FLSmidth & Co.

Annual Report (ESEF) • May 11, 2023

Untitled Interim Report Q1 2023 1 January – 31 March 2023 Company announcement no. 11 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby CVR No. 58180912 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 2 Management review Highlights 4 Financial performance highlights Q1 2023 5 Sustainability performance highlights Q1 2023 6 Key figures 7 2023 financial guidance 8 Mining financial performance Q1 2023 9 Cement financial performance Q1 2023 11 Non-Core Activities financial performance Q1 2023 13 Consolidated financial performance Q1 2023 14 Consolidated Condensed Financial statements Income statement 18 Statement of comprehensive income 18 Cash flow statement 19 Balance sheet 20 Equity statement 21 Notes 1. Key accounting estimates and judgements 23 2. Income statement by function 23 3. Segment information 24 4. Revenue 25 5. Provisions 26 6. Contractual commitments and contingent liabilities 26 7. Discontinued activities 27 8. Net working capital 27 9. Shareholders’ equity 28 10. Events after the balance sheet date 28 11. Accounting policies 28 Statements Statement by Management 30 Forward looking statements 31 Contents Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 3 Management review Highlights 4 Financial performance highlights Q1 2023 5 Sustainability performance highlights Q1 2023 6 Key figures 7 2023 financial guidance 8 Mining financial performance Q1 2023 9 Cement financial performance Q1 2023 11 Non-Core Activities financial performance Q1 2023 13 Consolidated financial performance Q1 2023 14 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 4 We have had a good start to the year. The key transformation efforts, which we initiated last year, positively impacted our performance in the first quarter of 2023. Our Mining business saw good underlying development in both revenue and profitability, reflecting our increased focus on the Service business and our continued de-risking approach. Sentiment in the mining industry remains posi- tive and service activity levels remain healthy. The cement market has remained largely stable compared to the prior quarter despite macroeconomic challenges. Our Cement business’ profitability has continued to benefit from our operating model simplification efforts and our in- creased focus on key markets. We are pleased with how our transformation journey has progressed during the first quarter of 2023. This includes the accelerated pace of the synergy takeout from the Mining Technologies integration and the Non-Core Activities exit, as successful execution of these is essential in our journey to improve our long- term profitability. - Mikko Keto, Group CEO Highlights Q1 2023 Mining Cement ■ Service orders intake growth of 15% ■ Strong Service revenue growth of 48% ■ Adj. EBITA margin of 9.6% ■ Cost synergy takeout slightly ahead of plan (reduction of +800 FTEs) ■ Service orders represented 60% of order intake ■ Service revenue growth of 6% ■ Sustained profitability with EBITA margin of 4.3% ■ Positive impact from operating model simplification Sustainability Performance and other ■ Increased spend with suppliers with SBT targets ■ Improvement in share of women managers ■ Negative development on safety (TRIR) ■ Transformation progress on track ■ Non-Core Activities order back- log reduced to DKK 2.1bn ■ Negative cash flow in line with expectations ■ Financial guidance for 2023 maintained Mining Technologies refers to the former thyssenkrupp Mining business, which FLSmidth acquired on 31 August 2022. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 5 Financial performance highlights Q1 2023 Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Cash flow from operating activities DKKm (404) ▼ from DKKm (70) in Q1 2022 GROUP 5,632 ▼ -19.7% 6,016 ▲ 27.8% 235 3.9% (adj. 6.0%) ▼ - 22.2% Earnings per share DKK 1.5 ▼ from DKK 2.3 in Q1 2022 Net working capital ratio 10.6% ▲ from 7.3% end of Q1 2022 NIBD/EBITDA 1.0x ▲ from -0.6x end of Q1 2022 For an explanation on the calculation of the net working capital ratio refer to section 7.8 in the 2022 Annual Report. Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Service & Products % MINING 4,177 ▼ -19.0% 4,185 ▲ 29.4% 274 6.5% (adj. 9.6%) ▲ 10.0% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Service & Products % CEMENT 1,344 ▼ -27.8% 1,582 ▲ 7.4% 68 4.3% ▲ 28.3% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Service & Products % NON -CORE ACTIVITIES 111 249 (107) -43.0% 7,018 5,632 Q1 2022 Q1 2023 4,706 6,016 Q1 2022 Q1 2023 302 235 Q1 2022 Q1 2023 5,157 4,177 Q1 2022 Q1 2023 3,233 4,185 Q1 2022 Q1 2023 249 274 Q1 2022 Q1 2023 65% (Q1 2022: 56%) 35% (Q1 2022: 44%) Service Products 1,861 1,344 Q1 2022 Q1 2023 1,473 1,582 Q1 2022 Q1 2023 53 68 Q1 2022 Q1 2023 56% (Q1 2022: 57%) 44% (Q1 2022: 43%) Service Products - 111 Q1 2022 Q1 2023 - 249 Q1 2022 Q1 2023 - (107) Q1 2022 Q1 2023 37% 63% Service Products Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 6 Sustainability performance highlights Q1 2023 Safety (Total recordable injury rate) Total recordable injury rate/million working hours Women managers % MissionZero developments We continue to support our customers in their journey to reduce carbon emissions in both mining and cement. Demand for our MissionZero offerings remains strong as we improve efficiency and deliver innovative energy-reducing solutions. FLS crushing technology to improve copper mine’s production and efficiency In continuing efforts to boost the sustainable performance of its crushing operations, one of the world’s leading copper miners, First Quan- tum, selected a FLSmidth semi-mobile crushing plant for its Sentinel copper mine in Zambia. This was the ninth in-pit crushing and conveying (IPCC) solution supplied by FLSmidth to First Quantum and it will significantly reduce emis- sions associated with, for example, truck haul- age. It will also improve the safety of operations and maintenance. The value of the order has not been disclosed. Innovative combustion system accelerates cement producer’s pursuit of net zero The Irish construction products manufacturer Mannok expects to eliminate fossil fuel use in clinker production using the FLSmidth FUELFLEX® Pyrolyzer combustion system. This is the result of a co-development project be- tween FLSmidth and Mannok, where the system has operated successfully since July 2022. Mannok expects to remove around 40,000 tonnes of coal and reduce CO2 emissions by 58,000 tonnes per year, taking advantage of greater efficiency in alternative fuels utilisation. 2.6 2023 Target: 1.2 ▼ 1.5 deterioration 14.9 2023 Target: 16.3% ▲ 0.6%-points improvement Total recordable injury rate increased compared to Q1 2022. There is no clear pattern that explains the increase in incidents and they are spread across all re- gions. As a consequence we will look into our safety guidance and create even more awareness so that we can prevent incidents from happening going forward. Due to our ongoing recruitment and leadership initia- tives, the number of women managers has increased to 14.9% from 14.3% compared to end of 2022. Water withdrawal m 3 Scope 1 & 2 greenhouse gas emissions tCO 2 e (market-based) Spend with suppliers with science- based targets % 38,030 ▼ 11.4% deterioration 10,913 2023 Target: 38,302 ▼ 1.5% deterioration 10.8% 2023 Target: 10% ▲ 3.1%-points improvement Water reductions initiatives have been successful in cutting back water consumption, particularly in wa- ter-stressed areas. The increase in water usage com- pared to Q1 2022 is due to the increase in sites after the acquisition of Mining Technologies. CO2e emissions for the first quarter show good pro- gress from effective emissions reductions initiatives. An increase in emissions compared to the same period last year reflects the inclusion of new Mining Technol- ogies sites. Spend with suppliers with science-based targets has increased by 3.1%-points from the end of 2022. This re- flects dedicated efforts to increase our procurement from suppliers who already have set science-based targets. 2023 scope 1&2 targets are in the process of being reviewed after the acquisition of Mining Technologies and will be restated in line with the GhG Protocol in Q2. 1.1 2.6 Q1 2022 Q1 2023 14.3% 14.9% Q4 2022 Q1 2023 34,127 38,030 Q1 2022 Q1 2023 10,747 10,913 Q1 2022 Q1 2023 7.7% 10.8% 2022 Q1 2023 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 7 * Key figures DKKm Q1 2023 Q1 2022 2022 Income statement Revenue 6,016 4,706 21,849 Gross profit 1,397 1,107 5,076 EBITDA 322 382 1,300 EBITA 235 302 943 Adjusted EBITA 362 339 1,395 EBIT 177 222 619 Financial items, net (16) (29) (67) EBT 161 193 552 Profit for the period, continuing activities 103 123 351 Loss for the period, discontinued activities (19) 0 1 Profit for the period 84 123 352 Orders Order intake 5,632 7,018 24,644 Order backlog 22,027 19,358 23,541 Earning ratios Gross margin 23.2% 23.5% 23.2% EBITDA margin 5.4% 8.1% 5.9% EBITA margin 3.9% 6.4% 4.3% Adjusted EBITA margin 6.0% 7.2% 6.4% EBIT margin 2.9% 4.7% 2.8% EBT margin 2.7% 4.1% 2.5% Cash flow Cash flow from operating activities (CFFO) (404) (70) 968 Acquisitions of property, plant and equipment (24) (15) (88) Cash flow from investing activities (CFFI) (24) 35 (2,310) Free cash flow (428) (35) (1,342) Free cash flow adjusted for acquisitions and disposals of enterprises and activities (428) (35) 777 Balance sheet Net working capital 2,613 1,354 1,893 Net interest-bearing debt (NIBD) (1,187) 864 (726) Total assets 29,643 23,878 29,845 CAPEX 79 91 424 Equity 10,611 10,679 10,787 Dividend to shareholders, paid 0 0 173 DKKm Q1 2023 Q1 2022 2022 Financial ratios Book-to-bill 93.6% 149.1% 112.8% Order backlog / Revenue 95.1% 104.2% 107.7% Return on equity 3.1% 4.7% 3.3% Equity ratio 35.8% 44.7% 36.1% ROCE, average 5.1% 7.8% 5.9% Net working capital ratio, end 10.6% 7.3% 7.8% NIBD / EBITDA 1.0x -0.6x 0.6x Capital employed, average 17,034 14,715 15,888 Number of employees 10,345 10,039 10,977 Share ratios Cash flow per share (CFPS), (diluted) (7.1) (1.2) 17.0 Earnings per share (EPS), (diluted) 1.5 2.3 6.5 Share price 262.2 177.5 251.7 Number of shares (1,000), end 57,650 57,650 57,650 Market capitalisation, end 15,116 10,233 14,511 Sustainability key figures Scope 1 & 2 GHG emissions (tCO2e) market-based 10,913 10,747 36,767 Water withdrawal (m3) 38,030 34,127 178,064 Safety, TRIR Total Recordable Injury Rate (including contractors) 2.6 1.1 1.5 Women managers 14.9% 14.6% 14.3% Spend with suppliers with science-based targets 10.8% n/a 7.7% Other key figures Quality, DIFOT Delivery In Full On Time 83.0% 79.5% 81.9% Use of alternative performance measures Throughout the report we present financial measures which are not defined according to IFRS. The financial ratios have been computed in accordance with the guidelines of the Danish Finance Society. We have included additional information in note 7.4 Alternative performance measures and 7.8 Definition of terms in the 2022 Annual Report and in note 11 of this report. FLSmidth acquired Mining Technologies as per 31 st August 2022. *To reflect the underlying business performance, we present an adjusted EBITA margin to cover for the integration costs of DKK 127m (2022: DKK 252m) related to the integration of Mining Technologies. In 2022, EBITA was also adjusted for cost related to the exit of Russian activities of DKK 200m. For an explanation on the ratios, please refer to the Annual Report 2022, pages 121 - 122. Return on equity is based on an annualised profit determined four times the profit for Q1. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 8 2023 financial guidance Mining Revenue (DKKbn) 16.0-17.0 (DKK 4.2bn) Adj. EBITA margin 9-10% (9.6%) Cement Revenue (DKKbn) 6.0-6.5 (DKK 1.6bn) EBITA margin 4.0-5.0% (4.3%) Non-Core Activities Revenue (DKKbn) 0.8-1.0 (DKK 249m) EBITA Loss of ~DKK 250-350m (Loss of DKK 107m) Group Revenue (DKKbn) 23.0-24.5 (DKK 6.0bn) Adj. EBITA margin 6.0-7.0% (6.0%) EBITA margin 4.0-5.0% (3.9%) Following a strong 2022, we expect market activity levels in 2023 to remain largely stable versus 2022. The former Mining Technologies business is expected to contribute with less than DKK 3bn in revenue in 2023 and is ex- pected to have a dilutive effect on the full year 2023 adjusted Mining EBITA margin of around 2%-points. Guidance for Adjusted EBITA margin in- cludes adjustments for integration costs of around DKK 550m for the full year 2023. Short-term outlook for the Cement industry remains impacted by overcapacity and the potential recession is expected to impact market demand negatively over the com- ing period. Non-Core Activities EBITA margin guidance for 2023 reflects the operationally loss- making nature of the business as well as costs related to contract negotiations aimed at reducing the scope of the Non- Core Activities order backlog. Consolidated Group guidance reflects the sum of the guidance for the three business segments. Guidance for Adjusted EBITA margin in- cludes adjustments for integration costs of around DKK 550m for the full year 2023. Guidance for 2023 is subject to uncertainty due to the global supply chain situation, potential recession and geopolitical turmoil. Note: Numbers in brackets represent realised Q1 2023 results Financial guidance for 2023 is maintained. Guidance for full year 2023 reflects continued improvement of the underlying legacy FLSmidth Mining business, integration of Mining Technologies and the establishment of the Non-Core Activities segment. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 9 Market outlook and trends in Q1 2023 The mining industry remains in an active steady state with continued positive long-term demand for minerals essential to economic growth and the green transition. Q1 2023 was marked by continued high activity in gold and lithium projects, however dampened by some cautiousness in large copper projects in South America due to the political situation and lengthy permitting processes. We however con- tinue to see a strong pipeline supporting the long- term demand for minerals across all regions, de- spite current macroeconomic uncertainty. Order intake development in Q1 2023 Q1 2023 order intake declined by 20% excluding currency effects. Compared to Q1 2022, Mining or- der intake in Q1 2023 does not include Russia or Non-Core Activities. However, Q1 2023 order intake includes Mining Technologies. When adjusting for Russia, Non-Core Activities and Min- ing Technologies the underlying order intake in the quarter declined approximately 23%. This development reflects our ongoing transformation and the strong comparison quarter. The 51% decline in Products order intake was largely due to the strong Q1 2022 comparison quarter, which included four large announced product orders at a total combined value of around DKK 1.4bn. Q1 2023 included one large an- nounced product order valued at around DKK 350m to supply mineral processing equipment for a gold mine in the Middle East. The lower Products order intake in Q1 2023 also reflected our continued de-risking strategy, where we remain focused on opportunities with reduced risks and larger long-term service potential. Service order intake increased by 15% in Q1 2023 supported by the acquisition of Mining Technolo- gies. The increase reflected improved sales efforts to the installed base as well as a strong activity in spare and wear parts especially in North America, Asia-Pacific and the Sub-Saharan and Middle Eastern regions. The increase indicated a continu- ing improvement in service activity levels and pos- itive market sentiment, partially offset by our ef- forts of exiting low margin basic labour services. During the quarter, Service and Products order in- take represented 70% and 30% of Mining order in- take, compared to 49% and 51% in Q1 2022, re- spectively, which is in line with our de-risking strategy and service focus. Mining order intake split per region Q1 2023 ECANA refers to the region of Europe, Central Asia and North Africa. Order intake Q1 2023 split by Products & Service % Mining order intake split by commodity Q1 2023 % Mining financial performance Q1 2023 70% (Q1 2022: 49%) 30% (Q1 2022: 51%) Service Products 35% 21% 7% 3% 11% 23% Copper Gold Coal Fertilizer Iron ore Other 25% 32% 18% 9% 16% NAMER SAMER ECANA SSAMESA APAC Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 10 Revenue development in Q1 2023 Q1 2023 revenue increased by 28% excluding cur- rency effects. This development reflects our exit of Russia, the establishment of the Non-Core Activi- ties segment and the acquisition of Mining Tech- nologies. Adjusting for these factors, the underly- ing revenue growth in the quarter was approximately 29%. Excluding Russia, revenue in- creased by 45% in Q1 2023. The key driver for the revenue growth was the Service business, fully in line with our ongoing transformation strategy. Service revenue in- creased by 48% in the quarter and accounted for 92% of the total revenue growth in the quarter. This growth was, mainly driven by a continued healthy spare and wear parts demand, especially in North and South America. Service revenue growth was further supported by the acquisition of Mining Technologies. De-risking our Products portfolio combined with our increased focus on the Service business re- duced Products’ share of revenue from 44% in Q1 2022 to 35%. Products revenue increased by 5% supported by the acquisition of Mining Technolo- gies. Gross profit development in Q1 2023 Gross profit increased by 40% to DKK 1,065m from DKK 760m in Q1 2022. The corresponding gross margin increased to 25.4% as a result of the higher Service revenue, partly offset by integra- tion costs related to Mining Technologies. EBITA development in Q1 2023 Adjusted for integration costs of DKK 127m, the ad- justed EBITA margin was 9.6% in Q1 2023. The ad- justed EBITA margin was realised despite an ap- proximated dilutive effect from the acquisition of Mining Technologies of around 2%-points. Including integration costs, the reported EBITA margin decreased to 6.5% from 7.7% in Q1 2022. While the number of employees in Mining in- creased compared to Q1 2022 mainly due to Min- ing Technologies, the number of employees in Mining has been reduced by more than 1,300 em- ployees since the end of Q3 2022. The reduction reflects the establishment of the Non-Core Activi- ties segment as of Q4 2022 and the ongoing syn- ergy takeout related to the Mining Technologies' integration. Mining financial performance Q1 2023 Growth in Mining in Q1 2023 (vs. Q1 2022) Revenue and EBITA margin DKKm EBITA margin % 0% 2% 4% 6% 8% 10% 12% 14% 16% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Products Service EBITA margin % Adj. EBITA margin % Order intake Revenue Organic -20% 28% Currency 1% 1% Total growth -19% 29% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q1 2022 includes Non-Core Activities. Mining (DKKm) Q1 2023 Q1 2022 Change (%) Order intake 4,177 5,157 -19% - Hereof service order intake 2,902 2,530 15% - Hereof products order intake 1,275 2,627 -51% Order backlog 13,876 12,911 7% Revenue 4,185 3,233 29% - Hereof service revenue 2,700 1,820 48% - Hereof products revenue 1,485 1,413 5% Gross profit 1,065 760 40% Gross margin 25.4% 23.5% Adjusted EBITA 400 286 40% Adjusted EBITA margin 9.6% 8.8% EBITA 274 249 10% EBITA margin 6.5% 7.7% Number of employees 6,821 6,305 8% Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 11 Market outlook and trends in Q1 2023 In Q1 2023, we have seen continued stable activ- ity in both the Service and Products markets ver- sus prior quarters. Cement producers remain fo- cused on the cement industry’s required green transition. We are in continued close dialogue with our key customers on how we can help them drive their next steps in this regard. Despite overcapacity in the market, we see an in- creased demand in India for additional local capacity due to investments in infrastructure and other development areas. The Chinese market continues to focus on modernisation of existing plants with new and more efficient and sustaina- ble products. In general, we continue to see focus towards on more sustainable cement production trending globally. However, in Europe, the ongo- ing war in Ukraine, inflation and increasing inter- est rates have impacted the business climate and decisions for investments have on some occasions been delayed. Overall, the Service market showed stable perfor- mance throughout Q1 2023. Products pipeline continues to be healthy, where there is an in- creased focus on sustainability improvements. Order intake development in Q1 2023 Cement order intake in Q1 2023 declined by 29% excluding currency effects. This development mainly reflects a 42% decrease in Products order intake compared to Q1 2022, which included sev- eral sizeable orders, as well as our de-risking strategy. Service order intake decreased by 14% compared to Q1 2022. The decrease reflected our continued de-risking approach and the implementation of our new simplified operating model. In all our lead countries, we have however seen growth in the Service order intake versus Q1 2022. During the quarter Service and Products orders represented 60% and 40% of Cement order intake compared to 51% and 49% in Q1 2022, respec- tively, which is in line with our de-risking strategy and service focus. Cement financial performance Q1 2023 Cement order intake split per region Q1 2023 % ECANA refers to the region of Europe, Central Asia and North Africa. Order intake Q1 2023 split by Products & Service % 60% (Q1 2022: 51%) 40% (Q1 2022: 49%) Service Products 36% 17% 21% 13% 13% NAMER SAMER ECANA SSAMESA APAC Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 12 Revenue development in Q1 2023 Q1 2023 revenue increased by 6% excluding cur- rency effects and by 9% excluding Russia com- pared to Q1 2022. The increase was driven by both Products and Service. Products revenue increased by 9% compared to Q1 2022 driven by good execution on the order backlog. Service revenue increased by 6% and accounted for 56% of revenue in Q1 2023, driven mainly by a high demand for spare and wear parts especially in North and South America. Gross profit development in Q1 2023 Gross profit increased by 7% to DKK 372m, as a result of a good execution on higher margin or- ders. The corresponding gross margin of 23.5% was largely in line with Q1 2022, impacted by ad- ditional footprint optimisation costs following the new simplified operating model in Cement. EBITA development in Q1 2023 Cement EBITA continued the positive trend and in- creased by 28% compared to Q1 2022. This was driven by a focus on higher Service revenue and cost improvements from the execution of the new simplified operating model activities. EBITA amounted to DKK 68m in Q1 2023 compared to DKK 53m in Q1 2022. The corresponding EBITA margin improved by 0.7%-points to 4.3% in Q1 2023. The number of employees in Cement has been re- duced by 710 compared to Q1 2022. The reduc- tion mainly related to the global footprint optimi- sation and operating model simplification to improve operations and ensure sustainable profit- ability. Cement financial performance Q1 2023 Growth in Cement in Q1 2023 (vs. Q1 2022) Revenue and EBITA margin DKKm EBITA margin % Order intake Revenue Organic -29% 6% Currency 1% 1% Total growth -28% 7% Cement (DKKm) Q1 2023 Q1 2022 Change (%) Order intake 1,344 1,861 -28% - Hereof service order intake 813 944 -14% - Hereof products order intake 531 917 -42% Order backlog 6,066 6,447 -6% Revenue 1,582 1,473 7% - Hereof service revenue 890 838 6% - Hereof products revenue 692 635 9% Gross profit 372 347 7% Gross margin 23.5% 23.6% EBITA 68 53 28% EBITA margin 4.3% 3.6% Number of employees 3,024 3,734 -19% -4% -2% 0% 2% 4% 6% 8% 10% 0 500 1,000 1,500 2,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Service Products EBITA margin % Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 13 Non-Core Activities outlook The Non-Core Activities segment was established as of Q4 2022 and comprises products that are no longer deemed to be of core strategic importance to FLSmidth and are to a large extent loss-making mining activities. Activities in the segment will be fully exited either by way of divestment or wind down of the order backlog over the period Q4 2022 to end 2025. We are in dialogue with a po- tential buyer who has shown interest in acquiring parts of the Non-Core Activities business. This may lead to an agreement in the near future. Order intake development in Q1 2023 Order intake for Non-Core Activities amounted to DKK 111m. During the quarter, Service and Prod- ucts orders represented 72% and 28% of Non- Core Activities order intake, respectively. The or- der intake related to contractual obligations and parts already in stock and showed a decrease of 47% compared to order intake in Q4 2022 of DKK 209m. Order backlog development in Q1 2023 The order backlog amounted to around DKK 2.1bn by end of Q1 2023, which represented a decrease of DKK 0.8bn compared to Q4 2022. The de- crease reflected the execution of the order back- log as well as re-scoping and contract termina- tions. This was partly offset by the order intake in the quarter. This is fully in line with our strategy to divest or wind down the backlog. The majority of the order backlog is destined for countries within APAC and ECANA. Revenue development in Q1 2023 Non-Core Activities revenue in Q1 2023 amounted to DKK 249m, which was a decrease of 50% com- pared to Q4 2022 (DKK 503m). Products accounted for 63% of total revenue, while 37% of revenue was related to Service. Gross profit development in Q1 2023 Gross profit was negative as expected and amounted to DKK -40m, reflecting the general vol- atility and operationally loss-making nature of the Non-Core Activities business. The corresponding gross margin amounted to -16.1%. EBITA development in Q1 2023 EBITA for Non-Core Activities amounted to DKK -107m, in line with guidance. The corresponding EBITA margin amounted to -43.0% driven by the negative gross profit, timing of the execution of one specific order, and costs related to exiting Non-Core Activities. The number of employees amounted to 500 as of end Q1 2023, which is a decline of 81 employees compared to end Q4 2022. Non-Core Activities financial performance Q1 2023 Q1 2023 order intake split per region % ECANA refers to the region of Europe, Central Asia and North Africa. Q1 2023 order intake split by commodity % Non-Core Activities (DKKm) Q1 2023 Order intake 111 - Hereof service order intake 80 - Hereof products order intake 31 Order backlog 2,085 Revenue 249 - Hereof service revenue 92 - Hereof products revenue 157 Gross profit (40) Gross margin -16.1% EBITA (107) EBITA margin -43.0% Number of employees 500 1% 9% 83% 7% Copper Coal Iron ore Other Minerals 9% 24% 6% 9% 52% NAMER SAMER ECANA SSAMESA APAC Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 14 Growth Group order intake decreased 20% in Q1 2023 driven by a decline in Products. Group revenue increased 28%, driven primarily by the Mining service business and the acquisition of Mining Technologies. Order intake development in Q1 2023 Q1 2023 order intake declined by 21% excluding currency effects. Compared to Q1 2022, Group order intake in Q1 2023 includes Mining Technolo- gies, but does not include Russia. When adjusting for Russia and Mining Technologies the underlying order intake in the quarter declined approximately 27%. This development reflects our ongoing transformation and the strong compari- son quarter, which included several large product orders. Service order intake increased by 9% supported by continued healthy market conditions and the acquisition of Mining Technologies. Service repre- sented 67% of total order intake in Q1 2023 against 50% in Q1 2022. Products order intake de- creased by 48% compared to Q1 2022, reflecting the year-over-year comparison and our de-risking strategy. Order backlog and maturity The order backlog decreased 6% to DKK 22.0bn compared to the prior quarter (Q4 2022: DKK 23.5bn) due to strong execution of the order backlog and the exit of our Russian and Belarusian activities. Outstanding order backlog related to Russian and Belarusian contracts declined to DKK 0.3bn at the end of Q1 2023 (end of Q4 2022: DKK 0.7bn) re- flecting successful contract terminations. The re- maining orders are suspended by FLSmidth and are due to the uncertainty included in the ‘2025 and beyond’ maturity. The Non-Core Activities backlog represented around DKK 2.1bn at the end of Q1 2023. Backlog maturity Mining Cement Non-Core Activities FLSmidth Group 2023 56% 48% 37% 52% 2024 41% 29% 36% 37% 2025 & beyond 3% 23% 27% 11% Revenue development in Q1 2023 Revenue increased by 27% excluding currency ef- fects and by 39% excluding Russia compared to Q1 2022. When adjusting for Russia and Mining Technologies the underlying revenue growth in the quarter was approximately 20%. In line with expectations, the quarter included DKK 249m in revenue from Non-Core Activities. The increase was driven by a 39% increase in Ser- vice revenue and 14% increase in Products reve- nue. Service revenue accounted for 61% of total revenue in the quarter, compared to 56% in Q1 2022. Consolidated financial performance Q1 2023 Growth in order intake in Q1 2023 (vs. Q1 2022) Growth in revenue in Q1 2023 (vs. Q1 2022) Order intake DKKm Mining Cement Non-Core Activities FLSmidth Group Organic 28% 6% n/a 27% Currency 1% 1% n/a 1% Total growth 29% 7% n/a 28% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q1 2022 includes Non-Core Activities. Mining Cement Non-Core Activities FLSmidth Group Organic -20% -29% n/a -21% Currency 1% 1% n/a 1% Total growth -19% -28% n/a -20% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q1 2022 includes Non-Core Activities. Group – continued activities (DKKm) Q1 2023 Q1 2022 Change (%) Order intake 5,632 7,018 -20% - Hereof service order intake 3,795 3,474 9% - Hereof products order intake 1,837 3,544 -48% Order backlog 22,027 19,358 14% Revenue 6,016 4,706 28% - Hereof service revenue 3,682 2,658 39% - Hereof products revenue 2,334 2,048 14% Gross profit 1,397 1,107 26% Gross margin 23.2% 23.5% SG&A cost (1,075) (725) 48% SG&A ratio 17.9% 15.4% Adjusted EBITA 362 339 7% Adjusted EBITA margin 6.0% 7.2% EBITA 235 302 -22% EBITA margin 3.9% 6.4% Number of employees 10,345 10,039 3% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Service order intake Products order intake Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 15 Profit Gross profit increased 26% driven by the 28% increase in revenue. Adjusted EBITA margin was 6.0% reflecting a continued positive development in the underlying profitability. Gross profit and margin Gross profit increased by 26% to DKK 1,397m, driven by the higher revenue level. The corre- sponding gross margin of 23.2% was largely in line with Q1 2022 and was impacted by the new simplified operating model in Cement, the integra- tion cost of Mining Technologies and the ongoing handling of our Non-Core Activities. In Q1 2023, total research and development costs (R&D) amounted to DKK 82m, representing 1.4% of revenue (Q1 2022: 1.4%). Research & development costs (DKKm) Q1 2023 Q1 2022 Production costs 52 38 Capitalised 30 27 Total R&D 82 65 SG&A costs Sales, general and administrative costs (SG&A) and other operating items increased 48% com- pared to Q1 2022, mainly due to the cost base and integration costs related to Mining Technolo- gies in Q1 2023. Further, currencies had a nega- tive impact on SG&A of DKK 5m in the quarter. As a result of this, SG&A costs as a percentage of revenue increased to 17.9% in Q1 2023 compared to 15.4% in Q1 2022. EBITA and margin Excluding integration costs of DKK 127m related to the acquisition of Mining Technologies, adjusted Group EBITA margin was 6.0% in Q1 2023. Includ- ing integration costs, the EBITA margin decreased to 3.9% in Q1 2023 compared to 6.4% last year. Amortisation of intangible assets amounted to DKK 58m (Q1 2022: DKK 80m). The effect of pur- chase price allocations amounted to DKK 11m (Q1 2022: DKK 14m) and other amortisation to DKK 47m (Q1 2022: DKK 66m). Financial items Net financial items amounted to DKK -16m (Q1 2022: DKK -29m), of which net interest amounted to DKK -17m (Q1 2022: DKK -17m) and foreign ex- change and fair value adjustments amounted to DKK 1m (Q1 2022: DKK -12m). Tax Tax in Q1 2023 totalled DKK -58m (Q1 2022: DKK -70m), corresponding to an effective tax rate of 36% (Q1 2022: 36%). Profit for the period Profit in Q1 2023 was a gain of DKK 84m (Q1 2022: DKK 123m). Discontinued activities had a loss of DKK 19m in Q1 2023. Return on capital employed Return on capital employed (ROCE) decreased to 5.1% (Q1 2022: 7.8%) due to a decreased EBITA as well as an increase in average capital employed from the acquisition of Mining Technologies and net working capital in general. Employees The number of employees decreased by 632 to 10,345 at the end of Q1 2023, compared to 10,977 at the end of Q4 2022. The decrease is a direct result of workforce reductions carried out in both Mining and Cement in Q1 2023 relating to foot- print optimisation and synergies from the acquisi- tion of Mining Technologies. Backlog DKKm Revenue & EBITA margin DKKm EBITA margin % EBITA DKKm 0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Mining Cement NCA 0% 2% 4% 6% 8% 10% 12% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Revenue EBITA margin % Adj. EBITA margin % (500) (300) (100) 100 300 500 700 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Cement Mining Mining adj. NCA Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 16 Capital In line with expectations, cash flow was negative in the quarter mainly due to an increase in net working capital. The net working capital ratio increased to 10.6% in Q1 2023. Net working capital Net working capital increased DKK 720m to DKK 2,613m at the end of Q1 2023 (end of Q4 2022: DKK 1,893m). The primary driver of the increase in the quarter was a build-up of work in progress, which will be invoiced in coming quarters. Other drivers were a lower accounts payables level due to the payment of larger orders as well as a higher inventory levels. The corresponding net working capital ratio increased from 7.8% of reve- nue in Q4 2022 to 10.6% of revenue in Q1 2023. Utilisation of supply chain financing increased to DKK 626m in Q1 2023 (Q4 2022: 590m). Cash flow from operating activities The decrease in cash flow from operations (CFFO) in Q1 2023 amounted to DKK -404m (Q1 2022: DKK -70m). This relates to the increase in net working capital which impacted CFFO by DKK -694m. Discontinued activities impacted CFFO by DKK -5m in Q1 2023 (Q1 2022: DKK -15m). Cash flow from investing activities Cash flow from investing activities amounted to DKK -24m (Q1 2022: DKK 35m). Cash flow from financing activities Cash flow from financing activities amounted to DKK 81m (Q1 2022: DKK 22m). Free cash flow Free cash flow was negative DKK 428m in the quarter (Q1 2022: DKK -35m) as a result of the in- crease in net working capital. Net interest-bearing debt Net interest-bearing debt (NIBD) by 31 March 2023 increased to DKK 1,187m (end of 2022: DKK 726m). The increase in debt was primarily due to the increase in working capital in the quarter. The financial gearing end of Q1 2023 increased to 1.0x (Q4 2022: 0.6x) following the increase in NIBD. Financial position By the end of Q1 2023, FLSmidth had DKK 6.3bn of available committed credit facilities of which DKK 4.0bn was undrawn. The committed credit fa- cilities have a weighted average time to maturity of 5.0 years. Credit facilities of DKK 5.0bn and DKK 1.1bn will mature in 2027 and 2030, respectively. The re- maining DKK 0.2bn matures in later years. FLS- midth also had available DKK 1.2bn of uncommit- ted credit facilities. Equity ratio Equity at the end of Q1 2023 decreased to DKK 10,611m (end of Q4 2022: DKK 10,787m), driven by currency adjustments and provision for dividend amounting to DKK 170m. The equity ratio was 35.8% (end of 2022: 36.1%). Cash flow DKKm Net interest-bearing debt DKKm Net working capital DKKm NWC% (1,000) 0 1,000 2,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Net interest-bearing debt (NIBD) 0% 2% 4% 6% 8% 10% 12% 0 500 1,000 1,500 2,000 2,500 3,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Net working capital Net working capital ratio, end (600) (400) (200) 0 200 400 600 800 1,000 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Cash flow from operating activities Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 17 Consolidated Condensed Financial Statements Income statement 18 Statement of comprehensive income 18 Cash flow statement 19 Balance sheet 20 Equity statement 21 Notes 22 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 18 Income statement Statement of comprehensive income Notes DKKm Q1 2023 Q1 2022 3, 4 Revenue 6,016 4,706 Production costs (4,619) (3,599) Gross profit 1,397 1,107 Sales costs (433) (342) Administrative costs (667) (411) Other operating items 25 28 EBITDA 322 382 Depreciation and impairment of property, plant and equipment and lease assets (87) (80) EBITA 235 302 Amortisation and impairment of intangible assets (58) (80) EBIT 177 222 Financial income 424 337 Financial costs (440) (366) EBT 161 193 Tax for the period (58) (70) Profit for the period, continuing activities 103 123 3, 7 Profit (loss) for the period, discontinued activities (19) 0 Profit for the period 84 123 Attributable to: Shareholders in FLSmidth & Co. A/S 86 130 Minority interests (2) (7) 84 123 Earnings per share (EPS): Continuing and discontinued activities per share (DKK) 1.5 2.3 Continuing and discontinued activities per share, diluted (DKK) 1.5 2.3 Continuing activities per share (DKK) 1.9 2.3 Continuing activities per share, diluted (DKK) 1.9 2.3 Notes DKKm Q1 2023 Q1 2022 Profit for the period 84 123 Items that will not be reclassified to profit or loss: Actuarial gains on defined benefit plans 5 27 Items that are or may be reclassified subsequently to profit or loss: Currency adjustments regarding translation of entities (127) 315 Cash flow hedging: - Value adjustments for the period 28 0 - Value adjustments transferred to work in progress 5 14 Tax of total other comprehensive income (11) (5) Other comprehensive income for the period after tax (100) 351 Comprehensive income for the period (16) 474 Attributable to: Shareholders in FLSmidth & Co. A/S (16) 483 Minority interests 0 (9) (16) 474 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 19 Cash flow statement Notes DKKm Q1 2023 Q1 2022 EBITDA 322 382 3 EBITDA, discontinued activities (9) (1) Adjustment for gain on sale of property, plant and equipment and other non-cash items (11) (16) EBITDA adjusted to reflect cash flows 302 365 Change in provisions, pension and employee benefits 173 (32) 8 Change in net working capital (694) (219) Cash flow from operating activities before financial items and tax (219) 114 Financial items received and paid (18) (18) Taxes paid (167) (166) Cash flow from operating activities (404) (70) Acquisition of intangible assets (43) (36) Acquisition of property, plant and equipment (24) (15) Acquisition of financial assets 0 (5) Disposal of property, plant and equipment 33 91 Disposal of financial assets 1 0 Dividend from associates 9 0 Cash flow from investing activities (24) 35 Repayment of lease liabilities (29) (29) Change in net interest bearing debt 110 51 Cash flow from financing activities 81 22 Change in cash and cash equivalents (347) (13) Cash and cash equivalents at beginning of period 2,130 1,935 Foreign exchange adjustment, cash and cash equivalents (26) 32 Cash and cash equivalents at 31 March 1,757 1,954 The cash flow statement cannot be inferred from the published financial information only Free cash flow DKKm Q1 2023 Q1 2022 Free cash flow (428) (35) Free cash flow, adjusted for acquisitions and disposals of enterprises and activities (428) (35) Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 20 Balance sheet Notes DKKm 31/03 2023 31/12 2022 31/03 2022 Assets Goodwill 6,361 6,433 4,470 Patents and rights 750 766 768 Customer relations 374 392 394 Other intangible assets 139 148 154 Completed development projects 188 204 212 Intangible assets under development 460 422 337 Intangible assets 8,272 8,365 6,335 Land and buildings 1,911 1,983 1,781 Plant and machinery 469 493 370 Operating equipment, fixtures and fittings 125 131 103 Tangible assets in course of construction 49 40 31 Property, plant and equipment 2,554 2,647 2,285 Deferred tax assets 1,936 1,921 1,464 Investments in associates 141 157 171 Other securities and investments 54 59 53 Other non-current assets 2,131 2,137 1,688 Non-current assets 12,957 13,149 10,308 Inventories 4,059 3,971 2,782 Trade receivables 5,022 5,108 3,848 Work in progress 3,518 3,147 2,782 Prepayments 820 874 921 Income tax receivables 374 321 418 Other receivables 1,136 1,145 865 Cash and cash equivalents 1,757 2,130 1,954 Current assets 16,686 16,696 13,570 Total assets 29,643 29,845 23,878 Notes DKKm 31/03 2023 31/12 2022 31/03 2022 Equity and liabilities Share capital 1,153 1,153 1,153 Foreign exchange adjustments (646) (517) (348) Cash flow hedging (37) (70) (40) 9 Retained earnings 10,167 10,247 9,926 Shareholders in FLSmidth & Co. A/S 10,637 10,813 10,691 Minority interests (26) (26) (12) Equity 10,611 10,787 10,679 Deferred tax liabilities 256 294 179 Pension obligations 419 414 306 5 Provisions 925 896 467 Lease liabilities 187 206 217 Bank loans and mortgage debt 2,585 1,929 728 Prepayments from customers 580 578 577 Income tax liabilities 103 103 119 Other liabilities 90 85 45 Non-current liabilities 5,145 4,505 2,638 Pension obligations 2 2 2 5 Provisions 1,729 1,611 657 Lease liabilities 115 117 113 Bank loans and mortgage debt 71 615 33 Prepayments from customers 2,122 2,193 2,088 Work in progress 3,599 3,592 2,420 Trade payables 4,062 4,339 3,407 Income tax payables 352 346 225 Other liabilities 1,835 1,738 1,616 Current liabilities 13,887 14,553 10,561 Total liabilities 19,032 19,058 13,199 Total equity and liabilities 29,643 29,845 23,878 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 21 Equity statement Q1 2023 Q1 2022 DKKm Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Equity at 1 January 1,153 (517) (70) 10,247 10,813 (26) 10,787 1,153 (665) (54) 9,937 10,371 (3) 10,368 Comprehensive income for the period Profit/loss for the period 86 86 (2) 84 130 130 (7) 123 Other comprehensive income Actuarial gains/(losses) on defined benefit plans 5 5 5 27 27 27 Currency adjustments regarding translation of entities (129) (129) 2 (127) 317 317 (2) 315 Cash flow hedging: - Value adjustments for the period 28 28 28 0 0 0 - Value adjustments transferred to work in progress 5 5 5 14 14 14 Tax on other comprehensive income (11) (11) (11) (5) (5) (5) Other comprehensive income total 0 (129) 33 (6) (102) 2 (100) 0 317 14 22 353 (2) 351 Comprehensive income for the period 0 (129) 33 80 (16) 0 (16) 0 317 14 152 483 (9) 474 Transactions with owners: Dividend transferred to other liabilities (170) (170) (170) (170) (170) (170) Share-based payment 10 10 10 7 7 7 Equity at 31 March 1,153 (646) (37) 10,167 10,637 (26) 10,611 1,153 (348) (40) 9,926 10,691 (12) 10,679 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 22 Notes 1. Key accounting estimates and judgements 23 2. Income statement by function 23 3. Segment information 24 4. Revenue 25 5. Provisions 26 6. Contractual commitments and contingent liabilities 26 7. Discontinued activities 27 8. Net working capital 27 9. Shareholders’ equity 28 10. Events after the balance sheet date 28 11. Accounting policies 28 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 23 1. Key accounting estimates and judgements When preparing the consolidated condensed fi- nancial statements, we are required to make sev- eral estimates and judgements. The estimates and judgements that can have a significant impact on the consolidated condensed financial statements are categorised as key accounting estimates and judgements. Key accounting estimates and judge- ments are regularly assessed to adapt to market conditions and changes in political and economic factors. In general, key accounting judgements are made in relation to the accounting of revenue when determining the performance obligations and the recognition method, while key accounting estimates relate to the estimation of warranty pro- visions, valuation of inventories, trade receivables, work in progress and deferred tax. For further de- tails, reference is made to The Annual Report 2022, Key accounting estimates and judgements, pages 69-70 and to specific notes. The economic situation has been relatively stable during the first quarter of 2023. However, the geo- political situation following the war in Ukraine, the inflationary environment etc continue to pose challenges. More information on the resulting un- certainties and the impact on key accounting esti- mates and judgements can be found on pages 69- 70 of the 2022 Annual Report. The change in estimates had no material impact on the consolidated condensed financial state- ments in the first quarter of 2023. By nature, the updated key accounting estimates contain uncer- tainties, and it is possible that the outcomes in the next financial period can differ from those on which management’s estimates are based. On 31 August 2022, we obtained control of Mining Technologies. During the first quarter of 2023, no changes to the initial accounting of the acquisition as shown in note 2.10 in Annual report 2022 has been recognised. Due to the complexity of the transaction, it is likely that the completion of the ini- tial accounting will extend into Q3 2023. During the measurement period ending no later than 12 months after acquisition, new information on facts and circumstances that existed on 31 August 2022 is adjusted retrospectively in the initial accounting with a resulting impact on goodwill as will the change resulting from the final purchase price. Such changes may be significant. 2. 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 de- preciation, amortisation and impairment. Depreci- ation, amortisation, and impairment are therefore separated from the individual functions and pre- sented in separate lines. The income statement prepared on the basis of cost by function is shown below: Income Statement by function DKKm Q1 2023 Q1 2022 Revenue 6,016 4,706 Production costs (4,689) (3,682) Gross profit 1,327 1,024 Sales costs, including depreciation and amortisation (438) (351) Administrative costs, including depreciation and amortisation (737) (479) Other operating income 25 28 EBIT 177 222 Depreciation, amortisation and impairment consist of: Depreciation and impairment of property, plant and equipment and lease assets (87) (80) Amortisation and impairment of intangible assets (58) (80) (145) (160) Depreciation, amortisation and impairment are divided into: Production costs (70) (83) Sales costs (5) (9) Administrative costs (70) (68) (145) (160) Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 24 3. Segment information Q1 2023 Q1 2022 FLSmidth Group FLSmidth Group DKKm Mining Cement Non-Core Activities ¹⁾ Continuing activities Discontinued activities ²⁾ Mining Cement Continuing activities Discontinued activities ²⁾ Revenue 4,185 1,582 249 6,016 0 3,233 1,473 4,706 0 Production costs (3,120) (1,210) (289) (4,619) (2) (2,473) (1,126) (3,599) 0 Gross profit 1,065 372 (40) 1,397 (2) 760 347 1,107 0 SG&A costs (731) (281) (63) (1,075) (7) (457) (268) (725) (1) EBITDA 334 91 (103) 322 (9) 303 79 382 (1) Depreciation and impairment of property, plant and equipment and lease assets (60) (23) (4) (87) 0 (54) (26) (80) 0 EBITA 274 68 (107) 235 (9) 249 53 302 (1) Amortisation and impairment of intangible assets (40) (18) 0 (58) 0 (57) (23) (80) 0 EBIT 234 50 (107) 177 (9) 192 30 222 (1) Order intake 4,177 1,344 111 5,632 0 5,157 1,861 7,018 0 Order backlog 13,876 6,066 2,085 22,027 0 12,911 6,447 19,358 0 Gross margin 25.4% 23.5% -16.1% 23.2% 23.5% 23.6% 23.5% EBITDA margin 8.0% 5.8% -41.4% 5.4% 9.4% 5.4% 8.1% EBITA margin 6.5% 4.3% -43.0% 3.9% 7.7% 3.6% 6.4% EBIT margin 5.6% 3.2% -43.0% 2.9% 5.9% 2.0% 4.7% Number of employees at 31 March 6,821 3,024 500 10,345 0 6,305 3,734 10,039 0 Reconciliation of profit for the period EBIT 177 (9) 222 (1) Financial income 424 2 337 0 Financial costs (440) (13) (366) 0 EBT 161 (20) 193 (1) 1) Non-Core Activities constitutes a separate reportable segment prospectively from 1 October 2022. Comparative information has not been restated. Further information can be found in the 2022 Annual Report note 1.2. Under the previous segmentation Mining and Non-Core Activities was presented as one segment. 2) Discontinued activities mainly consist of non-mining bulk material handling. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 25 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 seg- ments split into the main businesses Products and Services. Revenue within the Non-Core Activities segment reflects the performance of the backlog and the sale of parts already in stock. In the graphs on the right, revenue is split by re- gions in which delivery takes place. Revenue is recognised either at a point in time where the control over the goods and/or services is transferred to the customer or over time to re- flect the percentage of completion of the perfor- mance obligations in the contracts. Percentage of completion covers a wide range of different types of contracts, from contracts where the customer consumes the services over time, such as fixed price service contracts, to more complex product bundles with engineering subject to the enhanced risk governance structure under the Risk Manage- ment Board and to risk quotas. More information on when and how the two recognition principles are applied can be found in note 1.4 in the Annual report 2022. To reflect the wide range of contracts that are accounted for using percentage of com- pletion, the category has been decomposed into two subcategories from 1 January 2023 with com- parative information restated. Backlog The order backlog at 31 March 2023 amounted to DKK 22,027m (end of 2022: DKK 23,541m). The backlog represents the value of outstanding performance obligations on current contracts. The value of outstanding performance obligations on current contracts is a combination of value from contracts where we will transfer control at a future point in time and the value of the remaining per- formance obligations on contracts where we transfer control over time. 52% of the backlog is expected to be converted to revenue in the remainder of 2023. Revenue split by Regions Q1 2023 % ECANA refers to the region of Europe, Central Asia and North Africa. Revenue split by Regions Q1 2022 % ECANA refers to the region of Europe, Central Asia and North Africa. Backlog DKKm 8,080 11,425 7,065 8,258 4,213 2,344 0 4,000 8,000 12,000 16,000 20,000 24,000 Q1 2022 Q1 2023 Within current year Within next year Subsequent years 21% 37% 42% 11% 37% 52% Revenue split by recognition principle Q1 2023 Q1 2022 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Point in time 2,350 740 112 3,202 1,616 606 2,222 Percentage of completion - Service, single machines and product bundles 1,549 741 0 2,290 938 712 1,650 - Product bundles with engineering under enhanced risk governance 286 101 137 524 679 155 834 Total revenue 4,185 1,582 249 6,016 3,233 1,473 4,706 Revenue split on industry and category Q1 2023 Q1 2022 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Products business 1,485 692 157 2,334 1,413 635 2,048 Service business 2,700 890 92 3,682 1,820 838 2,658 Total revenue 4,185 1,582 249 6,016 3,233 1,473 4,706 24% 26% 19% 13% 18% NAMER SAMER ECANA SSAMESA APAC 26% 19% 22% 15% 18% NAMER SAMER ECANA SSAMESA APAC Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 26 5. Provisions Net provisions increased by DKK 147m compared to 31 December 2022. The increase relates pri- marily to restructuring provisions following the im- plementation of global synergies from the acquisi- tion of Mining Technologies and from provisions for loss-making contracts in Non-Core Activities. For a description of the main provision categories see note 2.7 in the 2022 Annual Report. 6. Contractual Commitments and contingent liabilities Contingent liabilities at 31 March 2023 amounted to DKK 3.7bn excluding the Mining Technologies issued corporate guarantees mentioned below (31 December 2022: DKK 3.8bn). Contingent liabilities primarily relate to customary performance and payment guarantees. The vol- ume of such guarantees amounted to DKK 3.2bn (31 December 2022: DKK 3.3bn). In addition to the above mentioned guarantees DKK 0.7bn of corpo- rate contract-support guarantees to customers in connection with the acquisition of Mining Technol- ogies remain outstanding (31 December 2022: DKK 0.8bn). Most of these guarantees will expire during 2023, and by end 2024 almost all will have expired. It is customary market practice to is- sue guarantees to customers, which serve as a se- curity that we will deliver as promised in terms of performance, quality, and timing. The volume of the guarantees varies with the activity level and reflects the outstanding backlog, finalised projects and deliveries that are covered by warranties etc. Only a minor share of such guarantees is ex- pected to materialise into losses. In the event a guarantee is expected to materialise, a provision is recognised to cover the risk. Information on provisions is in- cluded in note 5. Other contingent liabilities of DKK 0.5bn (31 De- cember 2022: 0.5bn) relate to our involvement in legal disputes, which are already pending with courts or other authorities and other disputes which may or may not lead to formal legal pro- ceedings being initiated against us. No significant changes have occurred to the na- ture and extent of our contractual commitments and contingent liabilities compared to what was disclosed in note 2.9 in the 2022 Annual Report. Provisions DKKm 31/03 2023 31/12 2022 31/03 2022 Provisions at 1 January 2,507 1,147 1,147 Foreign exchange adjustments (10) (17) 7 Acquisition of Group enterprises 0 682 0 Additions 386 1,388 114 Used (164) (461) (117) Reversals (65) (232) (27) Provisions 2,654 2,507 1,124 The split of provisions is as follows: Warranties 994 980 567 Restructuring 462 404 19 Other provisions 1,198 1,123 538 2,654 2,507 1,124 The maturity of provisions is specified as follows: Current liabilities 1,729 1,611 657 Non-current liabilities 925 896 467 2,654 2,507 1,124 Provisions related to continued activities DKKm 31/03 2023 31/12 2022 31/03 2022 Provisions at 1 January 2,390 999 999 Foreign exchange adjustments (10) (17) 7 Acquisition of Group enterprises 0 682 0 Additions 384 1,385 114 Used (160) (428) (108) Reversals (65) (231) (27) Provisions 2,539 2,390 985 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 27 7. Discontinued activities Discontinued activities include the remaining re- sponsibilities to finalise legacy projects, handling of claims, etc. retained on the sale of the non-min- ing bulk material handling business in 2019. For further information on discontinued activities, please refer to note 2.11 of Annual report 2022. In addition to provisions of DKK 115m shown in the table below, discontinued activities accounts for DKK 356m (31 December 2022: DKK 362m) of the Group’s net working capital shown in note 8. 8. Net working capital Net working capital at 31 March 2023 has in- creased by DKK 0.7bn compared to 31 December 2022. The primary driver of the increase in the quarter was the build-up of work in progress, that will be invoiced in coming quarters. Other drivers were higher inventory levels due to our focus on the Service business and a lower level of trade payables due to the payment of larger orders. Utilisation of supply chain financing increased in the first three months of 2023 to DKK 626m (31 December 2022: DKK 590m). Disontinued activities’ effect on cash flow from operating activities DKKm Q1 2023 31/12 2022 Q1 2022 EBITDA (9) (10) (1) Change in provisions (2) (31) (9) Change in net working capital 7 (6) (5) Cash flow from operating activities before financial items and tax (4) (47) (15) Financial items received and paid (1) (3) 0 Cash flow from operating activities (5) (50) (15) Discontinued activities share of Group provisions disclosed in note 5 DKKm 31/03 2023 31/12 2022 31/03 2022 Provisions at 1 January 117 148 148 Additions 2 3 0 Used (4) (33) (9) Reversals 0 (1) 0 Provisions 115 117 139 Net working capital DKKm 31/03 2023 31/12 2022 31/03 2022 Inventories 4,059 3,971 2,782 Trade receivables 5,022 5,108 3,848 Work in progress, assets 3,518 3,147 2,782 Prepayments 820 874 921 Other receivables 1,034 1,030 781 Derivative financial instruments 42 54 24 Prepayments from customers (2,702) (2,771) (2,665) Trade payables (4,062) (4,339) (3,407) Work in progress, liability (3,599) (3,592) (2,420) Other liabilities (1,469) (1,509) (1,240) Derivative financial instruments (50) (80) (52) Net working capital 2,613 1,893 1,354 Change in net working capital (720) (835) (296) Financial instruments and foreign exchange effect on cash flow 26 389 77 Cash flow effect from change in net working capital (694) (446) (219) Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 28 9. Shareholders’ equity At the Annual General Meeting 29 March 2023, a dividend of DKK 3 per share was declared. The to- tal dividend amounting to DKK 170m, excluding the portion related to FLSmidth’s holding of treas- ury shares, was paid out in April 2023. The amount is included in Other liabilities in the bal- ance sheet 31 March 2023. 10. Events after the balance sheet date We are not aware of any subsequent matters that could be of material importance to the Group’s fi- nancial position at 31 March 2023. 11. Accounting policies The condensed interim report of the Group for the first quarter of 2023 is presented in accordance with IAS 34, Interim Financial Reporting, as ap- proved by the EU and additional Danish disclo- sure requirements regarding interim reporting by listed companies. Apart from the below mentioned changes, the ac- counting policies are unchanged from those ap- plied in the 2022 Annual Report. Reference is made to note 7.5, Accounting policies, note 7.6, Impact from new IFRS, note 7.7, New IFRS not yet adopted and to specific notes in the 2022 Annual Report for further details. Note 7.4, Alternative Performance Measures, and note 7.8, Definition of terms, in the 2022 Annual Report describes the APMs used throughout an- nual and interim reports. Following the significant integration of Mining Technology into the Mining segment it is impracticable to make the usual de- composition of growth into organic growth and ac- quired growth for the first 12 months. Starting from Q1 2023, organic growth therefore also includes acquired growth. Besides this, APMs are un- changed from those applied in the 2022 Annual Report. Changes in accounting policies As of 1 January 2023, the FLSmidth Group has im- plemented all new or amended accounting stand- ards and interpretations as adopted by the EU and applicable for the 2023 financial year. This in- cludes the changes to IAS 1 (Disclosure on Ac- counting Policies), IAS 8 (definition of Accounting Estimates) and IAS 12 (Deferred Tax). The implementation has not had and is not ex- pected to have significant impact on the consoli- dated financial statements. FLSmidth ■ Interim Report Q1 2023 29 Statements Statement by Management 30 Forward looking statements 31 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 30 The Board of Directors and the Executive Board have today considered and approved the interim report for the period 1 January – 31 March 2023. The consolidated condensed interim financial statements are presented in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU and Danish disclosure requirements for interim reports of listed companies. The consolidated con- densed interim financial statements have not been audited or reviewed by the Group’s independent auditors. In our opinion, the consolidated condensed in- terim financial statements give a true and fair view of the Group’s financial position at 31 March 2023 as well as of the results of its operations and cash flows for the period 1 January – 31 March 2023. In our opinion, the management’s review gives a fair review of the development in the Group’s ac- tivity and financial matters, results of operations, cash flows and financial position as well as a de- scription of the principal risks and uncertainties that the Group faces. Valby, 11 May 2023 Executive management Mikko Juhani Keto Group CEO Roland M. Andersen Group CFO Board of directors Tom Knutzen Chair Mads Nipper Vice chair Anne Louise Eberhard Daniel Reimann Gillian Dawn Winckler Thrasyvoulos Moraitis Carsten Hansen Claus Østergaard Leif Gundtoft Statement by Management Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 31 FLSmidth & Co. A/S’ financial reports, whether in the form of annual reports or interim reports, filed with the Danish Business Authority and/or an- nounced via the company’s website and/or 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. Words such as ‘believe’, ‘expect’, ‘may’, ‘will’, ‘plan’, ‘strategy’, ‘prospect’, ‘foresee’, ‘estimate’, ‘project’, ‘anticipate’, ‘can’, ‘intend’, ‘target’ and 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 FLSmidth & Co. A/S’ markets, products, product research 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 & Co. A/S’ influence, and which could materially affect 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-look- ing statements. Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including the impact from 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, unex- pected breach or termination of contracts, market- driven price reductions for FLSmidth & Co. A/S’ products and/or services, introduction of compet- ing products, reliance on information technology, FLSmidth & Co. A/S’ ability to successfully market current and new products, exposure to product lia- bility 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 re- cruit and retain the right employees and failure to maintain a culture of compliance. Unless required 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 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report Q1 2023 32 Interim Report 1 January – 31 March 2023 FLSmidth & Co. A/S Vigerslev Allé 77 2500 Valby Denmark Tel.: +45 36 18 18 00 Fax: +45 36 44 11 46 corppr@flsmidth.com www.flsmidth.com CVR No. 58180912 FLSmidth & Co. 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