would have been positively impacted by DKK 75m (2019: DKK 182m) and 25m (2019: DKK 13m), respec- tively, for the full year. The assets and liabilities in the opening balance are measured using the information available at the date for issuing the annual report. The pur- chase price allocations have not been finalised due to possible reassessment within 12 months of the acquisition. If new information becomes available this could affect the calculated values. We expect the total amount of goodwill to be de- ductible for tax purposes. Accounting policy Newly acquired or newly established businesses are included in the consolidated financial state- ments from the acquisition date or formation. The acquisition date is the date when control of the business is transferred to the Group. Upon acquisition of the business of which we ob- tain control, the acquisition method is applied, according to which the identified assets, liabilities and contingent liabilities are measured at their fair values. The acquisition cost/income of an enterprise con- sists of the fair value of the consideration paya- ble/receivable. This includes the fair value of the consideration already paid/received, the de- ferred consideration and the contingent consid- eration. Any subsequent adjustment of contingent con- sideration is recognised directly in the income statement, unless the adjustment is the result of new information about conditions prevailing at the acquisition date, and this information be- comes available up to 12 months after the acqui- sition date. Transaction costs are recognised directly in the income statement when incurred as administra- tive costs. When acquisition costs differ from the fair values of the assets, liabilities and contingent liabilities identified on acquisition, any positive differences (goodwill) are recognised in the balance sheet under intangible assets and any negative differ- ences (negative goodwill) are recognised in the income statement as a special non-recurring item. If, on the acquisition date, there are any uncer- tainties with respect to identifying or measuring acquired assets, liabilities or contingent liabilities or uncertainty with respect to determining their cost, initial recognition will be made on the basis of estimated values. Such estimated values may be adjusted, or additional assets or liabilities may be recognised up to 12 months after the acquisi- tion date, if new information becomes available about conditions prevailing on the acquisition date, which would have affected the calculation of values on that day, had such information been known. DKKm IMP Automation Group Mill-Ore Group Knowledge- Scape L.L.C. Net assets acquired 2020 Net assets acquired 2019                                                                                     Carrying amount of net assets acquired 0 27 12 39 311       Transaction price 0 41 56 97 378                   Net cash effect 8 41 50 99 287  FLSmidth  Annual report 2020 86 Consolidated financial statements Consolidated financial statements 2.11 DISCONTINUED ACTIVITIES On 9 January 2019, we announced an agree- ment to sell the non-mining bulk material han- dling business to Rainbow Heavy Machineries. The agreement closed and became effective 31 January 2019. The transaction included transfer of employees, brand, Intellectual Property Rights and order pipeline. Under the sales agreement we retain the respon- sibility to finalise legacy projects. The projects were from a revenue perspective completed at year end 2018. Subsequent handling of claims and collection activities are expected to be final- ised during 2021. Accordingly, the discontinued activities reported include the ceased non-mining bulk material han- dling business. Discontinued activities effect on cash flow from operating activities is presented below. Please refer to segment note 1.2 for full disclo- sure of income statement including loss for the year for discontinued activities. Discontinued activities are not expected to gen- erate any significant net cash flow in 2021. The expectations are based on a net working capital balance of DKK 220m (2019: DKK 227m), provi- sions of DKK 182m (2019: DKK 211m) and moder- ate SG&A cost. There can, however, be a timing difference between cash paid and cash received related to the outstanding net working capital and provision balances. Cash flow from discontinued operating activities totalled DKK -52m (2019: DKK -191m). Cash flow from net working capital from discon- tinued activities amounted to DKK -18m (2019: - 58m), as net working capital related to discontin- ued business decreased from DKK 227m end of 2019 to DKK 220m end of 2020. Loss for the period from discontinued activities total DKK -21m (2019: DKK -22m), primarily con- sisting of SG&A cost. Discontinued act sions: DKKm 2020 2019                  Provisions 182 211 Accounting policy Discontinued activities comprise disposal groups, which have been disposed of, ceased or are classified as held for sale and represents a sepa- rate major line of business or geographical area. Discontinued activities are presented in the in- come statement as follows: profit/loss for the year, discontinued activities. The item consists of operating income after tax from discontinued ac- tivities. Disposal of the assets related to the dis- continued activities and adjustments hereto are likewise presented as discontinued activities. In the consolidated cash flow statement, cash flow from discontinued activities is included in cash flow from operating, investing and financing activities together with cash flow from continuing activities. DKKm 2020 2019       Adjusted EBITDA (15) (16)       Cash flow from operating activities before financial items and tax (48) (182)       Cash flow from operating activities (52) (191) FLSmidth  Annual report 2020 87 Consolidated financial statements Consolidated financial statements 2.12 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE During December 2020, we entered into agree- ments to sell our fabric filter business and our Möller pneumatic conveying systems business. Consequently, the assets and liabilities related to the activities are reclassified as held for sale. All impacted activities will continue to be included in our continued activities, until the transactions close. The sale of Möller pneumatic conveying systems business will close 1 January 2021, whereas the fabric filters business is expected to close during the first half of 2021. Upon reclassifying the assets and liabilities to held for sale we have revalued the net assets held for sale at fair value less cost to sell. The impairment loss amounts to DKK 4m and is recognised in continued business as an impair- ment of lease assets. We have in 2020 received prepayment related to the disposal of the Möller pneumatic convey- ing systems business of DKK 62m. DKKm 2020 2019                   Carrying amount of assets classified as held for sale 124 0                      Liabilities directly associated with assets classified as held for sale 91 0 Net assets classified as held for sale 33 0 Accounting policy Non-current assets as well as assets and liabili- ties expected to be sold as a group in a single transaction are classified as held for sale, if their carrying value is likely to be recovered by sale within 12 months in accordance with a formal plan. Assets held for sale are measured at the lower of the carrying value and the fair value less costs to sell. Assets are not depreciated from the time they are reclassified as held for sale. FLSmidth  Annual report 2020 88 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                      SECTION 3 WORKING CAPITAL NET WORKING CAPITAL 1,752 DKKM NET WORKING CAPITAL  36% FLSmidth  Annual report 2020 89 Consolidated financial statements Consolidated financial statements 3.1 NET WORKING CAPITAL DKKm 2020 2019                                  Net working capital 1,752 2,739 DKKm 2020 2019                          Cash flow effect 706 (448) Net working capital at 31 December 2020 de- creased due to decreasing activity in 2020, sig- nificant reduction in trade receivables and lower level of net work in progress. The reductions were partially offset by a lower level of trade pay- ables including supply chain finance (refer to note 3.6) and prepayments from customers. As part of managing the challenges during 2020 we took the following actions during the year re- lated to the managing of inventories:  Ensuring a sound inventory turn with a strict fo- cus on inventory ageing  Clear split between inventory specifically dedi- cated for orders and inventory available for sale The active measures taken during 2020 reduced the inventory level by the end of the year. On the trade receivables we managed the in- creased credit risk by taking the following actions during the year, which all contributed to a strong cash collection during 2020 and a reduced trade receivables balance by the end of 2020:  Reassessment of customer payment terms  Renegotiation of payment terms with our large project customers and suppliers where the cash flows were imbalanced  Increased focus on cash collection Currency impacts reduced the net working capi- tal balance at 31 December 2020 by DKK 158m. The reclassification of assets and liabilities to held for sale has reduced the net working capital by DKK 71m (2019: DKK 0m). 3.2 INVENTORIES Inventory net of impairment is specified as fol- lows: DKKm 2020 2019           Inventories 2,368 2,714 Impairment of inventories: DKKm 2020 2019                    Impairment at 31 December 272 315 Inventory level has decreased 14% in 2020 due to high focus on cash management and less pro- duction to orders at year-end compared to last year. Accounting policy Inventories are measured at cost based on weighted average cost prices. In the event that cost of inventories exceeds the expected selling price less cost of completion and selling costs, the inventories are impaired to the lower net realisable value. The net realisable value of inventories is measured as the expected sales price less costs of completion and costs to finalise the sale. Key accounting estimates Estimated valuation of inventories When assessing the net realisable value of inventories we take marketability, obsolescence and development in expected selling prices into account. Also inventory turnover, quantities and the nature and condition of the inventory items including the classification as strategic in- ventory are considered in the assessment. We include all of these factors as relevant, to en- sure that our inventory is reflected at the value to which we expect to realise it to in the future, if lower than cost. During 2020 we have applied a consistent methodology to assess the need for any inventory impairments. The COVID-19 disruptions to the value chain have been considered in the valua- tion of inventories. FLSmidth  Annual report 2020 90 Consolidated financial statements Consolidated financial statements 3.2 INVENTORIES  continued Impairment assessment of the inventory is per- formed item by item including:  Test for slow moving stock  Test for aging of inventory  Assessment of expected market (pricing and market potential)  Assessment of strategic inventory items Obsolete items are impaired to the value of zero. Management considers part of the inventories as strategic. Strategic items are held in inventory, even if slow moving, because they are consid- ered key equipment to the customers, that we need to be able to deliver with very short notice. Raw materials and consumables include pur- chase costs of materials and consumables, du- ties and freight. Work in progress, finished goods and goods for resale include cost of manufactur- ing including materials consumed and labour costs plus an allowance for production over- heads. Production overheads include operating costs, maintenance of production facilities as well as administration and factory management di- rectly related to manufacturing. 3.3 TRADE RECEIVABLES Our trade receivables relate to the sale of both service and capital business. Trade receivables net of impairment are speci- fied according to ageing as follows: DKKm 2020 2019                Trade receivables 3,453 5,068         Impairment of trade receivables specified ac- cording to aging is shown below: The impairment in 2020 is based on historical observed default rates adjusted for estimates of uncertainties in project related activities and mar- ket conditions. Impairment of trade receivables: DKKm 2020 2019                Impairment at 31 December 317 339 Accounting policy Trade receivables are initially measured at fair value and subsequently measured at amortised cost. A credit loss allowance is made upon initial recognition based on historical observed default rates adjusted for forward looking estimates. The cost of the credit loss allowances is included in administration costs. A loss is considered real- ised when it is certain that we will not recover the receivable, e.g. in case of bankruptcy or similar. Key accounting estimates Estimated level of expected losses When estimating the level of receivables that in the future is expected not to be collected we take the following infor- mation into account; historical losses on receivables, ageing of the receivables, access to payment securities and possi- bilities to off-set assets against claims. When doing the assessment we also evaluate the expected development in macro-economic and political environ- ments that could impact the recoverabil- ity. With the uncertainties in 2020 we have made estimates of our expectation to the future losses on receivables by applying a consistent methodology. The calcula- tion of expected credit losses (ECL) incor- porate forward-looking estimates. These estimates are mainly based on historical input, but due to the current unprecedent situation the forward-looking estimate in- cludes more uncertainty as no objective data exists. The forward-looking estimate has in- creased compared to the end of 2019. The increase is based on an assessment of a deterioration in credit risk in an un- certain global market due to the length and magnitude of the pandemic. 2020 2019 DKKm Expected default rate Gross carrying amount Impairment  Expected default rate Gross carrying amount Impairment                                        Total 3,770 317  5,407 339 FLSmidth  Annual report 2020 91 Consolidated financial statements Consolidated financial statements 3.4 WORK IN PROGRESS DKKm 2020 2019       Work in progress 30,179 32,145        Net work in progress 341 1,034              Net work in progress 341 1,034 The work in progress balance can change from being presented as an asset in one period to be- ing presented as a liability in the next period de- pending on the project execution plan and in- voicing structure for each transaction. In addition to the invoicing on account to custom- ers we have received prepayments from custom- ers of DKK 1,266m (2019: DKK 1,768m), which are recognised separately in the balance sheet as current and non-current liabilities. When assessing impairment on the work in pro- gress net balances we evaluate on a project by project basis. If an impairment on a project is probable we recognise the expected loss and a related provision. Accounting policy Work in progress consists of contract assets and contract liabilities for contracts with customers where revenue is recognised over time. The contracts recognised as work in progress are recognised as revenue when the outcome of the contracts can be estimated reliably. The percentage of completion is calculated based on a cost-to-cost basis (input method) and is the ratio between the cost incurred and the to- tal estimated cost. The contracts are measured at the selling price of the work performed less progress billings and expected losses. The selling price is the total expected income from the individual contracts. If variability is in- cluded in the selling price we use the most likely amount method. An expected loss is recognised when it is deemed probable that the total contract costs will exceed the total revenue from individual con- tracts. The expected loss is recognised immedi- ately as a cost and a provision. When the selling price of the work performed ex- ceeds progress billings and expected losses, work in progress is presented as an asset. When progress billings and expected losses ex- ceed the selling price of the work performed, work in progress is presented as a liability. Prepayments from customers are recognised as a liability. Key accounting estimates Estimated total cost to complete We estimate the total expected costs for our contracts. The estimates primarily relate to the level of contingencies to cover unforeseen costs, such as cost changes due to changes in fu- ture supplies of raw materials, subcontractor products and services as well as unforeseen costs related to execution and hand-over. The estimates are based on the specifics for each contract while taking historical data into ac- count. For contracts sold to customers in politically and economically unstable countries, the estimates include additional risk coverage due to a higher level of uncertainty. With the added complexity to project management and project execution during 2020, the un- predictable development in the imposed restrictions and the challenges throughout the value  data to the same extent as usual. We have based on a project by project review assessed in- creases in expected cost as well as additional risk contingencies to cover the higher uncer- tainty. Estimated variable transaction price The selling price in operation & maintenance contracts is usually dependent on the productiv- ity of the plant. We estimate the productivity of the plant and the estimates are based on the specific conditions of the individual contract as well as historical levels of productivity. During 2020 the site restrictions and operations running at reduced capacity has imposed un- certainty to the estimate of the variable transaction price and the historical levels of productiv- ity has been used as basis to a lower extent than usual. Instead estimates have been based on most likely scenarios for site accessibility and productivity levels, while ensuring safety precau- tions are met. The site and travel restrictions combined with a more difficult supply chain has also imposed uncertainty to meeting contractual obligations in a timely manner which has caused a risk of penalties. We have based on a project by project review assessed the risk of penalties and means to reduce the risk. FLSmidth  Annual report 2020 92 Consolidated financial statements Consolidated financial statements 3.5 OTHER RECEIVABLES DKKm 2020 2019             Other receivables 868 804 3.6 TRADE PAYABLES To improve the relationship with our suppliers and minimise the finance cost in the value chain, we facilitate a supply chain financing programme hosted by a credit institute. When participating in this programme, the supplier has the option to receive early payment from the credit institution based on the invoices approved by us through a factoring arrangement between the supplier and the credit institution, where the invoices are transferred to the credit institution without re- course. The amounts payable to suppliers included in the supply chain financing programme are classified as trade payables in the balance sheet as well as in the cash flow statement (working capital within cash flow from operations). The trade payables covered by the supply chain financing pro- gramme arise in the ordinary course of business from supply of goods and services and amounted to DKK 273m at 31 December 2020 (2019: DKK 1,083m). Utilisation of supply chain fi- nancing decreased during 2020, driven by a combination of the lower level of activity and by a lower share of Cement business relative to Mining. 3.7 OTHER LIABILITIES DKKm 2020 2019                Other liabilities 1,431 1,499 FLSmidth  Annual report 2020 93 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                SECTION 4 TAX EFFECTIVE TAX RATE 40.7% TAX FOR THE YEAR 155 DKKM FLSmidth  Annual report 2020 94 Consolidated financial statements Consolidated financial statements 4.1 INCOME TAX The income tax expense for the year amounted to DKK 155m (2019: DKK 373m), corresponding to an effective tax rate of 40.7% (2019: 31.9%). The increase in the effective tax rate was related to additional BEAT tax in the US, reduced credit relief for paid withholding taxes and impairment of deferred tax assets. Uncertain tax positions reflect the annual assess- ment by management of the risk of a position taken by the Group being disputed by a tax au- thority. The assessment considers the inherent risk and uncertainty of undertaking complex pro- jects and operating in a variety of developed and developing countries. The assessment includes the most likely outcome of both ongoing and po- tential future tax audits. Accounting policy Tax for the year comprises current tax and changes in deferred tax including valuation of deferred tax assets, adjustments to previous years, foreign paid withholding taxes including available credit relief and changes in provisions for uncertain tax positions. Tax is recognised in the Consolidated Income Statement with the share attributable to the profit/loss of the year, and in other comprehen- sive income with the share attributable to items recognised in other comprehensive income. Exchange rate adjustments of deferred tax are included as part of the year's adjustments to deferred tax. Current tax comprises tax calculated on the basis of the expected taxable income for the year, us- ing the applicable tax rates for the financial year. Uncertain tax positions are measured at the amount estimated to be required to settle such potential future obligations. We measure these uncertain tax positions on a yearly basis through interviews with key stakeholders in the main Group entities. The measurement addresses the accounting for income taxes when tax treatments involve uncer- tainty that affects the application of IAS 12 and IFRIC 23. We will determine whether to consider each un- certain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty will be followed. Uncertain tax po- sitions are measured at the most likely outcome method. The liability is recognised under income tax liabil- ities or deferred tax liabilities, depending in how the realisation of the tax position will affect the fi- nancial statements. Tax receivables and tax liabilities comprise tax on expected taxable income less tax paid on ac- count in the year and previous years taxes. Cur- rent tax is recognised in the balance sheet as ei- ther a receivable or a liability. 4.2 PAID INCOME TAX Income tax paid in 2020 amounted to DKK 368m (2019: DKK 311m). Most of these payments are at- tributable to Group enterprises in the countries shown in the graph on page 95. Besides income tax, Group activities generate sales taxes, customs duties, personal income taxes paid by the employees, etc. which are ex- cluded from income tax.   2020  2019 DKKm Tax Effective tax rate Tax Effective tax rate                                                       Total tax for the year and effective tax rate (155) 40.7% (373) 31.9% DKKm 2020 2019                      Tax for the year, continuing activities (155) (373)        Total earnings before tax 363 1,145 FLSmidth  Annual report 2020 95 Consolidated financial statements Consolidated financial statements 4.3 DEFERRED TAX Deferred tax assets end of 2020 amount to DKK 1,248m (2019: DKK 1,246m) and deferred tax lia- bilities amount to DKK 200m (2019: DKK 352m). The net deferred tax assets amount to DKK 1,048m (2019: DKK 894m). Deferred tax assets valued at nil amounting to DKK 189m (2019: DKK 165m) relate to tax losses and tax assets mainly in discontinued and dormant entities. Temporary differences regarding future repatria- tion of profit from entities in foreign countries are estimated at DKK 300-350m in 2020 (2019: DKK 300-350m). These liabilities are not recognised because the Group is able to control when the liability is re- leased and it is considered probable that the lia- bility will not be triggered in the foreseeable fu- ture. DKKm 2020 2019        1,048 894 DKK 72m (2019: DKK 61m) of foreign paid with- holding taxes in USA is not recognised as a fu- ture benefit due to uncertainties relating to the effect of the Base Erosion Anti-Abuse Tax (BEAT) in USA. Income tax paid DKKm Significant deferred tax assets DKKm -20 0 20 40 60 80 100 120 140 Denmark USA India South Africa Chile Italy Australia Peru Austria Kasakhstan China Egypt 2019 2020 - 100 200 300 400 500 600 Share of assets and tax losses valued at nil Deferred tax assets 2019 20 USA 2019 20 Chile 2019 20 Germany 2019 20 Denmark 2019 20 India 2020 DKKm Balance sheet 1 January Currency adjustment Adjustment to previous years Changed tax rate Acquisition of group enterprises Included in other comprehen- sive income Included in income statement Transfer from assets held for sale Balance sheet 31 December                                                             Net deferred tax assets/(liabilities) 894 (26) 22 54 0 (6) 103 7 1,048 DKKm 2019 Balance sheet 1 January Currency adjustment Adjustment to previous years Changed tax rate Acquisition of group enterprises Included in other comprehen- sive income Included in income statement Transfer from assets held for sale Balance sheet 31 December                                                             Net deferred tax assets/(liabilities) 861 (4) (7) 1 (38) 29 52 0 894 FLSmidth  Annual report 2020 96 Consolidated financial statements Consolidated financial statements 4.3 DEFERRED TAX  continued The maturity profile of tax assets valued at nil is as follows: DKKm 2020 2019          Base value of tax assets valued at nil 962 598 Tax value 189 165           962 598 The deferred tax assets in Germany and Den- mark are not fully recognized as, based on man- , the tax assets are not likely to be fully utilized within the next five years. The impairment of tax asset in Germany amounts to DKK 105m (2019: DKK 99m) and relates to dis- continued activities and dormant entities. The im- pairment of tax asset in Denmark amounts to DKK 25m (2019: DKK 3m) and relates to the ex- pected slow recovery in Cement from the pan- demic. The impairment of tax assets is a key ac- counting estimate and is based on manage- rporating cost sav- ings and the recovery of the market. Accounting policy Deferred tax is calculated using the balance sheet liability method on all temporary differ- ences between the carrying amounts for financial reporting purposes and the amounts used for taxation purposes, except differences relating to initial recognition of goodwill. Deferred tax is cal- culated based on the applicable tax rates for the individual financial years. The effect of changes in the tax rates is stated in the income statement unless they are items pre- viously entered in the statement of other com- prehensive income. The tax value of losses that are more likely than not to be available for utilisation against future taxable income in the same legal tax unit and ju- risdiction is included in the measurement of de- ferred tax. If companies in the Group have deferred tax lia- bilities, they are valued independently of the time when the tax, if any, becomes payable. A deferred tax liability is recognised to cover re- taxation of losses in foreign enterprises if shares in the enterprises concerned are likely to be sold and to cover expected additional future tax liabili- ties related to the financial year or previous years. No deferred tax liabilities regarding invest- ments in subsidiaries are recognised if the shares are unlikely to be sold in the short-term. Deferred tax assets/liabilities and tax receiva- bles/payables are offset if the Group: has a legal right to offset these, intends to settle these on a net basis or to realise the assets and settle the li- abilities simultaneously. 4.4 TAX ON OTHER COMPREHENSIVE INCOME Deferred tax of other comprehensive income DKK -6m (2019: DKK 29m) includes assets held for sale of DKK 0m (2019:DKK 0m). 4.5 OUR APPROACH TO TAX AND TAX RISK Being a responsible taxpayer is important to us, and this means that we will pay the correct amount of taxes at the right time in all countries where we do business. We strive to accomplish this by having a strong focus on compliance with applicable tax laws as well as generally agreed principles of international taxation. We are a global company undertaking complex projects and operating in a variety of developed and de- veloping economies. Inherent risk and uncer- tainty in regards to compliance requirements and double taxation are common issues faced by our business. We actively work to identify and miti- gate tax risk and uncertainties. Our Group Tax Policy, which has been approved by the Board of Directors of FLSmidth, is availa- ble on: https://www.flsmidth.com/en-gb/company/sus- tainability/policies-and-priorities Key accounting estimates Estimated value of deferred tax assets The value of deferred tax assets is recognised to the extent that it is deemed likely that taxable income in the future can utilise the tax losses. For this purpose the income from the coming five years is estimated, based on budgets. In assessing the probability of the future realisation of deferred tax assets, we have considered the deterioration of the economic outlook in our budgets of taxable profits and reversals of taxable temporary differences. With the changing regional restrictions it has been more diffi- cult to predict the level of business activity and earnings in the jurisdictions and the expected utilization of deferred tax assets against future taxable income.   2020   2019 DKKm Deferred tax Current tax Tax income/ cost Deferred tax Current tax Tax income/ cost                 Tax on other comprehensive income (6) 0 (6) 29 0 29 FLSmidth  Annual report 2020 97 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                         SECTION 5 FINANCIAL RISKS & CAPITAL STRUCTURE NIBD 1,808 DKKM NIBD/EBITDA 1.6 FLSmidth  Annual report 2020 98 Consolidated financial statements Consolidated financial statements 5.1 SHARES AND CAPITAL STRUCTURE Shares Share capital is DKK 1,025m and the total num- ber of authorised and issued shares is 51,250,000, which is unchanged from last year. Each share entitles the holder to 20 votes and no shares have special rights attached to it. Shareholders at the end of 2020 One shareholder has reported a participating in- terest above 10%:  Lundbeckfond Invest A/S, Denmark. No shareholders have reported a participating in- terest above 5%. Capital structure We take a conservative approach to capital struc- ture, with the emphasis on relatively low debt, gearing and financial risk.  ture and capital allocation is as follows:  Well-capitalised (NIBD/EBITDA < two)  Stable dividends (30-50% of net profit)  Invest in organic growth  Value adding mergers and acquisitions  Share buyback or special dividend For further information please refer to Share- holder information section page 56. Treasury shares Our holding of treasury shares at the end of 2020 accounted for 2.1% of the share capital (2019: 2.3%). The Board of Directors is authorised until the next Annual General Meeting to let the Company acquire treasury shares up to a total nominal  accordance with Section 12 of the Danish Com- panies Act. The treasury shares are used to hedge employ- -based incentive pro- grammes, and are recognised directly in equity in retained earnings (zero value in the balance sheet). Dividend per share The Board of Directors will propose at the Annual General Meeting that a dividend of DKK 2 per share (2019: DKK 0) corresponding to a dividend yield of 0.9% (2019: 0%) and a pay-out ratio of 50% (2019: 0%) be distributed for 2020. Due to the uncertain market and financial condi-  posed dividend of DKK 8 per share was with- drawn before the Annual General Meeting held on 26 June 2020. No dividend was paid in 2020. 2020 2019 The year's movements in holding of shares Number of shares (1,000) Value (DKKm) Number of shares (1,000) Value (DKKm)      Share capital at 31 December 51,250 1,025 51,250 1,025 The year's movements in holding of treasury shares (1,000): 2020 2019       Treasury shares at 31 December 1,098 1,194             Outstanding shares at 31 December 50,152 50,056 FLSmidth  Annual report 2020 99 Consolidated financial statements Consolidated financial statements 5.2 EARNINGS PER SHARE Earnings per share from continuing activities de- creased to DKK 5.1 in 2020 (2019: DKK 15.9) pri- marily driven by reduced profit for the year. Earn- ings per share from discontinued activities remained at DKK -0.4 in 2020 (2019: DKK -0.4). There is no dilutive effect of share options in the money in 2020 (2019: 0.2%). As of 31 December 2020 number of share op- tions in-the money totalled zero (2019: 98,545). 5.3 FINANCIAL RISKS Due to the international activities and the indus- try characteristics, risks are an embedded part of doing business. We are exposed to financial risks, that can have a material impact to the finan- cial statements of the Group. The financial risks are to the extent possible managed centrally for the Group and are gov- erned by the Treasury Policy, which is approved by the Board of Directors. The Treasury Policy is updated on an annual basis to address any changes in the risk picture. The main financial risks that we are exposed to include currency, credit, interest and liquidity risks. Financial markets risks increased for a few months in the beginning of 2020. However, when considering currency and interest rate risks we are back to normal levels, and our hedging models have been resilient throughout COVID- 19. Interest rate risk Interest rate risks arise from interest-bearing as- sets and liabilities. Interest-bearing items consist primarily of cash and cash equivalents, bank loans and mortgage debt. According to the Treasury Policy, hedging of in- terest rates is governed by a duration range and is managed by using derivatives such as interest rate swaps. No interest derivatives have been used during 2019 or 2020. As of 31 December 2020, the majority of our in- terest-bearing debt is carrying a floating rate. All other things being equal, a 1% point increase in the interest rate will increase our interest cost by DKK 18m (2019: DKK 25m), calculated as 1% of the net interest bearing debt as of 31 December 2020. The reduction is directly related to our increased focus on operational cashflow during 2020, where we have been able to reduce net interest- bearing debt by DKK 684m. Currency risk The objective of the Treasury Policy is to reduce the most significant currency risks to better pre- dict the impact to the income statement as well as the cash flows to be paid or received. The risks are managed through hedging activities by entering into commonly used derivatives such as forward contracts. The currency risks arise pri- marily from purchase and sale in foreign curren- cies compared to the functional currency of each of the Group entities. The Treasury Policy sets forth thresholds and re- quirements for the hedging strategy to be ap- plied. Hedge accounting is applied for the largest project transactions. For other project transac- tions the currency risk is either not hedged or economically hedged, dependent on the signifi- cance of the risk. We are, to a large extent, carrying out transac- tions in EUR and USD as these hard currencies are preferred in the Mining and Cement indus- tries. EUR against DKK is currently not consid- ered an exposure due to the Danish Kroner be- ing pegged to the Euro. DKKm 2020 2019       FLSmidth's share of profit, continuing activities 231 797       FLSmidth's share of loss, discontinuing activities (21) (22)    FLSmidth's share of profit 210 775 Number of shares (1,000) 2020 2019       Average diluted number of outstanding shares 50,153 50,092 DKK 2020 2019       Earnings per share from continuing and discontinued activities 4.2 15.5 DKK 2020 2019       Diluted earnings per share from continuing and discontinued activities 4.2 15.5 FLSmidth  Annual report 2020 100 Consolidated financial statements Consolidated financial statements 5.3 FINANCIAL RISKS  continued The project nature of the business changes the foreign currency risk picture towards and against specific currencies from one year to another, de- pending on the area in which we have activities. The below analysis assumes that all other varia- bles, exposures and interest rates in particular, remain constant. Translation impact, DKKm Change 2020 2019                         The sensitivity analysis shows the gain/loss on net profit for the year and other comprehensive income of a 5% percent increase in the specified currencies towards DKK. The analysis includes the transactional impact from monetary items and derivatives. The impact on net profit for the year includes fi- nancial instruments in foreign currencies that are currency adjusted through the income statement as well as any derivatives used for economic hedging. The impact on other comprehensive income in- cludes the value adjustment on derivatives des- ignated as hedge accounting. In addition to the transactional effects, in the event of currency developments, we will also be impacted by translation effects from the Group entities with net assets in functional currencies other than Danish Kroner and Euro. A 5 % in- crease in the specified currencies towards Dan- ish Kroner will have the following effect on other comprehensive income. The emergence of the COVID-19 virus as it spread across the world has increased exchange rate volatility during 2020 by disrupting capital flows. This has had an negative impact on many emerging market currencies and countries more adversely affected by the pandemic. In a number of cases, the sensitivity analysis defined has ma- terialised as the relative strength of the EUR has seen the currency appreciate over 5% against a number of currencies in countries FLSmidth op- erate in. This has resulted in a large FX transla- tion loss on equity of DKK 832m. Credit risk We are exposed to credit risks arising from cash and cash equivalents, derivatives and receiva- bles including work in progress. The Treasury Policy sets forth authority limits for the credit risk exposure related to cash and cash equivalents as well as derivatives. The limits are based on the counterparty credit rating. We have entered into netting agreements with the coun- terparties used for trading of derivatives, which means that the credit risk for derivatives is limited to the net assets per counterparty. We aim at using banks of high quality in the countries we operate in. However, due to the na- ture of our business and operations in emerging markets, we are sometimes exposed to banks where the credit rating and quality can be lower than what we typically see in developed coun- tries. For commercial risks the credit risks are gov- erned by Credit Risk Policy. For receivables the credit risk is managed by continuous risk assess- ments and credit evaluations of customers and trading partners; having country specific risk fac- tors in mind. To the extent possible, the credit risks are mitigated through use of payment secu- rities, such as letters of credit and guarantees is- sued by first class rated banks, or by securing positive cash flow throughout the project execu- tion. At the end of 2020, 17% (2019: 26%) of our work in progress asset and 6% (2019: 7%) of our trade receivables balance were covered by pay- ment securities. Our customers and trading partners mainly con- sists of companies within the Cement and Mining industry. Credit risk is among other things de- pendent on the development in these industries. Given our diverse global footprint and the ongo- ing COVID-19 situation, it is difficult to fully deter- mine the exposure to increasing credit risk re- lated to our receivables and work in progress. The varying responses, mitigations and contain- ment of the pandemic across governments has increased volatility and uncertainty. Our focus on processes related to invoicing and cash collec- tion during 2020, which will continue in 2021, has mitigated some of the credit risk. For the ex- pected credit loss refer to note 3.3 Trade receiv- ables. At 31 December 2020 total credit risk was meas- ured as DKK 7,455m (2019: DKK 9,596m). We consider the maximum credit risk to financial counterparties to be DKK 981m (2019: DKK 1,003m). All financial assets, excluding other se- curities and investments, are expected to be set- tled during 2021. Transaction impact, DKKm 2020 2019 Currency Change Net profit for the year Other compre- hensive income Net profit for the year Other compre- hensive income                         FLSmidth  Annual report 2020 101 Consolidated financial statements Consolidated financial statements 5.3 FINANCIAL RISKS  continued Liquidity risk The objective of the Treasury Policy is to ensure that the Group always have sufficient and flexible financial resources at our disposal to ensure con- tinuous operations and to honor liabilities when they become due. The financial resources are continuously moni- tored and consist of cash and cash equivalents and undrawn committed facilities. During 2019, our DKK 5bn club deal was re- financed, and in 2020 a 1-year extension-option within was exercised, extending the expiry to 2026. In 2020, a new facility of DKK 500m was established to ensure sufficient funds as a pre- caution to the COVID-19 situation. However, a strong cashflow focus by the business has meant that at the end of 2020, none of the DKK 500m was utilised. Total committed facilities by the end of 2020 was DKK 6,970m (2019: DKK 6,486m), of which DKK 2,251m (2019: DKK 2,893m) was uti- lised. The committed facilities will mature during the years 2022-2026. Short-term liquidity risks are managed through a cash pool in various cur- rencies and by having short-term overdraft facili- ties in place with various financial institutions, mainly on a committed basis, but also through uncommitted facilities. According to the Treasury Policy the available fi- nancial resources must not be lower than DKK 2bn at any point. The liquidity position is moni- tored daily. As of 31 December 2020, the finan- cial resources are well above the threshold. The committed facilities contain standard clauses such as pari passu, negative pledge, change of control and a leverage financial covenant. The Group did not default or fail to fulfil any of its fi- nancial covenants, in neither 2019 nor 2020. Having activities in various emerging markets im- plies additional risks due to specific restrictions and requirements. Mitigating actions are there- fore considered on a case-by-case basis. It re- quires thorough dedicated efforts to reduce re- lated risks to an acceptable level. Restricted cash Cash and cash equivalents included cash with currency restrictions. The cash, amounting to DKK 781m (2019: DKK 824m), is part of the daily operations and is not restricted to FLSmidth. Credit risk ratings per financial institution % Maturity profile of Group funding facilities DKKm Group restricted cash DKKm 0% 20% 40% 60% 80% 100% 2019 2020 AA A BBB BB B Not rated 0 1,000 2,000 3,000 4,000 5,000 6,000 < 1 year 1-5 years > 5 year 2019 2020 0 50 100 150 200 250 300 350 China India South Africa Egypt Brazil Ghana Angola Mongolia Morocco Other 2019 2020 FLSmidth  Annual report 2020 102 Consolidated financial statements Consolidated financial statements 5.4 FINANCIAL INCOME AND COSTS DKKm 2020 2019              Total financial income 952 821                    Total financial costs (999) (939) Net financial costs (47) (118) DKKm 2020 2019       Cash flow effect (51) (59) Foreign exchange adjustments, net of hedging effect, amounted to DKK 11m (2019: DKK -43m), primarily related to the cost of hedging the loan portfolio to the functional currency of the borrow- ing entity (forward points) and exposures in non- hedgeable emerging market currencies, as well as timing differences between cash flows and hedges. The net interest cost totalled DKK 48m (2019: DKK 53m) related to loans and deposits. Lease interest cost amounted to DKK 11m (2019: DKK 12m). Fair value adjustment of shares of net DKK 1m (2019: DKK -10m) relates to shareholdings in ce- ment companies. Accounting policy Financial income and costs comprise interest in- come and costs, realised and unrealised foreign exchange gains and losses arising from mone- tary items, and fair value adjustments of shares and derivatives where hedge accounting is not applied. 5.5 DERIVATIVES Economic hedge We use derivatives to hedge currency risks aris- ing from monetary items recognised in the bal- ance sheet. Fair value adjustments recognised in financial items in the income statement amounted to DKK -48m (2019: DKK 28m). At 31 December 2020 the fair value of our hedge agreements that are not recognised as hedge accounting amounted to DKK 1m (2019: DKK -11m). Cash flow hedge We use forward exchange contracts to hedge currency risks regarding expected future cash flows that meet the criteria for cash flow hedging. 2020 2019 DKKm Econo- mic hedge Cash flow hedge Total hedge Econo- mic hedge Cash flow hedge Total hedge               Total 1 29 30 (11) (7) (18) Economic hedge, DKKm 2020 2019 Currency Notional amount Net fair value Notional amount Net fair value                     Total 1 (11) A negative notional amount represents a sale of the currency Cash flow hedge, DKKm 2020 2019 Currency Notional amount Net fair value Notional amount Net fair value                Total 29 (7) A negative notional amount represents a sale of the currency FLSmidth  Annual report 2020 103 Consolidated financial statements Consolidated financial statements 5.5 DERIVATIVES  continued The fair value reserve of the derivatives is recog- nised in other comprehensive income until the hedged items are included in work in progress. The fair value of derivatives is recognised in other receivables and other liabilities. The major- ity of the cash flow hedge instruments are ex- pected to settle and affect the income statement within one year. At 31 December 2020, the fair value of our cash flow hedge instruments amounted to DKK 29m (2019: DKK -7m). Changes in the cash flow hedging reserve: DKKm 2020 2019          Accounting policy Derivatives are initially recognised in the balance sheet at fair value and subsequently measured at fair value. Fair value of derivatives is included in other receivables or other liabilities respectively. Fair value changes of derivatives used for cash flow hedging are recognised in other compre- hensive income. Any ineffective portions of the cash flow hedges are recognised as a financial item. Upon settle- ment of the cash flow hedges, the fair value is transferred from other comprehensive income into the line item of the hedged item. Any changes in the fair value of derivatives not used for hedge accounting are recognised in the income statement as financial items. Certain contracts contain conditions that corre- spond to derivatives. In case the embedded de- rivatives deviate significantly from the overall contract, they are recognised and measured as separate instruments at fair value. That is unless the contract concerned as a whole is recognised and measured at fair value. 5.6 FAIR VALUE MEASUREMENT Financial instruments measured at fair value are measured on a recurring basis and categorised into the following levels of the fair value hierar- chy:  Level 1: Observable market prices for identical instruments  Level 2: Valuation techniques primarily based on observable prices or traded prices for com- parable instruments  Level 3: Valuation techniques primarily based on unobservable prices Securities and investments measured at fair value through profit/loss are either measured at quoted prices in an active market for the same type of instrument (level 1) or at fair value based on available data (level 3). Hedging instruments are not traded on an active market based on quoted prices. Measured in- stead using a valuation technique, where all sig- nificant inputs are based on observable market data; such as exchange rates, interest rates, credit risk and volatilities (level 2). There have been no transfers between the levels in 2020 or 2019. 2020 2019 DKKm Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total                                9 30 34 73  6 (18) 38 26 FLSmidth  Annual report 2020 104 Consolidated financial statements Consolidated financial statements 5.7 NET INTEREST BEARING DEBT 5.8 FINANCIAL ASSETS AND LIABILITIES All financial assets and liabilities, except for hedging instruments, securities and investments, are measured at cost and amortised cost. The carrying amount for these is an approximation of fair value. The financial assets are classified based on the contractual cash flow characteristics of the finan- cial asset as well as our intention with the finan- cial asset according to our business model. If cash flows from a financial asset are solely pay- ments of principal and interests the classification is either:  Amortised cost, for financial assets, where the objective is to hold the financial asset to collect the contractual cash flows  Fair value through profit/loss, for other financial assets Hedging instruments designated as hedge ac- counting are classified separately and are meas- ured at fair value through other comprehensive income. 2020 DKKm Effective interest rate Carrying amount 1 January 2020 Cash flows Additional lease liability during the year Foreign exchange effect Transferred to assets classified as held for sale Carrying amount 31 December 2020                                 Interest bearing debt 3,493 (942) 147 115 (58) 2,755                         Interest bearing assets 1,001 90 0 (114) (30) 947         Net interest bearing debt 2,492 (1,032) 147 229 (28) 1,808 2019 DKKm Effective interest rate Carrying amount 1 January 2019 Cash flows Additional lease liability during the year Foreign exchange effect Transferred to assets classified as held for sale Carrying amount 31 December 2019                         Interest bearing debt 3,119 266 108 0 0 3,493                         Interest bearing assets 880 126 0 (5) 0 1,001         Net interest bearing debt 2,239 140 108 5 0 2,492 FLSmidth  Annual report 2020 105 Consolidated financial statements Consolidated financial statements 5.8 FINANCIAL ASSETS AND LIABILITIES  continued 2020 2019 Assets DKKm Maturity of cash flows Total cash flows Fair value Carrying amount Maturity of cash flows Total cash flows Fair value Carrying amount < 1 year 1-5 years > 5 year   < 1 year 1-5 years > 5 year     Hedging instruments (hedge accounting) 54 2 0 56 56 56  28 1 0 29 29 29                                Fair value through profit and loss 9 0 43 52 52 52 7 0 44 51 51 51                                                                       Amortised costs 6,957 0 0 6,957 6,957 6,957 8,982 0 0 8,982 8,982 8,982 Total financial assets 7,020 2 43 7,065 7,065 7,065 9,017 1 44 9,062 9,062 9,062 2020 2019 Liabilities DKKm Maturity of cash flows Total cash flows Fair value Carrying amount Maturity of cash flows Total cash flows Fair value Carrying amount < 1 year 1-5 years > 5 year   < 1 year 1-5 years > 5 year     Hedging instruments (hedge accounting) (27) 0 0 (27) (27) (27)  (34) (2) 0 (36) (36) (36)                  Fair value through profit and loss (8) 0 0 (8) (8) (8) (18) 0 0 (18) (18) (18)                                                                                     Amortised cost (4,469) (952) (1,751) (7,172) (7,027) (7,027) (5,901) (1,354) (2,010) (9,265) (9,078) (9,077) Total financial liabilities (4,504) (952) (1,751) (7,207) (7,062) (7,062) (5,953) (1,356) (2,010) (9,319) (9,132) (9,131) FLSmidth  Annual report 2020 106 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                SECTION 6 OTHER NOTES OUTSTANDING PERFORMANCE SHARES 114,174 SALE OF MÖLLER PNEUMATIC CONVEYING SYSTEMS BUSINESS FLSmidth  Annual report 2020 107 Consolidated financial statements Consolidated financial statements 6.1 SHARE-BASED PAYMENT Accounting policy We have established two different share-based incentive schemes; a share option programme and a performance share programme. Both of the share-incentive schemes are classified as eq- uity based, as the schemes settle in shares. The value of the services received in exchange for the granting of options and performance share units is measured as the fair value of the option and performance share unit, respectively. The share options and performance share units (PSUs) are measured at fair value at granting and are recognised in staff cost in the income state- ment and in equity over the vesting period. On initial recognition of the share options/PSUs, the number of options/PSUs expected to vest are estimated. Subsequently, the estimate is revised so that the total cost recognised is based on the actual number of options/PSUs expected to vest. The fair value of the share options is estimated using an option pricing model (Black-Scholes). In determining the fair value, the terms and condi- tions related to the share options granted are taken into account. The fair value of the PSUs is determined based on the quoted share price. Share options Executive Management and a number of key em- ployees in the Group have been granted options to purchase 544,246 shares in the company at a set price (strike price). The calculated fair values in connection with allo- cation are based on the Black & Scholes model for valuation of options. The calculation takes into account the terms and conditions under which the share options are allocated. Year of al- location, strike price and exercise period for the individual allocations are shown in the table. In 2020, the recognised fair value of share op- tions in the consolidated income statement amounts to DKK 0m (2019: DKK 0m). The calcula- tion of average weighted fair value and strike prices per option is based on a dividend of DKK 0 (2019: DKK 9) in the exercise period. Specification of outstanding number of share options Group Executive Management Key employees Total number                         Outstanding options 31 December 2019 49,889 776,265 826,154                 Outstanding options 31 December 2020 65,049 479,197 544,246         Total fair value of outstanding options DKKm         DKK 2020 2019          Year of allocation Strike price Exercise period Allocated Lapsed Exercised Outstanding                                  FLSmidth  Annual report 2020 108 Consolidated financial statements Consolidated financial statements 6.1 SHARE-BASED PAYMENT  continued Performance-shares In March 2016, the share-based programmes were revised. The share options programme was replaced by a long-term incentive programme. The long term incentive programme is based on a three year performance period and perfor- mance measurement based on key financial per- formance indicators as EBITA and net working capital as well as continued employment. The purpose of introducing the performance share programme is to ensure common goals for Group Executive Management, key employees and shareholders. Fair value is based on the market price. Market price is not adjusted for dividend as participants of the programme will be compensated for any dividend pay-outs in the performance period. For the 2020 plan, 52,242 shares (2019: 36,640 shares) pertain to Executive Management at the grant date. In 2020, the recognised fair value of perfor- mance shares in the consolidated income state- ment amounted to an income of DKK 21m (2019: DKK -13m). An income is recognised as it is expected that fi- nancial KPIs will not be achieved for two of the share incentive programmes related to perfor- mance share units, hence the costs previously recognised have been reversed. The total number of outstanding performance shares at 31 December 2020 was 478,038 of which 114,174 performance shares are expected to vest. 2020 2019 Specification of performance shares Group Executive Management Key employees Total number Group Executive Management Key employees Total number                                           Outstanding performance shares 31 December 28,420 85,754 114,174 31,109 194,837 225,946 31/12/2020 31/12/2019             DKK/DKKm 2020 2019       FLSmidth  Annual report 2020 109 Consolidated financial statements Consolidated financial statements 6.2 RELATED PARTY TRANSACTIONS Related parties to FLSmidth are determined as members of the Board of Directors and Group Executive Management, their close family mem- bers, or companies in which these persons have significant influence and the associated entities over which FLSmidth has significant influence. During 2020, FLSmidth has had ordinary sales transactions of DKK 12m with its associate Inter- tek Robotic Laboratories Pty Ltd. Other than that, there were no significant transactions between FLSmidth and any of its related parties, other than ordinary remuneration of the Board of Direc- tors and Group Executive Management in 2020 and 2019. Please refer to note 1.5 Staff cost and the Remuneration report 2020. 6.3 AUDIT FEE DKKm 2020 2019       Total audit related services 16 16        Total non-audit services 2 1 Total fees to independent auditor 18 17 In addition to statutory audit, EY Godkendt Revi- sionspartnerselskab, the Group auditors ap- pointed at the Annual General Meeting, provided other assurance engagements and tax compli- ance services to the Group, DKK 1m (2019: DKK 1m). All non-audit services have been approved by the Audit Committee. 6.4 EVENTS AFTER THE BALANCE SHEET DATE Effective 1 January 2021, we have divested our Möller pneumatic conveying systems business. The divestment is part of the ongoing process to  December 2020 the balances related to the di- vestment was classified as held for sale in the balance sheet. A revaluation of the balances was made in December 2020 to reflect the net assets held for sale at fair value less cost to sell and, therefore, the loss arising from the sale was al- ready recognised in 2020. On 15 January 2021, FLSmidth announced that we are in negotiations with ThyssenKrupp con- cerning an acquisition of ThyssenKrupp's mining business. The negotiations are at a non-binding stage. Accordingly, there can be no assurances as to whether and when a transaction will tran- spire. We are not aware of any other subsequent mat- ters, that could be of material importance to the  FLSmidth  Annual report 2020 110 Consolidated financial statements Consolidated financial statements 6.5 LIST OF GROUP COMPANIES Company name Country Direct Group holding (pct.) FLSmidth & Co. A/S   ○   ○   ○   ○   ○   ○   ⌂   ○      FLSmidth Global Services A/S   ○   ○   ○   FLSmidth A/S   ○   ○   ○   ⌂   ○   ○   ○   ○   ○   ○   ○   ⌂   ○   ○   ○   ○   ○    ○   ○   Company name Country Direct Group holding (pct.) ○   ○   ○   ○   ○   ○   ○   ⌂   ○   ○   ○    ○   ○   ○   ○   ○   ○   ○   ○   ○    ○   ○   ○   ⌂   FLS US Holdings, Inc.   ○   ⌂   ⌂   ⌂   ⌂   ⌂   ⌂      FLSmidth  Annual report 2020 111 Consolidated financial statements Consolidated financial statements 6.5 LIST OF GROUP COMPANIES  continued Company name Country Direct Group holding (pct.) FLSmidth Tyskland A/S   ○   ⌂   ⌂      ⌂   ⌂   ⌂   FLSmidth Minerals Holding ApS   ○   ⌂   ⌂      ⌂   ⌂         ⌂   ⌂   ⌂   ⌂   ⌂                     ○   ○   ○   ○   Company name Country Direct Group holding (pct.) ○   ⌂   ⌂   ⌂   ⌂      ⌂   Associate All other enterprises are Group enterprises FLSmidth  Annual report 2020 112 Consolidated financial statements Consolidated financial statements FLSmidth  Annual report 2020                         SECTION 7 BASIS OF REPORTING The consolidated financial statements complies with IFRS and further require- ments in the Danish Financial Statements Act Alternative Performance Measures  Alternative additional measures to describe performance UNCHANGED ACCOUNTING POLICIES FLSmidth  Annual report 2020 113 Consolidated financial statements Consolidated financial statements 7.1 INTRODUCTION This section provides an overview of our princi- pal accounting policies, key accounting esti- mates and judgements as well as new and amended IFRS standards and interpretations. The following sections provide an overall de- scription of the accounting policies applied to the consolidated financial statements. We provide a more detailed description of the accounting poli- cies and key estimates and judgements in the notes. The descriptions of accounting policies in the statements and notes form part of the overall de- scription of accounting policies. The annual report has been approved by the Board of Directors at its meeting 10 February 2021. The annual report will be presented to the shareholders of FLSmidth & Co. A/S for approval at the Annual General Meeting. 7.2 BASIS OF PREPARATION The consolidated financial statements of FLS- midth Group have been prepared in accordance with IFRS as adopted by the EU and further re- quirements in the Danish Financial Statements Act. We have prepared the consolidated financial statements in accordance with all the IFRS stand- ards effective at 31 December 2020. The finan- cial year for the Group is January 1  December 31. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, except for deriva- tives and securities, which are measured at fair value. The accounting policies are unchanged from last year except from changes included in note 7.6. 7.3 DEFINING MATERIALITY Our annual report is based on the concept of ma- teriality, to ensure that the content is material and relevant to the readers. The consolidated finan- cial statements consist of many transactions. These transactions are aggregated into classes according to their nature or function, and pre- sented in classes of similar items in the financial statements and in the notes as required by IFRS. If items are individually immaterial, they are ag- gregated with other items of a similar nature in the statements or in the notes. The disclosure requirements throughout IFRS are substantial, and we provide the specific disclo- sures required by IFRS unless the information is considered immaterial to the economic decision- making of the readers of these financial state- ments. 7.4 ALTERNATIVE PERFORMANCE MEASURES We present financial measures in the consoli- dated financial statements which are not defined according to IFRS. We use these alternative per- formance measures (APM) as we believe that these financial measures provide valuable infor- mation to our stakeholders and management. The financial measures should not be considered as a replacement for performance measures as defined under IFRS, but rather as supplementary information. The alternative performance measures may not be comparable to similarly titled measures pre- sented by other companies, as the definitions and calculations may be different. Our definitions of the financial measures are included in note 7.8 Definition of terms. We use several alternative performance measures throughout the report. The most com- monly used are: Growth We use different alternative performance measures related to growth, such as order in- take, order backlog and growth. We use these measures in the daily management of our busi- ness, as order intake and order backlog are part of the main indicators of our future activity level. Profit We use different alternative performance measures related to profit, such as EBIT, EBITA and EBITDA. EBITA is a measure which is com- monly used within the industry and included in our calculation of return of capital employed. Cash flow We use different alternative performance measures related to cash flow, such as free cash flow. We use free cash flow to measure how much cash we generate from our operations af- ter maintaining our capital employed. Financial position We use different alternative performance measures related to the financial position, such as capital employed, net working capital and net interest-bearing debt. Capital employed and net working capital are included in our calculation of return of capital employed. Net working capital is also a measure we use in the daily management of our business, as it is closely related to the ac- tivity. 7.5 ACCOUNTING POLICIES The descriptions of accounting policies in the notes form part of the overall description of ac- counting policies. Consolidation The consolidated financial statements comprise the financial statements of FLSmidth & Co. A/S (the parent company) and subsidiaries controlled by FLSmidth & Co. A/S, prepared in accordance with Group accounting policies. The consolidated financial statements are prepared by combining items of a uniform nature and subsequently elimi- nating intercompany transactions, internal share- holdings and balances and unrealised intercom- pany profits and losses. Foreign currencies The consolidated financial statements are pre- sented in Danish Kroner (DKK). Foreign currency transactions are translated into the functional currency defined for each com- pany using the prevailing exchange rates at the transaction date. Monetary items denominated in foreign currencies are translated into the func- tional currency at the prevailing exchange rates at the reporting date. Financial statements of foreign subsidiaries are translated into Danish Kroner at the prevailing FLSmidth  Annual report 2020 114 Consolidated financial statements Consolidated financial statements exchange rates at the reporting date for assets and liabilities, and at average exchange rates for income statement items. All exchange rate differences are recognised as financial income or financial costs, except for the following, that are recognised in other compre- hensive income, translated at the prevailing ex- change rates at the reporting date:   at the beginning of the year   statements from average exchange rates to the exchange rates prevailing at the reporting date  Translation of long-term intercompany bal- ances, which are considered to be an addition to net assets in subsidiaries. Goodwill arising from the acquisition of new com- panies is treated as an asset belonging to the new foreign subsidiaries and translated into Dan- ish Kroner at prevailing exchange rates at the re- porting date. Unrealised gain/loss relating to hedging of future cash flow is recognised in other comprehensive income. 7.6 IMPACT FROM NEW IFRS We have implemented all new or amended ac- counting standards and interpretations as adopted by the EU and applicable for the 2020 financial year, including:  Amendments to References to the Conceptual Framework in IFRS Standards (issued 2018, ef- fective date 1 January 2020)  Amendments to IFRS 3, Business Combina- tions (issued 2018, effective date 1 January 2020)  Amendments to IAS 1 and IAS 8, Definition of Material (issued 2018, effective date 1 January 2020)  Interest Rate Benchmark Reform - Amend- ments to IFRS 9, IAS 39 and IFRS 7 (issued 2019, effective date 1 January 2020)  Amendment to IFRS 16, Leases COVID 19-Re- lated Rent Concessions (issued May 2020, ef- fective date 1 June 2020) None of these have had a significant impact on the financial statements. 7.7 NEW IFRS NOT YET ADOPTED Generally, we expect to implement all new or amended accounting standards and interpreta- tions when they become mandatory and have been endorsed by the EU. IASB has issued new or amended accounting standards, which be- come effective after 31 December 2020. The fol- lowing amendments are relevant for FLSmidth, but none of these are expected to have a signifi- cant impact on the financial statements: IFRS Description Effective date                                                     *Other changes included in the Annual improvements 2018-2020 to other standards will not have an impact on our financial statements. FLSmidth  Annual report 2020 115 Consolidated financial statements Consolidated financial statements 7.8 DEFINITION OF TERMS Acquisition development Development as a consequence of business ac- quisition, disregarding development from cur- rency. After 12 months business acquisitions are included in the development from organic growth. Alternative performance measure A financial measure of historical or future finan- cial performance, financial position or cash flows, other than a financial measure defined or speci- fied according to IFRS. Book-to-bill Order intake as a percentage of revenue. BVPS (Book value per share) FLSmidth & Co. A/S´ share of equity excluding minorities divided by year-end number of shares. Capital employed, average (Capital employed, end of period + capital em- ployed end of same period last year)/2. Capital employed, end of period Intangible assets (cost) + Property, plant and equipment (carrying amount) + lease assets + Net working capital. Capital expenditure (CAPEX) Investment in Property, plant and equipment. CFFF Cash flow from financing activities. CFFI Cash flow from investing activities. CFFO Cash flow from operating activities. CFFO / Revenue  nue. CFPS (cash flow per share), (diluted) CFFO as a percentage of average number of shares (diluted). Currency development The difference between the current figure re- ported and the same figure had the exchange rates towards DKK been the same as in the com- parison period. DIFOT Delivery in full on time. Dividend yield Dividend as percent of share price end of year. EBIT Earnings before interest and tax and impairments of investments in associated companies. EBIT margin EBIT as a percentage of revenue. EBITA Earnings before, interest, tax, amortisation and impairments of investments in associated compa- nies. EBITA margin EBITA as a percentage of revenue. EBITDA Earnings before special non-recurring items, in- terest, tax, depreciation, amortisation and impair- ments of investments in associated companies. EBITDA margin EBITDA as a percentage of revenue. EBT Earnings before tax. EBT margin EBT as a percentage of revenue. Effective tax rate Income tax expenses as a percentage of EBT. EPC projects Engineering, procurement and construction. EPS projects Engineering, procurement and supervision. EPS (earning per share) Net profit/(loss) divided by the average number of shares outstanding (adjusted for treasury shares). EPS (earnings per share), (diluted) Net profit/(loss) divided by the average number of shares outstanding (adjusted for treasury shares) less share options in-the-money. Equity ratio Equity as a percentage of total assets. Financial gearing (NIBD/EBITDA) Net interest-bearing debt (NIBD) divided by EBITDA. Free cash flow CFFO + CFFI. Free cash flow adjusted for acquisitions and disposals of enterprises and activities CFFO + CFFI + acquisitions of enterprises and ac- tivities - disposals of enterprises and activities. Free cash flow adjusted for acquisitions and disposals of enterprises and activities and IFRS 16, Leases CFFO + CFFI + acquisitions of enterprises and ac- tivities - disposals of enterprises and activities + repayment of lease liabilities. Gross margin Gross profit as a percentage of revenue. Growth Increase/decrease in percentage compared to last year. Currency effect is current year amount  foreign exchange rate. Organic effect is growth +/- currency effect and acquisition effect. Market capitalisation The share price multiplied by the number of shares issued end of year. Net interest-bearing debt (NIBD) Interest-bearing debt less interest-bearing assets and bank balances. Net working capital, average (Net working capital, end of year + net working capital, end of last year)/2. FLSmidth  Annual report 2020 116 Consolidated financial statements Consolidated financial statements 7.8 DEFINITION OF TERMS -  continued Net working capital, end Inventories + Trade receivables + work in pro- gress for third parties, net + prepayments, net + financial instruments, net + other receivables  other liabilities  trade payables. Net working capital ratio, average Net working capital, average as a percentage of last 12 months revenue. Net working capital ratio, end Net working capital as a percentage of last 12 months´ revenue. Number of shares outstanding  holding of treasury shares. NIBD/EBITDA Net interest-bearing debt (NIBD) divided by last  One-offs Costs/income assessed by Management to be non-recurring by nature. Operational expenditure (OPEX) External costs, personal cost and other income and costs. Order backlog The value of outstanding performance obliga- tions on current contracts at end of year. On O&M contracts entered into after 2014, the order backlog includes the next 12 months´ expected revenue. Order backlog / Revenue Order backlog as a percentage of last 12 months´ revenue. Order intake Orders are included as order intake when an or- der becomes effective, meaning when the con- tract becomes binding for both parties depend- ent on the specific conditions of the contract. On O&M contracts entered into after 2014, the order intake includes the next 12 months´ expected revenue, and subsequently order intake will be included on a monthly rolling basis. Organic development Development as a consequence of growth in al- ready existing business, disregarding develop- ment from currency. Other comprehensive income All items recognised in equity other than those related to transactions with owners of the com- pany. Pay-out ratio The total dividends for the year as a percentage of profit/(loss) for the year. Return on equity Profit/(loss) for the last 12 months´ as a percent- age of equity ((Equity, end of year + equity, end of last year)/2). ROCE (return on capital employed) EBITA as a percentage of capital employed, aver- age. Sales, General & Administrative costs (SG&A costs) Sales cost + Administrative cost ± other operating items. Special non-recurring items Costs and income of a special nature in relation to the main activities of the continued activities, including gains and losses from acquisitions and disposals of enterprises and activities. Total shareholder return Share price increase and paid dividend. TRIR Total recordable incident rate. FLSmidth  Annual report 2020 117 Parent company financial statements Consolidated financial statements Parent Company Financial statements       Notes                                                             PARENT COMPANY FINANCIAL STATEMENTS FLSmidth  Annual report 2020 118 Parent company financial statements Parent company financial statements Management review Parent company activities include holding of shares in Group enterprises  Dividend from Group enterprises to the parent company, FLSmidth & Co. A/S, was DKK 0m in 2020 (2019: DKK 0m) and the profit for the year was DKK -6m (2019: DKK -42m). Increase in financial income and cost is related to foreign exchange gains and losses. Net fi- nancial income is DKK 79m (2019: DKK 63m). The result is significantly impacted by write downs of investments in Group enterprises. Total assets at year-end amounted to DKK 8,445m (2019: DKK 8,854m) and the equity was DKK 2,516m (2019: DKK 2,522m). Management consider the result to be lower than expected. For financial outlook of 2021 please refer to page 11. INCOME STATEMENT Parent company financial statements Notes DKKm 2020 2019                      EBIT (62) (105)          EBT 17 (42)      Profit for the year (6) (42)               (109) (42)           103 0 FLSmidth  Annual report 2020 119 Parent company financial statements Parent company financial statements Notes DKKm 2020 2019  ASSETS        Property, plant and equipment 9 10                  Financial assets 2,554 2,632      Total non-current assets 2,563 2,642              Receivables 5,793 6,201      Cash and cash equivalents 89 11      Total current assets 5,882 6,212      Total assets 8,445 8,854 Notes DKKm 2020 2019  EQUITY AND LIABILITIES                Equity 2,516 2,522       Provisions 8 7              Total non-current liabilities 2,008 2,633                  Total current liabilities 3,913 3,692      Total liabilities 5,929 6,332      Total equity and liabilities 8,445 8,854 BALANCE SHEET FLSmidth  Annual report 2020 120 Parent company financial statements Parent company financial statements Each share entitles its holder to 20 votes, and there are no special rights attached to the shares. Profit for the year DKK -6m (2019: DKK-42m) is transferred to retained earnings, of which DKK 103m (2019: DKK 0m) is proposed as dividend. EQUITY DKKm Share capital Retained earnings Proposed dividend Total Equity at 1 January 2019 1,025 1,505 461 2,991                     Equity at 31 December 2019 1,025 1,497 0 2,522                Equity at 31 December 2020 1,025 1,388 103 2,516 Number of shares (1,000): 2020 2019 2018 2017 2016       Share capital at 31 December 51,250 51,250 51,250 51,250 51,250 FLSmidth  Annual report 2020 121 Parent company financial statements Parent company financial statements 1. OTHER OPERATING INCOME DKKm 2020 2019    1 6 2. STAFF COSTS DKKm 2020 2019              (4) (14) Average number of employees 8 7 Remuneration of the  Board of Directors for 2020 amounts to DKK 6m (2019: DKK 6m), including DKK 0m (2019: DKK 1m), which was incurred by the parent company. The total remuneration of the Group companys Exec- utive Management amounted to DKK 51m (2019: DKK 43m), of which DKK 4m (2019: DKK 14m) was incurred by the parent company. 3. FINANCIAL INCOME DKKm 2020 2019        1,177 776 4. FINANCIAL COST DKKm 2020 2019          (1,098) (713) 5. TAX FOR THE YEAR DKKm 2020 2019                Tax for the year (23) 0 6. DISTRIBUTION OF PROFIT FOR THE YEAR Proposed distribution of profit: DKKm 2020 2019       Profit for the year (6) (42) 7. PROPERTY, PLANT AND EQUIPMENT DKKm Land and buildings Operating equipment, fixtures and fittings Total     Cost at 31 December 2020 23 2 25             Depreciation and impairment at 31 December 2020 (14) (2) (16)  Carrying amount at 31 December 2020 9 0 9 FLSmidth  Annual report 2020 122 Parent company financial statements Parent company financial statements 8. FINANCIAL ASSETS For specification of investments in Group enter- prises, see note 6.5 in the consolidated financial statements. Result of annual impairment test As of 31 December 2020, the cost price of the in- vestments in subsidiaries was tested for impair- ment. The impairment test identified impairment charges for 2020 amounting to DKK 54m (2019: DKK 90m). The impairment was related to the subsidiary FLSmidth Global Services A/S based on value in use.  ment amounted to DKK 7m (2019: DKK 0m). Key assumptions The impairment test has been based on a five year forecast for FLSmidth Global Services A/S. The applied discount rate after tax is 7.5% and reflects the latest market assumptions for the risk free rate based on a 10-year Danish government bond, the equity risk premium and the cost of debt. The long-term growth rate for the terminal period is based on the expected growth in the world economy as well as input from current long-term swaps. Based on these factors, a long-term an- nual growth rate for the terminal period of 1.5% has been applied. 9. DEFERRED TAX ASSETS AND LIABILITES Deferred tax relates to the following items: DKKm 2020 2019       Net value of deferred tax assets/(liability) 23 32 10. OTHER RECEIVABLES Other receivables mainly include fair value of fi- nancial contracts (positive value) of DKK 67m (2019: DKK 77m), receivable from Canadian tax authorities DKK 17m (2019: DKK 18m) and tax on account for the Danish jointly taxed enterprises. 11. DERIVATIVES The currency exposure is hedged according to the Financial Policy. At 31 December 2020 the fair value of our hedge agreements amounted to DKK -1m (2019: DKK 5m). Economic hedge, DKKm 2020 Currency Notional amount Net fair value             Total (1) A negative notional amount represents a sale of the currency Economic hedge, DKKm 2019 Currency Notional amount Net fair value             Total 5 A negative notional amount represents a sale of the currency 12. PROVISIONS DKKm 2020 2019          Provisions at 31 December 8 7 13. OTHER LIABILITIES Other liabilities include fair value of financial con- tracts (negative value) of DKK 68m (2019: DKK 72m). 14. MATURITY PROFILE OF CURRENT AND NON- CURRENT LIABILITIES Maturity profile of liabilities: DKKm 2020 2019          Within one year 3,913 3,692       Within one to five years 2,008 2,633 After five years 0 0 Total 5,921 6,325 DKKm Investments in Group enterprises Other securities and investments Total         Cost at 31 December 2020 3,121 37 3,158                 Impairment at 31 December 2020 (609) (18) (627)  Carrying amount at 31 December 2020 2,512 19 2,531 FLSmidth  Annual report 2020 123 Parent company financial statements Parent company financial statements 15. AUDIT FEE In addition to statutory audit, EY Godkendt Revi- sionspartnerselskab, the Parent company audi- tors provided other assurance engagements to the Parent company. DKKm 2020 2019    Total audit related services 3 3 Total fees to independent auditor 3 3 16. CONTRACTUAL AND CONTINGENT LIABILITIES The parent company has provided guarantees primarily to financial institutions at a total amount of DKK 13,088m (2019: DKK 13,947m) of which DKK 4,208m have been utilised in 2020 (2019: DKK 5,670m). In connection with disposal of enterprises, nor- mal guarantees, etc. are issued to the acquiring enterprise. Provisions are made for estimated losses on such items. The parent company is the administration com- pany of the Danish joint taxation. According to the Danish corporate tax rules, as of 1 July 2012, the Company is obliged to withhold taxes on in- terest, royalty and dividend for all companies subjected to the Danish joint taxation scheme. The parent company has issued letter of support for certain Group companies. There are no significant contingent assets or lia- bilities apart from the above. See also note 2.9 in the consolidated financial statements. 17. RELATED PARTY TRANSACTIONS  Board of Directors and Group Executive Manage- ment and the Group companies and associates that are part of the Group. There has been no transactions with related par- ties in 2020 and 2019, apart from Group Execu- tive Management´s remuneration stated in note 2 and Treasury activities as mentioned below. Cap- ital transactions with subsidiaries are included in note 8 and balances are disclosed separately in the balance sheet.  managerial services and insurance services. The parent company´s purchase of services mainly consists of legal and tax assistance provided by FLSmidth A/S. Financial income and costs are attributable to the -house Treasury function, which is performed by the parent company, FLS- midth & Co. A/S. Receivables and payables are mainly attributable to this activity. These transactions are carried out on market terms and at market prices. For guarantees provided by the parent company for related parties, please see note 16 in the par- ent company financial statements. 18. SHAREHOLDERS At the end of 2020: One shareholder has reported a participating in- terest above 10%:  Lundbeckfond Invest A/S, Denmark. No shareholders have reported a participating in- terest above 5%. FLSmidth  Annual report 2020 124 Parent company financial statements Parent company financial statements 19. ACCOUNTING POLICIES  PARENT COMPANY Accounting policy The financial statements of the parent company (FLSmidth & Co. A/S) are presented in conformity with the provisions of the Danish Financial State- ments Act for reporting class D enterprises. To ensure uniform presentation, the terminology used in the consolidated financial statements has as far as possible been applied in the parent   measurement are generally consistent with those of the Group. The instances in which the parent  those of the Group have been described below. The accounting policies for the parent company are unchanged from 2019. income from Group enterprises, is presented first in the income statement. Dividend from Group enterprises Dividend from investments in subsidiaries is rec- ognised as income in the parent companys in- come statement in the financial year in which the dividend is declared. This will typically be at the time of the approval by the Annual General Meeting of distribution from the company con- cerned. When the dividend distributed exceeds the accumulated earnings after the date of acqui- sition, the dividend is recognised in the income statement, however, this will trigger an impair- ment test of the investment. Property, plant and equipment Depreciation is charged on a straight line basis over the estimated useful life of the assets until they reach the estimated residual value. In the  preciation period and the residual value are de- termined at the time of acquisition and are reas- sessed every year. Financial assets Investments in Group enterprises are measured at cost less impairment. Where the cost exceeds the recoverable amount, an impairment loss is recognised to this lower value. To the extent the distributed dividend exceeds the accumulated earnings after the date of acquisition, an impair- ment test of the investment is triggered. Other securities and investments Other securities and investments consist of shares in cement plants that are acquired in con- nection with the signing of contracts and are measured at fair value. Value adjustments are recognised in the income statement as financial items. Cash flow statement As the consolidated financial statements include a cash flow statement for the whole Group, no in- dividual statement for the parent company has been included, see the exemption provision, sec- tion 86 of the Danish Financial Statements Act. FLSmidth  Annual report 2020 125 Parent company financial statements Statement By management The Board of Directors and the Executive Board have today considered and approved the annual report for the financial year 1 January  31 De- cember 2020. The consolidated financial statements are pre- sented in accordance with International Financial Reporting Standards as adopted by the EU. The parent company financial statements are pre- pared in accordance with the Danish Financial Statements Act. Further, the annual report is pre- pared in accordance with additional require- ments of the Danish Financial Statements Act. In our opinion, the consolidated financial state- ments and the parent company financial state- ments give a true and fair  and the Parent company at 31 December 2020 as well as of the results of their operations and the consolidated cash flows for the financial year 1 January  31 December 2020. gives a fair review of the development in  and the Parent companyactivities and financial matters, results of operations, consolidated cash flows and financial position as well as a descrip- tion of material risks and uncertainties that the Group and the Parent company face. In our opinion, the annual report for the financial year 1 January - 31 December 2020 with the file name FLS-2020-12-31.zip is prepared, in all mate- rial respects, in compliance with the ESEF Regu- lation. We recommend the annual report for adoption at the Annual General Meeting. Valby, 10 February 2021 Executive management Thomas Schulz Group CEO Roland M. Andersen Group CFO Board of directors Vagn Ove Sørensen Chairman Tom Knutzen Vice chairman Gillian Dawn Winckler Thrasyvoulos Moraitis Richard Robinson Smith Anne Louise Eberhard Mette Dobel Søren Dickow Quistgaard Claus Østergaard STATEMENT BY MANAGEMENT Statement By management FLSmidth  Annual report 2020 126 Parent company financial statements Independent auditor’s report To the shareholders of FLSmidth & Co. A/S Report on the audit of the consolidated financial statements and parent company financial statements Opinion We have audited the consolidated financial state- ments and the parent company financial state- ments of FLSmidth & Co. A/S for the financial year 1 January  31 December 2020, which com- prise income statement, balance sheet, state- ment of changes in equity and notes, including accounting policies, for the Group and the Parent Company, and a consolidated statement of com- prehensive income and a consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Fi- nancial Reporting Standards as adopted by the EU and additional requirements of the Danish Fi- nancial Statements Act, and the parent company financial statements are prepared in accordance with the Danish Financial Statements Act. In our opinion, the consolidated financial state- ments give a true and fair view of the financial position of the Group at 31 December 2020 and of the results of the Group's operations and cash flows for the financial year 1 January  31 Decem- ber 2020 in accordance with International Finan- cial Reporting Standards as adopted by the EU and additional requirements of the Danish Finan- cial Statements Act. Further, in our opinion the parent company finan- cial statements give a true and fair view of the fi- nancial position of the Parent Company at 31 De- cember 2020 and of the results of the Parent Company's operations for the financial year 1 January  31 December 2020 in accordance with the Danish Financial Statements Act. Our opinion is consistent with our long-form audit report to the Audit Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with Inter- national Standards on Auditing (ISAs) and addi- tional requirements applicable in Denmark. Our responsibilities under those standards and re- quirements are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements and the parent company fi- nancial statements" (hereinafter collectively re- ferred to as "the financial statements") section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Ac- countants (IESBA Code) and additional require- ments applicable in Denmark, and we have ful- filled our other ethical responsibilities in accordance with these rules and requirements. To the best of our knowledge, we have not pro- vided any prohibited non-audit services as de- scribed in article 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor We were initially appointed as auditor of FLS- midth & Co. A/S on 30 March 2017 for the finan- cial year 2017. We have been reappointed annu- ally by resolution of the general meeting for a total consecutive period of 4 years including the financial year 2020. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signifi- cance in our audit of the financial statements for the financial year 2020. These matters were ad- dressed during our audit of the financial state- ments as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter below, our de- scription of how our audit addressed the matter is provided in that context. We have fulfilled our responsibilities described in the "Auditor's responsibilities for the audit of the financial statements" section, including in relation to the key audit matters below. Our audit in- cluded the design and performance of proce- dures to respond to our assessment of the risks of material misstatement of the financial state- ments. The results of our audit procedures, in- cluding the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements. Accounting for projects The accounting principles and disclosures about revenue recognition related to projects are in- cluded in notes 1.4, 2.7 and 3.4 to the consoli- dated financial statements.  Cement and Mining industries deliver long term projects, which typically extends over more than one financial year. Due to the nature of these projects and in accordance with the ac- counting principles, FLSmidth recognises and measures revenue from such long term projects over time based on the cost-to-cost method. Accounting for projects involve significant man- agement judgments in respect of estimating the cost to complete the projects, including risk con- tingencies, warranties, liquidated damages, claims and the expected time to completion as well as the risk of credit losses. Together with the impact from executing projects in parts of the world where macro-economic and political fac- tors as well as COVID-19 related challenges may have an adverse effect, changes in these esti- mates during the execution of projects can signif- icantly impact the revenue, cost and contribution recognised. Accordingly, we considered the ac- counting for projects to be a key audit matter for the consolidated financial statements. As part of our procedures, we obtained an un- derstanding of the process for how project cost are estimated and risk evaluated. Further, we evaluated the design and tested the operating effectiveness of selected controls in this area. We evaluated the judgments made by manage- ment regarding the estimated costs to complete INDEPENDENT AUDITOR'S REPORT Independent auditor’s report FLSmidth  Annual report 2020 127 Parent company financial statements Independent auditor’s report and the assumptions made in assessment of war- ranty provisions. We evaluated the changes in estimated project cost and risk contingencies, and discussed these with project accounting, project management and group management.  garding exposures related to claims and liqui- dated damages for projects and provisions to mitigate contract-specific financial risks as well as the risk of credit losses. For those balances sub- ject to claims, we made inquiries of external and internal legal counsel. We also assessed whether policies and processes for making these esti- mates have been applied consistently to all con- tracts of a similar nature. Valuation of inventory The accounting principles and disclosures about inventory are included in note 3.2 to the consoli- dated financial statements. FLSmidth carries inventory in the balance sheet at the lower of cost and net realisable value. The inventory includes strategic items, which are held in inventory, even if slow moving, because they are considered key equipment for the customers that FLSmidth needs to be able to deliver with very short notice. The valuation of inventory in- volves significant management judgements to determine whether inventory is still technical rel- evant when demand for the inventory items is ex- pected. The current market conditions are also considered. Accordingly, we considered this to be a key audit matter for the consolidated finan- cial statements. As part of our procedures, we obtained an un- derstanding of FLSmidth's process for monitoring inventory and recording write-down for obsolete items. We analysed the inventory recorded in the balance sheet and obtained evidence regarding valuation of slow moving items. Further, we eval-  pected market demand and expected sales price for significant aged items. Valuation of trade receivables The accounting principles and disclosures about trade receivables are included in note 3.3 to the consolidated financial statements. FLSmidth carries trade receivables in the balance sheet at the amortised costs net of impairment losses, which is the original invoice amount less an estimated loss allowance for lifetime expected credit losses. FLSmidth has significant trade re- ceivables from a wide range of customers across the world. Trade receivables include inherent risk of credit losses influenced by specific character- istics and circumstances of the customer, e.g. the  pay, access to securities and payment guarantees, as well as the ageing of the receivable. The current market conditions and any country specific matters are also considered. Accordingly, we considered this to be a key audit matter for the consolidated financial statements. As part of our procedures, we obtained an un- derstanding of FLSmidth's process for monitoring receivables and recording allowances for lifetime expected credit losses. We analysed the trade receivables recorded in the balance sheet and obtained evidence regarding the expected credit losses from items with particular risk characteris-  recoverability particularly for significant aged items by corroborating them against internal and external evidence regarding the likelihood of  make reliable estimates by performing retrospec- tive analysis of past estimates. Statement on the Management's review Management is responsible for the Manage- ment's review. Our opinion on the financial statements does not cover the Management's review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial state- ments, our responsibility is to read the Manage- ment's review and, in doing so, consider whether the Management's review is materially incon- sistent with the financial statements or our knowledge obtained during the audit, or other- wise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management's review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we con- clude that the Management's review is in accord- ance with the financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the Man- agement's review. Management's responsibilities for the financial statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Interna- tional Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act and for the preparation of parent company financial state- ments that give a true and fair view in accord- ance with the Danish Financial Statements Act. Moreover, Management is responsible for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstate- ment, whether due to fraud or error. In preparing the financial statements, Manage- ment is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, mat- ters related to going concern and using the go- ing concern basis of accounting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Com- pany or to cease operations, or has no realistic alternative but to do so. FLSmidth  Annual report 2020 128 Parent company financial statements Independent auditor’s report Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assur- ance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an au- ditor's report that includes our opinion. Reasona- ble assurance is a high level of assurance, but is not a guarantee that an audit conducted in ac- cordance with ISAs and additional requirements applicable in Denmark will always detect a mate- rial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit conducted in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material mis- statement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and ob- tain audit evidence that is sufficient and appro- priate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one re- sulting from error, as fraud may involve collu- sion, forgery, intentional omissions, misrepre- sentations or the override of internal control.  Obtain an understanding of internal control rel- evant to the audit in order to design audit pro- cedures that are appropriate in the circum- stances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent Company's internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of ac- counting estimates and related disclosures made by Management.  Conclude on the appropriateness of Manage- ment's use of the going concern basis of ac- counting in preparing the financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent Compa- ny's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audi- tor's report to the related disclosures in the fi- nancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclu- sions are based on the audit evidence ob- tained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern.  Evaluate the overall presentation, structure and contents of the financial statements, including the note disclosures, and whether the financial statements represent the underlying transac- tions and events in a manner that gives a true and fair view.  Obtain sufficient appropriate audit evidence re- garding the financial information of the entities or business activities within the Group to ex- press an opinion on the consolidated financial statements. We are responsible for the direc- tion, supervision and performance of the group audit. We remain solely responsible for our au- dit opinion. We communicate with those charged with gov- ernance regarding, among other matters, the planned scope and timing of the audit and signifi- cant audit findings, including any significant defi- ciencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with rel- evant ethical requirements regarding independ- ence, and to communicate with them all relation- ships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the au- dit of the consolidated financial statements and the parent company financial statements of the current period and are therefore the key audit matters. We describe these matters in our audi- tor's report unless law or regulation precludes public disclosure about the matter or when, in ex- tremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on compliance with the ESEF Regulation As part of our audit of the financial statements of FLSmidth & Co. A/S we performed procedures to express an opinion on whether the annual report for the financial year 1 January - 31 December 2020 with the file name FLS-2020-12-31.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic For- mat (ESEF Regulation) which includes require- ments related to the preparation of the annual re- port in XHTML format and iXBRL tagging of the consolidated financial statements. Management is responsible for preparing an an- nual report that complies with the ESEF Regula- tion. This responsibility includes:  The preparing of the annual report in XHTML format;  The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to ele- ments in the taxonomy, for financial information required to be tagged using judgement where necessary;  Ensuring consistency between iXBRL tagged data and the consolidated financial statements presented in human readable format; and  For such internal control as Management de- termines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. FLSmidth  Annual report 2020 129 Parent company financial statements Independent auditor’s report Our responsibility is to obtain reasonable assur- ance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of proce-  ment, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include:  Testing whether the annual report is prepared in XHTML format;   iXBRL tagging process and of internal control over the tagging process;  Evaluating the completeness of the iXBRL tag- ging of the consolidated financial statements;  Evaluating the appropriateness of the com-  the ESEF taxonomy and the creation of exten- sion elements where no suitable element in the ESEF taxonomy has been identified;  Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and  Reconciling the iXBRL tagged data with the au- dited consolidated financial statements. In our opinion, the annual report for the financial year 1 January - 31 December 2020 with the file name FLS-2020-12-31.zip is prepared, in all mate- rial respects, in compliance with the ESEF Regu- lation. Copenhagen, 10 February 2021 EY Godkendt Revisionspartnerselskab CVR no. 30 70 02 28 Henrik Kronborg Iversen State Authorised Public Accountant mne24687 Jens Thordahl Nøhr State Authorised Public Accountant mne32212 FLSmidth  Annual report 2020 130 Parent company financial statements Forward looking statement  the form of annual reports or interim reports, filed with the Danish Business Authority and/or an-  NASDAQ Copenhagen, as well as any presenta- tions based on such financial reports, and any other written information released, or oral state- ments made, to the public based on this report or in the future on behalf of FLSmidth & Co. A/S, may contain forward looking statements.     other words and terms of similar meaning in con- nection with any discussion of future operating or financial performance identify forward-looking statements. Examples of such forward-looking statements include, but are not limited to:  Statements of plans, objectives or goals for fu- ture operations, including those related to FLS-  re- search and product development.  Statements containing projections of or targets for revenues, profit (or loss), CAPEX, dividends, capital structure or other net financial items.  Statements regarding future economic perfor- mance, future actions and outcome of contin- gencies such as legal proceedings and state- ments regarding the underlying assumptions or relating to such statements.  Statements regarding potential merger & acquisition activities. These forward-looking statements are based on current plans, estimates and projections. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which may be outside FLSmidth &  fect such forward-looking statements. FLSmidth & Co. A/S cautions that a number of im- portant factors, including those described in this report, could cause actual results to differ materi- ally from those contemplated in any forward- looking statements. Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including interest rate and exchange rate fluctuations, delays or faults in project execution, fluctuations in raw material prices, delays in research and/or development of new products or service concepts, interruptions of supplies and production, unexpected breach or termination of contracts, market-driven price  and/or services, introduction of competing prod- ucts, reliance on information technology,  current and new products, exposure to product liability and legal proceedings and investigations, changes in legislation or regulation and interpre- tation thereof, intellectual property protection, perceived or actual failure to adhere to ethical marketing practices, investments in and divesti- tures of domestic and foreign enterprises, unex- pected growth in costs and expenses, failure to recruit and retain the right employees and failure to maintain a culture of compliance. Unless re- quired by law FLSmidth & Co. A/S is under no duty and undertakes no obligation to update or revise any forward-looking statement after the distribution of this report. FORWARD LOOKING STATEMENTS Forward looking statement Annual Report 2020 1 January - 31 December 2020 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby Denmark Tel.: +45 36 18 18 00 Fax: +45 36 44 11 46 corpir@smidth.com www.smidth.com CVR No. 58180912 213800G7EG4156NNPG912020-01-012020-12-31213800G7EG4156NNPG912020-01-012020-12-31cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-311cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-312cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-311cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-312cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-313cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-314cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-315cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-316cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-317cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-318cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-319cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-311cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-12-312cmn:ConsolidatedMember213800G7EG4156NNPG912019-01-012019-12-31cmn:ConsolidatedMember213800G7EG4156NNPG912019-01-012019-12-31213800G7EG4156NNPG912020-01-01213800G7EG4156NNPG912020-12-31213800G7EG4156NNPG912019-01-01213800G7EG4156NNPG912019-12-31213800G7EG4156NNPG912020-01-01ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912020-01-012020-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912020-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912020-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912020-01-01ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912020-01-012020-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912020-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912020-01-01ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912020-01-012020-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912020-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912020-01-01ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912020-01-01ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912020-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912019-01-01ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912019-01-012019-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912019-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912019-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912019-01-012019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912019-01-01ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912019-01-012019-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912019-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912019-01-01ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912019-01-012019-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912019-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912019-01-01ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912019-01-012019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912019-01-01ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912019-01-012019-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912019-12-31ifrs-full:NoncontrollingInterestsMemberxbrli:pureiso4217:DKKiso4217:DKKxbrli:sharesFLSDenmarkA/SDenmarkVigerslev Allé 77, 2500 ValbyDenmarkFLSmidth is a leading provider of engineering, equipment and service solutions to the global mining and cement industries.FLSmidth & Co. A/SFLSmidth & Co. A/SN/AAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter2020-01-012020-12-312019-01-012019-12-31213800G7EG4156NNPG91FLSReporting class D58180912Vigerslev Allé772500ValbyDenmarkDK+4536181800+4536441146www.flsmidth.comcorpir@flsmidth.comwww.flsmidth.com/GovernanceStatement2020www.flsmidth.com/SustainabilityReport2020www.flsmidth.com/SustainabilityReport2020www.flsmidth.com/SustainabilityReport202011,5671166987Valby2021-02-10Thomas SchulzGroup CEORoland M. AndersenGroup CFOVagn Ove SørensenChairmanTom KnutzenVice chairmanGillian Dawn WincklerThrasyvoulos MoraitisRichard Robinson SmithAnne Louise EberhardMette DobelSøren Dickow QuistgaardClaus Østergaard213800G7EG4156NNPG9158180912FLSVigerslev Allé 772500 ValbyOpinionBasis for OpinionCopenhagen2021-02-10Henrik Kronborg IversenState Authorised Public Accountantmne2468730700228EY Godkendt RevisionspartnerselskabDirch Passers Allé362000FrederiksbergJens Thordahl NøhrState Authorised Public Accountantmne3221230700228EY Godkendt RevisionspartnerselskabDirch Passers Allé362000Frederiksberg