FLSmidth & Co.

Annual Report (ESEF) • Feb 22, 2023

Untitled Annual Report 2022 1 January – 31 December 2022 Annual Report 2022 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby CVR No. 58180912 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 2 2022 FLSmidth reports Sustainability Report 2022 In our Sustainability Report 2022, we disclose our progress towards achieving our sustaina- bility ambitions. Corporate Governance Statement 2022 In our Corporate Governance Statement, you can read more about how we have incorpo- rated and follow the recommendations pre- pared by the Danish Committee on Corporate Governance. Remuneration Report 2022 In our Remuneration Report, you can get a comprehensive overview of the remuneration of our Executive Management and our Board of Directors. Annual Report 2022 The Annual Report for the FLSmidth Group provides financial and operational information about the Group’s performance in 2022, and it describes the Group’s strategic plans and future goals. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 3 FY22 highlights 4 Letter to our shareholders 5 Highlights Financial performance highlights 2022 8 Sustainability performance highlights 2022 9 5-year key figures 10 2023 financial guidance 11 Long-term financial targets 12 Business At a glance – FLSmidth 14 FLSmidth Group in the world 15 Strategy and business model 16 Our approach to sustainability 18 Progress on MissionZero 19 Sustainable solutions for mining and cement 20 EU taxonomy 21 Mining business At a glance – FLSmidth Minng 23 FLSmidth Mining in the world 24 Market outlook and trends 25 Strategy (CORE'26) and business model 26 Cement business At a glance – FLSmidth Cement 29 FLSmidth Cement in the world 30 Market outlook and trends 31 Strategy (GREEN'26) and business model 32 Non-Core Activities Strategic rationale, decision criteria and exit strategy 34 Financial performance Mining 36 Cement 37 Non-Core Activities 38 Consolidated - Quarterly financial performance 39 Consolidated - Annual financial performance 43 Governance Risk management 48 Corporate governance 52 Management 56 Remuneration 60 Shareholder information 61 Financial statements Consolidated financial statements 64 Consolidated notes 69 Parent company financial statements 124 Statement by Management 132 Independent auditor's report 133 Contents Management review About this report The Annual Report for the FLSmidth Group provides financial and operational information about the Group’s performance in 2022, and it describes the Group’s strategic plans and future goals. FLSmidth also publishes a Corporate Governance State- ment, a Sustainability Report and a Remuneration Report. FLSmidth & Co. A/S is listed on NASDAQ OMX Copenhagen (Denmark). Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 4 Cement 6,264 Cement revenue (DKKm) 3.3% EBITA margin FY22 highlights Non-Core Activities Non-Core Activities segment established in Q4 2022 Full exit by way of divestment or wind-down Mining Technologies (ex-TK) TK Mining acquisition completed 31 August 2022 Creating a leading global mining technology and ser- vice provider Mining 15,082 Mining revenue (DKKm) 10.6% Adjusted EBITA margin Strategy New pure play strategies New pure play strategies launched for Mining and Cement including new long-term financial targets Organisation Mikko Keto, new CEO as of 1 January 2022 Tom Knutzen, new Chair as of 30 March 2022 Mining Technologies (ex-TK) refers to the former thyssenkrupp Mining business (TK Mining) FLSmidth ■ Annual Report 2022 4 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 5 FLSmidth kickstarted its pure play strategy transformation in 2022 – and many actions have already been taken to accelerate and execute this. In addition, our legacy FLSmidth Mining business and our Cement business signifi- cantly improved profitability de- spite the everchanging environ- ment. Looking back on our first year as Chair and CEO at FLSmidth, it has undoubtedly been a busy and eventful one. We are very proud of the hard work and dedication from all our employees that have enabled us to deliver a robust performance while successfully navigating a challenging macroenvi- ronment and numerous business changes. No green transition without minerals The importance of minerals to the green transition cannot be overestimated. Supply of critical miner- als like copper, lithium, nickel, and cobalt faces continued pressure to meet the ever-growing de- mand, and hundreds of new mines are required for these critical minerals by 2030 to avoid a de- lay to the green transition. Similarly, cement is essential to infrastructure and renewable energy projects. As cement remains one of the most carbon intensive industries in the world accounting for ~7% of global CO 2 emissions, it is critical that the environmental impact of ce- ment production is reduced. Solving these crucial challenges is what drives us at FLSmidth. It is both an opportunity and our re- sponsibility. With our MissionZero technologies and solutions, we are uniquely positioned to sig- nificantly reduce our customers’ environmental footprint and at the same time improve their productivity and profitability. Strengthened our Mining business During the autumn, we successfully completed one of our biggest acquisitions in our history – namely the acquisition of thyssenkrupp’s Mining business – and on 1 September 2022 we welcomed ~2,000 new colleagues. With this acquisition, FLSmidth is better positioned than ever before to provide min- ing customers with best-in-class full flowsheet tech- nologies and service solutions to enhance their productivity and sustainability agenda. Kickstarted our transformation in 2022 During 2022 FLSmidth created a new platform for improved long-term profitability, lower risk, re- duced volatility and enhanced strategic focus on the core value creating parts of the business. We implemented a pure play strategy to maximise respective opportunities in Mining and Cement as they have different markets, customers and oppor- tunities. This also kickstarted our transformation journey, including a sharpened strategic focus on technology, products, services and sustainability. To support our transformation, we have also be- gun to significantly simplify our operating model to reduce risks, improve efficiencies, ensure stronger execution and improve profitability and quality of earnings. This includes optimising our global footprint, delayering our organisation, taking out synergies related to the Mining Tech- nologies (ex-TK) acquisition and moving towards a principal company model. As a result, we have re- duced our workforce by ~10% across both Mining and Cement. We have also made significant strides to de-risk our business by implementing risk quotas and stringent risk management and governance around our portfolio. This ensures that the oppor- tunities we pursue and the contracts we accept carry less risks, are reduced in terms of complex- ity, are more profitable and are aligned with our long-term strategic priorities. Following the completion of the Mining Technolo- gies (ex-TK) acquisition, we conducted a planned strategic review of the combined mining product portfolio. As a result of this, we decided to split our Mining business into two segments: a continuing Mining segment, and a Non-Core Activities seg- ment. This ensures a clear focus and stronger exe- cution on our core Mining activities which are key to accelerate our long-term profitability and growth. We will exit non-core mining activities, which have been diluting our profitability for years. We expect to have fully exited the Non- Core Activities segment over the next three years, and we have devoted dedicated resources to en- sure strong execution of this. An event unlike any other Just when we started to think that our business environment was approaching normality after the pandemic, war broke out in Europe – something that most of us never thought would happen in our lifetime. We are deeply saddened by the tragic developments in Ukraine and our thoughts are with all the people who have been affected by this. As a result, we immediately decided to sus- pend all new business in Russia and Belarus, and we have during 2022 exited Russia. Improved performance in 2022 We have already seen positive effects from some of the implemented changes during 2022. Throughout the year, our legacy FLSmidth Mining business showed a sustained strong growth in or- der intake and revenue especially due to im- proved Service activity. Cement has shown a sta- ble performance and continued the positive trend of improving profitability, and thereby returned to positive EBITA. Letter to our shareholders It has been crucial for us to reinvigorate ourselves and provide a clear strategic direc- tion to create a new foundation of trust. Focus is now on execution to build trust through results. Tom Knutzen, Chair Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 6 As a result of this, we delivered an improved per- formance in 2022 with Mining and Cement reve- nue growth of 29% and 7% over 2021, respec- tively. Revenue and EBITA margin for the Group, Mining, Cement and Non-Core Activities all ended in line with our latest FY 2022 guidance as of 8 November 2022. During 2022 we received eight large orders with a combined value of around DKK 3.2bn and secured a book-to-bill of 113% for the year. Cash remains a core focus and despite significant costs to exit our activities in Russia and costs related to the inte- gration of Mining Technologies (ex-TK), and costs from restructuring the business, we delivered a cash flow from operations of DKK 968m. In addition, we have made good progress on most of our Science-Based Targets and we have im- proved our ESG ratings. The gender pay gap has been reduced across the organisation, but there is still room for further improvement to achieve our long-term diversity targets. Our new long-term financial targets On 18 January 2023, at our Capital Markets Day, we officially launched our new pure play strate- gies for Mining and Cement including new long- term financial targets. Our previous mid- and long-term financial targets were withdrawn in connection with the release of the Annual Report 2020 due to the uncertainty around the pandemic and other structural changes. Following the acquisition of Mining Tech- nologies (ex-TK), our pure play approach and the establishment of a Non-Core Activities segment, we have gained improved visibility into each of our different businesses. Consequently, we intro- duced new long-term financial targets for the FY2026 with a core focus on quality of earnings and reduced earnings volatility. For the FY2026, we expect to deliver a 13-15% EBITA margin in Min- ing and an ~8% EBITA margin in Cement. Key drivers to achieve these targets – both within Mining and Cement - include simplification of our operating model and footprint, de-risking, driving Service growth and improving our portfolio mix within both our Products and Service business lines. Execution is key for the year ahead In 2022 we celebrated our 140th anniversary. While many things have changed since 1882, our passion to discover and innovate, our commitment to our customers, and most importantly, the talent and dedication of our employees have been at the heart of every achievement made since day one. The path forward for FLSmidth will be supported by the opportunity to capitalise on the demand for sustainable solutions, to grow our market share and to become a more profitable company. While we acknowledge macroenvironment chal- lenges such as geopolitical turmoil, an energy cri- sis and a potential recession, we believe these challenges are manageable and significantly out- weighed by the fundamental long-term business drivers – that are: the much-required green transi- tion, economic growth and specific industry oppor- tunities within the mining and cement industries. In 2023, we look forward to seeing even more progress as we continue to walk-the-talk, drive our transformation and continue the implementation of our pure play strategies. We are confident that we have the right team and the right strategies in place, and that we will deliver even greater re- sults together. To all employees at FLSmidth, thank you for all your efforts in 2022 and we look forward to bring- ing our new strategies to life together with you during 2023. Tom Knutzen Chair Mikko Keto CEO With the launch of our new pure play strate- gies, we have now set clear directions and ambitions for our transformation journey in- cluding the long-term financial potential for both Mining and Cement. Key focus is to walk-the-talk to ensure strong strategy exe- cution to the benefit of our employees, cus- tomers, society and shareholders. Mikko Keto, CEO Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 7 Highlights Financial performance highlights 2022 8 Sustainability performance highlights 2022 9 5-year key figures 10 2023 financial guidance 11 Long-term financial targets 12 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 8 Financial performance highlights 2022 Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Cash flow from operating activities DKKm 968 ▼ from DKKm 1,449 in 2021 GROUP 24,644 ▲ 28% 21,849 ▲ 24% 943 4.3% (adj. 6.4%) ▼ -8% Earnings per share DKK 6.5 ▼ from DKK 6.9 in 2021 Net working capital ratio 7.8% ▲ from 6.0% end of 2021 NIBD/EBITDA 0.6x ▲ from -0.6x end of 2021 Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Service & Capital % MINING 17,822 ▲ 34% 15,082 ▲ 29% 1,146 7.6% (adj. 10.6%) ▲ 9% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Service & Capital % CEMENT 6,613 ▲ 11% 6,264 ▲ 7% 204 3.3% ▲ 1,174% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Service & Capital % NON -CORE ACTIVITIES 209 503 (407) -80.9% 19,233 24,644 2021 2022 17,581 21,849 2021 2022 1,030 943 2021 2022 13,281 17,822 2021 2022 11,715 15,082 2021 2022 1,049 1,146 2021 2022 61% 2021: 59% 39% 2021: 41% Service Capital 5,952 6,613 2021 2022 5,866 6,264 2021 2022 (19) 204 2021 2022 56% 2021: 54% 44% 2021: 46% Service Capital - 209 2021 2022 - 503 2021 2022 - (407) 2021 2022 41% 59% Service Capital Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 9 Sustainability performance highlights 2022 Spend with suppliers with science- based targets % of total supplier spend Scope 1 & 2 greenhouse gas emissions 1) tCO 2 e (market-based) Scope 3: Economic intensity (use of sold products) 1) tCO 2 e/DKKm order intake Water withdrawal m 3 7.7 ▲ 2.8% points improvement 36,767 ▼ 5.8% deterioration 5,310 ▲ 49% improvement 178,064 ▲ 12% improvement We increased our spend with suppliers who have set decarbonisation targets as we work towards our target to achieve 30% spend by 2025. We engage with sup- pliers to support them in setting emission reduction tar- gets. Return to work after COVID-19 and less use of renewa- ble energy drove up scope 2 emissions, while scope 1 emissions decreased. Despite this, combined emis- sions were below our 43,622 tCO 2 e target. Increasing the use of renewable energy will be a key driver to- wards carbon neutrality by 2030. Key factors in the improvement were lower sales of heavy-CO 2 -emitting cement products and increased sale of MissionZero products. We measure this target over a multi-year period to accurately understand its long-term trend. Annualised average improvement against our 2019 baseline is 21%. Water withdrawal in 2022 reduced significantly, despite an increase in the number of sites globally. This is due to various water-saving initiatives and a high focus on better data quality and reporting procedures. Safety (Total recordable injury rate) Total recordable injury rate/million working hours Women managers % Quality (DIFOT) % Suppliers assessed for sustainability No. 1.5 ▲ 0.4 improvement 14.3 No improvement 81.9 ▼ 3.2% points deterioration 676 ▲ 5.5% improvement Our total recordable injury rate (TRIR) improved in 2022 from the previous year, but we did not achieve our target of 1.3. We will continue to promote safety at our manufacturing sites, service centres and customer sites and will intensify the focus on safety behaviour in the organisation. We did not achieve our 15.7% target for women man- agers in 2022 and saw no improvement from 2021. Through active recruitment, career development and leadership training, we aim to achieve our diversity tar- get of having 25% women managers by 2030. Global supply chain issues have been challenging throughout the year. The situation has eased some- what during the year, and we have continuously been able to partly mitigate the supply chain pressure due to our flexibility to switch between suppliers and use regional sourcing. Supplier assessments help us to encourage environ- mental action across our supply chain. Continuing our progress with supplier engagement, we exceeded our target of 600 suppliers assessed in 2022. 1) Scope 1, 2 and 3 data related to our science-based targets does not include Mining Technologies’ (ex-TK) operations. Mining Technologies (ex-TK) impact is disclosed in the Sustainability Report. 2) Reported lifetime greenhouse gas emissions for 2021 have been recalculated by 631 tonnes CO₂e due to two orders moved from 2021 to 2022 to align with the effective Order Intake date. 4.9 7.7 2021 2022 34,737 36,767 2021 2022 10,348 2 5,310 2021 2022 201,997 178,064 2021 2022 1.9 1.5 2021 2022 14.3 14.3 2021 2022 85.1 81.9 2021 2022 641 676 2021 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 10 * 5-year key figures DKKm 2018 2019 2020 2021 2022 Income statement Revenue 18,750 20,646 16,441 17,581 21,849 Gross profit 4,693 4,849 3,865 4,180 5,076 EBITDA before special non-recurring items 1,826 2,008 1,134 1,401 1,300 EBITA 1,585 1,663 771 1,030 943 EBIT 1,220 1,286 428 668 619 Financial items, net (161) (115) (47) (81) (67) EBT 1,059 1,171 381 587 552 Profit for the year, continuing activities 811 798 226 374 351 Loss for the year, discontinued activities (176) (22) (21) (17) 1 Profit for the year 635 776 205 357 352 Orders Order intake (gross), continuing activities 21,741 19,554 18,524 19,233 24,644 Order backlog, continuing activities 16,218 14,192 14,874 16,592 23,541 Earning ratios Gross margin 25.0% 23.5% 23.5% 23.8% 23.2% EBITDA margin before special non-recurring items 9.7% 9.7% 6.9% 8.0% 5.9% EBITA margin 8.5% 8.1% 4.7% 5.9% 4.3% EBIT margin 6.5% 6.2% 2.6% 3.8% 2.8% EBT margin 5.6% 5.7% 2.3% 3.3% 2.5% Cash flow Cash flow from operating activities (CFFO) 385 948 1,421 1,449 968 Acquisitions of property, plant and equipment (288) (177) (171) (116) (88) Cash flow from investing activities (CFFI) (285) (661) (376) (273) (2,310) Free cash flow 100 287 1,045 1,176 (1,342) Free cash flow adjusted for acquisitions and disposals of enterprises and activities (15) 574 1,082 1,185 777 Balance sheet Net working capital 2,200 2,739 1,752 1,058 1,893 Net interest-bearing debt (NIBD) (1,922) (2,492) (1,808) 889 (726) Total assets 21,743 23,532 20,456 23,053 29,845 CAPEX 508 523 494 397 424 Equity 8,266 8,793 8,130 10,368 10,787 Dividend to shareholders, proposed 461 0 103 173 173 Use of alternative performance measures Throughout the report we present financial measures which are not defined according to IFRS. We have included additional information in note 7.4 Alternative performance measures and 7.8 Definition of terms. Financial ratios 2018 2019 2020 2021 2022 Book-to-bill 116.0% 94.7% 112.7% 109.4% 112.8% Order backlog / Revenue 86.5% 68.7% 90.5% 94.4% 107.7% Return on equity 7.8% 9.1% 2.4% 3.9% 3.3% Equity ratio 38.0% 37.4% 39.7% 45.0% 36.1% ROCE 11.0% 10.9% 5.1% 7.2% 5.9% Net working capital ratio, end 11.7% 13.3% 10.7% 6.0% 7.8% NIBD/EBITDA 1.1 1.2 1.6 (0.6) 0.6 Capital employed, average 14,338 15,251 15,195 14,384 15,888 Number of employees 11,368 12,346 10,639 10,117 10,977 Share ratios Cash flow per share, diluted 7.7 18.9 28.3 27.8 17.0 Earnings per share (EPS), diluted 12.8 15.5 4.2 6.9 6.5 Dividend yield 3.1 0.0 0.9 1.2 1.2 Dividend per share, proposed 9 0 2 3 3 Share price 293.1 265.4 232.8 244.3 251.7 Number of shares (1,000), end 51,250 51,250 51,250 57,650 57,650 Market capitalisation, end 15,021 13,602 11,931 14,084 14,511 Sustainability key figures Spend with suppliers with science-based targets 4.9% 7.7% Scope 1 & 2 greenhouse gas emissions (tCO2e) market-based 41,155 34,737 36,767 Scope 3: Economic intensity Use of sold products (GHGs in tonnes CO2e/DKKm order intake) 10,663 10,348 5,310 Water withdrawal (m3) 227,272 221,613 197,346 201,997 178,064 Safety, TRIR Total Recordable Injury Rate (including contractors) 3.0 1.6 1.0 1.9 1.5 Women managers 10.4% 11.2% 13.1% 14.3% 14.3% Quality, DIFOT Delivery In Full On Time 87.0% 88.0% 88.3% 85.1% 81.9% Suppliers assessed for sustainability 195 689 390 641 676 The financial ratios have been computed in accordance with the guidelines of the Danish Finance Society. Please refer to note 7.8 for definitions of terms. IFRS 16 was adopted 1 January 2019. No figures prior to 1 January 2019, throughout the report, have been restated. Sustainability key figures are from our Sustainability Report. Starting in 2018, TRIR is including contractors. Spend with suppliers with science- based targets was tracked for the first time in 2021. Scope 3 economic intensity was a new target introduced in 2021 using 2019 data as baseline. No data was tracked for economic intensity in 2020 Reported lifetime greenhouse gas emissions for 2021 have been recalculated by 631 tonnes CO₂e due to two orders moved from 2021 to 2022 to align with the effective Order Intake date Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 11 2023 financial guidance Mining Revenue (DKKbn) 16.0-17.0 (DKK 15.1bn) Adj. EBITA margin 9-10% (10.6%) Cement Revenue (DKKbn) 6.0-6.5 (DKK 6.3bn) EBITA margin 4.0-5.0% (3.3%) Non-Core Activities Revenue (DKKbn) 0.8-1.0 (DKK 0.5bn) EBITA Loss of ~DKK 250-350m (Loss of DKK 0.4bn) Group Revenue (DKKbn) 23.0-24.5 (DKK 21.8bn) Adj. EBITA margin 6.0-7.0% (6.4%) EBITA margin 4.0-5.0% (4.3%) Following a strong 2022, we expect mar- ket growth in 2023 to remain largely sta- ble versus 2022. The former Mining Technologies (ex-TK) business is expected to contribute with less than DKK 3bn in revenue in 2023 and is expected to have a dilutive effect on the full year 2023 adjusted Mining EBITA mar- gin 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 indus- try remains impacted by overcapacity and the potential recession is expected to im- pact market demand negatively over the coming period. Non-Core Activities EBITA margin guid- ance 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 busi- ness 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 uncer- tainty due to the global supply chain situ- ation, potential recession and geopolitical turmoil. Note: Numbers in brackets represent realised FY2022 results Financial guidance for 2023, as set out in the Company Announcement no. 1-2023 on 18 January 2023, is maintained. Guidance for full year 2023 reflects continued improvement of the underlying legacy FLSmidth Mining business, integration of Mining Technologies (ex-TK) and the establishment of the Non-Core Activities segment. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 12 Long-term financial targets Mining Cement Capital structure targets 13-15% EBITA margin for the FY2026 ~8% EBITA margin for the FY2026 <2x Leverage (NIBD/EBITDA) 30-50% Dividend pay-out ratio Based on our FY2023 guidance, we directionally expect our organic Mining revenue growth (CAGR towards FY2026) to be above market growth. We expect this to be driven by our Products business grow- ing in line with the market and our Service business grow- ing above the market. We expect the mining market to grow at 3-6% (CAGR). The key drivers for achieving our Mining EBITA margin tar- get for the FY2026 include synergy takeout and commer- cial integration of Mining Technologies (ex-TK), simplifica- tion of our operating model, de-risking, Service business growth, improved Service and Products mix as well as growth from our Products business. Based on our FY2023 guidance, we directionally expect our organic Cement revenue (CAGR towards FY2026) to grow in line with GDP growth in the markets we are pre- sent. In the short to mid-term period we expect a negative im- pact from recession on our Products revenue, while we ex- pect our Service revenue to remain largely stable. In the long-term, we expect both Products and Service revenue to grow in line with GDP growth. The key drivers for achieving our Cement EBITA margin target for the FY2026 include simplification of our operat- ing model, de-risking, Service business growth from in- creased installed base penetration as well as improved Service and Products mix. Our capital allocation is focused on having a strong balance sheet while allowing for growth investments and value-adding M&A. Excess cash may be distributed either via extraordinary dividends or share buyback programmes. In addition, directional expectations for cash flow genera- tion include: ■ Net working capital ratio to sales expected to increase to- wards 15% for the FY2026 driven by Service business growth ■ Expected annual CAPEX ratio to sales of 2-3% with invest- ments mainly driven by green technologies and supply chain investments ■ Effective tax rate expected to be reduced from business sim- plification Following the acquisition of Mining Technologies (ex-TK) and reflecting our pure play strategies as well as the establishment of the Non-Core Activities segment, we introduced our new long-term financial targets in connection with our Capital Markets Day on 18 January 2023. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 13 Business At a glance – FLSmidth 14 FLSmidth Group in the world 15 Strategy and business model 16 Our approach to sustainability 18 Progress on MissionZero 19 Sustainable solutions for mining and cement 20 EU taxonomy 21 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 14 At a glance – FLSmidth We are a leading supplier of productivity and sustainability solutions to the global mining and cement industries We enable our customers in mining and cement to move towards zero emissions by 2030 1882 Danish company founded 140+ years ago 10,977 employees using their unique knowledge and capabilities to meet our customers’ needs 150+ countries across the globe where we serve customers 60+ countries across the globe where we have a local presence 21.8bn in consolidated Group revenue in 2022 (DKK) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 14 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 15 FLSmidth Group in the world 1) During 2022 we have exited Russia. 2) As of Q3 2022, the two regions, Asia and Australia, have been merged. North America 24% Share of revenue 2021: 22% ▲37% Reported revenue growth 17% Share of employees 2021: 17% South America 23% Share of revenue 2021: 21% ▲36% Reported revenue growth 20% Share of employees 2021: 20% Sub-Saharan Africa, Middle East & South Asia 16% Share of revenue 2021: 18% ▲12% Reported revenue growth 26% Share of employees 2021: 30% Europe, North Africa & (Russia) 1 19% Share of revenue 2021: 18% ▲30% Reported revenue growth 25% Share of employees 2021: 22% Asia & Australia 2 18% Share of revenue 2021: 21% ▲5% Reported revenue growth 12% Share of employees 2021: 11% Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 16 Transformation FLSmidth is on a true transformation journey from an engineering-based company with a legacy in large capital projects towards a technology com- pany focused on service offerings. Our key pur- pose is rooted in the much-needed green transi- tion in the mining and cement industries and how we at FLSmidth can support this. The core drivers of our transformation are sustain- ability, innovation, simplification, de-risking, trans- parency, performance, speed, walking-the-talk and living our company values. The foundation on which we embark on this trans- formation journey is solid and anchored in our unique competitive edge including our long-stand- ing deep industry know-how, trust and expertise, our highly skilled employees, our large installed base, sustainability and technology innovation fo- cus and world-class offerings across the full flow- sheet and across all key commodities. Pure play approach To maximise our potential and value creation for all our stakeholders, we are pursuing a pure play approach for Mining and Cement. This approach has been chosen given limited synergies, low overlap in customer base and product offerings as well as different industry dynamics between the two segments. The benefits are clear, as the pure play approach caters for increased independence, enhanced op- erating flexibility, independent decision-making, stronger accountability, clearer cost allocation as well as clearer roles and responsibilities. Both segments have dedicated and separated execu- tive management teams and combined support functions. In addition, a separate Non-Core Activities seg- ment was established as of Q4 2022. The Non- Core Activities segment comprises products and activities that are no longer deemed to be of core strategic importance to FLSmidth. This segment will be fully exited over the next three years. Read more about Non-Core Activities on page 34. To further improve transparency, accountability and our financial performance, we have estab- lished a Business Line structure and global P&L management to drive accountability and improved performance. Simultaneously, our operating model and global footprint are being simplified and optimised to better reflect our business envi- ronment and our long-term growth opportunities. We have a relatively asset-light business model and continue to focus on streamlining our set-up. While localising our service footprint, we continue to pursue a strategy of consolidating our supply chain and execution centres as well as product lines to ensure the leanest possible organisation and high speed of delivery. During 2022 we started a full review of all types of footprint, such as locations and legal entities in- cluding those acquired through the acquisition of the former Mining Technologies (ex-TK) business, with the purpose of streamlining our setup and op- erations. This enables us to maintain closer prox- imity to our customers and serve them faster and better. During 2023 this work will continue leading to in- creased business simplification and leaner opera- tions across the company as we reduce complex- ity, organisational layers and structures. Continued high focus on profitability and a de- risked approach is crucial for our transformation journey. With less greenfield mining and fewer new cement plants being built, our overall strate- gic focus in Mining and Cement is shifting towards a service-led business. We pursue fewer large, complex orders and target more high margin ser- vice offerings. We prioritise innovation and R&D that supports our sustainability agenda and service-focused ambi- tions, while exiting non-sustainable business and de-risking our operations and portfolio exposure. Lifecycle profit approach We manage our business focusing on profitability to be able to create value for all our stakeholders. While Capital provides us with a large installed base for our Service business as well as key ex- pertise to deliver productivity improvements to our customers, we remain selective when taking on projects to ensure that terms and conditions sup- port our profitability targets. We consider the lifecycle profitability of the decisions and con- tracts we engage in and we have set guidelines for profitability levels for both the Service and the Capital business as well as the combined offer- ings over a lifecycle. Values To enable our company transformation and exe- cution of our strategies, a revised set of company values has been defined. Our values Trust, Em- powerment, Accountability, Collaboration and Honesty provide the basis for strong engagement internally as well as with our customers, business partners, suppliers, shareholders, and other stake- holders in the communities in which we live and operate. Strategy and business model Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 17 People & Engagement People are at the centre of FLSmidth. To deliver on our strategies and to help lead the green tran- sition within the mining and cement industries, we need talented colleagues who share the FLSmidth values and ambitions going forward. As we operate a global business with more than 100 nationalities, finding the right people, devel- oping them, and retaining them is key to FLS- midth’s future success. Diversity, equality, and in- clusion are therefore important elements in our continuous hunt for innovation and operational ex- cellence across the company. We have a strong focus on our global employer branding, in-house talent development and the well-being of our employees. In 2022, we made significant progress in personal and performance development for all employees, supported by suc- cession planning and significant training of employees. We continue to conduct monthly well- being and engagement surveys globally to obtain dynamic feedback. During the year we have also invested in reducing our gender pay gap across the organisation and made good progress in providing living wages. Many parameters are considered as we focus on ensuring that our organisation is diverse in terms of gender, background, education, nationalities, etc. All managers and employees have a role in creating a diverse and inclusive organisation. Our formula for success is simple: We must prioritise our efforts on our core business, reduce risk and execute with excellence. In addition, we know that behind any winning team, there must be a strong culture of leadership, accountability and trust. Mikko Keto, Group CEO Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 18 Sustainability is a core component of our com- pany strategies. As a technology leader in the mining and cement industries, we consider it our responsibility to be a key sustainability partner for our stakeholders, driving sustainable business practices across the industry value chains. Our approach focuses on the two main areas where we currently have the greatest impact: the sustainability performance of our customers and our own operations. Helping our customers become more sustainable The impact of mining and cement on global greenhouse gas (GHG) emissions provides significant business opportunities. Through our research and development-based sustainability programme, MissionZero, we help our customers accelerate towards more sustainable operations, reduce their environmental footprint and benefit from the green transition and global infrastructure development. MissionZero also encompasses digital solutions, a key enabler in improving operational efficiency, and the adoption of product stewardship principles. We support the long-term phasing-out of coal. We are not entering into new, greenfield coal-related projects, and we will end our involvement in coal mining by 2030. Conducting business responsibly Through our environment, social and governance (ESG) efforts, we address the impact of our own operations, and those of our suppliers, across the value chain. We set measurable targets and corre- sponding actions related to material issues. These include: Addressing our scope 1, 2 and 3 GHG emissions in accordance with the Science Based Targets initiative; creating a safe, diverse and inclusive workplace for our people; establishing clear standards for our suppliers; and establishing clear standards within compliance and human rights – for our own business and our suppliers. To embed sustainability in our business, we con- tinue to work towards increased accountability and improved governance. Key performance indi- cators (KPIs) related to MissionZero and ESG are cascaded throughout the organisation. This is sup- ported by increasing efforts to engage employees in all functions, business lines and regions in our sustainability activities. Materiality and strategy Through our materiality assessment, conducted most recently in 2021, and discussions with stake- holders, we align and prioritise the areas consid- ered most material. We aim to update our materi- ality assessment in 2023 in line with EU’s new Corporate Sustainability Reporting Directive (CSRD). This will include assessing the materiality of biodiversity and circularity, which are of in- creasing importance to society and our industries. We will continue to adopt a more integrated, holistic, life cycle perspective on the products and technologies we deliver to our customers. This involves addressing all relevant impacts across the value chain, including our suppliers’ ESG standards. We are starting this process in 2023 and expect to realise the full benefits over the coming years. Our approach to sustainability Through our MissionZero programme, we support the sustainability performance of our customers. Our ESG initiatives guide us in conducting responsible business. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 19 Mining and cement operations have a significant impact on the environment – together contributing approximately 10% of global CO 2 emissions – and the use of our products by our customers gener- ates around 99% of greenhouse gas (GHG) emis- sions from our entire value chain. With our Mis- sionZero programme, we aim to enable zero emissions in mining and cement, and our Mission- Zero Mine and Green Cement Plant concepts ar- ticulate our vision for how to achieve sustainable mining operations and cement production (see next page). Reducing economic intensity We have aligned our business targets with the most ambitious scenario of the 2015 Paris Agree- ment, which aims to keep global warming below 1.5°C. This means setting validated science-based targets to reduce GHG emissions across scope 1, 2 and 3. Downstream scope 3 emissions are ad- dressed through our economic intensity target, which links our business growth with more energy- efficient, less CO 2 -intensive products. According to the Greenhouse Gas Protocol, entire lifetime emissions related to equipment sold to our customers must be accounted for in the year in which the order intake is registered. Economic in- tensity represents the annual lifetime emissions of the products sold as a function of order intake. In 2022, our economic intensity decreased by 50% compared with our 2019 baseline. This is significant given our science-based target of a 56% reduction by 2030. A key contributing factor was the large decrease in sales of heavy CO 2 -emitting products in the Cement business. In addition, we saw an in- crease in revenue from MissionZero flagship prod- ucts, which are more energy-efficient and less CO 2 - intensive, also translating into a higher taxonomy- eligible revenue percentage. While we are pleased with this progress, it reflects the volatility of our current economic intensity measurement. This is caused by a highly diverse product portfolio, where there is significant varia- tion in energy consumption and product lifetimes. For example, some of our cement industry products have a high impact due to their CO 2 in- tensiveness and long lifetime. Volatility is likely to continue in the short term, but we expect it to be lower in the medium to long term. We plan to in- troduce additional metrics to provide a wider, more nuanced picture of our progress. This in- cludes an annualised emissions metric that re- duces the impact of the lifetime factor enabling comparisons on an annual basis. This will provide additional insight to ensure we sell more Mission- Zero-related products. In 2021, we introduced sales targets to incentivise sales teams to sell sus- tainable products. Four out of five regions met their target to increase sustainability-linked sales. Innovation and partnerships Our research and development (R&D) efforts are central to our ability to meet our economic inten- sity target. In 2022, our sustainability-linked R&D spend accounted for 56% of our total R&D budget – reflecting our R&D activities related to solutions for water, energy and CO 2 improvements. Key in- novations released include the Alumina Gas Sus- pension Calciner and the Indirect Cooler for lith- ium processing. Technical partnerships with customers, universi- ties and other organisations are essential to our MissionZero programme, enabling us to acceler- ate innovation and go-to-market. In 2022, we launched the CO2Valorize consortium, which aims to develop carbonation technologies, and the ECoClay consortium, which will develop the elec- trical activation of clay. Through the FlotSim col- laboration, we stepped up research into improving flotation recovery rates in mining. Scope 3: Economic intensity (use of sold products) tCO 2 e/DKKm (order intake) 5,310 ▲ 49% improvement 2030 target 56% reduction from 2019 Baseline year R&D spend 56% of our R&D spend is dedicated to sustainability Supported Sustainable Develop- ment Goals Progress on MissionZero In 2022, we saw more progress towards our MissionZero ambition, including: ■ A thickener upgrade at an Australian gold mine reduced water discharged to the tail- ings dam by 11% and allowed a 9% in- crease in plant capacity ■ A new order for a clay calcination installation at CBI Ghana Ltd.’s cement production facility is expected to cut CO 2 emissions by up to 20% ■ A new thickener system at a copper mine in Kazakhstan has reduced water to the tailings facility by 26% and improved the mine’s tail- ings dam stability 10,348 5,310 2021 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 20 MissionZero Mine We want to help miners produce more with less resource use and to create a smaller footprint. Our vision of the mine of the future is captured in the MissionZero Mine, which illustrates how we can support miners with innovative technologies and digital solutions. The MissionZero Mine brings our MissionZero ambition to life, exploring how we can al- ready help customers to reduce their environmental impact and operating costs, as well as looking ahead to future technologies that can be industry game changers. Green Cement Plant We want to help cement plant operators reduce their carbon footprint and increase productivity. Our Green Cement Plant concept enables this, bringing together the solu- tions needed to enable zero-emission cement production by 2030. It guides our work in the coming decade – both in terms of where we will focus our inno- vation efforts and in terms of creating partnerships with our customers, technology spe- cialists and others who can drive the change to more sustainable operations. Find out more at MissionZero Mine Find out more at Green Cement Plant Sustainable solutions for mining and cement Technology is the cornerstone of our MissionZero ambition to enable zero emissions in Mining and Cement. Our MissionZero Mine and Green Cement Plant concepts articulate our technology vision for 2030. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 21 Progress in 2022 Total eligible 2 revenue increased from 16.2% to 25.6% in 2022. Growth was driven by increased sales of our eligible product port- folio and by additional products and technologies becoming cate- gorised as eligible during 2022. This also includes products and technologies from our acquisition of Mining Technologies (ex-TK). Aligned revenue for 2022, repre- senting the revenue generated by the Cross-Bar Cooler, was 1.4% of total revenue and is reported un- der Economic Activity 3.6 Manu- facture of other low carbon tech- nologies. The total eligible OPEX increased from 17.5% to 25.0% for the year. EU taxonomy-eligible OPEX re- flects the direct costs related to the production of our eligible products, including expensed R&D activities. The total eligible CAPEX in- creased from 23.5% to 61.8% for the year. This was driven by our commitment to ensure that a sig- nificant portion of our R&D activi- ties was focused on our Mission- Zero portfolio. The increase in our total eligible CAPEX also reflects this year’s treatment of land and buildings CAPEX, including capi- talised leases, under Economic Activity 7.7 Acquisition and owner- ship of buildings, under Climate change mitigation. EU taxonomy-aligned CAPEX and OPEX were 0.1% and 1.0% respec- tively. Aligned CAPEX and OPEX are driven by our activities sup- porting the production of the Cross-Bar Cooler, including R&D spend. A small portion of aligned CAPEX was allocated to Eco- nomic Activity 7.3 Installation, maintenance and repair of energy efficiency equipment. This relates to installation of en- ergy-efficient windows at a site in Italy. Looking ahead, based on the cur- rent EU taxonomy framework, we expect our aligned KPIs to im- prove. This will be driven by a for- ward-looking strategy on LCAs on our core MissionZero products and organic growth in the portfo- lio as demand for sustainable so- lutions in both mining and cement grows. Economic activities The EU has defined a list of economic activities (pur- chase/sale of goods and/or services) that are enablers for the green transition. These are economic activi- ties that could contribute to the environmental objec- tives. See our Sustainability Report for more information about our EU taxonomy reporting Eligibility and alignment 2022 Revenue OPEX CAPEX 1.4% 24.2% 74.4% Eligible and aligned Eligible and non-aligned Non-eligible 1.0% 24.0% 75.0% 0.1% 61.7% 38.2% The EU taxonomy represents a new opportunity for us to demonstrate how we support our custom- ers in reducing their greenhouse gas (GHG) foot- prints, while detailing the environmental perfor- mance of our MissionZero portfolio. The EU taxonomy targets six environmental objectives: 1. Climate change mitigation 2. Climate change adaptation 3. Sustainable use and protection of water and marine resources 4. Transition to a circular economy 5. Pollution prevention and control 6. Protection and restoration of biodiversity and ecosystems Only the first two are in scope for mandatory re- porting and reflected in 2022 reporting. Measuring eligibility (in scope) In 2021, we disclosed our eligible KPIs for the first time. Eligibility is not a measure of sustainability performance, but the initial identification process of business activities that could support the EU’s climate transition. In 2022, the disclosure require- ments were expanded to include alignment under the EU taxonomy framework. Measuring alignment (screened) Eligible activities captured under the three KPIs of revenue 1 , CAPEX and OPEX need to pass screen- ing criteria to be considered sustainable. This de- fines alignment in the EU taxonomy. The screenings for alignment included proving sub- stantial contribution to one of the two environmen- tal objectives in scope; doing no significant harm (DNSH) to the remaining five objectives; and meet- ing minimum safeguards. The FLSmidth Cross-Bar® Cooler is our first EU taxonomy-aligned product. The product was screened for substantial contribution through a third-party-approved life cycle assessment (LCA). We assessed the product and the relevant manu- facturing sites against the DNSH criteria. We have taken a risk-based approach, meaning that we have focused on identifying any significant risk within climate adaptation, water, circular econ- omy, pollution prevention and biodiversity. Furthermore, we have assessed our compliance at company level with the minimum safeguards as defined by the EU Taxonomy Regulation to ensure that we follow requirements. We have found that we are in compliance with these requirements. However, we do acknowledge that we will need to continue to improve our efforts to ensure that we continue to align with the requirements. Overall, we have found that we follow the EU Tax- onomy Regulation criteria, and thus can report taxonomy-aligned revenue, CAPEX and OPEX. EU taxonomy 21 1) We use the term revenue instead of turnover to align with the terminology in our financial reporting. 2) Total eligible revenue, OPEX and CAPEX represent both “Eligible and aligned” and “Eligible and non-aligned”. The EU taxonomy framework is part of the European Green Deal and serves as a core enabler to deliver on the EU’s ambitious climate goals for 2030. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 22 Mining business At a glance – FLSmidth Mining 23 FLSmidth Mining in the world 24 Market outlook and trends 25 Strategy (CORE'26) and business model 26 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 23 At a glance – FLSmidth Mining Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 23 16-17bn revenue 1 ~60/40 Service vs. Capital revenue split ~50% exposure to minerals critical to the green transition 2 7,126 employees 3 1 Based on FY2023 guidance 2 Based on order intake FY 2022 3 At FY 2022 Our purpose is ”mining for a sustainable world” and our mission is ”delivering solutions for tomorrow’s mine” Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 24 FLSmidth Mining in the world 1) During 2022 we have exited Russia. 2) As of Q3 2022, the two regions, Asia and Australia, have been merged. Note: FLSmidth Mining in the world comprises the Mining segment including Mining Technologies (ex-TK) excluding the Non-Core Activities segment. North America 23% Share of revenue 2021: 21% ▲42% Reported revenue growth South America 30% Share of revenue 2021: 27% ▲43% Reported revenue growth Sub-Saharan Africa, Middle East & South Asia 12% Share of revenue 2021: 16% ▼-2% Reported revenue growth Europe, North Africa & (Russia) 1 16% Share of revenue 2021: 15% ▲35% Reported revenue growth APAC 2 19% Share of revenue 2021: 21% ▲17% Reported revenue growth Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 25 Despite ongoing global macroeconomic and geopolitical turmoil, the long-term demand for minerals essential to economic growth and a sustainable future remains resilient. Changing commodity prices, supply chain constraints, inflation and the threat of a global recession were key drivers of concern and uncertainty for the mining industry in 2022. Opportunities arose due to the constant and growing demands emerging from the energy transition, and these are expected to continue. The uncertainty caused by inflation and the risk of recession have slowed down exploration projects, reduced the budget for advanced greenfields and shifted a focus on low-risk projects during the first half of 2022. In the last quarter of 2022, there has been a recovery in progression of activity related to copper, lithium, gold, and phosphates. In our South American region, some orders were post- poned to 2023 due to political instability in Peru and Brazil, and the uncertainty about the outcome of the constitution and mining profit taxes review in Chile. Opportunities remain strong in copper, gold and lithium in all regions, as well as iron ore in India and Asia. The acceleration of decarbonisation efforts and energy transition drive the increase in the demand for green metals and industrial commodities glob- ally. ESG requirements and future demand for commodities such as lithium and copper are the drivers of the capital business and require us to adapt the project planning and execution activi- ties to the changing environment. Miners are rethinking their business models to gain competi- tive advantage and ESG is becoming an inte- grated part of the mining companies’ strategies. This creates multiple opportunities for water man- agement, decarbonisation and productivity solu- tions in the mining sector. Disruption in supply chain caused by COVID-19, China’s zero COVID-19 policy and geopolitical tur- moil have established a need for transforming the supply strategy into stronger partnerships and collaboration with our customers and suppliers. This has created a stronger momentum for the digitalisation and life-cycle services, as an im- portant component of the supply chain risk mitiga- tion. Despite the challenges caused by longer lead time and increasing energy costs in Europe, the commodity prices’ elevation and supply and logis- tics price stabilisation have kept the service busi- ness at a healthy level across all regions during 2022. Market outlook and trends Capex trend in mining USDbn Source: Bloomberg, FLSmidth estimates Global copper consumption Million tonnes Source: Bloomberg, FLSmidth estimates 0 20 40 60 80 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 [Insert chart here] 0 4 8 12 16 20 24 28 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 26 Transformation Our path forward focuses on restructuring our Min- ing organisation to create the basis for strong per- formance and delivering consistent value creation through a core business and service focus. Re- structuring our Mining organisation has been a key focus during 2022 with the establishment of a Business Line structure and global P&L manage- ment, integration of Mining Technologies (ex-TK), review of our product portfolio and footprint as well as the pure play approach. Based on this FLSmidth’s Mining strategy’s purpose, mission and focus areas have been revised accordingly. CORE’26 Our newly launched Mining strategy, named CORE´26, is centered around a core strategic focus on expanding the share of services and standardised products relative to the share of pro- jects, while simultaneously de-risking the project portfolio. This focus will help us obtain a more profitable business mix and a less cyclical busi- ness with a lower level of risk. Purpose Our purpose is ‘Mining for a sustainable world’. Mining is crucial to the global green transition and the future demands from the growing middle-class population worldwide. It is both an opportunity and a responsibility and we at FLSmidth have a unique position to be able to lead this journey. The road to net-zero emissions requires an ex- traordinary increase in the supply of minerals essential to the green transition, including copper, lithium, nickel, and cobalt. Mission Our mission, which we strive to execute on every day, is ‘delivering solutions for tomorrow’s mine’. We will continue to leverage our ability to inno- vate, improve and produce world class offerings across the full flowsheet in line with our Mission- Zero focus. This will benefit our customers, drive motivation and competencies amongst our em- ployees. Focus areas We have built our CORE’26 strategy around four focus areas: Sustainability, Technology, Service and Performance. These focus areas are further detailed into concrete strategic initiatives, which are linked to goals that are cascaded through the organisation. This way we ensure alignment be- tween our strategic ambitions from the top to the operational execution, thereby strengthening our ability to deliver on our targets across our busi- ness – collectively we strive towards the same goals. Sustainability Building a better future for our employees, society and the planet As a key sustainability partner for our customers, we can drive significant progress across the indus- try value chains. Sustainability at FLSmidth has two primary dimensions. Firstly, through our customer-centric, R&D-based sustainability programme, MissionZero, we help our customers accelerate towards more sustainable operations. We want them to benefit from the substantial opportunities within the green transition and global infrastructure development, while also significantly reducing their environmen- tal footprint. Secondly, we address the impact of our own oper- ations, and those of our suppliers, across the value chain. We set relevant targets and corre- sponding actions related to material issues which include addressing our scope 1, 2 and 3 emissions in accordance with the Science Based Targets ini- tiative, committing to product stewardship, creat- ing a safe, diverse workplace for our people, and establishing clear standards for our suppliers. Read more about Sustainability and MissionZero on page 18-19 and in our Sustainability Report 2022. Technology The complete provider for process and product technology As a technology leader, we are in a unique posi- tion to enable our customers to move towards mining for a sustainable world. As we shift from being an engineering company to a technology leader, FLSmidth is uniquely posi- tioned to support our customers’ productivity, sus- tainability, and financial ambitions. Our technol- ogy focus include testing, process expertise and developing products that meet our customers’ needs to make it possible to increase output, re- duce water usage along with reduced energy con- sumption. Strategy (CORE’26) and business model Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 27 Powering our future as the leading partner for full flowsheet sustainable solutions, is an organisa- tional culture and business model that fosters so- lution-oriented innovation. Service Global partner for life-cycle performance and sus- tainability Service is at the heart of our business – it’s the main driver of our profitability and the key to cus- tomer productivity. Service plays a key role in FLSmidth’s future success. Its stability allows us to maintain a healthy business despite the cyclical nature of the industry. This makes it possible to spend more on R&D, acquire new technologies and invest in our people. A focus on service also greatly benefits our cus- tomers. We continuously deliver quantifiable value over the lifecycle of a mine that advances customers’ sustainability agendas and improves their bottom lines. We’re a leader in the industry with a significant in- stalled base across the world. When we take full advantage, we drive customer satisfaction and loyalty to make FLSmidth a stronger company. Performance Accelerating profitability through core businesses, simplification and balanced risk Performance helps us measure financials, safe- guard our business and mitigate risks. When we are more focused on our core business, prioritising value over volume, and reducing our exposure to risk and market volatility, we are a healthier and more valuable company. The successful execution of the initiatives identi- fied within the Service, Technology and Sustaina- bility focus areas ultimately contribute to our overall performance and growth. By investing in our people and technologies, we will realise the full potential of FLSmidth as the mining industry’s technology leader. Innovation & digitalisation Our efforts in innovation and digitalisation are im- portant to deliver on our mining strategy. Greater scarcity of resources such as energy, water and raw materials leads to more complex and costly operations that challenges the performance of our customers. This calls for high-end technical solu- tions, which is where FLSmidth has a leading posi- tion and a competitive edge. Our strong digital capabilities are founded on our extensive experience in digitalising the full flow- sheet. This positions us as a market leader in ana- lysing and understanding performance data. An increasing share of our products and solutions of- fered to our customers are becoming artificially in- telligent and self-learning. Customers are increas- ingly focused on improving productivity and their returns, while reducing their environmental foot- print and higher returns. Digitalisation offers huge potential and has be- come a natural and integral part of our product portfolio. The benefits to our customers are clear: increased productivity through optimisation, more reliable operations, increased up-time as well as proactive, predictive, and increasingly prescriptive maintenance. While we already offer many flagship MissionZero solutions that provide increased productivity while reducing environmental impact, we will not be successful in pursuing our purpose unless we con- tinue to develop more innovative technologies. In 2022, we have launched several new innovations – both in-house and through the collaboration with partners and customers – including the Per- formanceIQ for digital services. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 28 Cement business At a glance – FLSmidth Cement 29 FLSmidth Cement in the world 30 Market outlook and trends 31 Strategy (GREEN'26) and business model 32 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 29 At a glance – FLSmidth Cement Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 29 6.0-6.5bn revenue 1 ~55/45 Service vs. Capital revenue split +50% presence at all cement plants across the world 3,270 employees 2 1 Based on FY2023 guidance 2 At FY 2022 “We have a clear commitment to drive the green transition in the cement industry” Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 30 FLSmidth Cement in the world 1) As of Q3 2022, the two regions, North America and South America, have been merged. 2) During 2022 we have exited Russia. 3) As of Q3 2022, the two regions, Asia and Australia, have been merged. Americas 1 34% Share of revenue 2021: 34% ▲9% Reported revenue growth Sub-Saharan Africa, Middle East & South Asia 25% Share of revenue 2021: 21% ▲26% Reported revenue growth Europe, North Africa & (Russia) 2 26% Share of revenue 2021: 23% ▲19% Reported revenue growth APAC 3 15% Share of revenue 2021: 22% ▼-27% Reported revenue growth Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 31 During 2022, the cement industry has, like most other industries been navigating in a market with macroeconomic and geopolitical uncertainties. The volatile energy prices and inflation pressure have created a push for increased focus on productivity and we have experienced a continued focus on sustainability solutions. In 2022, we have seen continued positive trends in the Americas especially in the US where an in- creased focus on OPEX optimisation has created a higher demand for our products and services. Furthermore, the cement producers in the US have evaluated steps needed to capture opportunities from the infrastructure packages. In addition, the “Inflation Reduction Act” has created an increased focus on the green transition and we are in close dialogue with our key customers on how to jointly drive the next steps towards the green transition in the cement market. Also in 2022, the Asian market recovered from the pandemic lockdowns that affected the market in 2021 and we have seen positive service activity throughout the year. In the capital business mar- ket, in particular China has been one of the key markets focusing on modernisation of existing plants with new products. Furthermore, there has been a continued focus on conversion to alterna- tive fuel solutions in Asia during the year. How- ever, the transition to these solutions is moving forward at different paces country by country. The ongoing war in Ukraine, inflation and increas- ing interest rates have impacted the business cli- mate in Europe. Customers have put large investments and upgrades on stand-by and we have experienced a slowdown in decision-making processes. However, the current situation has also opened up for increased dialogues on sustainabil- ity solutions. Overall, our Service showed strong performance throughout the year. In some countries, we have however started to see the first cases of budget constraints imposed to counter the increasing en- ergy costs. For the Capital business the pipeline continued to be healthy but actual decision-mak- ing is slowing down caused by uncertainty around the global economy. During the quarters of 2022 there has been an accelerated shift in focus from capacity to sustainability – mainly driven by a concern around energy volatility – especially sys- tems supporting fuel substitution. Market outlook and trends Capex trend in cement USDbn Source: Bloomberg, FLSmidth estimates Global cement consumption Billion tonnes Source: Bloomberg, FLSmidth estimates 0 3 6 9 12 15 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0 1 2 3 4 5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 32 Transformation Cement’s performance has in recent years been unsatisfactory as a result of lack of clear focus, a too large risk profile and a too heavy global foot- print and complex organisational setup. With the cement industry being one of the highest emitting industries in the world, we have a significant po- tential to reduce this. However, to be able to suc- cessfully do so, we first needed to transform our Cement business towards a pure play rooted on service-centricity and sustainable profitability. The green transition has to happen within the ce- ment industry, and FLSmidth Cement has em- barked on a journey to become the preferred and leading service provider for green cement. We will do this by providing world-class services and innovations that help our customers reduce their carbon footprint and increase their productiv- ity. Our goal is, together with our customers, to achieve economic and environmental success. GREEN’26 Our newly launched strategy, named GREEN’26, is rooted in three focus areas: Implementation of a revised operating model, increased focus on the service business model and accelerated green fo- cus with the clear target of decreasing the 7% of global CO 2 emissions currently coming from the cement industry. In addition, we are implementing a completely new execution model to improve profitability, re- duce earnings volatility and risks – making us more resilient even in a challenging macroeco- nomic environment. Operating model transition During 2022 we have changed our operating model and going forward the focus will mainly be on the Service business. Service is both more prof- itable and associated with less risk than capital. This is also more reflective of the current cement market, where limited new capacity is being built. In addition, we have restructured the Cement or- ganisation and our footprint to become simpler and reduce earnings volatility and risks. As part of this, the Cement business is now better positioned for fully implementing a pure play setup, which allows the Cement organisation to fo- cus on the core business opportunities and to take more control over the cost base as well as to de- velop strategies and do investments for growth. Service business model transition We are present at more than 50% of all cement plants in the world and we have a detailed under- standing of our customers which allows us to drive the growth in the right places. Short term, we will drive proactive sales with our core customers and build close performance part- nerships plant-by-plant. We will increase our share of wallet with existing customers, close the white-spots and further penetrate the 3rd party in- stalled base. Going forward, we will help our customers transi- tion their installed base to carbon neutral solu- tions. We have deep insights on the technical setup and performance plant-by-plant which will be leveraged to drive the green transition. Green transition Cement is among the highest emitting industries in the world accounting for ~7% of global CO 2 emis- sions. We have an obligation to fight the high share of emissions related to the cement industry. The future of the cement industry is green. We have the products and technology available to make the industry carbon neutral by 2030 and we also have the distribution network to facilitate the transition. A growing green technology market is driven by a need for productivity and cost effi- ciency improvements as well as regulatory re- quirements and demands for green cement. The technology and products to decarbonise are to ~60% already available, all being cost neutral for the cement producers. The remaining 40% can be captured. Our focus is to provide selected green technologies and end-to-end flowsheet de- sign where we will be cooperating with carbon- capture experts. Strategy (GREEN’26) and business model Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 33 Non-Core Activities Strategic rationale, decision criteria and strategy 34 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 34 Strategic portfolio review The review intended to assess all combined min- ing activities and products from a strategic, finan- cial and sustainability perspective against FLS- midth’s long-term strategic direction and ambitions. As a result of the strategic review, it was decided to split the Mining business into two separate seg- ments for operational and reporting purposes: 1. a continuing Mining segment focused on prof- itability, growth and sustainability 2. a new Non-Core Activities segment, where activities will be fully exited either by way of divestment or wind down of the order back- log The new segment split will ensure sharpened stra- tegic focus and stronger execution of the continu- ing Mining activities that are key to accelerating long-term profitability and growth for FLSmidth. At the same time, dedicated focus and resources will be allocated to the Non-Core Activities to ensure transparency and effective execution of the di- vestment or wind-down and to minimise losses from these activities. Non-Core Activities segment The Non-Core Activities segment comprises prod- ucts that are no longer deemed to be of core stra- tegic importance to FLSmidth and are to a great extent loss-making mining activities. The selection criteria for these activities and prod- uct types have been that either they; 1. are no longer deemed to be of core strategic importance to FLSmidth 2. offer limited or no aftermarket potential 3. are unprofitable with no viable commercial model for FLSmidth to turn these around 4. are characterised by high execution risks, are highly engineered and/or lack standardisation 5. do not contribute to FLSmidth's sustainability agenda Consequently, FLSmidth will either divest or wind- down the following activities and products: ■ All legacy FLSmidth and former Mining Technol- ogies (ex-TK) brands: Port Systems, Stockyard equipment, Standard-sized bucket wheel exca- vators and pipe conveyors ■ Legacy FLSmidth Mining brands: Continuous Surface Mining equipment and Mine & Overland Conveyors ■ Former Mining Technologies (ex-TK) activities: Oil extraction technology and aggregate products Existing contracts and ongoing activities in the or- der backlog will be executed and honoured, if not divested. With limited exceptions, FLSmidth will not take new orders for the Non-Core Activities segment. A designated organisational structure has been established to oversee the Non-Core Activities segment, with the Head of the segment reporting directly to the Group CFO. Around 600 employ- ees are currently working with or supporting the Non-Core Activities segment. The Non-Core Activities segment comprises of an order backlog of around DKK 2.9bn as of end Q4 2022, of which approximately 50% originates from FLSmidth and 50% from the former Mining Tech- nologies (ex-TK). The vast majority of the order backlog relates to Capital orders. The Non-Core Activities order backlog is expected to be divested or wound down within the next three years with an expected total EBITA loss over the period of around DKK 0.8bn. The estimate is based on historical performance and costs associ- ated with the winddown or divestment decision. This estimate is subject to uncertainty due to the nature of winding the business down and may change depending on which parts of the business are divested. The segmentation reflects the internal reporting and management structure applied. In line with the internal reporting, the Non-Core Activities seg- ment is reported prospectively from 1 October 2022. The segmentation is based on the identifi- cation of effective contracts on 1 October 2022 that relate to Non-Core Activities through a thor- ough contract-by-contract review by Manage- ment. It would be an extensive exercise to make this identification for contracts existing in prior pe- riods. Further, the allocation of net profit between Mining and Non-Core Activities before the new segmentation was internally implemented would be subject to significant estimates and allocations. On that background, it is impractical to restate the Mining segment in prior periods to reflect the split of the activities between Mining and Non-Core Ac- tivities prior to the new segmentation was imple- mented. Strategic rationale, decision criteria and exit strategy Following the recent acquisition of Mining Technologies (ex-TK), FLSmidth initiated a planned strategic review of the combined FLSmidth and Mining Technologies (ex-TK) product portfolio. As a result of the review, a strategic change was announced to enhance long-term profitability and to accelerate growth in the core Mining business. This change includes the decision to divest or wind-down non-core and unprofitable mining activities. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 35 Financial performance Mining 36 Cement 37 Non-Core Activities 38 Consolidated - Quarterly financial performance 39 Consolidated - Annual financial performance 43 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 36 Financial performance in Q4 2022 Mining order intake grew organically 5% com- pared to Q4 2021. Part of the business has been moved to the Non-Core Activities segment as of Q4 2022. Including currency effects and the im- pact from the acquisition of Mining Technologies (ex-TK), formerly referred to as TK Mining, order in- take increased by 27%, equally driven by both a growth in Capital orders and in Service orders. The increase reflected a continuing improvement in activity levels and positive market sentiment. Q4 2022 included two large orders at a combined value of around DKK 1.2bn compared to Q4 2021, which included a large order valued at around DKK 350m. During the quarter, Service orders and Capital or- ders represented 55% and 45% of Mining order in- take, respectively. The order intake from Mining Technologies (ex-TK) amounted to DKK 533m in Q4 2022. Revenue increased 6% organically and by 32% in total including currency effects and the additional DKK 646m coming from the acquisition of Mining Technologies (ex-TK). The quarter included DKK 69m in revenue from contracts with non-sanc- tioned Russian and Belarusian customers. Service revenue increased by 45% and accounted for 78% of the share of total revenue growth. This was driven mainly by higher spare and wear parts de- mand. Capital revenue increased by 15% driven by the acquisition of Mining Technologies (ex-TK) and currency effects. Gross profit increased by 46% to DKK 1,132m, from DKK 778m in Q4 2021. The corresponding gross margin increased to 25.9% as a result of the higher share of Service revenue, partly offset by integration costs related to the acquisition of Mining Technologies (ex-TK) and cost related to the exit of our activities in Russia. EBITA margin decreased to 7.7% from 9.1% in Q4 2021. Adjusted EBITA margin was 12.4% when ex- cluding integration costs related to the acquisition of Mining Technologies (ex-TK) of DKK 125m and costs of DKK 80m related to the exit of our activi- ties in Russia. Financial performance in 2022 Mining order intake grew 20% organically. In 2022 Service order intake was strong and in- creased 37%. Seven large capital orders at a com- bined value of around DKK 2.8bn were an- nounced compared to four large orders with a combined value of around DKK 950m in 2021. Ser- vice orders and Capital orders accounted for 59% and 41% of Mining order intake. For the year, cur- rency had a 8% positive impact on order intake. Based on a book-to-bill of 118%, the Mining order backlog increased by 35% to DKK 14,277m. Revenue increased 14% organically and by 29% in total including currency effect and the acquisition of Mining Technologies (ex-TK). EBITA increased by 9% to DKK 1,146m and the corresponding EBITA margin decreased by 1.4%-points. In 2022 EBITA was impacted by costs related to the acquisition of Mining Technologies (ex-TK) of DKK 252m and costs of DKK 200m to exit our activities in Russia. Adjusted for these costs, the EBITA margin was 10.6%. Mining Growth in order intake and revenue in Q4 2022 (vs. Q4 2021) Q4 2022 order intake split by Region and Commodity % Revenue and EBITA margin DKKm EBITA margin % 16% 29% 26% 12% 17% by Region NAMER SAMER ENAR SSAMESA APAC 36% 10% 6% 1% 8% 39% by Commodity Copper Gold Coal Fertilizer Iron ore Other 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 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Service Capital EBITA % Adjusted EBITA % Order intake Revenue Organic 5% 6% Acquisition 15% 20% Currency 7% 6% Total growth 27% 32% Note: Mining Q4 2021 includes Non-Core Activities Mining (DKKm) Q4 2022 Q4 2021 Change 2022 2021 Change Order intake (gross) 4,579 3,611 27% 17,822 13,281 34% - Hereof service order intake 2,500 1,978 26% 10,575 7,705 37% - Hereof capital order intake 2,079 1,633 27% 7,247 5,576 30% Order backlog 14,277 10,599 35% 14,277 10,599 35% Revenue 4,374 3,321 32% 15,082 11,715 29% - Hereof service revenue 2,641 1,817 45% 9,191 6,940 32% - Hereof capital revenue 1,733 1,504 15% 5,891 4,775 23% Gross profit 1,132 778 46% 3,794 2,932 29% Gross margin 25.9% 23.4% 25.2% 25.0% Adjusted EBITA 542 n/a 1,598 n/a Adjusted EBITA margin 12.4% n/a 10.6% n/a EBITA 337 303 11% 1,146 1,049 9% EBITA margin 7.7% 9.1% 7.6% 9.0% Number of employees 7,126 6,216 15% 7,126 6,216 15% Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 37 Financial performance in Q4 2022 Cement order intake in Q4 2022 decreased by 20% organically. Including currency effects, the order intake in Q4 2022 decreased by 17% to DKK 1,223m. This is mainly explained by a 37% de- crease in Capital order intake compared to Q4 2021, which included one large order of DKK 200m. During the quarter Service orders and Cap- ital orders represented 65% and 35% of Cement order intake, respectively. Revenue decreased by 14% organically compared to Q4 2021, driven by supply chain challenges and a strong comparison quarter. Including cur- rency effects, revenue decreased by 11% to DKK 1,618m. Service accounted for 59% of revenue in Q4 2022 compared to 54% in Q4 2021. The quar- ter included DKK 70m in revenue from contracts with non-sanctioned Russian and Belarusian cus- tomers. Gross profit increased by 29% as a result of our efforts to focus on higher value orders. The corre- sponding gross margin increased 9.2%-points, im- pacted by financial closure of specific service con- tracts. As a result of the new simplified operating model in Cement, the quarter included additional costs which increased SG&A costs. EBITA in Cement amounted to DKK 70m in Q4 2022 driven by the improved gross margin. The corresponding EBITA margin improved by 2.4%- points to 4.3%. Financial performance in 2022 Cement order intake grew by 11% to DKK 6,613m, driven by an 9% increase in Service orders and a 15% increase in Capital orders. This reflects im- proved market conditions compared to 2021. 2022 included a large order of more than DKK 400m. Service and Capital orders accounted for 57% and 43% of Cement order intake, respec- tively. Order backlog increased by 7% to DKK 6,386m. Revenue increased by 2% organically, and by 7% including currency effects. Service revenue in- creased by 12% and Capital revenue increased by 1%. Gross profit increased 28% driven by the strong focus on price increases and execution throughout the year. EBITA improved in 2022 and amounted to DKK 204m, driven by the increased revenue and higher gross margin. The corresponding EBITA margin improved to 3.3% despite a year with higher costs due to inflationary pressure and the new simplified operating model in Cement. Cement Growth in order intake and revenue in Q4 2022 (vs. Q4 2021) Order intake Revenue Organic -20% -14% Acquisition 0% 0% Currency 3% 3% Total growth -17% -11% Q4 2022 order intake split by Region and Category % Revenue and EBITA margin DKKm EBITA margin % 38% 20% 29% 13% by Region Americas ENAR SSAMESA APAC -1% 36% 65% by Category Projects Products Services -6% -4% -2% 0% 2% 4% 6% 0 500 1,000 1,500 2,000 2,500 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Capital revenue Service revenue EBITA % Cement (DKKm) Q4 2022 Q4 2021 Change 2022 2021 Change Order intake (gross) 1,223 1,473 -17% 6,613 5,952 11% - Hereof service order intake 794 792 0% 3,752 3,457 9% - Hereof capital order intake 429 681 -37% 2,861 2,495 15% Order backlog 6,386 5,993 7% 6,386 5,993 7% Revenue 1,618 1,814 -11% 6,264 5,866 7% - Hereof service revenue 954 979 -3% 3,536 3,154 12% - Hereof capital revenue 664 835 -20% 2,728 2,712 1% Gross profit 482 373 29% 1,602 1,248 28% Gross margin 29.8% 20.6% 25.6% 21.3% EBITA 70 35 100% 204 (19) 1,174% EBITA margin 4.3% 1.9% 3.3% -0.3% Number of employees 3,270 3,901 -16% 3,270 3,901 -16% Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 38 Financial performance in Q4 2022 Order intake for Non-Core Activities amounted to DKK 209m, 63% relating to Service order intake and 37% to Capital order intake. The order intake was related to contractual obligations and parts already in stock. Order backlog amounted to DKK 2.9bn. Roughly 50% of the backlog are from orders originating from Mining Technologies (ex-TK). The vast major- ity is from capital orders. Nearly one-third of the backlog is destined for countries within APAC. Revenue for Non-Core Activities in 2022 amounted to DKK 503m, which was in line with guidance. Capital accounted for 59% of total reve- nue, while 41% of revenue was related to Service. Gross profit was negative and amounted to DKK -320m, driven by provisions made for specific projects and costs related to exiting Non-Core Ac- tivities. The corresponding gross margin amounted to -63.6%. EBITA for Non-Core Activities amounted to DKK -407m, corresponding to a mar- gin of -80.9% driven by the negative gross profit. Total number of employees of the segment amounted to 581 at 31 December 2022. Non-Core Activities Q4 2022 order intake split by Region % Q4 2022 order intake split by Category % 3% 23% 4% 21% 49% by Region NAMER SAMER ENAR SSAMESA APAC 6% 1% 12% 5% 76% by Commodity Copper Gold Coal Fertilizer Iron ore Other Minerals Non-Core Activities (DKKm) Q4 2022 Order intake (gross) 209 - Hereof service order intake 131 - Hereof capital order intake 78 Order backlog 2,878 Revenue 503 - Hereof service revenue 206 - Hereof capital revenue 297 Gross profit (320) Gross margin -63.6% EBITA (407) EBITA margin -80.9% Number of employees 581 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 39 Growth Group order intake in Q4 2022 increased 18%, predominantly driven by Mining. Mining order intake was supported by currency tailwinds and the acquisition of Mining Technologies (ex-TK) by 7% and 15% respectively. Group revenue increased 26%, driven primarily by Mining. Order intake Order intake in Q4 2022 increased by 18% to DKK 6,011m including the impact from the acquisition of Mining Technologies (ex-TK) of DKK 688m. Cur- rency effects had a 6% positive impact on order in- take in the quarter. Organically, order intake de- creased by 1%. This was due to a decline in Cement capital orders compared to Q4 2021, which con- tained one large order of around DKK 200m and continued portfolio de-risking. Service order intake increased by 24%, in line with our increased focus on expanding the share of higher margin Service orders. Capital order intake increased by 12% compared to Q4 2021 due to Mining and included two large orders of a combined value of around DKK 1.2bn. Service rep- resented 57% of total order intake compared to Q4 2021, where Service represented 54% of total order intake. The growth in order intake was primarily driven by Mining, which increased by 27%. This included the addition of the Mining Technologies (ex-TK) acqui- sition and 5% in organic growth. Cement order in- take decreased 20% organically compared to Q4 2021. Our Non-Core Activities order intake amounted to DKK 209m for Q4 2022. Order backlog and maturity The order backlog declined 8% to DKK 23.5bn compared to the prior quarter (Q3 2022: DKK 25.5bn) due to strong execution of the order back- log and the exit of our Russian and Belarusian ac- tivities. Outstanding order backlog related to Rus- sian and Belarusian contracts amounted to DKK 0.7bn at the end of Q4 2022 (end of Q3 2022: DKK 1.6bn). These orders are due to uncertainty included in the ‘2025 and beyond’ maturity and have been suspended by FLSmidth. The Non-Core Activities backlog represented DKK 2.9bn out of the total backlog at the end of Q4 2022. The inclusion of the backlog of Mining Technolo- gies (ex-TK) represented DKK 5,060m of the total group backlog at the end of Q4 2022. Mining Cement Non-Core Activities FLSmidth Group 2023 62% 66% 35% 60% 2024 33% 18% 35% 29% 2025 & beyond 5% 16% 30% 11% Consolidated - Quarterly financial performance Order intake DKKm 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Mining Cement NCA Growth in order intake in Q4 2022 (vs. Q4 2021) Mining Cement Non-Core Activities FLSmidth Group Organic 5% -20% n/a -1% Acquisition 15% 0% n/a 13% Currency 7% 3% n/a 6% Total growth 27% -17% n/a 18% Note: Mining Q4 2021 includes Non-Core Activities Growth in revenue in Q4 2022 (vs. Q4 2021) Mining Cement Non-Core Activities FLSmidth Group Organic 6% -14% n/a 3% Acquisition 20% 0% n/a 18% Currency 6% 3% n/a 5% Total growth 32% -11% n/a 26% Note: Mining Q4 2021 includes Non-Core Activities Group – continued activities (DKKm) Q4 2022 Q4 2021 Change 2022 2021 Change Order intake (gross) 6,011 5,084 18% 24,644 19,233 28% - Hereof service order intake 3,425 2,770 24% 14,458 11,162 30% - Hereof capital order intake 2,586 2,314 12% 10,186 8,071 26% Order backlog 23,541 16,592 42% 23,541 16,592 42% Revenue 6,495 5,135 26% 21,849 17,581 24% - Hereof service revenue 3,801 2,796 36% 12,933 10,094 28% - Hereof capital revenue 2,694 2,339 15% 8,916 7,487 19% Gross profit 1,294 1,151 12% 5,076 4,180 21% Gross profit margin 19.9% 22.4% 23.2% 23.8% SG&A cost (1,183) (714) 66% (3,776) (2,779) 36% SG&A ratio 18.2% 13.9% 17.3% 15.8% Adjusted EBITA 205 n/a 1,395 n/a Adjusted EBITA margin 3.2% n/a 6.4% n/a EBITA 0 338 -100% 943 1,030 -8% EBITA margin 0.0% 6.6% 4.3% 5.9% Number of employees 10,977 10,117 9% 10,977 10,117 9% Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 40 Revenue Revenue increased 26% to DKK 6,495m in Q4 2022, driven by a 36% increase in Service reve- nue and 15% increase in Capital revenue. Service revenue accounted for 59% of total revenue in the quarter, compared to 54% in Q4 2021. Organically, revenue increased 3% driven primar- ily by a 6% organic growth in Mining while Cement partly offset the organic growth with a 14% de- crease. The quarter included DKK 139m in revenue from contracts with non-sanctioned Russian and Belarusian customers, DKK 503m from our Non- Core Activities and DKK 646m coming from the ac- quisition of Mining Technologies (ex-TK). Russia exit 2022 Status prior to 24 February 2022 ▪ 4 sales offices with +80 employees ▪ No production assets ▪ Outstanding order backlog from Russian and Belarusian contracts of around DKK 3bn ▪ Expected revenue of around DKK 1.5bn in Russia in 2022 During 2022 we have exited Russia ▪ Outstanding order backlog from Russian and Belarusian contracts was DKK 0.7bn at end Q4 2022 (around DKK 1.6bn at end Q3 2022). These orders are due to uncertainty included in the ‘2025 and be- yond’ maturity and have been sus- pended by FLSmidth ▪ Revenue of DKK 139m from non-sanc- tioned Russian and Belarusian customers was recognised in Q4 2022 (FY 2022: DKK 929m) ▪ During Q4 2022 we continued the efforts to exit the activities in Russia and Belarus and have incurred DKK 80m in costs in Q4 2022 related to the exit (FY 2022: DKK 200m) ▪ We have reduced the number of employ- ees in Russia by >95% at end Q4 2022 ▪ The exit of activities in Russia has re- sulted in a net loss for the FY 2022 on Russian activities Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 41 Profit Gross profit increased 12% driven by increased revenue. Adjusted EBITA margin was 3.2%. When including costs related to the exit of Russian activities and integration costs related to the acquisition of Mining Technologies (ex-TK), Group EBITA was zero. Gross profit and margin Gross profit increased by 12% to DKK 1,294m, driven by the higher revenue. The corresponding gross margin decreased to 19.9% impacted by costs related to the exit of our activities in Russia, the new simplified operating model in Cement, the integration cost of Mining Technologies (ex-TK) and the ongoing exit of our Non-Core Activities. In Q4 2022, total research and development costs (R&D) amounted to DKK 101m, representing 1.6% of revenue (Q4 2021: 1.6%). The increase in R&D was mainly due to the acquisition of Mining Technolo- gies (ex-TK). Research & development costs (DKKm) Q4 2022 Q4 2021 Production costs 41 43 Capitalised 60 40 Total R&D 101 83 SG&A costs Sales, general and administrative costs (SG&A) and other operating items increased 66% com- pared to Q4 2021, mainly due to costs related to the exit of our activities in Russia, the new simpli- fied operating model in Cement and integration costs related to the acquisition of Mining Technol- ogies (ex-TK) in Q4 2022. Further, currencies had a negative impact on SG&A of DKK 11m in the quarter. As a result of this, SG&A costs as a percentage of revenue increased to 18.2% in Q4 2022 compared to 13.9% in Q4 2021. EBITA and margin Excluding costs of DKK 80m related to the exit of our activities in Russia and integration costs of DKK 125m related to the acquisition of Mining Technologies (ex-TK) adjusted Group EBITA mar- gin was 3.2% in Q4 2022. Including these costs, the reported EBITA margin decreased to zero in Q4 2022. Amortisation of intangible assets amounted to DKK 94m (Q4 2021: DKK 99m). The effect of pur- chase price allocations amounted to DKK 23m (Q4 2021: DKK 23m) and other amortisation to DKK 71m (Q4 2021: DKK 76m). Earnings before interest and tax (EBIT) decreased 139% to DKK -94m. Financial items Net financial items amounted to DKK -47m (Q4 2021: DKK -2m), of which net interest amounted to DKK -27m (Q4 2021: DKK 0m) and foreign ex- change and fair value adjustments amounted to DKK -20m (Q4 2021: DKK -2m). Tax Tax in Q4 2022 totaled DKK 66m (Q4 2021: DKK -77m). Profit for the period As a result of the negative EBIT in Q4 2022, there was a loss of DKK 67m (Q4 2021: DKK 161m). Dis- continued activities had a profit of DKK 8m in Q4 2022. Backlog DKKm Revenue & EBITA margin DKKm EBITA margin % EBITA DKKm 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Mining Cement NCA 0% 2% 4% 6% 8% 10% 12% 0 1,500 3,000 4,500 6,000 7,500 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Service Capital EBITA % Adjusted EBITA % (500) (300) (100) 100 300 500 700 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Cement Mining Mining adj. NCA Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 42 Capital A strong cash collection led to a net working capital decrease of DKK 277m to DKK 1,893m. The net working capital ratio decreased to 7.8% in Q4 2022 (Q3 2022: 9.2%). Net working capital Net working capital decreased DKK 277m to DKK 1,893m at the end of Q4 2022 (end of Q3 2022: DKK 2,170m). The primary driver of the decrease in the quarter was a strong collection in accounts re- ceivables and inventory decline due to backlog execution. The corresponding net working capital ratio declined from 9.2% of revenue in Q3 2022 to 7.8% of revenue in Q4 2022. Net working capital includes Mining Technologies (ex-TK) of DKK 305m. Utilisation of supply chain financing declined to DKK 590m in Q4 2022 (Q3 2022: 636m). Cash flow from operations Cash flow from operations (CFFO) in Q4 2022 was strong and amounted to DKK 776m (Q4 2021: DKK 849m). The decline in net working capital in the quarter positively impacted CFFO by DKK 314m. Discontinued activities impacted CFFO by DKK 14m in Q4 2022 (Q4 2021: DKK -18m) due to a pos- itive effect on tax. Cash flow from investments Cash flow from investing activities amounted to DKK -116m (Q4 2021: DKK -97m). Free cash flow Free cash flow increased DKK 660m in the quarter (Q4 2021: DKK 752m) as a result of the stronger cash flow from operations. Net interest-bearing debt Due to a robust free cash flow in Q4 2022, net in- terest-bearing debt (NIBD) improved further from DKK 985m at the end of Q3 2022 to DKK 726m at the end of Q4 2022. The financial gearing end of Q4 2022 amounted to 0.6x (Q3 2022: 0.7x). Financial position By the end of 2022, FLSmidth had DKK 6.3bn of available committed credit facilities of which DKK 4.4bn was undrawn. The committed credit facilities 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. DKK 1.6bn of uncommitted credit facilities will mature in 2023. Equity ratio Equity at the end of Q4 2022 decreased to DKK 10,787m (end of Q3 2022: DKK 11,555m), driven by the decrease in profit and an increase in net work- ing capital. The equity ratio was 36.1% (end of Q3 2022: 37.2%). Cash flow DKKm Net interest-bearing debt DKKm Net working capital DKKm NWC% (300) (100) 100 300 500 700 900 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Cash flow from operating activities (2,000) (1,500) (1,000) (500) 0 500 1,000 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Net interest bearing debt (NIBD) 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 18.0% 0 500 1,000 1,500 2,000 2,500 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4 Net working capital Net working capital ratio, end Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 43 Growth Group order intake increased by 16% organically with growth mainly driven by Mining. In addition to improved market conditions order intake was also supported by currency tailwinds and the acquisition of Mining Technologies (ex-TK). Order intake Order intake grew 16% organically in 2022 follow- ing a higher post-pandemic demand and im- proved market conditions. Currency positively af- fected order intake by 7% in the year. Including currency effects and the impact of the acquisition of Mining Technologies (ex-TK), order intake in- creased by 28% to DKK 24,644m. Service order intake increased by 30% in 2022, in line with our focus on increasing the share of higher margin Service orders and portfolio de-risk- ing approach. A resilient mining market through- out 2022 and improved logistics also contributed to the high Service order intake. Service ac- counted for 59% of total order intake in line with last year. Capital orders increased by 26%, mainly driven by Mining. Mining order intake increased by 34% in 2022, driven by both Service and Capital. In 2022, seven large mining orders at a combined value of around DKK 2.8bn were received compared to four large orders with a combined value of around DKK 950m in 2021. Cement order intake increased 11%, driven by a 15% increase in Capital order intake and a 9% in- crease in Service order intake. Investment appe- tite improved over 2021 and resulted in one large cement order of around DKK 400m in 2022. Non-Core Activities order intake amounted to DKK 0.2bn in 2022. The order intake was related to contractual obligations and parts already in stock. Growth in order intake in 2022 (vs. 2021) Mining Cement Non-Core Activities FLSmidth Group Organic 20% 5% n/a 16% Acquisition 6% 0% n/a 5% Currency 8% 6% n/a 7% Total growth 34% 11% n/a 28% Note: Mining FY 2021 includes Non-Core Activities Order backlog The order backlog increased by 42%, comprising a 35% increase in Mining and a 7% increase in Ce- ment. The increase in Mining was supported by the addition of the acquired order backlog from Mining Technologies (ex-TK). The book-to-bill was 113%. Outstanding order backlog related to Russian and Belarusian contracts amounted to around DKK 0.7bn end of Q4 2022 (end of Q3 2022 around DKK 1.6bn). These orders are due to uncertainty in- cluded in the ‘2025 and beyond’ maturity and have been suspended by FLSmidth. Revenue Market conditions improved in 2022 with regards to investment appetite, site access and impact from supply chain constraints. Based on a strong back- log 2022 organic revenue increased by 11%, despite the exit of Russian activities. The increase was driven mostly by Service revenue in Mining, Includ- ing the impact of the acquisition of Mining Tech- nologies (ex-TK) as well as currency effects of 6% revenue increased by 24% to DKK 21,849m. Service revenue accounted for 59% of total reve- nue, compared to 57% in 2021. Capital revenue in- creased 19%, primarily driven by the acquisition of Mining Technologies (ex-TK). Growth in revenue in 2022 (vs. 2021) Mining Cement Non-Core Activities FLSmidth Group Organic 14% 2% n/a 11% Acquisition 8% 0% n/a 7% Currency 7% 5% n/a 6% Total growth 29% 7% n/a 24% Note: Mining FY 2021 includes Non-Core Activities Consolidated - Annual financial performance Mining, Cement & NCA 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 2018 2019 2020 2021 2022 Mining Cement NCA 0% 20% 40% 60% 80% 100% 120% 0 5,000 10,000 15,000 20,000 25,000 30,000 2018 2019 2020 2021 2022 Order intake Book-to-bill 24% 28% 9% 5% 7% 1% 26% Cement Copper Gold Coal Iron ore Fertilizer Other 11,449 14,125 3,484 6,851 1,659 2,565 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 2021 2022 Within next year Within next year +1 Later than next year +1 10% 21% 69% 11% 29% 60% Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 44 Profit Gross profit increased by 21% mainly due to higher Service revenue. Adjusted EBITA margin was 6.4% excluding the costs related to the exit of Russian activities, acquisition of Mining Technologies (ex-TK) and costs related to exiting Non-Core Activities. Reported EBITA margin was 4.3%. Gross profit and margin Gross profit increased by 21% in 2022, due to the increase in revenue, mitigation of inflationary pressure and focus on high margin Service reve- nue. Gross margin decreased 0.6%-points to 23.2% and was impacted by costs related to the exit of Russian activities, the acquisition of Mining Technologies (ex-TK) as well as costs for exiting Non-Core Activities. Research and development costs reported in pro- duction costs were DKK 169m. The increase in R&D was mainly driven by the acquisition of Min- ing Technologies (ex-TK). The R&D costs mainly related to several innovations, including new sus- tainable cement technologies, tailings manage- ment, digital solutions, and various equipment across the mining value chain. Research & development costs (DKKm) 2022 2021 Production costs 169 152 Capitalised 171 142 Total R&D 340 294 SG&A costs Sales, general and administrative costs (SG&A) and other operating items increased by 36% in 2022, mainly due to integration costs related to Mining Technologies (ex-TK), exit of our Russian activities and unfavorable currency impact. In ad- dition, the SG&A costs of Mining Technologies (ex- TK) itself contributed to the increase in overall SG&A costs. The corresponding SG&A ratio in- creased by 1.5%-points to 17.3%. EBITA and margin Reported EBITA decreased 8% to DKK 943m de- spite positive impact from a higher revenue. The corresponding EBITA margin declined to 4.3% from 5.9% due to costs for exiting of Russia, inte- gration costs, cost related to the new simplified operating model in Cement and cost related to ex- iting Non-Core Activities. Adjusted for costs in- curred for the integration of Mining Technologies (ex-TK) of DKK 252m as well as costs of DKK 200m related to the exit of our activities in Russia adjusted EBITA margin was 6.4%. Underlying performance in both Mining and Ce- ment have improved compared to prior years, as a result of our increased focus on higher margin Ser- vice, de-risking the portfolio and focus on our stra- tegic initiatives. Financial items Net financial items amounted to a cost of DKK -67m (2021: DKK -81m), of which net interest cost including interest from leasing amounted to DKK -50m (2021: DKK -60m) and foreign exchange and fair value adjustments accounted for the re- maining cost. Termination of hedging Russian Ru- bles had a negative impact of DKK 36m on foreign exchange adjustments. Tax The effective tax rate for the year was 36.4% in line with last year. The effective tax rate was negatively affected by withholding taxes not subject to credit relief as well as write-downs of tax losses and other tax assets in countries outside Denmark (mainly in Russia). Profit for the year Profit for the year decreased 1% to DKK 352m mainly due to costs related to the exit of activities in Russia, integration costs for Mining Technologies (ex-TK) and the new simplified operating model in Cement. Discontinued activities reported a profit of DKK 1m compared to DKK -17m in 2021 due to a tax income in 2022. Earnings per share As a result of the profit level, earnings per share de- creased from DKK 6.9 in 2021 to DKK 6.5 per share in 2022. Employees The number of employees increased by 860 to 10,977 at the end of 2022. The decrease is a direct result of around 2,000 FTEs coming from the acqui- sition of Mining Technologies (ex-TK), partly offset by strategic workforce reductions carried out in both Mining and Cement in Q4 2022. Return on capital employed Return on capital employed (ROCE) decreased to 5.9% (2021: 7.2%) due to the increase in average capital employed, decreased EBITA as well as the impact from the acquisition of the Mining Technol- ogies (ex-TK) business. Gross profit and Gross margin DKKm % SG&A cost and SG&A ratio DKKm % EBITA by Mining, Cement & NCA DKKm 20% 22% 24% 26% 28% 3,000 3,500 4,000 4,500 5,000 5,500 2018 2019 2020 2021 2022 Gross profit Gross margin 12% 14% 16% 18% 20% 1,500 2,000 2,500 3,000 3,500 4,000 2018 2019 2020 2021 2022 SG&A cost SG&A ratio (500) 0 500 1,000 1,500 2,000 2018 2019 2020 2021 2022 Mining Cement NCA Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 45 Capital Cash generation from operating activities was satisfactory in 2022. Net interest-bearing debt and financial gearing increased in 2022 as expected due to the payment of the purchase price of Mining Technologies (ex-TK). Balance sheet Total assets increased by DKK 6.8bn to DKK 30bn on 31 December 2022. The increase related to the acquisition of Mining Technologies (ex-TK) amounted to around DKK 5.5bn. Cash balance was reduced in 2022 and impacted by the pur- chase price payment for Mining Technologies (ex- TK). Capital employed Average capital employed increased to DKK 15,888m (2021: DKK 14,384m) as a result of the acquisition of Mining Technologies (ex-TK). This was also the driving factor of the increase in intangible assets as well as in net working capital. At the end of 2022, capital employed amounted to DKK 17,848m, consisting primarily of intangible assets of DKK 13,308m, which was mostly good- will as well as patents and rights and customer re- lations. Property, plant and equipment including leased assets were largely unchanged and net working capital increased to DKK 1,893m by the end of 2022. Net working capital Net working capital increased by DKK 0.8bn com- pared to 31 December 2021. The increase is pri- marily due to the impact from the acquisition of Mining Technologies (ex-TK) and a higher level of inventories to mitigate supply chain challenges. The corresponding net working capital ratio was 7.8% (2021: 6%) and reflects a strong cash focus considering the increase in activity levels. The cur- rency effect on net working capital was an in- crease of DKK 112m. Supply chain financing Utilisation of supply chain financing has increased slightly during 2022, driven by a higher level of activity. Consequently, the supply chain financing programme amounted to DKK 590m at the end of 2022 (2021: DKK 490m). Net interest-bearing debt As a result of the payment of the acquisition price for Mining Technologies (ex-TK), net interest-bear- ing debt was DKK -726m (end of 2021: DKK 889m). This was partly offset by the cash generation from operations in 2022. Financial gearing (NIBD/EBITDA) was 0.6x (end of 2021: -0.6x) also driven by the acquisition of Min- ing Technologies (ex-TK). The level is well below our capital structure target of < 2.0. Equity Equity at the end of 2022 increased to DKK 10,787m (end of 2021: DKK 10,368m) mainly re- lated to comprehensive income for the year. Cur- rency adjustments regarding translation of foreign entities added to the equity as well. The equity ra- tio was 36.1% (2021: 45.0%). Treasury shares The holding of treasury shares was 913,828 shares at the end of 2022 (2021: 924,568 shares), representing 1.6% of the total share capital (2021: 1.6%). Treasury shares are used to hedge our share-based incentive programmes. Dividend The Board of Directors will propose at the Annual General Meeting that a dividend of DKK 3 per share corresponding to a dividend yield of 1.2% and a pay-out ratio of 49%, will be distrib- uted. for 2023. The total dividend proposed amounts to DKK 173m. Return on capital employed DKKm % Net working capital DKKm % Net interest-bearing debt DKKm Equity ratio % 0% 4% 8% 12% 16% 0 5,000 10,000 15,000 20,000 2018 2019 2020 2021 2022 Capital employed, average ROCE 0% 3% 6% 9% 12% 15% 18% 0 500 1,000 1,500 2,000 2,500 3,000 2018 2019 2020 2021 2022 Net working capital NWC as % of revenue (1,000) 0 1,000 2,000 3,000 2018 2019 2020 2021 2022 Net interest-bearing debt 0% 10% 20% 30% 40% 50% 2018 2019 2020 2021 2022 Equity ratio Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 46 Cash flow from operating activities Cash flow from operating activities (CFFO) de- clined to DKK 968m compared to DKK 1,449m in 2021 explained by the cash outflow of DKK 446m in net working capital mainly from the increase in inventories. CFFO was negatively impacted by discontinued activities of DKK -50m, see note 2.11. Cash flow from investing activities Cash flow from investing activities (CFFI) amounted to DKK -2,310m in 2022 (2021: DKK -273m), reflecting the acquisition of Mining Tech- nologies (ex-TK) which resulted in a cash outflow of DKK 2,103m. Free cash flow Free cash flow adjusted for business acquisitions and disposals was DKK 777m (2021: DKK1,185m). Cash flow from financing activities Cash flow from financing activities was DKK 1,596m (2021: DKK -276m), primarily as a re- sult of increased debt due to payment of purchase price for Mining Technologies (ex-TK). In 2022 a sustainability linked funding agreement was signed amounting to EUR 150m (DKK 1.1bn) with a lifetime of 7 years. Cash position Cash and cash equivalents amounted to DKK 2.1bn at 31 December 2022 compared to 1.9bn at 31 December 2021. Restricted cash Cash and cash equivalents included cash with currency restrictions as well as other restrictions amounting to DKK 1,459m (2021: DKK 868m). The restricted cash position has increased following the acquisition of Mining Technologies (ex-TK). The restricted cash coming from the Mining Tech- nologies (ex-TK) acquisition amounts to DKK 361m. The cross-border cash pool in China has a limit of CNY 100m (DKK 101m), hence cash in China above this limit is classified as restricted. Cash in Russia is also classified as restricted. Other business Annual cost synergy target and total integration costs raised The acquisition of Mining Technologies (ex-TK) closed on 31 August 2022. In October 2022, FLS- midth revisited the cost synergy potential from the combined organisational setup, geographical footprint and pooled innovation, procurement and administration structures in relation to the Mining segment. Based on this, further upside was uncov- ered. The annual cost synergy target is expected to be around DKK 560m (previously DKK 360m) and the pace to realise these synergies has been acceler- ated. Consequently, the annual cost synergy run- rate is now expected to be achieved by end of 2023 (previously first two years after closing of the acquisition). Integration costs to realise the synergies are now estimated to be around DKK 800m (previously DKK 560m), of which around DKK 252m was rec- ognised in 2022. The remaining part of the total DKK 800m integration costs are expected to be recognised before the end of 2023. New Headquarter In September 2022, FLSmidth signed a lease of a new headquarter at Havneholmen in Copenha- gen. The headquarter is currently in the construc- tion phase and it is expected that the lease will be effective in 2025. 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 2018 2019 2020 2021 2022 Cash flow from operating activities -2,500 -2,000 -1,500 -1,000 -500 0 2018 2019 2020 2021 2022 Cash flow from investing activities -1,500 -1,200 -900 -600 -300 0 300 600 900 1,200 2018 2019 2020 2021 2022 Free cash flow Free cash flow adjusted for business acquisitons and disposals -2,300 -1,800 -1,300 -800 -300 200 2018 2019 2020 2021 2022 Net cash flow from acquisition and disposal of activities Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 47 Governance Risk management 48 Corporate governance 52 Management 56 Remuneration 60 Shareholder information 61 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 48 Risks are an integral part of our business with a constant evolving risk exposure. It requires a robust governance model and top man- agement involvement to ensure that risks are minimized and miti- gated while at the same time fo- cusing on turning risks into op- portunities where possible. With the new strategic direction, Group Executive Management and the Board of Directors have lowered the overall risk profile by de-risking the portfolio and focusing on the core business. However, our business is still subject to a number of risks and opportunities which can have both short- and long-term impact. The purpose of our risk management is to identify, quantify, manage and mitigate these risks and where possible en- sure we turn them into opportunities. Governance Group Executive Management leads our risk man- agement programme, with oversight from the Au- dit Committee and ultimately the Board of Direc- tors having the overall responsibility for deciding the risk appetite and monitoring the risk exposure. Through a bottom-up approach, risks are as- sessed by the Business Lines and Shared Func- tions during workshops facilitated by Group Risk Management. This enables the collection of a broad spectrum of data across the organisation and identifies the biggest risks for FLSmidth. Based on this assessment, Executive Management identifies high-risk issues for the coming year and ensures that actionable mitigation plans are in place. In addition Executive Management reviews the mid and long term risks to ensure proper miti- gation and attention. During the year the Risk Committee meets to re- view the top risks and follow up on mitigation plans. This ensures that ownership for managing the risks is anchored in the business and that the focus on proactively identifying, managing and mitigating the risks continue throughout the year. FLSmidth’s risk management framework is out- lined on the website: www.flsmidth.com/en- gb/company/investors/governance/managing- risks. 2022 risk review This year’s risk review resulted in the identification of 10 top risks and opportunities that have the po- tential to significantly impact the entire business and organisation. Many of this year’s top risks – company transformation, compliance, looming re- cession, cyber security and geopolitical – have evolved into new, more complex risks compared to 2021. Mitigation efforts have proven effective with regards to two of last year’s top risks ‘supply chain’ and ‘cement market conditions’ that are no longer considered top risks. During 2022, the war in Ukraine and zero-COVID- 19 strategy in China presented a myriad of geopo- litical challenges from a compliance point of view and for the safety and well-being of our employ- ees as well as to logistics. The challenges set into motion collective mitigation efforts across the entire organisation. Our extended focus on com- pliance, health and safety of our employees and investments in additional resources along with our continued flexibility managing the supply chain al- lowed us to deal with the new challenges effec- tively. Company Transformation was identified as a top risk in 2022 – an evolution of the acquisition inte- gration risk identified in 2021. With integration of the newly acquired Mining Technologies (ex-TK) business still high on the priority list, the integra- tion team has merged into our Strategy & Trans- formation team, becoming a vital part of our journey towards more profitable growth and full flowsheet leadership to ensure operational excel- lence. Attracting and retaining employees remains high on the list for 2022. The industries we operate in are challenged by the ability to attract enough high-skilled and high-performing staff. We have welcomed many new talented employees through the acquisition of Mining Technologies (ex-TK) and continue to have an active recruitment and career development strategy. Risk management Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 49 In project execution, our focus on value over vol- ume has already produced positive results. We work to expand our share of services and stand- ardised equipment relative to the share of large projects while simultaneously de-risking the pro- ject portfolio. With a less cyclical business and lower level of risk we remain selective in taking on large, complex orders both in Mining and Cement positioning us well for the increasing demand for sustainability offerings. In Mining, our focus is on driving profitable growth and market leading solu- tions across the full flowsheet. In Cement, we fo- cus on improving profitability and developing a winning portfolio position with us as a leading plant-productivity partner. Further we want to be a leading supplier of sustainability solutions while helping to reduce the financial impact of project- related risks. For information on financial risks and mitigation activities, including liquidity, credit and foreign ex- change rates see section 5 in the financial state- ments. For tax see section 4 in the financial state- ments and our Group Tax Policy available on: https://www.flsmidth.com/en-gb/company/sustain- ability/policies-and-priorities Turning risks into opportunities The biggest risk of doing business is often the risk of inaction as companies fail to adapt to the changing business environment. If appropriate ac- tion is taken, such risks can be minimised and turned into even larger business opportunities. This is the case for a number of the risks identified in FLSmidth’s 2022 risk review. Sustainability and digitalisation remain two of FLSmidth’s key strate- gic priorities. While both constitute a risk of in- creased niche competition, we see them as even greater business opportunities considering our strong efforts to maintain and develop a leading position within both areas. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 50 Risk mitigation Risk Potential impact Mitigation 1 Company Transformation The company transformation relates to the realisation of the cost synergies from the acquisition of Mining Technologies (ex-TK) and on execution of the pure play strategies for Mining and Cement. Com- pared to the integration risk from 2021, the risk has been expanded to include implementation of our strategy and the new mindset that is required to achieve this. The transition to become a service-led business requires a mindset shift and a new way of making decisions to ensure we maximise the opportunities available through our installed base and beyond. Our continued focus on supply chain and manufacturing efficiency, employing and training skilled workers and making strategic decisions about capital pro- jects will help to ensure a smooth transition. 2 Compliance Compliance has been very busy in 2022 dealing with the shock ef- fects of the war in Ukraine, diligently working to make sure the busi- ness was aligned with the continuously changing sanctions regula- tions. Despite all our efforts to continue to mitigate, we have the understanding that one mishap could negatively impact our brand and reputation with customers. Additional resource investments were made in 2022 to our dedicated Compliance Department. We have established rules and procedures to ensure a common understanding of ethical behaviour across the organisation. There are poli- cies in place to support the organisation with day-to-day compliance issues such as the Code of Business Conduct, Anti- Bribery policy and Export Control, as well as tools and procedures to identify individual issues that may pose a threat including the Whistle Blower Hotline, screening of third-party agents, suppliers and sign-off protocols. Online training continues to be a key part of our mitigation strategy with a catalogue of compulsory compliance training for all employ- ees. 3 Attract & Retain Employees With the high demand for skilled workers across both industries, we are facing the same challenges with aging workforce and lack of younger, skilled workers. While our Sustainability MissionZero helps attract new generations, we need to mitigate the risk of losing em- ployees and their engagement to be able to compete and achieve strong business performance. We have welcomed many talented employees through the Mining Technologies (ex-TK) acquisition and continue to miti- gate the retention risk by focusing on four main areas: communicating our vision and strategy in a clear and compelling way, strengthening our growth and development opportunities through actionable development plans and consistent performance feedback, monitor and act on dynamic feedback coming through monthly engagement surveys/exit inter- views, ensuring fair and competitive total rewards. 4 Recession Higher, prolonged inflation could affect short-term demand despite continued high prices for select commodities and delay investments for green technologies in both the mining and cement industries. Monitoring and controlling our own costs coupled with the continued operating model simplification will help ensure Cement remains stable, while our significant exposure to copper and gold will help build resilience against volatile com- modity prices within Mining. 5 Project Execution Increased demand for sustainability offerings in the cement industry coupled with internal new strategy efforts have significantly reduced the risk associated with our Cement business. In addition, focus on value over volume, standardisation, balancing scope with profitability and integrating engineering departments into the business have all contributed to confining project related risks. During 2022, we achieved positive results from our Cement business re-shaping to mitigate the challenging market con- ditions characterised by lack of global growth and overcapacity in the market, while at the same time repositioning our Cement business for the green transition. This continues to be an ongoing process. To minimise the risks in Mining, we remain selective in taking on large, complex orders and focus on building a quality order backlog. In addition, we have a strategic focus on value over volume, expanding our share of services and stand- ardised equipment to support our transition to becoming a service-led business. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 51 Risk Potential impact Mitigation 6 Cyber Security As our digital offerings continue to grow there is tremendous poten- tial in applying our digital solutions to a sustainability context, how- ever as this opportunity grows, so does the risk of cyber-crime. A so- phisticated cyber-attack could disrupt the day-to-day operations for a period of time, resulting in delays to customers and additional costs to get the business up and running again. It is essential for us to secure the customer assets delivered by FLSmidth and we are working towards the full cyberse- curity certification (IEC62443) in this area. We have continuous focus on IT Security and awareness throughout the or- ganisation. There are regular audits and security updates as well as continuous analysis of existing controls. Contin- gency plans, cloud-based solutions, cyber awareness training modules, multi-factor authentication, anti-virus and patch management, behaviour analysis and an IT Security Committee all help to mitigate the potential impacts. 7 Safety We have seen a decrease in the number of workplace injuries during 2022. Building a culture of health and safety across our own sites and at our customers’ is core to our Zero Harm 2030 ambition and is taken seriously as it can result in a loss of trust from employees and customers. The domino effect that a serious or fatal injury potentially could have on the organisation’s reputation as a premium employer and supplier could be significant. The Group has zero tolerance for safety risks both at third party sites as well as its own. Safety is a high priority for eve- ryone. In 2022, we launched new cross-functional auditing procedure for ISO certifications, introduced new documenta- tion control system and launched an injury campaign, eliminating approximately 240 hand injury risks. Safety audits are conducted by management, all employees are required to participate in safety training annually, safety shares and re- cording of near misses are mandatory. Focus on workload and employee engagement as well as mental health semi- nars help to educate our employees on the importance of a healthy work-life balance and empower them to take re- sponsibility for ensuring they have the necessary information needed to perform their responsibilities safely. 8 Geopolitical We saw the actualisation of this risk in 2022 fuelled by the war in Ukraine. Polarisation and tensions between major world economies continues to create instability, which not only poses a threat to our project execution ability in some regions and increases the risk of de- lays and disruptions, but could force us to permanently close down offices as was the case for our Russian operations. Threat of sanc- tions in specific markets and the risk of commoditising of the mining industry are all relative risks. We continue to review our footprint and expand with strategic investments. Our procurement optimisation continues to focus on strategic, global sourcing and building relationships with multiple suppliers to protect supply chain and logis- tics operations where we have achieved operational efficiencies while maintaining resilience and flexibility within our supply chain. We also have a standardised due diligence process in place where we screen sales agents and distribu- tors, customers, contractors and suppliers. We continue to develop our due diligence process as our business environ- ment evolves. 9 Sustainability As a key driver for the mining and cement industries, the success of our business depends on our ability to develop sustainable products and solutions. With increased global awareness on health, safety and the environment, sustainable solutions represent a huge oppor- tunity as our largest environmental impact stems from customer’s use of our products. MissionZero is an integral part of our risk mitigation strategy and presents a great opportunity to reduce emissions in both the mining and cement industries. To better understand and evaluate climate-related risks and opportunities, we have started to implement the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). This is an ongoing process. More information on how we evaluate risks using the TCFD can be found in our Sustainabil- ity Report. For information on our position on coal mining, please see the Sustainability Report. 10 Digitalisation Digitalisation is a major driver for change, representing a huge oppor- tunity for sustainable productivity improvements. We continue our strong focus on sustainable innovations that enables customers to improve their operations and helps us to expand to mid-market and single-equipment suppliers enabling us to capture a larger share of the market for services. With the launch of digitally enabled products and digital offerings aimed at increasing productivity at customer sites and the implementation of artificial intelligence in parts of Procurement, Finance and other Group Functions, the company continues to improve sustainable productivity in-house. Through our own technology centres, collaborations with cus- tomers at their sites and partnerships with third parties, we are working together to co-create new solutions. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 52 The Board of Directors continually evaluates the work of the Group Executive Management by specifying targets and assessing at what level or degree such targets have been met. The following statutory statement (including the Corporate Governance section, the Remuneration section, as well as the overview of the Board of Di- rectors and Group Executive Management) is pro- vided pursuant to the Danish Financial Statements Act Sections 99d, 104 and 107b. The adoption of a resolution to amend the Com- pany’s Articles of Association or to wind up the 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 responsibility and separation between the Board of Directors and the Group Executive Manage- ment. The Group Executive Management is responsible for the day-to-day business of the Company, and the Board of Directors oversees the Group Execu- tive Management and handles overall managerial issues of a strategic nature. For additional infor- mation please refer to: www.flsmidth.com/en- gb/company/investors/governance. The Board of Directors The Board of Directors is elected at the Annual General Meeting apart from the Board members who are elected pursuant to the provisions of the Danish Companies Act on employee representa- tion. Board members elected at the Annual Gen- eral Meeting constitute no less than five and no more than eight members, currently six members, in order to maintain a small, competent and quor- ate 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 Directors. Pursuant to the provisions of the Danish Compa- nies Act regarding employee representation, FLS- midth’s employees are currently represented on the Board by three members who are elected for a term of four years. The most recent election took place in 2021, where two new members joined the Board. Immediately after the Annual General Meeting, the Board of Directors elects, among its own mem- bers, a Chair and a Vice chair. A job and task de- scription have been created and outlines the du- ties and responsibilities of the Chair and the Vice chair. Board meetings are called and held in accord- ance with the Board’s 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 the meeting frequency has been higher in recent years. To enhance Board meeting efficiency, the Chair conducts a planning meeting with the Group CEO prior to each Board meeting. 14 Board meetings were held in 2022. Apart from contemporary business issues, the most important issues dealt with in 2022 were: the war in Ukraine, establishment of Non-Core Ac- tivities, new strategy, de-risking of portfolio, finan- cial risks, sustainability, simplification of Cement’s operating model, diversity and the acquisition and integration of the Mining Technologies (ex-TK) business. All members of the Board of Directors partici- pated, physically or virtually, in all relevant board and committee meetings in 2022, except one member who was unable to attend one Board meeting and another Board member who was un- able to attend two Board meetings due to conflict- ing appointments. To achieve a highly informed debate with Group Executive Management, the Company strives for Board membership profiles that reflect substantial managerial experience from internationally operating industrial compa- nies. At least one member of the Board must have CFO experience from a major listed company, and amongst the other members there should be a strong representation of experienced CEOs from major internationally operating and preferably listed companies. The composition of the Board of Corporate governance 2022 2021 Number of registered shareholders (1,000) 54 54 Treasury shares (1,000) 914 (1.6%) 925 (1.6%) Numbers of shares held by Board and Group Executive Management (1,000) 74 94 Total Board remuneration (DKK) 6.6m 6.5m Total Executive Management remuneration (DKK) 25.8m 39.0m Number of Board members (elected at the AGM) 6 6 Female representation on Board of Directors (elected at the AGM) 33.0% 33.0% Independent directors, excluding employee elected members 100.0% 83.0% Number of board committees 4 4 Number of board meetings held (overall meeting attendance%) 14 (100%) 15 (100%) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 53 Directors reflects that the majority of members elected at the Annual General Meeting holds competencies in acquisition and sale of compa- nies, financing and stock market issues, interna- tional contracts and accounting. In addition, it is preferable that Board members have a back- ground in construction contracting and possess technical expertise on process plants and process technology, including minerals and/or cement. All six members of the Board elected at the An- nual General Meeting are independent in the opinion of the Board of Directors and according to the criteria specified by the Committee on Corpo- rate Governance, which is an independent Danish body promoting corporate governance best prac- tice 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 Chair is responsible for the evaluation. The Nomination Committee The Nomination Committee consists of Tom Knutzen (Chair), Mads Nipper and Thrasyvoulos Moraitis. In 2022, the Nomination Committee met twice. Its main activities in 2022 have been re- lated to assessing the composition and competen- cies of the Board of Directors and the succession planning. The Compensation Committee The Compensation Committee consists of Tom Knutzen (Chair), Mads Nipper and Thrasyvoulos Moraitis. The Compensation Committee met five times in 2022. The committee’s main activities in 2022 were related to the approval of incentive plans and overall remuneration schemes for Group Executive Management and the manage- ment layer reporting to the Group Executive Man- agement. The Audit Committee The Audit Committee consists of Anne Louise Eberhard (Chair), Mads Nipper and Gillian Dawn Winckler who are all independent and have con- siderable insight and experience in financial mat- ters, accounting and auditing in listed companies. In 2022, the Audit Committee met six times and the committee’s main activities were to consider specific financial risk, including tax risk, account- ing and auditing matters, as well as paying spe- cial attention to financial processes, internal con- trol environment and cyber security. A particular focus area in 2022 has been to pre- pare for the integration and the integration itself connected to the acquisition of the Mining Tech- nologies (ex-TK) business. Meeting attendance in 2022 Board of directors Board meetings attended Audit Committee meetings attended Compensation Committee meetings attended Nomination Committee meetings attended Technology Committee meetings attended Tom Knutzen (Chair) 14/14 6/6 1+3) 5/5 2+4) 2/2 2+4) Mads Nipper (Vice chair) 9/9 5/5 3/3 1/1 Richard Robinson Smith 12/14 3/3 2+4) Anne Louise Eberhard 14/14 6/6 4) Gillian Dawn Winckler 13/14 6/6 Thrasyvoulos Moraitis 14/14 5/5 2/2 3/3 Claus Østergaard (employee-elected) 14/14 Leif Gundtoft (employee-elected) 14/14 Carsten Hansen (employee-elected) 14/14 3/3 Vagn Sørensen, left the Board in 2022 5/5 1/1 1) 2/2 3) 1/1 3) 1) Voluntary participation (not member of Audit Committee) 2) Committee Chair 3) Chair of Committee until AGM March 2022 4) Chair of Committee from AGM March 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 54 The Technology Committee The Technology Committee consists of three Board members, Richard Robinson Smith (Chair), Thrasyvoulos Moraitis and Carsten Hansen. The Technology Committee met three times in 2022. With a clear focus on sustainability, the main tasks in 2022 were to monitor the major development projects across the two industries, to ensure the right and appropriate KPIs are set for R&D pro- jects, as well as finalising the evaluation of the key IP coming in with the Mining Technology busi- ness. Furthermore, evaluation and removal of re- dundant technologies were performed. Group Executive Management The officially registered Executive Management of FLSmidth consists of the Group CEO and the Group CFO. Group Executive Management holds the overall responsibility for the day-to-day operations and consists of eight Group Executive Vice Presidents, including the Group CEO. The members of the Group Executive Management are all experienced business executives having vast experience in managing global businesses and teams. During 2022 new members of the Group Execu- tive Management are the two Business Line Presi- dents in the Mining segment, Joshua Meyer (Ser- vice) and Chris Reinbold (Products). Joshua Meyer joined FLSmidth in 2022, holds an MBA, and has experience from Terex, Metso and Caterpillar. Chris Reinbold holds an MBA and has had various management positions at ABB and joined FLS- midth in 2020. Moreover, Asger S.B. Lauritsen who was previously Chief Procurement Officer, took over additional roles as Group COO and Cement President. 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 rec- ommendations and appointments, diversity is de- liberately taken into account when considering the profiles and qualifications of potential candi- dates. At the end of 2022, women accounted for 33% (end 2021: 33%) of the shareholder-elected Board members, fulfilling the target that a minimum of 25% of the members elected at the Annual Gen- eral Meeting should be women. At the end of 2022, women accounted for 19% (end 2021: 17%) of the total workforce, while 14% of all managers were women (end 2021: 14%). By 2030, our target is that 25% of our entire work- force and people managers should be women. When filling vacancies, there should be a diverse slate of candidates, including women, to select from and we have a target to fill one out of every three openings with a woman. Due to FLSmidth’s global presence in over 60 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 should to a greater extent reflect the representation of nation- alities among all employees and the geographical location of FLSmidth’s technology centres in Den- mark (22% of the total workforce) and the USA (5% of the total workforce). Today 66% (2021: 50%) of Group Executive Man- agement and 94% (end 2021: 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. 41% of the workforce is below the age of 40. 56% have less than 5 years seniority, which reflects the transition FLSmidth has gone through over the past several years. Presentation of financial statements and internal controls To ensure the high quality of the Group’s financial 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 at: www.flsmidth.com/en-gb/company/investors/gov- ernance Policy on Data Ethics In 2022, FLSmidth issued its Policy on Data Ethics. The policy addresses the data ethic principles ap- plied by FLSmidth and describes the approach to data processing covering all data types. When us- ing artificial intelligence and the like, we strive to ensure that the results are not discriminatory or bi- ased. The short- and long-term consequences of data processing activities, especially when new technology is applied, are considered and the im- pact on the data subjects are taken into account. Security of data is important to us. FLSmidth ad- heres to the six fundamental ethical values devel- oped by the expert group on data ethics to the Danish Data Ethics Council. Group Legal is the owner of the policy. For additional information please refer to: www.flsmidth.com/data-ethics Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 55 Sustainability Report Concurrently with the Annual Report, FLSmidth has published its annual Sustainability Report cov- ering non-financial performance related to envi- ronmental and socio-economic impacts. The re- port has been published every year since 2010, guided by Global Reporting Initiative (GRI) stand- ards, and is prepared in compliance with sections 99a, 99b and 107d of the Danish Financial State- ments Act and EU taxonomy regulation disclosure requirements. As of 2022, we no longer publish a GRI index. The report also serves as the Commu- nication on Progress to the United Nations Global Compact. The report has received limited assur- ance performed by EY. The report is available at: www.flsmidth.com/SustainabilityReport2022 Compliance with recommendations for corporate governance Pursuant to Nasdaq Copenhagen’s Nordic Main Market Rulebook for Issuers of Shares, Danish companies must provide a statement on how they address the recommendations on Corporate Gov- ernance issued by the Committee on Corporate Governance in December 2020 based on the ‘comply or explain’ principle (https://corporategov- ernance.dk/english). FLSmidth’s position on each specific recommen- dation is summarised in the corporate govern- ance statement available at: www.flsmidth.com/en-gb/company/investors/gov- ernance/governance-reports In the Board’s opinion, FLSmidth complies with all recommendations on corporate governance appli- cable to Danish listed companies, except 3.5.1 re- lated to external assistance in connection with evaluation of the performance of the Board of Di- rectors, where the company only complies par- tially. Employees Geographical distribution Employees Length of service Employees Age distribution 17% 20% 25% 26% 12% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia, Australia 37% 19%14% 30% <2 years 2-4 years 5-10 years >10 years 11% 33% 30% 19% 7% <30 years 30-39 years 40-49 years 50-59 years >59 years Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 56 Board of directors Name Tom Knutzen, Chair Mads Nipper, Vice chair Richard Robinson Smith Anne Louise Eberhard Gillian Dawn Winckler Age 60 56 57 59 60 Nationality Danish Danish German/American Danish British/Canadian Gender Male Male Male Female Female Member of the Board since 2012, Chair since 2022 (elected at the AGM). Chair of the Nomination and Com- pensation Committees 2022 (elected at the AGM). Member of the Audit, Nomination and Compensa- tion Committees 2016 (elected at the AGM). Chair of the Technology Committee 2017 (elected at the AGM). Chair of the Audit Committee 2019 (elected at the AGM). Member of the Audit Committee Number of shares in FLSmidth 50,000 1,220 500 2,000 1,000 Executive and non-executive positions in Denmark Chair of the Board of Directors of Tivoli A/S and Chr. Augustinus Fabrikker A/S. Vice Chair of the Board of Directors of Jeudan A/S CEO of Ørsted A/S None Chair of the Boards of Directors of Finan- siel Stabilitet SOV, Moneyflow Group A/S and Moneyflow 1 A/S. Member of the Board of Directors of Den Danske Unicef Fond, Bavarian Nordic A/S, Knud Højgaards Fond, Oterra A/S and VL52 ApS. Faculty Member at Copenhagen Business School (CBS Executive, Board Education). Director EA Advice ApS None Executive and non-executive positions outside Denmark Member of the Board of Directors of Givaudan SA (CH) and Jungbunzlauer Holding AG (CH) None CEO of KION Group AG (DE) None Chair of the Board of Directors of Pan American Silver Corporation (CA). Mem- ber of the Board of Directors of West Fraser Timber Limited (CA), and BC Parks Foundation (CA), a non-profit or- ganization, and Director with Sinova Global Inc. (CA) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 57 - Continued Board of directors Name Thrasyvoulos Moraitis Claus Østergaard Leif Gundtoft Carsten Hansen Age 60 56 61 59 Nationality British/Greek Danish Danish Danish Gender Male Male Male Male Member of the Board since 2019 (elected at the AGM). Member of the Tech- nology Committee, Nomination Committee and Compensation Committee. 2016 (elected by the employees) 2021 (elected by the employees) 2021 (elected by the employees) Member of the Technology Committee. Number of shares in FLSmidth 1,000 429 128 52 Executive and non-executive positions in Denmark None None None None Executive and non-executive positions outside Denmark Member of the Board of Directors of Reload Greece Foundation (GR). CEO of Serra Verde Group (CH). Ad- visor and principal in Vision Blue Resources (UK) None None None Board competencies Board of directors CEO (operational) experience Finance, Audit Committee, Accounting, Treasury Strategy Development M&As, Joint ventures, Alliances Capital markets, Listed company experience Risk Manage- ment, Legal, Compliance HR, Total Rewards & Labour Safety, Health, Environment, Sustaina- bility Digital transfor- mation, Technology advance- ment Cement and Mining Industry Knowledge/ Experience Commercial and Project excellence Related Industrial experience Service, Aftermarket experience Tom Knutzen (Chair) X X X X X X Mads Nipper (Vice Chair) X X X X X X Richard Robinson Smith X X X X X X Anne Louise Eberhard X X X X X X Gillian Dawn Winckler X X X X X X Thrasyvoulos Moraitis X X X X X X Claus Østergaard (employee-elected) X X X X Leif Gundtoft (employee-elected) X X X X Carsten Hansen (employee-elected) X X X Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 58 Group executive management Name Mikko Keto Roland M. Andersen Asger S.B. Lauritsen Chris Reinbold Title Group Chief Executive Officer Employed by FLSmidth since 2021 Group Chief Financial Officer Employed by FLSmidth since 2020 Group COO & Cement President Employed by FLSmidth since 2016 Mining, Products Business Line President Employed by FLSmidth since 2020 Age 55 54 56 56 Nationality Finnish Danish Danish American Gender Male Male Male Male Education MSc Economics from Helsinki School of Economics MSc Corporate Finance, Executive Management Programme, London Business School MSc University of Copenhagen, MBA (IMD), GMP (INSEAD) Master of Business Administration, Finance, Indiana University, B.S. Mechanical Engineering, University of Illinois. Number of shares in FLSmidth 2,600 10,740 1,335 0 Past experience Numerous senior management positions with Metso 2010-2020, most recently President for Services and Pumps business areas. Head of Sales, KONE corporation 2008-2010. Various management positions in multiple countries with Nokia Networks 1994-2008. 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 Various management 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 Pakistan/Afghanistan; CEO, ROSTI Contain- ers (2001-2004); Executive Vice president, Sales & Marketing, DISA (1997-2001); Company Secretary, Business Unit Head of various A.P. Møller-Maersk entities (1992-1997) Senior Vice President, Global Product Line Manage- ment, FLSmidth. Various managerial positions at ABB (1989-2020), Group Vice President, Global Product Group Manager; Region Division Manager, Southeast Asia; Senior Vice President, Head of US Power Sales; Senior Vice President, HV Products North America. Non-Executive positions Member of Board of Directors Normet Group None None None * Registered with Erhvervsstyrelsen (The Danish Business Authority). Trading in FLSmidth shares by executives and associated persons is only reported for executives registered with Erhvervsstyrelsen (The Danish Business Authority) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 59 - Continued Group executive management Name Joshua Meyer Annette Terndrup Cori Petersen Mikko Tepponen Title Mining, Service Business Line President Employed by FLSmidth since 2022 Chief Legal and Strategy Officer Employed by FLSmidth since 2004 Chief HR Officer Employed by FLSmidth since 2016 Chief Digital Officer Employed by FLSmidth since 2020 Age 47 53 53 43 Nationality American Danish American Finnish Gender Male Female Female Male Education MBA, UNC Kenan-Flagler Business School BSB, University of Minnesota - Carlson School of Management Master of Law (Denmark) and LLM (England) .S. in Business Administration: Human Resource Management, Senior Professional in Human Re- sources. Certified by Human Resource Certification Institute MSc Automation Technology Number of shares in FLSmidth 0 2,546 918 0 Past experience Vice President Global Sales in Genie/Terex (2019- 2022), Senior Vice President in Metso (2017-2019), Region Mining Manager/Commercial Director in Caterpillar Inc. (2012-2017), Various managerial po- sitions in Caterpillar Inc. (1998-2012). Head of Group Legal (2013-2016). Various manage- rial positions in FLSmidth (2006-2013). Corporate counsel FLSmidth (2004-2006). Lawyer Ashurst 1998-2003. Trainee lawyer Lett, Vil- strup & Partnere 1994-1997 Director Human Resources, US, FLSmidth (2016), Director, Human Resources, North America, FLSmidth (2017). Various managerial positions in Rio Tinto (2011 – 2016). Various managerial and specialist positions (1987-2011) Vice President, Digital Product Development at Wartsila. Director of Digitalisation at Wartsila. Sen- ior Manager, Product Management, Digital Services at Outotec Non-Executive positions None None Member of Board of Directors AmCham Denmark Member of Board of Directors Etteplan Oyj Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 60 Total remuneration to Board of Directors and Group Executive Management registered with Danish Business Authoritiy decreased compared to 2021. In 2021, the remuneration was impacted by the severance package agreed with the former Group CEO and from discretionary cash bonuses to the Group CEO and Group CFO for their part in reach- ing an agreement to acquire Mining Technologies (ex-TK). In 2022, the remuneration includes a above target payout under the short-term incen- tive programme due to a performance significantly above target. Base salary The new Group CEO entered service 1 January 2022 and has not received any base salary ad- justment in 2022. An adjustment of +3.0% to Group CFO’s monthly base salary was made in 2022. Short-term incentive programme The pay-out under the short-term incentive pro- gramme reflects that performance is significantly above target for the financial KPIs (order intake, revenue contribution margin, EBITA margin and CFFO). Long-term incentive programme In 2022, management received no pay-out for the long-term incentive programmes (LTIP) for the per- formance periods 2019-2021. The KPIs for the 2022 LTIP grant are: EBITA-mar- gin, total shareholder return and a sustainability- linked KPI. Remuneration of Group Executive Management The Board has adopted overall guidelines for in- centive pay for the Group Executive Management establishing a framework for variable salary com- ponents in order to support FLSmidth’s short- and long-term goals. The purpose is to ensure that the remuneration structure does not lead to impru- dence, short-term behaviour or unreasonable risk acceptance on the part of the Group Executive Management. The Board’s Compensation Committee considers on a regular basis the Group Executive Manage- ment’s remuneration. 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 performance shares (up to 100% of base salary) ■ Other incentives of up to 150% of the annual base salary in cash and/or in shares ■ Up to 18 months’ notice in the event of termina- tion of employment and severance payment of a maximum of 6 months’ base salary ■ Customary benefits such as company car, tele- phone, etc. Remuneration of the Board of Directors The Board of Directors’ total remuneration con- 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- tors’ fees are normally pre-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 pre- liminarily approved fees for all or some members of the Board of Directors. The Board of Directors’ fees do not include incentive-based remuneration. Cash payment is unchanged from 2021 and con- sists 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 chair 200% of the base fee ■ Board Chair 300% of the base fee ■ Committee Chair fee DKK 225,000 ■ Committee members fee DKK 125,000 The Chair and Vice chair do not receive payment for committee work. The fee structure was last ad- justed in 2017. The remuneration report can be found here: www.flsmidth.com/RemunerationReport2022 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. Total remuneration of the Board of Directors, DKKm Total remuneration of Executive Management registered with the Danish Business Authority, DKKm 6.4 6.5 6.6 2020 2021 2022 18.6 39.0 25.8 2020 2021 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 61 Total shareholder return was 4% in 2022. Dividend of DKK 3 per share is proposed. Capital and share structure FLSmidth & Co. A/S is listed on Nasdaq Copenha- gen. The share capital is DKK 1,153,000,000 (end of 2021: DKK 1,153,000,000) and the total number of issued shares is 57,650,000 (end of 2021: 57,650,000). Each share entitles the holder to 20 votes. The FLSmidth & Co. A/S share is included in approxi- mately 195 Danish, Nordic, European and global share indices, including the leading Danish stock index C25. The company had approximately 53,500 share- holders at the end of 2022 (end of 2021: approxi- mately 54,000). In addition, around 1,590 present and former employees hold shares in the com- pany (end of 2021: approximately 1,670). At the time of issuing the 2022 financial state- ments for FLSmidth & Co. A/S, FLSmidth & Co. A/S had two major shareholders - Lundbeckfonden, Scherfigsvej 7, 2100 Copenhagen Ø and Altor In- vest 7 AS, Tjuvholmen Allé 19, 0252 Oslo. Both have disclosed holdings of voting rights exceeding 10% of total outstanding voting rights. The combined share of Danish retail and institu- tional investors excluding Lundbeckfonden, was 37% by the end of 2022. FLSmidth’s holding of treasury shares remained at 1.6% (2021: 1.6%). Return on the FLSmidth share in 2022 The total return on the FLSmidth & Co. A/S share in 2022 was 4% (2021: 6%), calculated as share price appreciation and dividend paid. The share price ended 2022 at 251.7 compared to 244.3 at the end of 2021, having traded between 260.7 and 164.35 during the year. Total share- holder return was included as a KPI in the long- term incentive program during 2022. Shareholder information Development in shareholder structure % Share price development in 2022 Volume, 1,000 Share price DKK Financial calendar 2023 29 Mar 2023 Annual General Meeting 11 May 2023 First quarter Interim Report 2023 15 Aug 2023 Half year Interim Report 2023 09 Nov 2023 Nine months Interim Report 2023 Change in methodology for differentiating between Danish retail and institutional investors 0 10 20 30 40 50 60 70 80 90 100 2018 2019 2020 2021 2022 Danish (private) Danish (institutional) Non-registered FLSmidth & Co. A/S Foreign Lundbeckfond Invest A/S Novo A/S Franklin Mutual Advisors Bestinver Gestión S.A SGIIC 150 170 190 210 230 250 270 0 500 1,000 01/01/2022 01/02/2022 01/03/2022 01/04/2022 01/05/2022 01/06/2022 01/07/2022 01/08/2022 01/09/2022 01/10/2022 01/11/2022 01/12/2022 Daily volume Share price Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 62 Capital structure and allocation FLSmidth takes a conservative approach to capi- tal structure with an emphasis on relatively low debt, gearing and financial risk. The Board of Di- rectors’ priority for capital structure is as follows: ■ Leverage (NIBD/EBITDA < 2) ■ Dividend pay-out ratio (30-50% of net profit) In addition, the Board of Directors’ priority for capi- tal allocation is to ensure a strong balance sheet while allowing for growth investments and value- adding M&A. Excess cash can be distributed either via extraordinary dividends or share buyback pro- grammes. On 31 August 2022, FLSmidth completed the ac- quisition of Mining Technologies (ex-TK) business. The acquisition was mainly financed by proceeds from the issuance of new share in Q3 2021 accom- panied by drawings on committed debt facilities The Board of Directors will propose at the Annual General Meeting that a dividend of DKK 3 per share (2021: DKK 3 per share), corresponding to a dividend yield of 1.2% and a pay-out ratio of 49%, in line with our targeted pay-out ratio, to be dis- tributed in 2023. FLSmidth Investor Relations FLSmidth engages in an open and active dialogue with the capital markets. It is FLSmidth’s objective to have an appropriately diversified shareholder base in terms of geography, investment style and time horizon. Accordingly, the purpose of Investor Relations is to: ■ Ensure compliance with relevant rules and regu- lation for companies listed on Nasdaq Copenha- gen ■ Ensure that FLSmidth is perceived as a visible, accessible, reliable and professional company by the capital markets ■ Ensure that relevant, accurate, balanced and timely information is made available to the capi- tal markets as basis for regular trading and fair pricing of the shares ■ Ensure that the Board of Directors and Group Executive Management are briefed on relevant information received based on dialogue with in- vestors, analysts and other stakeholders To achieve these goals, an open and active dia- logue with the capital markets takes place through stock exchange announcements and fi- nancial reporting, investor presentations, webcasts, conference calls and other forms of electronic communication investor meetings, road- shows, AGMs and capital market days FLSmidth & Co. A/S is generally categorised as a capital goods or industrial company and is cur- rently being covered by 12 equity analysts, 7 of which are based outside Denmark. For further details regarding analyst coverage, please see the company website: www.FLSmidth.com/analysts All investor relations materials and investor rela- tions contact information are available to inves- tors at the company website: www.FLSmidth.com/investors Share information Market Nasdaq Copenhagen Symbol FLS ISIN DK0010234467 Number of shares 57,650,000 Sector Construction and Materials ICB Code 5010 Segment Large Share and dividend key figures 2018 2019 2020 2021 2022 CFPS (cash flow per share), DKK (diluted) 7.7 18.9 28.3 27.8 17.0 EPS (earnings per share), DKK (diluted) 12.8 15.5 4.2 6.9 6.5 BVPS (book value per share), DKK 161 171 159 180 188 DPS (dividend per share), DKK, proposed 9 0 2 3 3 Pay-out ratio (%) 72 - 50 48 49 Dividend yield (dividend as percent of share price end of year) 3.1 0.0 0.9 1.2 1.2 FLSmidth & Co. A/S share price, end of year, DKK 293.1 265.4 232.8 244.3 251.7 Listed number of shares (1,000), end of year 51,250 51,250 51,250 57,650 57,650 Number of shares excl. own shares (1,000), end of year 49,866 50,056 50,152 56,725 56,736 Average number of shares (1,000), (diluted) 50,051 50,092 50,153 52,080 56,879 Market capitalisation, DKKm 15,021 13,602 11,931 14,084 14,511 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 63 Financial statements Consolidated financial statements 64 Key accounting estimates and judgements 69 Parent company financial statements 124 Statement by Management 132 Independent auditor's report 133 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 64 Primary statements Income statement 65 Statement of comprehensive income 65 Cash flow statement 66 Balance sheet 67 Equity statement 68 Notes Key accounting estimates and judgements 69 1. Operating profit & segments 71 1.1 Income statement by function 72 1.2 Segment information 72 1.3 Geographical information 75 1.4 Revenue 76 1.5 Staff costs 78 1.6 Government grants 79 1.7 Special non-recurring items 79 2. Capital employed and other Balance sheet items 80 2.1 Return on capital employed 81 2.2 Intangible assets 81 2.3 Impairment of assets 83 2.4 Property, plant and equipment 85 2.5 Leases 86 2.6 Investments in associates 87 2.7 Provisions 87 2.8 Pension obligations 89 2.9 Contractual commitments and contingent liabilities 90 2.10 Business acquisitions 91 2.11 Discontinued activities 93 3. Working capital 94 3.1 Net working capital 95 3.2 Inventories 95 3.3 Trade receivables 96 3.4 Work in progress 97 3.5 Other receivables 98 3.6 Trade payables 98 3.7 Other liabilities 98 4. Tax 99 4.1 Income tax 100 4.2 Paid income tax 101 4.3 Deferred tax 101 4.4 Tax on other comprehensive income 103 4.5 Our approach to tax and tax risk 103 5. Financial risks & capital structure 104 5.1 Shares and capital structure 105 5.2 Earnings per share 106 5.3 Financial risks 106 5.4 Financial income and costs 109 5.5 Derivatives 109 5.6 Fair value measurement 110 5.7 Net interest bearing debt 111 5.8 Financial assets and liabilities 111 6. Other notes 113 6.1 Share-based payment 114 6.2 Related party transactions 115 6.3 Audit fee 115 6.4 Events after the balance sheet date 115 6.5 List of Group companies 116 7. Basis of reporting 118 7.1 Introduction 119 7.2 Basis of preparation 119 7.3 Defining materiality 119 7.4 Alternative Performance Measures 119 7.5 Accounting policies 119 7.6 Impact from new IFRS 120 7.7 New IFRS not yet adopted 120 7.8 Definition of terms 121 Consolidated financial statements Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 65 Income statement Statement of comprehensive income Notes DKKm 2022 2021 1.4 Revenue 21,849 17,581 Production costs (16,773) (13,401) Gross profit 5,076 4,180 Sales costs (1,704) (1,314) Administrative costs (2,170) (1,506) Other operating income 98 41 EBITDA before special non-recurring items 1,300 1,401 1.7 Special non-recurring items 0 (57) 2.4, 2.5 Depreciation and impairment of property, plant and equipment and lease assets (357) (314) EBITA 943 1,030 2.2 Amortisation and impairment of intangible assets (324) (362) EBIT 619 668 5.4 Financial income 1,588 870 5.4 Financial costs (1,655) (951) EBT 552 587 4.1 Tax for the year (201) (213) Profit for the year, continuing activities 351 374 1.2, 2.11 Profit/(loss) for the year, discontinued activities 1 (17) Profit for the year 352 357 Attributable to: Shareholders in FLSmidth & Co. A/S 370 358 Minority interests (18) (1) 352 357 5.2 Earnings per share (EPS): Continuing and discontinued activities per share (DKK) 6.5 6.9 Continuing and discontinued activities per share, diluted (DKK) 6.5 6.9 Continuing activities per share (DKK) 6.5 7.2 Continuing activities per share, diluted (DKK) 6.5 7.2 5.1 Proposed dividends per share (DKK) 3.0 3.0 Notes DKKm 2022 2021 Profit for the year 352 357 Items that will not be reclassified to profit or loss: Actuarial gains and losses on defined benefit plans 101 70 4.3, 4.4 Tax of actuarial gains and losses on defined benefit plans (24) (15) Items that are or may be reclassified subsequently to profit or loss: 5.3 Currency adjustments regarding translation of entities 149 467 5.5 Cash flow hedging: - Value adjustments for the year (28) (39) - Value adjustments transferred to work in progress 12 (11) 4.3, 4.4 Tax hereof 8 15 Other comprehensive income for the year after tax 218 487 Comprehensive income for the year 570 844 Attributable to: Shareholders in FLSmidth & Co. A/S 587 844 Minority interests (17) 0 570 844 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 66 Accounting policy The cash flow statement is presented using the in- direct method and shows the composition of cash flow divided into operating, investing and financ- ing activities for both continued and discontinued activity and the changes in cash and cash equiva- lents during the year. Cash flow from operating activities consists of earnings before depreciation, amortisation and im- pairment (EBITDA) adjusted for non-cash operat- ing items, changes in provisions and net working capital, financial items received and paid from the lease liabilities and taxes paid. Cash flow from investing activities comprises pay- ments made and cash received in connection with the acquisition and disposal of businesses and non-current assets including dividend from associ- ates. 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 treasury shares and payment of dividend to shareholders. Cash and cash equivalents mainly consist of bank deposits. Cash flow statement Notes DKKm 2022 2021 1.2 EBITDA before special non-recurring items 1,300 1,401 1.2 EBITDA, discontinued activities (10) (19) Adjustment for special non-recurring items, gain on sale of property, plant and equipment and non-cash items 4 (56) EBITDA adjusted to reflect cash flows 1,294 1,326 2.7 Change in provisions, pension and employee benefits 640 117 3.1 Change in net working capital (446) 612 Cash flow from operating activities before financial items and tax 1,488 2,055 5.4 Financial items received and paid (49) (69) 4.2 Taxes paid (471) (537) Cash flow from operating activities 968 1,449 2.10 Acquisition of enterprises and activities (2,120) (11) 2.2 Acquisition of intangible assets (245) (179) 2.4 Acquisition of property, plant and equipment (88) (116) Acquisition of financial assets (23) (8) Disposal of enterprises and activities 1 2 Disposal of property, plant and equipment 159 39 Disposal of financial assets 6 0 Cash flow from investing activities (2,310) (273) Dividend paid (176) (101) 5.1 Issue of shares, net of costs 0 1,434 Addition of minority interests 0 3 Exercise of share options 0 43 5.7 Repayment of lease liabilities (134) (125) 5.7 Change in interest-bearing debt 1,906 (1,530) Cash flow from financing activities 1,596 (276) Change in cash and cash equivalents 254 900 Cash and cash equivalents at 1 January 1,935 976 Foreign exchange adjustment, cash and cash equivalents (59) 59 Cash and cash equivalents at 31 December 2,130 1,935 The cash flow statement cannot be inferred from the published financial information only Free cash flow DKKm 2022 2021 Free cash flow (1,342) 1,176 Free cash flow, adjusted for acquisitions and disposals of enterprises and activities 777 1,185 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 67 Balance sheet Notes DKKm 31-12-2022 31-12-2021 Assets Goodwill 6,433 4,364 Patents and rights 766 784 Customer relations 392 401 Other intangible assets 148 165 Completed development projects 204 233 Intangible assets under development 422 310 2.2 Intangible assets 8,365 6,257 Land and buildings 1,983 1,792 Plant and machinery 493 383 Operating equipment, fixtures and fittings 131 112 Tangible assets in course of construction 40 21 2.4, 2.5 Property, plant and equipment 2,647 2,308 4.3 Deferred tax assets 1,921 1,490 2.6 Investments in associates 157 162 Other securities and investments 59 49 Other non-current assets 2,137 1,701 Non-current assets 13,149 10,266 3.2 Inventories 3,971 2,464 3.3 Trade receivables 5,108 4,112 3.4 Work in progress 3,147 2,358 Prepayments 874 871 Income tax receivables 321 248 3.5 Other receivables 1,145 799 Cash and cash equivalents 2,130 1,935 Current assets 16,696 12,787 Total assets 29,845 23,053 Notes DKKm 31-12-2022 31-12-2021 Equity and liabilities 5.1 Share capital 1,153 1,153 Foreign exchange adjustments (517) (665) Cash flow hedging (70) (54) 5.1 Retained earnings 10,247 9,937 Shareholders in FLSmidth & Co. A/S 10,813 10,371 Minority interests (26) (3) Equity 10,787 10,368 4.3 Deferred tax liabilities 294 169 2.8 Pension obligations 414 320 2.7 Provisions 896 450 5.7 Lease liabilities 206 200 5.7 Bank loans and mortgage debt 1,929 726 3.4 Prepayments from customers 578 587 Income tax liabilities 103 119 3.7 Other liabilities 85 55 Non-current liabilities 4,505 2,626 2.8 Pension obligations 2 2 2.7 Provisions 1,611 697 5.7 Lease liabilities 117 104 5.7 Bank loans and mortgage debt 615 17 3.4 Prepayments from customers 2,193 1,903 3.4 Work in progress 3,592 2,373 3.6 Trade payables 4,339 3,367 Income tax liabilities 346 193 3.7 Other liabilities 1,738 1,403 Current liabilities 14,553 10,059 Total liabilities 19,058 12,685 Total equity and liabilities 29,845 23,053 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 68 Equity statement 2022 2021 DKKm Share capital Foreign exchange adjustments Cash flow hedging Retained earnings Shareholders in FLSmidth & Co A/S Minority interests Total Share capital Foreign exchange adjustments Cash flow hedging Retained earnings Shareholders in FLSmidth & Co A/S Minority interests Total Equity at 1 January 1,153 (665) (54) 9,937 10,371 (3) 10,368 1,025 (1,131) (4) 8,246 8,136 (6) 8,130 Comprehensive income for the year Profit/loss for the year 370 370 (18) 352 358 358 (1) 357 Other comprehensive income Actuarial gain/loss on defined benefit plans 101 101 101 70 70 70 Currency adjustments regarding translation of entities 148 148 1 149 466 466 1 467 Cash flow hedging: - Value adjustments for the year (28) (28) (28) (39) (39) (39) - Value adjustments transferred to work in progress 12 12 12 (11) (11) (11) Tax on other comprehensive income (16) (16) (16) 0 0 0 Other comprehensive income for the year 0 148 (16) 85 217 1 218 0 466 (50) 70 486 1 487 Comprehensive income for the year 0 148 (16) 455 587 (17) 570 0 466 (50) 428 844 0 844 Transactions with owners: Dividend paid (170) (170) (6) (176) (101) (101) (101) Issue of shares, net of costs 0 0 128 1,306 1,434 1,434 Share-based payment 25 25 25 15 15 15 Exercise of share options 0 0 43 43 43 Addition of minority interests 0 0 0 3 3 Equity at 31 December 1,153 (517) (70) 10,247 10,813 (26) 10,787 1,153 (665) (54) 9,937 10,371 (3) 10,368 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 69 When preparing the financial statements, we are required to make several estimates and judge- ments. These affect the carrying amounts of bal- ance sheet items and income and expenses for the financial year. This note includes the areas that involve a higher degree of judgement or com- plexity and where changes in assumptions and estimates will likely have a significant impact on the financial statements. These areas are catego- rised as key accounting estimates and judge- ments. The significance of the impact on the finan- cial statements of those estimates and judgements is categorised into three levels: low, medium and high. Impact significance Key accounting estimate The determination of the carrying amount of some assets and liabilities requires the estimation of the effect of uncertain future events on those assets and liabilities and actual results may differ from the estimates made. Making the estimates involve developing expectations of the future based on assumptions, that we to the extent possible sup- port by historical trends or reasonable expecta- tions. We believe that our estimates are the most likely outcome of future events. Key accounting judgements Key accounting judgements are made when ap- plying accounting policies. Key accounting judge- ments are the judgements made, that can have a significant impact on the amounts recognised in the financial statements. The areas that are categorised as key accounting estimates and judgements include, besides those identified last year also the initial accounting for the acquisition of Mining Technology and the restructuring in Mining segment with the creation of Non-Core Activities. The description of the key accounting estimates and judgements has been included in the individ- ual notes as shown below. At the end of 2021, the COVID-19 pandemic ex- posed the Group to significant increased uncer- tainty in relation to the financial statements. At the end of 2022, the COVID-19 pandemic and govern- ment-imposed restrictions continued to pose chal- lenges in some parts of the world. More im- portantly, the geopolitical situation following the war in Ukraine was on the top of the agenda. As a result, we immediately decided to suspend all new business in Russia and Belarus, and we have during the year exited our activities in Russia. The remaining legal obligations with regards to the ful- fillment of existing Russian and Belarusian orders have been suspended by FLSmidth. Costs to exit have been recognised. Besides the direct impact from the sanctions, the war has also intensified bottlenecks in the global supply chains that were already current at the end of 2021. It has also led to further increases in the energy prices, contributed to rising inflation and fluctuations in foreign currency rates. To re- duce the inflationary pressure, central banks have increased interest rates. The resulting uncertain- ties have impacted our key accounting estimates and judgements as described below. In general, climate-related changes have not im- posed significant uncertainty on the financial statement but poses opportunities to the Group for delivering solutions to our current and future cus- tomers to succeed on the green transition. Initial accounting for the acquisition of Mining Technologies (ex-TK) On 31 August 2022, we obtained control of Mining Technologies (ex-TK). At initial recognition, assets acquired and liabilities assumed are measured at fair value and the excess of the purchase prices over the fair value of the net assets acquired rep- resents goodwill. The initial accounting is still sub- ject to change, and changes to the fair value of assets acquired and liabilities assumed may be expected to reflect new information obtained on facts and circumstances that existed at the acqui- sition date. The purchase price is also subject to change. Further information can be found in note 2.10. Valuation of receivables The economic situation and the outlook for our cus- tomers impact the customers’ ability to pay. This is reflected in the estimate of the impairment of trade receivables. The impairment ratio (impairment as a Key accounting estimates and judgements Key accounting estimates and judgements Low Medium High Key accounting estimates and judgements Note Key accounting estimates and judgements Nature of accounting impact Impact of estimates and judgements 1.4 Revenue Determine performance obligations Judgement Determine recognition method Judgement 2.7 Provisions Estimate warranty provision Estimate 2.10 Business acquisitions Purchase price allocation Judgement and estimate 3.2 Inventories Estimate valuation of inventories Estimate 3.3 Trade receivables Estimate level of expected losses Estimate 3.4 Work in progress Estimate total cost to complete Estimate 4.3 Deferred tax Estimate the value of deferred tax assets Estimate Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 70 percentage of the gross carrying amount) increased to 7.8% compared to 7.5% at the end of 2021 as the impact on expected credit losses from forward-look- ing estimates increased during 2022. The uncer- tainty related to the impact from the increases in prices and costs on our customers is incorporated through the forward-looking estimates. For additional description of the estimates, please refer to note 3.3 Trade receivables. Estimate total cost to complete The impacts from increases in costs following the supply chain challenges and the increasing infla- tion have been covered through reassessments of our projects to reflect estimated implications on project financials. This includes updating of pro- ject costs to ensure that significant cost increases are reflected in the estimate of the total cost to complete. To the extent possible, price increases on the input side has been passed on to the cus- tomers. In case it is not possible to increase the sales price to absorb the cost increases leading to loss-making contracts, provisions are recognised, see note 2.7. For additional description of the estimates, please refer to note 3.4 Work in progress. Deferred tax assets The recoverability of the deferred tax assets is de- pendent on the generation of sufficient future taxa- ble income to utilise tax losses. The uncertainty on the future income is related to the macroeconomic development, including the demand for environ- mental investments by our customers. For additional description of the estimates, please refer to note 4.3 Deferred tax. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 71 Section 1 Operating Profit & Segments 1.1 Income statement by function 72 1.2 Segment information 72 1.3 Geographical information 75 1.4 Revenue 76 1.5 Staff costs 78 1.6 Government grants 79 1.7 Special non-recurring items 79 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 72 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 spe- cial non-recurring items, depreciation, amortisa- tion and impairment. Special non-recurring items, depreciation, amortisation, and impairment are therefore separated from the individual functions and presented in separate lines. The income statement prepared on the basis of cost by function is shown below: 1.2 Segment information As a result of the strategic review of the combined FLSmidth and Mining Technologies (ex-TK) prod- uct portfolio it has been decided to divest or wind- down non-core mining activities that are no longer deemed to be of core strategic importance to FLS- midth as well as specific loss-making mining activ- ities. The non-core activities constitute a separate reportable segment. Hereafter, we have three op- erating and reporting segments – Mining, Cement and Non-Core Activities. The continuing Mining segment is dedicated to provide customers full flowsheet technologies and service solutions to enhance their productivity and sustainability agenda. This includes offering single services or products as well as projects with lower risk consisting of product bundles with related per- formance guarantees in accordance with FLS- midth’s risk management approach. The Non-Core Activities include activities and prod- uct types that either offer limited or no aftermarket potential, are characterised by high execution risks, are highly engineered and/or lack standardisation, and we see no viable commercial model for FLS- midth to turn these around. Furthermore, these products are not aligned with or important to FLS- midth’s sustainability agenda. A designated organi- sational structure is established to oversee the seg- ment. The order backlog is expected to be divested or wound down within the next three years. The composition of the Cement segment remains unchanged by the introduction of the Non-Core Activities segment. The segments have technology ownership and de- velop and drive the life cycle offering and product portfolio. As of second half of 2022, five regions support sales and service within Mining and Non- Core Activities as Asia and Australia have been merged to APAC. For Cement, four regions exist as of second half 2022, as North America and South America have further been merged to Americas. The structure helps create a productivity-driven organisation with a strong, unified digital ap- proach and fewer touchpoints strengthening our local presence, customer orientation, and life cy- cle offering in order to capture growth. We front our customers in the global industries with all the knowhow technologies, products, pro- cesses and systems used to separate commer- cially viable minerals from their ores and to ce- ment production. With the responsibility of our total life cycle offer- ings firmly anchored in the Mining and Cement segments, we are capable of improving our cus- tomer specific offerings. Offerings range from first time sale of single products to turnkey projects, subsequent services, operation & maintenance, upgrades and rebuilds of existing equipment, plants and sale of spare parts and wear parts. The segmentation reflects the internal reporting and management structure applied with Non-Core Activities starting from 1 October 2022. Accounting policy Segment income and costs include transactions between the three segments, if any. Such transac- tions are carried out on market terms. Administrative functions such as finance, HR, IT and legal are shared by the segments. Addition- ally, the segments are supported by Group Func- tions related to procurement, logistics and market- ing. Such shared costs are allocated to business segments based on assessment of consumption. 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. The activities are not a separate reportable segment but presented as discontinued operations under IFRS 5. Further information can be found in note 2.11. Geographical information in note 1.3 is based on five Regions. 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. Income Statement by function DKKm 2022 2021 Revenue 21,849 17,581 Production costs, including depreciation and amortisation (17,123) (13,744) Gross profit 4,726 3,837 Sales costs, including depreciation and amortisation (1,738) (1,362) Administrative costs, including special non-recurring items, depreciation and amortisation (2,467) (1,848) Other operating income 98 41 EBIT 619 668 Special non-recurring items, depreciation, amortisation and impairment consist of: Special non-recurring items 0 (57) Depreciation and impairment of property, plant and equipment and lease assets (357) (314) Amortisation and impairment of intangible assets (324) (362) (681) (733) Special non-recurring items, depreciation, amortisation and impairment are divided into: Production costs (350) (343) Sales costs (34) (48) Administrative costs (297) (342) (681) (733) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 73 1.2 Segment information – continued 2022 2021 FLSmidth Group FLSmidth Group DKKm Mining Cement Non-Core Activities ¹⁾ Continuing activities Discontinued activities ²⁾ Mining ³⁾ Cement ³⁾ Continuing activities Discontinued activities ²⁾ Income statement Revenue 15,082 6,264 503 21,849 0 11,715 5,866 17,581 0 Production costs (11,288) (4,662) (823) (16,773) (7) (8,783) (4,618) (13,401) 0 Gross profit 3,794 1,602 (320) 5,076 (7) 2,932 1,248 4,180 0 SG&A costs (2,405) (1,287) (84) (3,776) (3) (1,662) (1,117) (2,779) (19) EBITDA before special non-recurring items 1,389 315 (404) 1,300 (10) 1,270 131 1,401 (19) Special non-recurring items 0 0 0 0 0 (14) (43) (57) 0 Depreciation and impairment of property, plant and equipment (243) (111) (3) (357) 0 (207) (107) (314) 0 EBITA 1,146 204 (407) 943 (10) 1,049 (19) 1,030 (19) Amortisation of intangible assets (223) (101) 0 (324) 0 (247) (115) (362) 0 EBIT 923 103 (407) 619 (10) 802 (134) 668 (19) Order intake (gross) 17,822 6,613 209 24,644 0 13,281 5,952 19,233 Order backlog 14,277 6,386 2,878 23,541 0 10,599 5,993 16,592 0 Gross margin 25.2% 25.6% -63.6% 23.2% 25.0% 21.3% 23.8% EBITDA margin before special non-recurring items 9.2% 5.0% -80.3% 5.9% 10.8% 2.2% 8.0% EBITA margin 7.6% 3.3% -80.9% 4.3% 9.0% -0.3% 5.9% EBIT margin 6.1% 1.6% -80.9% 2.8% 6.8% -2.3% 3.8% Number of employees at 31 December 7,126 3,270 581 10,977 0 6,216 3,901 10,117 0 Reconciliation of profit/(loss) for the year EBIT 619 (10) 668 (19) Financial income 1,588 7 870 1 Financial costs (1,655) (12) (951) (1) EBT 552 (15) 587 (19) Tax for the year (201) 16 (213) 2 Profit/(loss) for the year 351 1 374 (17) 1) Non-Core Activities constitutes a separate reportable segment prospectively from 1 October 2022. Comparative information has not been restated. See the next page for further explanation 2) Discontinued activities mainly consist of non-mining bulk material handling. 3) Starting from 1 January 2022, shared costs are directly attributed to the segments based on consumption and therefore included in the relevant line items. Previously, the costs were allocated to the industries after the total ‘EBITA before allocation of shared costs’. In 2021 the numbers have been restated to include shared costs in the cost line items for the industries. See next page for further explanation. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 74 1.2 Segment information – continued Shared costs Starting from 1 January 2022, shared costs are di- rectly attributed to the segments based on con- sumption. Therefore, the costs are now included in the relevant line items, being production costs, SG&A costs and depreciation and impairment of property, plant and equipment. Previously, the costs were allocated to the segments and in- cluded below in the subtotal ‘EBITA before alloca- tion of shared costs’. The information for 2021 has been restated to re- flect the change. The table below shows the impact on the line items and margins in the segment information in 2021 for the two segments. Non-Core Activities segment The segmentation reflects the internal reporting and management structure applied. In line with the internal reporting, the Non-Core Activities seg- ment is reported prospectively from 1 October 2022. The segmentation is based on the identifi- cation of effective contracts on 1 October 2022 that relate to Non-Core Activities through a thor- ough contract-by-contract review by Manage- ment. It would be an extensive exercise to make this identification for contracts existing in prior pe- riods. Further, the allocation of net profit between Mining and Non-Core Activities before the new segmentation was internally implemented would be subject to significant estimates and allocations. On that background, it is impractical to restate the Mining segment in prior periods to reflect the split of the activities between Mining and Non-Core Ac- tivities prior to the new segmentation was imple- mented. The table below shows segment information for 2022 based on the previous segmentation (Mining old segmentation). This reflects an aggregation of Mining and Non-Core Activities. Restated segment information for 2021, shared costs DKKm Mining Cement Other companies Shared costs Production cost (72) (33) 0 105 SG&A costs (667) (461) (2) 1,130 Depreciation and impairment of property, plant and equipment and lease assets (93) (27) 0 120 Shared costs directly attributed (832) (521) (2) 1,355 Gross margin -0.6% -0.6% EBITDA margin before special non-recurring items -6.3% -8.4% EBITA margin before allocation of shared costs -7.1% -8.9% EBITA margin 0.0% 0.0% EBIT margin 0.0% 0.0% Number of employees at 30 September 865 496 0 (1,361) Old segmentation 2022 2021 DKKm Mining Non-Core Activities Mining old segmentation Mining INCOME STATEMENT Revenue 15,082 503 15,585 11,715 Production costs (11,288) (823) (12,111) (8,783) Gross profit 3,794 (320) 3,474 2,932 SG&A costs (2,405) (84) (2,489) (1,662) EBITDA before special non-recurring items 1,389 (404) 985 1,270 Special non-recurring items 0 0 0 (14) Depreciation and impairment of property, plant and equipment (243) (3) (246) (207) EBITA 1,146 (407) 739 1,049 Amortisation of intangible assets (223) 0 (223) (247) EBIT 923 (407) 516 802 Order intake (gross) 17,822 209 18,031 13,281 Order backlog 14,277 2,878 17,155 10,599 Gross margin 25.2% -63.6% 22.3% 25.0% EBITDA margin before special non-recurring items 9.2% -80.3% 6.3% 10.8% EBITA margin 7.6% -80.9% 4.7% 9.0% EBIT margin 6.1% -80.9% 3.3% 6.8% Number of employees at 31 December 7,126 581 7,707 6,216 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 75 1.3 GEOGRAPHICAL INFORMATION NORTH AMERICA, NAMER Revenue: DKK 5,270m (2021: DKK 3,850m) Non-current assets: DKK 3,650m (2021: DKK 3,630m) Employees: 1,807 (2021: 1,678) USA Revenue: DKK 2,909m (2021: DKK 2,258m) Non-current assets: DKK 2,986m (2021: DKK 3,002m) Canada Revenue: DKK 1,457m (2021: DKK 902m) Non-current assets: DKK 648m (2021: DKK 613m) 1 EUROPE, NORTH AFRICA & RUSSIA, ENAR Revenue: DKK 4,064m (2021: DKK 3,124m) Non-current assets: DKK 4,819m (2021: DKK 3,410m) Employees: 2,775 (2021: 2,206) Denmark Revenue: DKK 54m (2021: DKK 37m) Non-current assets: DKK 1,264m (2021: DKK 1,198m) 3 SOUTH AMERICA, SAMER Revenue: DKK 5,081m (2021: DKK 3,731m) Non-current assets: DKK 467m (2021: DKK 230m) Employees: 2,240 (2021: 2,074) Chile Revenue: DKK 2,136m (2021: DKK 1,726m) Non-current assets: DKK 169m (2021: DKK 96m) Peru Revenue: DKK 1,266m (2021: DKK 642m) Non-current assets: DKK 151m (2021: DKK 62m) Brazil Revenue: DKK 1,199m (2021: DKK 896m) Non-current assets: DKK 147m (2021: DKK 73m) 2 SUB-SAHARAN AFRICA, MIDDLE EAST & SOUTH ASIA, SSAMESA Revenue: DKK 3,506m (2021: DKK 3,134m) Non-current assets: DKK 433m (2021: DKK 403m) Employees: 2,829m (2021: 3,048) India Revenue: DKK 1,600m (2021: DKK 1,108m) Non-current assets: DKK 222m (2021: DKK 245m) 4 ASIA, AUSTRALIA, APAC Revenue: DKK 3,928m (2021: DKK 3,742m) Non-current assets: DKK 1,643m (2021: DKK 891m) Employees: 1,326m (2021: 1,111) Australia Revenue: DKK 2,007m (2021: DKK 1,841m) Non-current assets: DKK 1,624m (2021: DKK 783m) 5 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. This region was until H1 2022 presented as two regions, 1) Asia and 2) Australia Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 76 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 seg- ments split into the main categories of projects, products, and services. Revenue within the Non- Core Activities segment reflect the performance of the backlog as no new orders are taken in. Products The sale of products comprises sale of standard- ised and customised equipment, such as pre-heat- ers, 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. Revenue from the sale of products is usually rec- ognised over time, applying the percentage of completion cost-to-cost method. However, reve- nue from 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 customers, usually upon delivery. Highly customised product sales will often entitle us to receive a down payment from the customer, followed by several progress payments linked to our performance progress. Upon completion or delivery, we will usually be entitled to the final payment. To the extent possible we obtain pay- ment guarantees to minimise the credit risk during execution. For standardised products we will usually be enti- tled to payment upon delivery. Projects The sale of projects comprises 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 in more than one financial year, have a high degree of project management and involve more than one FLSmidth entity in the delivery to the cus- tomer. 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 su- pervision. 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 recognised over time; applying the percentage of completion 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 the credit risk during execution. Projects will no longer be a category in 2023 since we will split our categories in products and services going forward. 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, operation & maintenance contracts and sale of upgrades and retrofits. The sale of service hours includes amongst others 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 rec- ognised at the point of delivery. We are normally entitled to payment once we have delivered the parts. The performance obligation for service sales and maintenance contracts is either each service hour or the full contract, depending on the contract 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 customer based on the cost-to-cost method. We are nor- mally 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, Cement and Non-Core Activities 21% 18% 18% 16% 18% 19% 21% 23% 22% 24% 0% 20% 40% 60% 80% 100% 2021 2022 North America South America Europe, North Africa & Russia Sub-Saharan Africa, Middle East & South Asia Asia, Australia 57% 59% 26% 26% 17% 15% 0% 20% 40% 60% 80% 100% 2021 2022 Products Projects Service 67% 69% 33% 29% 2% 0% 20% 40% 60% 80% 100% 2021 2022 NCA Cement Mining Revenue split on industry and category 2022 2021 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Products 1,700 1,583 33 3,316 1,484 1,449 2,933 Projects 4,191 1,145 264 5,600 3,291 1,263 4,554 Capital business 5,891 2,728 297 8,916 4,775 2,712 7,487 Service business 9,191 3,536 206 12,933 6,940 3,154 10,094 Total revenue 15,082 6,264 503 21,849 11,715 5,866 17,581 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 77 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 reve- nue reliably we recognise revenue upon cash re- ceipt. We are usually entitled to payment on a monthly basis. Upgrades and retrofits are defined as one perfor- mance 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. Revenue recognition principles The split between percentage of completion and point in time has decreased from 54% in 2021 to 50% in 2022. The nominal increase in percentage of completion is due to the acquisition of Mining Technologies (ex-TK). Backlog The order backlog on 31 December 2022 amounted to DKK 23,541m (2021: DKK 16,592m) and represents the value of outstanding perfor- mance obligations on effective contracts, where we will transfer control at a future point in time and the remaining performance obligations on contracts where we transfer control over time. A contract is effective when it becomes binding for both parties depending on the specific conditions of the contract. This usually means that the con- tract has been signed and the prepayment (if any) has been received. Of the increase, DKK 5,451m related to the acqui- sition of Mining Technologies (ex-TK). Information of the split of the order backlog between the three segments can be found in note 1.2. Based on the order backlog maturity profile, the majority, 60% (2021: 69%) of the order backlog is expected to be converted into revenue in 2022, while 40% (2021: 31%) is expected to be converted to revenue in subsequent years. Besides the key accounting judgments described in the box, revenue is impacted by key accounting estimate related to the estimate of the percentage of completion (estimate of total cost to complete). The key accounting estimates are further ex- plained in note 3.4. Backlog maturity DKKm Accounting policy Revenue comprises sale of projects, products and service within the Mining, Cement and Non-Core Activities segments. Revenue from contracts with customers is rec- ognised 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 (except for sale of service hours) is recognised over time, using the cost-to-cost method, when 1) we have no alternative use for the goods or services to be delivered and 2) we have an en- forceable 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 recognised at the point in time when con- trol transfers to the customer, usually upon de- livery. 11,449 14,125 3,484 6,851 1,659 2,565 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 2021 2022 Within next year Within next year +1 Later than next year +1 10% 21% 69% 11% 29% 60% Revenue split on timing of revenue recognition principle 2022 2021 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Point in time 8,034 2,689 239 10,962 6,187 1,915 8,102 Percentage of completion 7,048 3,575 264 10,887 5,528 3,949 9,477 Cash 0 0 0 0 0 2 2 Total revenue 15,082 6,264 503 21,849 11,715 5,866 17,581 Key accounting judgements Judgement regarding performance obligations Judgement is performed when determining if a contract for sale of projects, products or services, or a combination hereof, involves one or more performance obligations. The complexity arises when selling bundled goods and services, and the consequence of the key accounting judgement is related to the timing of revenue recognition, espe- cially for point in time sales. Judgement regarding recognition method Judgements are made when determining if revenue on a project, product or service is recognised over time or at a point in time. The judgements relate to if we have an al- ternative use of the assets being produced and if we have an enforceable right to pay- ment throughout the contractual term. When assessing if an asset being produced has no alternative use to FLSmidth, we esti- mate the alternative use cost amount. We have limited historical data as we rarely re- direct 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 judge- ment is made based on the contract word- ing, legal entitlement and profit estimates. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 78 1.4 Revenue – continued Additionally, if we do not have an enforceable right to payment for work completed throughout the con- tract term, such sales will also be recognised at the point in time when the control transfers to the cus- tomer, usually upon customer acceptance. In the case of significant uncertainties with the collectabil- ity of contract consideration, revenue is recognised upon cash receipt. Service sales (sale of service hours) are recognised over time, using the cost-to-cost method, as the cus- tomer receives and consumes the benefits as we perform the services. In determining the transaction price revenue is re- duced by probable penalties, payment of liqui- dated damages and any other claims that are pay- ments 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 incep- tion and re-estimated periodically throughout the contract term. The variable amount is recognised 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 as- surance-type warranties that are not accounted for as separate performance obligations. Please refer to note 2.7, Provisions, for accounting policy on warranties provisions. Revenue is recognised less rebates, cash discounts, value added tax and duties and gross of foreign withholding taxes. 1.5 Staff costs Staff costs consist of direct wages and salaries, re- muneration, pension costs, share-based pay- ments, training etc. related to the continuing activi- ties. The increase in staff costs is primarily due the ac- quisition of Mining Technologies (ex-TK). Changes in foreign currency rates have increased staff costs by approximately DKK 215m (2021: de- crease of DKK 30m). Composition of staff costs During 2022 the remuneration of the Board of Di- rectors and Group Executive Management was as follows: Remuneration Board of Directors Remuneration Group Executive Mana- gement Two members of the Group Executive Manage- ment are registered with The Danish Business Au- thority. During 2022, the registered members of the Group Executive Management earned remu- neration as follows. Number of employees per region % Staff cost per region % Remuneration of Group Executive Management % 17% 20% 25% 26% 12% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia, Australia 26% 14% 33% 13% 14% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia, Australia 0% 20% 40% 60% 80% 100% 2021 2022 Wages and salaries Bonus Benefits Severance package Incentive programmes DKKm 2022 2021 Wages, salaries and other remuneration 4,326 3,549 Contribution plans and other social security costs, etc. 599 441 Defined benefit plans 25 26 Share-based payment 25 15 Other staff costs 338 128 5,313 4,159 The amounts are included in the items: Production costs 3,195 2,522 Sales costs 1,217 956 Administrative costs 901 681 5,313 4,159 Average number of employees in continuing activities 10,621 10,339 DKKm 2022 2021 Board of Directors fees 6.6 6.5 Total 6.6 6.5 DKKm 2022 2021 Wages and salaries 32 36 Bonus 20 14 Benefits 3 2 Severance package 14 5 Share-based payment 7 5 Other incentives 3 9 Total 79 71 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 79 1.5 Staff costs – continued Remuneration registered executives 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 participate in a short-term- and a long-term incentive programme. The short- and the long-term incentive pro- grammes are capped at 75% and 100%, respec- tively, of the annual base salary. In addition to this each executive may, at the Board’s discretion, re- ceive an additional incentive of up to 150% of the annual base salary, which can be cash and/or share based. The individual maximum and target levels are fixed as part of the ongoing remunera- tion adjustment cycle. The members of the Group Executive Manage- ment have up to 18 months’ notice in the event of termination of employment and severance pay- ment may correspond to a maximum of 6 months’ base salary. For details related to the remuneration of the Board of Directors and Group Executive Manage- ment, please refer to the Remuneration Report 2022: www.flsmidth.com/RemunerationReport2022. Accounting policy Staff costs include wages and salaries, cash bo- nuses, share-based payments, pension costs, ben- efits and social security costs. In general, staff costs are expensed when the services are ren- dered by the employee. When long-term incentive programmes are provided, the costs are accrued over the period that makes the employees entitled to the payment. Termination benefits are ex- pensed when an agreement has been reached between the Group and the employee and no fu- ture service is rendered by the employee in ex- change for the termination payment. The Group’s pension plans consist of both defined contribution plans and defined benefit plans. The accounting policy for pension plans can be found in note 2.8. Share-based payments are granted as part of the long-term incentive programme. The accounting policy for share-based payments can be found in note 6.1. 1.6 Government grants During 2022, FLSmidth received DKK 24m (2021: DKK 1m) of grants to perform R&D development to support the green transition. The grants were pri- marily received through EU. The grants have re- duced production costs by DKK 4m while the re- maining has either been deferred or reduced the capitalised development costs. We also received DKK 15m (2021: DKK 7m) of other grants, primarily export related government grants out of India. The grants are included in other operating income. In 2021, FLSmidth received DKK 9m in COVID-19 related grants primarily to compensate for salary expenses and the majority of the 2021 grants have been received in Switzerland. The grants re- duced production costs and sales cost by DKK 7m and DKK 2m, respectively. 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 are recognised 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 re- lated costs. The government grant is deducted in the related expense. Government grants not di- rectly related to compensation for costs incurred are included within other operating income. 1.7 Special non-recurring items Costs included in 2021 related to closedown of production facilities within the US (severance costs and relocation costs). 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 dis- posal of enterprises and activities. DKKm 2022 2021 Wages and salaries 13 15 Bonus 8 7 Benefits 1 1 Severance package 0 5 Share-based payment 4 4 Other incentives 0 7 Total 26 39 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 80 Section 2 Capital employed and other Balance sheet items 2.1 Return on capital employed 81 2.2 Intangible assets 81 2.3 Impairment of assets 83 2.4 Property, plant and equipment 85 2.5 Leases 86 2.6 Investments in associates 87 2.7 Provisions 87 2.8 Pension obligations 89 2.9 Contractual commitments and contingent liabilities 90 2.10 Business acquisitions 91 2.11 Discontinued activities 93 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 81 2.1 Return on capital Employed Capital employed is determined as the sum of fixed assets and net working capital. Capital employed is used for determining the key performance indicator Return on capital employed (ROCE). The table be- low shows the decomposition of capital employed. Capital employed ROCE ROCE is calculated based on average capital em- ployed to reflect the annual development. In 2022, the average capital employed is adjusted by in- cluding the increase in capital employed coming from Mining Technologies (ex-TK) prorated to the period after acquisition. ROCE decreased during the year, driven by both increased average capital em- ployed and decreased EBITA. 2.2 Intangible assets Goodwill arising from business acquisitions is rec- ognised in the financial statements. The carrying amount of goodwill per segment is shown in note 2.3. Information on the acquisition of Mining Tech- nology is included in note 2.10. The acquisition led to a significant increase in goodwill. Patents and rights acquired through business ac- quisitions are 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. Much of the knowhow/R&D we generate, originate from work for customers, of which some is expensed and some is capitalised depending on the nature of the cost. In 2022, R&D costs ex- pensed totalled DKK 169m (2021: DKK 152m). The expense is included in production costs. The addi- tion of intangible assets under development amounts to DKK 242m (2021: DKK 179m) where capitalised R&D cost amounts to DKK 146m (2021: DKK 142m) and the remaining capitalisation re- lates to IT related projects. Of those capitalised costs, DKK 94m (2021: DKK 114m) are internally generated. In the table on the next page, intangible assets are shown by type. Other intangible assets consist of software and completed software implementation projects, whereas completed de- velopment projects primarily consist of R&D costs (developments in relation to production tech- niques, processes, and similar). Until completed, internally developed assets are presented in a separate column. Accounting policy Goodwill At initial recognition, goodwill arising from busi- ness combinations is measured at cost being the excess of the purchase price over the fair value of the net assets acquired, including contingent lia- bilities. Goodwill is expressed in the functional currency of the entity acquired. Internally gener- ated goodwill is not capitalised. Goodwill is allo- cated to the cash generating units as defined by Management. The determination of cash generat- ing units complies with the managerial structure and the internal financial reporting in the Group. Subsequently, goodwill is not amortised but is tested for impairment at least once a year or sooner if impairment indication arises. Further in- formation on the impairment test and the recogni- tion of a potential impairment loss on goodwill can be found in note 2.3. Intangible assets other than goodwill Patents and rights, including trademarks, cus- tomer relations, software applications and other intangible assets are measured at cost less accu- mulated amortisation and impairment losses. Cus- tomer relations are acquired in business combina- tions, only, while patents and rights, including trademarks, software applications and other intan- gible assets can be acquired as part of business combinations, in separate acquisitions or be inter- nally developed. The Group uses significant resources on innova- tion in relation to production techniques/pro- cesses, software solutions and the like. For ac- counting purposes, the innovation activities are classified into a research phase and a develop- ment phase. Projects within the development phase are capitalised if it can be demonstrated that the Group has the technical feasibility, inten- tion, and sufficient resources to complete the de- velopment and provided that the cost to develop can be determined reliably and it is probable that the future earnings or the net selling price will cover production, sales, and administrative costs plus development costs. Other development costs and costs in the research phase are recognised in the income statement when incurred. Develop- ment costs consist of salaries and other costs that are directly attributable to development activities. Development projects in progress are not amor- tised but are tested for impairment at least once a year. Once a development project has been completed it is amortised on a straight-line basis over the es- timated useful life. Similarly, other intangible as- sets are amortised on a straight-line basis over the estimated useful life of the assets which is as fol- lows: ■ Patents and rights, including trademarks, up to 30 years ■ Customer relations up to 30 years ■ Other intangible assets up to 20 years; primarily consist of software applications with useful life up to 5 years ■ Completed development projects (R&D projects) up to 8 years Intangible assets are written down to recoverable amount if lower. Further information can be found in note 2.3. DKKm 2022 2021 Intangible assets at cost value, note 2.2 13,308 10,882 Property, plant and equipment at carrying amount, note 2.4 2,647 2,308 Net working capital, note 3.1 1,893 1,058 Capital employed, total 17,848 14,248 DKKm 2022 2021 EBITA 943 1,030 Capital employed, average 15,888 14,384 ROCE, average 5.9% 7.2% * For 2022, the average capital employed is adjusted to reflect the acquisition of Mining Technologies (ex-TK) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 82 2.2 Intangible assets – continued 2022 DKKm Goodwill Patents and rights Customer relations Other intangible assets Completed development projects Intangible assets under development Total Cost at 1 January 2022 4,364 2,127 1,925 884 1,272 310 10,882 Foreign exchange adjustments 111 12 58 10 0 0 191 Acquisition of group enterprises 1,959 65 32 0 0 0 2,056 Additions 0 0 0 3 0 242 245 Disposals 0 0 0 (5) (61) 0 (66) Transferred between categories 0 0 0 37 93 (130) 0 Cost at 31 December 2022 6,434 2,204 2,015 929 1,304 422 13,308 Amortisation and impairment at 1 January 2022 0 (1,343) (1,524) (719) (1,039) 0 (4,625) Foreign exchange adjustment (1) (7) (43) (11) (1) 0 (63) Disposals 0 0 0 5 61 0 66 Amortisation 0 (88) (56) (56) (121) 0 (321) Amortisation and impairment at 31 December 2022 (1) (1,438) (1,623) (781) (1,100) 0 (4,943) Carrying amount at 31 December 2022 6,433 766 392 148 204 422 8,365 2021 DKKm Goodwill Patents and rights Customer relations Other intangible assets Completed development projects Intangible assets under development Total Cost at 1 January 2021 4,194 2,108 1,832 850 1,164 299 10,447 Foreign exchange adjustments 170 19 93 17 0 0 299 Acquisition of group enterprises 0 0 0 0 0 0 0 Additions 0 0 0 0 0 179 179 Disposals 0 0 0 (35) (8) 0 (43) Transferred between categories 0 0 0 52 116 (168) 0 Cost at 31 December 2021 4,364 2,127 1,925 884 1,272 310 10,882 Amortisation and impairment at 1 January 2021 0 (1,233) (1,366) (678) (930) 0 (4,207) Foreign exchange adjustment 0 (11) (71) (25) 8 0 (99) Disposals 0 0 0 35 8 0 43 Amortisation 0 (99) (87) (51) (125) 0 (362) Amortisation and impairment at 31 December 2021 0 (1,343) (1,524) (719) (1,039) 0 (4,625) Carrying amount at 31 December 2021 4,364 784 401 165 233 310 6,257 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 83 2.3 Impairment of assets Result of annual impairment test We perform an annual impairment test of goodwill and intangible assets under development. Neither in 2022 nor in 2021 did the test reveal an impair- ment need. Intangible assets relate primarily to business combinations, software and develop- ment projects. The annual impairment test is an assessment of whether the cash generating units will be able to generate sufficient positive net cash flow in the future to support the carrying amount of the assets related to the units. Management believes that no reasonable changes in the key assumptions are likely to re- duce the excess value in any of the cash generat- ing units to zero or less. Carrying amounts of intangible assets included in the impairment test are specified in the table be- low. Cash generating units The cash generating units equal our operating and reportable segments, Mining, Cement and Non-Core Activities, these being the smallest group of assets which together generate incoming cash flow from continued use of the assets and which are independent of cash flow from other as- sets or groups of assets. Besides the establish- ment of Non-Core Activities, the definition is un- changed compared to last year. As no non-current assets (including goodwill and other intangible assets) relate to Non-Core Activi- ties the impairment test for 2022 only covers Min- ing and Cement. Key assumptions The recoverable amount determined in the impair- ment test is based on a value-in-use calculation. To determine the value-in-use, management is re- quired to estimate 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 reflect a full business cycle. Significant parameters in the estimate of the present value are discount rate, revenue growth, EBITA margin, expected in- vestments and growth expectations for the terminal period. The discount rate is determined separately for Mining and Cement to reflect the risks specific to each CGU. The discount rate applied is the weighted average cost of capital (WACC) and re- flects the latest market assumptions for the cost of equity and the cost of debt. The cost of equity is determined assuming that in- vestors are holding a global equity exposure, with the risk-free rate determined as a 10-year US treasury rate and the equity premium determined on the US market. The weighting of the cost of debt and cost of equity is based on the capital structure for relevant peer groups for the two in- dustries. 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. The long-term growth rate for the terminal period is based on the expected growth in the world economy, specifi- cally for the industries. In 2022, the long-term growth rate in the terminal period was set to 3.0%. In 2021, due to the then low interest rate environ- ment, the long-term growth rate was set to 1.5%. Investments reflect both maintenance and expecta- tions of organic growth. Mining Despite ongoing global macroeconomic and geo- political tension, the long-term demand for miner- als essential to economic growth and a sustaina- ble future remains unscathed. The uncertainty in 2022 caused by inflation and the risk of recession showed a recovery in progression of projects re- lated to copper, Lithium, gold, and phosphates in the last quarter of 2022. We expect our organic Mining revenue growth to be above market growth. This will be driven by our Products business growing in line with the market and our Service business growing above the market. The key drivers for achieving the EBITA margin target include synergy takeout and commercial integration of Mining Technologies (ex-TK), simplification of our operating model, de- risking, Service business growth, improved Service and Products mix as well as growth from our Prod- uct business. Cement During 2022, the cement industry has like many other industries through the year been navigating in a market with economic, geo-political and en- ergy uncertainties. The volatile energy prices and inflation pressure has created a push for in- creased focus on productivity cost and we have experienced a continued focus on sustainability solutions. Carrying amounts of intangible assets 2022 2021 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Goodwill 6,219 214 0 6,433 4,156 208 4,364 Patents and rights 480 286 0 766 493 291 784 Customer relations 391 1 0 392 398 3 401 Other intangible assets 99 49 0 148 79 86 165 Completed development projects 136 68 0 204 117 116 233 Intangible assets under development 281 141 0 422 156 154 310 Total 7,606 759 0 8,365 5,399 858 6,257 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 84 2.3 Impairment of assets – continued We expect our organic Cement revenue to grown in line with GDP growth in the markets we are pre- sent. In the short to mid-term we expect a negative impact from recession on our Products revenue, while we expect our Service revenue to remain largely stable. In the long-term, we expect both Products and Service revenue to grown in line with GDP growth. The key drivers for achieving the EBITA margin target include simplification of our operating model, de-risking, Service business growth from increased installed base penetration as well as improved Service and Product mix. 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 individu- ally or 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 in- tangible assets in use with definite useful life, and other non-current assets are reviewed for impair- ment whenever events or changes in circum- stances 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 management structure and the internal financial reporting. If the carrying amount of intangible assets ex- ceeds the recoverable amount based on the existence of one or more of the above indicators of impairment, any impairment is measured based on the net present value of expected future cash flows. Impairments are reviewed at each reporting date for possible reversal. However, impairment of goodwill may not subsequently be reversed. Recognition of impairment of other assets is re- versed to the extent that changes have taken place in the assumptions and estimates that led to the recognition of impairment. Key assumptions 2022 2021 Mining Cement Mining Cement Investments % of revenue 2.5% 2.0% 2.5% 2.0% Growth rate in the terminal period 3.0% 3.0% 1.5% 1.5% Discount rate after tax 9.5% 10.0% 8.0% 8.5% Discount rate before tax 13.3% 14.0% 10.3% 10.9% EBITA margin 7-14% 3-8% 9-13% 1-6% Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 85 2.4 Property, plant and equipment Land and buildings with a carrying amount of DKK 48m (2021: DKK 48m) are pledged against mort- gage debt of DKK 226m (2021: DKK 241m). The fair value of land and buildings pledged exceeds the value of the mortgage debt. 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. Property, plant and equipment include lease assets, see further in note 2.5. 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 cor- responding 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 the asset and are depreciated during the asset’s use- ful life. Carrying amount of property, plant and equipment 2022 2021 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 1 January 2,529 1,661 886 21 5,097 2,306 1,543 892 137 4,878 Foreign exchange adjustments 66 43 13 1 123 108 79 36 4 227 Acquisitions of enterprises 327 167 47 11 552 0 0 0 0 0 Additions 4 20 19 45 88 12 16 15 73 116 Disposals (344) (118) (190) 0 (652) (28) (35) (60) (1) (124) Transferred between categories 13 14 11 (38) 0 131 58 3 (192) 0 Cost at 31 December 2,595 1,787 786 40 5,208 2,529 1,661 886 21 5,097 Depreciation and impairment at 1 January (989) (1,286) (811) 0 (3,086) (892) (1,174) (803) 0 (2,869) Foreign exchange adjustment (24) (34) (15) 0 (73) (38) (55) (33) 0 (126) Disposals of enterprises 0 1 (1) 0 0 0 0 0 0 0 Disposals 214 111 188 0 513 13 31 59 0 103 Depreciation (72) (99) (41) 0 (212) (72) (88) (34) 0 (194) Transferred between categories (1) 2 (1) 0 0 0 0 0 0 0 Depreciation and impairment at 31 December (872) (1,305) (681) 0 (2,858) (989) (1,286) (811) 0 (3,086) Carrying amount at 31 December, owned assets 1,723 482 105 40 2,350 1,540 375 75 21 2,011 Carrying amount at 31 December, leased assets, note 2.5 260 11 26 0 297 252 8 37 0 297 Carrying amount at 31 December, property, plant and equipment 1,983 493 131 40 2,647 1,792 383 112 21 2,308 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 86 2.5 Leases We are party to several lease contracts as lessee, 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 typically made for fixed periods of 1 to 10 years, with a weighted average lease term of 4 years. The aver- age discount rate applied for land and buildings is 3,71% at the end of 2022 (2021: 3.19%). The amounts included in the income statement re- lated to expensed leases are presented in the ta- ble. During 2022 cash outflows for capitalised leases were DKK 146m (2021: DKK 135m). Interest related to leases was DKK 12m (2021: DKK 10m) and im- pacted CFFO negatively, and the remaining DKK 134m (2021: DKK 125m) was repayment of lease debt included in CFFF. Please refer to note 5.8 Fi- nancial assets and liabilities for maturity analysis of lease liabilities Further to the above cash outflow, DKK 16m (2021: DKK 14m) was included in CFFO for costs relating to short term, low-value and variable lease pay- ments not recorded on the balance sheet. In September 2022, FLSmidth signed a lease of a new headquarter at Havneholmen in Copenha- gen. The new headquarter is currently in the con- struction phase. It is expected that the lease will be effective in 2025. The minimum lease pay- ments over the term of the lease amount to a total of DKK 0.2bn. We are not party to any significant lease contracts as lessor. Accounting policy Assets and liabilities arising from a lease are ini- tially measured on a present value basis. Lease li- abilities include the net present value of the pay- ments, 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 on a government bond plus the Group’s credit margin. The lease payments have been split into an interest 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 com- mencement date less any lease incentives re- ceived ■ 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 op- tions) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Carrying amount of leases 2022 DKKm Land and buildings Plant and machinery Operating equipment Total Carrying amount at 1 January 252 8 37 297 Foreign exchange adjustments (1) (1) (1) (3) Acquisitions of enterprises 50 1 2 53 Remeasurement 11 1 0 12 Additions 68 8 15 91 Disposals (7) (1) 0 (8) Depreciation (113) (5) (27) (145) Carrying amount at 31 December 2022 260 11 26 297 2021 DKKm Land and buildings Plant and machinery Operating equipment Total Carrying amount at 1 January 260 9 43 312 Foreign exchange adjustments 5 1 0 6 Acquisitions of enterprises 0 0 0 0 Remeasurement 5 0 (1) 4 Additions 76 2 24 102 Disposals (7) 0 0 (7) Depreciation (87) (4) (29) (120) Carrying amount at 31 December 2021 252 8 37 297 Expensed leases DKKm 2022 2021 Cost relating to short-term leases 11 11 Cost relating to leases of low-value assets that are not shown above as short-term leases 4 2 Cost relating to variable lease payments not included in lease liabilities 1 1 Expensed lease costs in the income statement 16 14 The lease costs are included in the following lines: Production cost 9 5 Sales cost 2 1 Administrative cost 5 8 Expensed lease costs in the income statement 16 14 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 87 2.5 Leases – continued 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 exercisable ■ 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 asso- ciates. The primary activity of the company is to provide automated and robotic sample preparation, fusion and analytical testing services, including the pro- curement, construction and commissioning of la- boratories. Carrying value of investments in associates, FLSmidth share Financial information of 100% of Intertek Robotic Laboratories Pty Ltd, prepared in accordance with FLSmidth accounting policies, is as follows (not only FLSmidth’s share): Intertek Robotic Laboratories Pty Ltd Investments in associates, FLSmidth share 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 have increased compared to last year reflecting the acquisition of Mining Technolo- gies (ex-TK), the increased activity level and the effect of certain specific project risks. Warranty provisions cover expected costs to remedy warranty claims during the warranty pe- riod. For projects, the warranty provision is built up during the production phase. The warranty period starts once the project has been finalised and runs seldomly for more than two years and often only up to one year. The increase is the result of the acquisition of Mining Technologies (ex-TK) as well as the higher activity level. Restructuring provisions relate to costs expected to be incurred when executing restructurings decided and communicated by management. In most cases, the restructuring will occur in the near future. The increase in other provisions relates to a com- bination of an increase in the provision for loss making contracts due to additional uncertainties in the execution of the project portfolio, an increase in provisions for ongoing legal disputes as well as the result of the acquisition of Mining Technolo- gies (ex-TK). Name of associate Country Date of acqui- sition Owner- ship interest Voting share Intertek Robotic Laboratories Pty Ltd Australia 31-May 2019 50% 50% DKKm 2022 2021 Beginning value 1 January 162 159 Foreign exchange adjustments (1) 4 Income from associates (4) (1) Carrying value at 31 December 157 162 DKKm 2022 2021 Revenue 138 137 Profit for the period (8) (2) Total comprehensive income 0 0 Dividend paid 0 0 Current assets 66 40 Customer relations 97 112 Non-current assets 33 48 Current liabilities (28) (22) Equity 168 178 The financial information reflects the adjustments made in relation to the acquisition. DKKm 2022 2021 FLSmidth's share of equity, 50% 84 89 Goodwill 73 73 Carrying value at 31 December 157 162 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 88 2.7 Provisions – continued Continued activities’ share of Group provisions is shown below. The provisions from continued and discontinued activities add up to our total provi- sions. In our cash flow statement, the changes in provi- sions are combined with the changes in pensions and employee benefits. The impact on cash flows from changes in provisions, pensions and em- ployee benefits (adjustment to the amounts recog- nised in the income statement) is shown in the ta- ble to the right. Cash flow effect from change in provisions, pension and employee benefits 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 obli- gation. Provisions for warranty claims are estimated on a project-by-project basis based on historical real- ised costs to handle warranty claims. The provi- sion covers also unsettled claims from customers or subcontractors. Provisions for restructuring costs are made only if the restructuring has been decided at the balance sheet date in accordance with a specific plan, and only provided that the parties involved have been informed about the overall plan. Provisions for loss-making contracts cover projects expected to result in a loss as the expected cost to complete the project exceeds revenue. The expected cost overrun that is not covered by revenue is recognised as a provision. The key accounting estimate is ex- plained in note 3.4. Provisions regarding disputes and lawsuits are based on Management’s assessment of the likely outcome settling the cases based on the infor- mation at hand at the balance sheet date. DKKm 2022 2021 Pensions and employee benefits (50) 19 Provisions 680 134 Of which relate to foreign exchange adjustments 10 (36) Cash flow effect 640 117 Provisions 2022 2021 DKKm Warranties Restructuring Other Total Warranties Restructuring Other Total Provisions at 1 January 543 47 557 1,147 496 60 459 1,015 Foreign exchange adjustments 2 0 (19) (17) 16 4 7 27 Acquisition of Group enterprises 295 6 381 682 0 0 0 0 Additions 325 411 652 1,388 227 43 371 641 Used (98) (56) (307) (461) (80) (59) (245) (384) Reversals (87) (4) (141) (232) (116) (1) (35) (152) Provisions at 31 December 980 404 1,123 2,507 543 47 557 1,147 Provisions related to continued activities DKKm 2022 2021 Provisions at 1 January 999 833 Foreign exchange adjustments (17) 27 Acquisition of Group enterprises 682 0 Additions 1,385 638 Used (428) (348) Reversals (231) (151) Continued activities share of Group provisions 2,390 999 Key accounting estimates Estimated warranty provision When estimating the warranty provision we take into consideration several years of warranty cost information, any specific project related risks, knowledge about de- fects and functional errors in the product portfolio, risks associated with newly launched products as well as customer losses in connection with suspension of operation. We include all of these factors as relevant, to estimate a warranty provi- sion that to the best of our knowledge re- flects our responsibility towards our cus- tomers in the future. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 89 2.8 Pension Obligations Defined contribution plans The majority of our pension plans are defined con- tribution plans and we have no further payment obligations once the contributions are paid. Under these pension plans, we recognise regular pay- ments, e.g. a fixed amount or a fixed percentage of the salary. Pension costs related to defined contribution plans are recognised in staff costs (note 1.5) and amounted to DKK 559m (2021: DKK 441m). 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 specific ben- efit, 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 develop- ments in interest rates, inflation, mortality, etc. A change in the assumptions upon which the calcu- lation is based results in a change in the present value of the pension obligation. Such actuarial gains and losses are recognised in other compre- hensive income. The majority of the total pension obligations are partially funded with assets placed in pension funds and through insurance. In 2023 we expect to make a contribution to the defined benefit plans of DKK 18m (2022: 9m). The weighted average du- ration of the obligations is 15 years (2021: 15 years). Actuarial assumptions Pension contributions by plan types % Pension obligations by country % Fair value of plan assets by Instruments 0% 20% 40% 60% 80% 100% 2021 2022 Defined contribution plans Defined benefit plans 0% 20% 40% 60% 80% 100% 2021 2022 USA Switzerland Germany India Other 0% 20% 40% 60% 80% 100% 2021 2022 Equity instruments Debt instruments Other assets 2022 2021 Average discounting rate applied 3.3% 1.5% Expected future pay increase rate 3.3% 2.9% Pension obligations 2022 2021 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 Value at 1 January (1,116) 794 (322) (1,127) 749 (378) Interest on obligation/asset (26) 21 (5) (20) 15 (5) Service costs (25) 0 (25) (26) 0 (26) Recognised in the income statement (51) 21 (30) (46) 15 (31) Actuarial gains and losses from financial assumptions 217 (116) 101 35 35 70 Recognised in other comprehensive income 217 (116) 101 35 35 70 Acquisition of enterprises (180) 0 (180) 0 0 0 Foreign exchange adjustments (51) 46 (5) (58) 54 (4) Settlements 26 (26) 0 0 0 0 Employer contributions 0 2 2 0 3 3 Participant contributions 0 1 1 0 1 1 Benefits paid to employees 74 (57) 17 80 (63) 17 Other changes (131) (34) (165) 22 (5) 17 Value at 31 December (1,081) 665 (416) (1,116) 794 (322) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 90 2.8 Pension obligations – continued Sensitivity analysis Below shows a sensitivity analysis based on changes in the discount rate, all other things being equal. A change in the discount rate will result in the fol- lowing changes in the net pension obligation: Sensitivity Accounting policy Contributions to defined contribution plans are recognised in staff costs when the related service is provided. Any contributions outstanding are rec- ognised in the balance sheet as other liabilities. 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 assump- tions about future developments in variables such as salary levels, interest, inflation and mortality rates. The present value is only calculated 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 recognised in the balance sheet as pension obligations. The pension costs (service costs) for the year, based on actuarial estimates and financial fore- casts at the beginning of the year, are recognised in the income statement within staff costs. The in- terest on the net pension obligation is recognised in the income statement within financial costs. The difference between the forecast development in pension assets and liabilities and the realised val- ues is called actuarial gains or losses and is rec- ognised in other comprehensive income. If a pension plan constitutes a net asset, the asset 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. 2.9 Contractual Commitments and contingent liabilities Contractual commitments As part of our digital strategy, FLSmidth has made a fund investment in Chrysalix, a venture capital firm that specialises in transformational industrial 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 technol- ogy 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, invest- ment period being the first 5 years. The timing and amounts of each capital call are uncertain. The undrawn part of the capital commitment at 31 De- cember 2022 amounted to DKK 36m (2021: DKK: 43m). Contingent liabilities Contingent liabilities cover guarantees and other contingent liabilities related to legal disputes etc. At the end of 2022, contingent liabilities amounted to DKK 3,762m excluding the Mining Technologies (ex-TK) issued corporate guarantees mentioned below (2021: DKK 3,117m). Guarantees Guarantees consist of customary performance and payment guarantees. The volume of the guar- antees amounted to DKK 3,259m (2021: DKK 2,254m). The increase relates to the acquisition of Mining Technologies (ex-TK). In addition to the above mentioned guarantees, Mining Technologies (ex-TK) has also issued DKK 784m of corporate contract-support guarantees to cus- tomers. Nearly half of the Mining Technologies (ex-TK) guarantees will expire during 2023, and by end of 2024 almost all will have expired. It is customary market practice to issue guaran- tees to customers, which serve as a security that we will deliver as promised in terms of perfor- mance, quality, and timing. The volume of the guarantees varies with the activity level and re- flects the outstanding order backlog, finalised pro- jects and deliveries that are covered by warran- ties etc. Only a minor share of such guarantees is expected to materialise into losses. In the event a guarantee is expected to materialise, a provision is recognised to cover the risk. Such provisions are covered by note 2.7, and included either within warranty provisions or other provisions. Other contingent liabilities We are involved in legal disputes, certain of which are already pending with courts or other authori- ties and other disputes which may or may not lead to formal legal proceedings being instigated against us. Other contingent liabilities amount to DKK 503m (2021: DKK 863m). The outcome of such proceedings and disputes is by nature un- known, but is not expected to have significant im- pact on our financial position. Contingent liabilities include DKK 130m that is rec- ognised related to a customer’s unsubstantiated cash withdrawal on a performance guarantee, see note 2.11 for more information. A customer has initiated arbitration against FLS- midth and certain partners for an amount of DKK 208m, for alleged contractual breaches (‘the Tuni- sia contract’). FLSmidth is rejecting the claim in ar- bitration. DKKm 2022 2021 Discount rate - 1%, increase 110 145 Discount rate + 1%, decrease (103) (132) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 91 2.10 Business Acquisitions Acquisitions in 2022 As announced on 11 August 2022, the transaction to acquire Mining Technologies (ex-TK) closed on 31 August 2022, after which FLSmidth obtained control over the acquired business. Mining Technologies (ex-TK) is a leading full-line supplier of solutions for mining systems, material handling, mineral processing and services. The combination of FLSmidth and Mining Technol- ogies (ex-TK) will create a leading global mining technology and service provider with operations from pit-to-plant with a strong focus on productiv- ity and sustainability. Furthermore, FLSmidth’s strong existing service setup, will provide addi- tional aftermarket opportunities, while the joint R&D capabilities and combined portfolio will ena- ble accelerated innovation in digitalisation and MissionZero solutions. The mining industry is characterised by sound fun- damentals and a positive outlook, based on un- derinvestment over the past decade and increas- ing demand due to the clean energy transition. The timing of this acquisition positions FLSmidth to capture enhanced value from the min- ing growth cycle underway. In addition to the competitive advantages of scale, FLSmidth will be able to offer a stronger value proposition to customers through combined com- petencies and a wider offering. Such expected cost synergies as well as the value of the assembled workforce constitute the major parts of the goodwill recognised on the acquisi- tion. Initial recognition of Mining Technologies On 31 August 2022, a consideration of EUR 420m (DKK 3,122m) was transferred to the seller. Net of cash acquired, the cash consideration amounted to DKK 2,103m and includes compensation of DKK 212m for internal funding of the acquired business previously provided by the seller. The final pur- chase price depends on certain adjustments pri- marily related to ongoing projects and develop- ment in net working capital. The adjustments are not yet finally agreed between the two parties. Subsequent adjustments to the consideration paid for the acquisition are therefore expected during the coming quarters. The acquisition is incorporated into the cash gen- erating unit Mining. Prospectively from 1 October 2022, the non-core activities in the acquired busi- ness were transferred to Non-Core Activities as part of the strategic review, see note 1.2 for more information. A preliminary allocation of the purchase price on the fair value of identifiable assets acquired and li- abilities assumed at acquisition date was pre- sented in the 9 months interim report. During the fourth quarter, the allocation has been updated to reflect new information obtained about fact and circumstances that existed at the acquisition date. The updated allocation is shown in the table. The changes relate to information received through project reviews primarily increasing provisions and trade receivables. Further, the tax impact on the fair value adjustments to the net assets identi- fied have been reassessed and deferred tax as- sets have been decreased. The changes resulted in an increase in goodwill of DKK 136m compared to 9 months interim report. Provisions include the estimated fair value of con- tingent liabilities of DKK 0.1bn to cover the risk on performance and payment guarantees issued and to cover for pending and potential legal disputes. Net working capital acquired amounts to DKK 481m. The contractual amount of trade receivables ex- ceeds the fair value by DKK 0.1 bn. It is important to note that the initial accounting for the business combination remains subject to change and will be retrospectively adjusted to re- flect new information obtained no later than 12 months after the acquisition date. This includes potential new information on the identification of assets and liabilities, including contingent liabili- ties, and the measurement of those items at fair value. Amongst other, project reviews (including the identification of onerous contracts) may lead to further changes to the initial accounting. During the measurement period, changes to the above will have a resulting impact on goodwill as will the change resulting from the final purchase price. Significant changes may therefore occur during the measurement period. Acquisition related costs amounted to DKK 33m in 2022 and DKK 89m in 2021 and are included in the income statement as administrative costs. The Preliminary allocation of purchase price on assets acquired and liabilities assumed (DKKm) 31/08 2022 Patents and IP rights 65 Customer relations 32 Land and buildings 377 Other tangible assets 230 Deferred tax assets 67 Inventories 820 Trade and other receivables 1,107 Work in progress 187 Other current assets 368 Cash 1,019 Total assets 4,272 Pension liabilities 180 Other non-current liabilities 149 Provisions 682 Prepayments from customers 119 Work in progress 783 Trade payables 564 Other current liabilities 632 Total liabilities 3,109 Total identifiable net assets 1,163 Goodwill 1,959 Purchase price 3,122 Cash 1,019 Net cash transferred to the seller 2,103 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 92 costs include costs incurred both before and after signing of the agreement in 2021. The consolidation of Mining Technologies (ex-TK) has increased Revenue by DKK 1,227m and re- duced net profit by DKK 112m. Assuming the Group had taken over Mining Technologies (ex- TK) with effect from 1 January 2022, the currently estimated impact would be a further increase in Revenue of DKK 2.7bn and decrease in Net profit of DKK 0.1bn. Acquisitions in 2021 In 2021, FLSmidth did not acquire any new busi- nesses. 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, ac- cording to which the identified assets, liabilities and contingent liabilities are measured at their fair values. The purchase price consists of the fair value of the consideration payable/receivable. This includes the fair value of the consideration already paid/re- ceived, deferred consideration and contingent consideration. Any subsequent adjustment of contingent consid- eration is recognised directly in the income state- ment, unless the adjustment is the result of new in- formation about conditions prevailing at the acquisition date, and this information becomes available before the initial accounting is termi- nated no later than 12 months after the acquisition date (the measuring period). Transaction costs are recognised directly in the income statement when incurred as administrative costs. When the purchase price differs from the fair val- ues of the assets, liabilities and contingent liabili- ties identified on acquisition, any positive differ- ences (goodwill) are recognised in the balance sheet under intangible assets and any negative differences (a gain from a bargain purchase) are recognised in the income statement. If, on the acquisition date, there are any uncertain- ties with respect to identifying or measuring ac- quired assets, liabilities or contingent liabilities or uncertainty with respect to determining their cost, the 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 during the measurement period, 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. The ad- justments are made to the initial purchase price allocation as a restatement of prior information, in- cluding to the amount of goodwill or gain on a bargain purchase. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 93 2.11 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. Progress on projects has been delayed due to COVID-19 and a dispute with a customer. The segment note 1.2 shows the full disclosure of income statement for discontinued activities. Tax income of DKK 16m relating to joint taxation contri- bution and reassessment of tax risks, has been recognized with discontinued activities in 2022 (2021: DKK 2m). Discontinued activities’ effect on cash flow from operating activities is presented in the table be- low. The cash outflow in 2021 related to net work- ing capital includes a customer’s unsubstantiated cash withdrawal of DKK 130m on a performance guarantee. We have rejected the claim and recog- nised the cash withdrawal as a receivable. The re- ceivable is still unchanged in 2022. Discontinued activities’ share of Group provisions disclosed in note 2.7 is shown in the table below: Discontinued activities share of provisions In addition to the provisions of DKK 117m, discon- tinued activities include DKK 362m (2021: DKK 350m) of the Group’s net working capital shown in note 3.1. Accounting policy Discontinued activities comprise disposal groups, which have been disposed of, ceased or are clas- sified as held for sale and represents a separate major line of business or geographical area. Discontinued activities are presented in the income statement as profit/loss for the year, dis- continued activities and consists of operating in- come after tax. Gains or losses from disposal of the assets related to the discontinued activities and adjustments hereto are likewise presented as discontinued activities in the income statement. In the consolidated cash flow statement, cash flow from discontinued activities is included in cash flow from operating, investing and financing activi- ties together with cash flow from continuing activi- ties. DKKm 2022 2021 Provisions at 1 January 148 182 Additions 3 0 Used (33) (34) Reversals (1) 0 Provisions 117 148 Discontinued activities share of CFFO DKKm 2022 2021 EBITDA, see segment note 1.2 (10) (19) Adjusted EBITDA (10) (19) Change in provisions (31) (34) Change in net working capital (6) (134) Cash flow from operating activities before financial items and tax (47) (187) Financial items received and paid (3) (1) Cash flow from operating activities (50) (188) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 94 Section 3 Working Capital 3.1 Net working capital 95 3.2 Inventories 95 3.3 Trade receivables 96 3.4 Work in progress 97 3.5 Other receivables 98 3.6 Trade payables 98 3.7 Other liabilities 98 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 95 3.1 Net working capital Net working capital represents the assets and lia- bilities necessary to support the Group’s daily operations. The impact on the Group’s cash flows from net working capital is also showed in table below. Net working capital at 31 December 2022 has increased by DKK 0.8bn compared to 31 December 2021. The increase is primarily due to the impact from the acquisition of Mining Technologies (ex-TK) and a higher level of inventories to mitigate supply chain challenges. Currency impacts in- creased the net working capital balance at 31 De- cember 2022 by DKK 112m (2021: an increase of DKK 14m). Utilisation of supply chain financing increased during 2022 to DKK 590m (31 December 2021: DKK 490m). 3.2 Inventories Inventories net of impairment Impairment of inventories Inventory level has increased 61% in 2022. The higher inventory level is mainly due to the acquisi- tion of Mining Technologies (ex-TK) and 24% in or- ganic growth for mitigating supply chain chal- lenges and support a higher activity level in 2023 from the strong backlog. 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. 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 DKKm 2022 2021 Raw materials and consumables 461 270 Goods in progress 1,117 361 Finished goods and goods for resale 2,393 1,833 Inventories 3,971 2,464 DKKm 2022 2021 Impairment at 1 January 353 272 Foreign exchange adjustments 8 14 Additions 159 95 Realised (89) (14) Reversals (52) (14) Impairment at 31 December 379 353 Key accounting estimates Estimated valuation of inventories When assessing the net realisable value of inventories we take marketability, obsolescence and de- velopment in expected selling prices into account. Also inventory turnover, quantities and the nature and condition of the inventory items including the classification as strategic inventory are considered in the assessment. We include all of these factors as relevant, to ensure that our inventory is re- flected at the expected selling price, if lower than cost. Net working capital DKKm 2022 2021 Inventories 3,971 2,464 Trade receivables 5,108 4,112 Work in progress, asset 3,147 2,358 Prepayments 874 871 Other receivables 1,030 709 Derivative financial instruments 54 31 Prepayments from customers (2,771) (2,490) Trade payables (4,339) (3,367) Work in progress, liability (3,592) (2,373) Other liabilities (1,509) (1,224) Derivative financial instruments (80) (33) 1,893 1,058 Cash flow effect from change in NWC DKKm 2022 2021 Inventories (680) 10 Trade receivables 92 (547) Trade payables 379 216 Work in progress (118) 322 Prepayments from customers 183 1,183 Prepayments 187 (534) Other receivables and other liabilities (291) 156 - of which relate to foreign exchange gain/(loss) (198) (194) (446) 612 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 96 3.2 Inventories – continued 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 considered key equipment to the customers, that we need to be able to deliver with very short notice. Raw materials and consumables include purchase costs of materials and consumables, duties and freight. Work in progress, finished goods and goods for resale include cost of manu- facturing including materials consumed and la- bour costs plus an allowance for production over- heads. Production overheads include operating costs, maintenance of production facilities as well as administration and factory management directly related to manufacturing. 3.3 Trade receivables Our trade receivables relate to the sale of both service and capital business. Trade receivables in- creased in 2022 mainly due to the acquisition of Mining Technologies (ex-TK) (DKK 1.1bn). Trade receivables net of impairment specified according to aging Impairment of trade receivables specified accord- ing to aging is shown below. The impairment in 2022 is based on historical ob- served default rates adjusted for estimates of uncertainties in project related activities and in market conditions. Impairment of trade receivables Accounting policy Trade receivables are initially measured at fair value and subsequently measured at amortised cost. A credit loss allowance is made upon initial recog- nition based on historical observed default rates adjusted for forward looking esti- mates. The cost of the credit loss allowances is in- cluded in administration costs. A loss is consid- ered realised when it is certain that we will not recover the receivable, e.g. in case of bankruptcy or similar. DKKm 2022 2021 Not due for payment 3,597 2,883 Overdue < one month 590 465 Overdue one - two months 183 163 Overdue two - three months 95 72 Overdue > three months 643 529 Trade receivables 5,108 4,112 Trade receivables not due for payment with retentions on contractual terms 562 529 DKKm 2022 2021 Impairment at 1 January 333 317 Foreign exchange adjustments (10) 15 Additions 293 128 Reversals (80) (70) Realised (121) (57) Impairment at 31 December 415 333 Key accounting estimates Estimated level of expected losses When estimating the level of receivables that in the future is expected not to be col- lected we take the following information into account; historical losses on receiva- bles, ageing of the receivables, access to payment securities and possibilities to off- set assets against claims. When making the assessment we also evaluate the expected development in macro-economic and politi- cal environments that could impact the re- coverability. We have made estimates of our expecta- tion to the future losses on receivables by applying a consistent methodology. The calculation of expected credit losses (ECL) incorporate forward-looking estimates. These estimates are mainly based on his- torical experience on losses and adjusted to reflect the current situation. The impact from the adjustments to reflect the current situation has increased com- pared to at the end of 2021. The increase is based on an assessment of a deterioration in the credit quality following the current macroeconomic situation with increasing uncertainties, inflation etc. Impairment of trade receivables specified according to aging 2022 2021 DKKm Expected loss rate Gross carrying amount Impairment Expected loss rate Gross carrying amount Impairment Not due for payment 1.3% 3,626 47 1.2% 2,919 36 Overdue < one month 6.2% 631 39 6.1% 495 30 Overdue one - two months 14.4% 215 31 14.2% 190 27 Overdue two - three months 24.8% 129 32 25.1% 96 24 Overdue > three months 28.9% 922 266 29.1% 745 216 Total 5,523 415 4,445 333 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 97 3.4 Work in progress Work in progress relates to contracts with custom- ers where revenue is recognised over time. As the costs to produce the output under a contract are incurred, revenue is calculated reflecting the share of costs incurred compared to total ex- pected costs to fulfil the contract (percentage of completion). The revenue is recognised as work in progress (gross work in progress) and consists of cost incurred including margin. Balances on a spe- cific contract is removed from work in progress once the work is completed and accepted by the customer. Especially for projects, the work typi- cally extends over several financial years. The to- tal amount of work in progress therefore includes accumulated revenue for several years for con- tracts where the work has not been finalised and/or accepted by the customer. During the project execution, invoices are issued according to the invoice structure for each trans- action. The invoiced amounts reduce the balance on work in progress (Net work in progress in the table). Depending on the invoice structure, the work in progress balance on a specific project can change from being presented as an asset (a con- tract asset) in one period to being presented as a liability (a contract liability) in the next period. In the balance sheet and as shown in the table, net work in progress on contracts where work per- formed exceeds the invoiced amount are pre- sented as assets while projects where the in- voiced amount exceeds the work performed are presented as liabilities. In general, the invoicing structure for projects re- flects the progress on the projects and work in progress liabilities are, therefore, usually con- verted into revenue in the next year. Composition of work in progress Note 1.4 include information on the order backlog reflecting effective contracts with customers where we will transfer control at future point in time and the remaining performance obligations on contracts where we transfer control over time. In addition to net work in progress, contract liabili- ties include prepayments received from customers of DKK 2,771m (2021: DKK 2,490m). The prepay- ments are recognised separately in the balance sheet as current and non-current liabilities. Pre- payments presented as current reflect amounts that are expected to be recognised as revenue during the following year. 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 prob- able we recognise the expected loss and a re- lated provision. Accounting policy Work in progress consists of contract assets and contract liabilities for contracts with customers where revenue is recognised over time. For contracts included as work in progress revenue reflecting the percentage of completion is recog- nised when the outcome of the contracts can be es- timated 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 total estimated cost. The contracts are measured at an amount equal to the selling price of the work performed (per- centage of completion) less progress billings and expected losses. The selling price is the total expected income from the individual contracts. If variability is included 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 contracts. The expected loss is recognised immediately as a cost and as a provision for a loss-making contract. Fur- ther information can be found in note 2.7. When the selling price of the work performed ex- ceeds progress billings, work in progress is pre- sented as an asset and relate to unbilled work in progress. Work in progress assets have substan- tially the same risk characteristics as the trade re- ceivables for the same types of contracts. Ex- pected credit loss on work in progress assets is included within the loss allowance for trade re- ceivables as managed together. When progress billings exceed the selling price of the work performed, work in progress is presented as a liability. Prepayments from customers are recognised as a liability. DKKm 2022 2021 Gross work in progress 46,107 33,338 Invoicing on account to customers (46,552) (33,353) Net work in progress (445) (15) Of which is recognised as work in progress: Under assets 3,147 2,358 Under liabilities (3,592) (2,373) Net work in progress (445) (15) 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 future 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 account. For contracts sold to customers in politically and economically unstable countries, the estimates in- clude additional risk coverage due to a higher level of uncertainty. With the increasing costs due to the global supply chain challenges and the risk of further cost in- creases in light of the increasing inflation during 2022, we have reassessed our project financials, including update of expected project costs, to ensure that expected cost increases are appropriately reflected in the estimated cost to complete. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 98 3.5 Other receivables Specification of other receivables 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 re- ceive 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 trans- ferred to the credit institution without recourse. 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 programme arise in the ordinary course of business from sup- ply of goods and services and the payment terms are not significantly extended compared to trade payables that are not part of the supply change fi- nancing programme. At the end of 2022, trade payables covered by the programme amounted to DKK 590m (2021: DKK 490m). 3.7 Other liabilities Specification of other liabilities DKK 85m (2021: DKK 55m) is included in non-cur- rent liabilities and DKK 1,738m (2021: DKK 1,403m) in current liabilities. DKKm 2022 2021 Indirect taxes receivables 522 402 Deposits 107 30 Derivatives 54 31 Other 462 336 1,145 799 DKKm 2022 2021 Indirect taxes payables 210 177 Accrued employee items 779 665 Employee benefits 181 122 Derivatives 80 33 Other accruals and payables 573 461 1,823 1,458 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 99 Section 4 Tax 4.1 Income tax 100 4.2 Paid income tax 101 4.3 Deferred tax 101 4.4 Tax on other comprehensive income 103 4.5 Our approach to tax and tax risk 103 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 100 4.1 Income Tax The income tax expense for the year amounted to DKK 201m (2021: DKK 213m), corresponding to an effective tax rate of 36.4% (2021: 36.3%). The ef- fective tax rate was negatively affected by with- holding taxes not subject to credit relief as well as write-downs of tax losses and other tax assets in countries outside Denmark (mainly in Russia). In 2021, the non-deductible cost was increased mainly due to acquisition costs in Germany re- lated to the acquisition of Mining Technologies (ex-TK). Uncertain tax positions reflect management’s as- sessment of the risk of a position taken by the Group being disputed by a tax authority. The as- sessment considers the inherent risk and uncer- tainty of undertaking complex projects and oper- ating in a variety of developed and developing countries. The assessment includes the most likely outcome of both ongoing and potential fu- ture tax audits but also an assessment of whether the most likely outcome differs significantly for other possible outcomes. Accounting policy Tax for the year comprises current tax and changes in deferred tax including valuation of de- ferred tax assets, adjustments to previous years, foreign paid withholding taxes including available credit relief and changes in provisions for uncer- tain tax positions. Tax for the year is recognised in the Income State- ment, however, tax attributable to items recognised in other comprehensive income is rec- ognised in other comprehensive income. Exchange rate adjustments of deferred tax are in- cluded 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, using the applicable tax rates for the financial year. Uncertain tax positions are measured at the amount estimated to be required to settle such po- tential future obligations. We measure these un- certain tax positions on a yearly basis through in- terviews 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 determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The ap- proach that better predicts the resolution of the uncertainty will be followed. Management has as- sessed that for uncertain tax positions the most likely outcome method will in most circumstances best predict the resolution of uncertainty. The impact from uncertain tax positions is recog- nised under current income tax or deferred tax, depending on how the realisation of the tax posi- tion will affect the financial statements. Tax receivables and tax liabilities comprise tax on expected taxable income less tax paid on account in the year and previous years taxes. Current tax is recognised in the balance sheet as either a re- ceivable or a liability. Composition of tax for the year and effective tax rates 2022 2021 DKKm Tax Effective tax rate Tax Effective tax rate Tax according to Danish tax rate (122) 22.0% (129) 22.0% Differences in the tax rates in foreign subsidiaries relative to 22% 2 -0.3% (31) 5.3% Non-taxable income and non-deductible costs (4) 0.7% (48) 8.2% Net change in valuation of tax assets (3) 0.5% 38 -6.5% Change in deferred tax due to adjustment of tax rates (8) 1.5% 4 -0.7% Adjustments regarding previous years, deferred tax (22) 4.0% (19) 3.2% Adjustments regarding previous years, current tax (1) 0.2% 4 -0.7% Withholding tax (66) 12.0% (52) 8.9% Uncertain tax positions 23 -4.2% 20 -3.4% Total tax for the year and effective tax rate (201) 36.4% (213) 36.3% Composition of tax for the year DKKm 2022 2021 Current tax on Total comprehensive income for the year (507) (449) Current tax on Other comprehensive income excluded (7) (1) Withholding tax (66) (52) Change in deferred tax 387 280 Change in tax rate on deferred tax (8) 4 Adjustments regarding previous years, deferred tax (22) (19) Adjustments regarding previous years, current tax (1) 4 Uncertain tax positions 23 20 Tax on profit for the year, continuing activities (201) (213) Earnings before tax on continuing activities 552 587 Earnings before tax on discontinued activities (15) (19) Total earnings before tax 537 568 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 101 4.2 Paid income tax Income tax paid in 2022 amounted to DKK 471m (2021: DKK 537m). Most of these payments are at- tributable to Group enterprises in the countries shown in the graph. Many countries had COVID-19 measures in place in 2020 allowing to postpone our tax payments into 2021 which partly explains the decrease in tax payments in 2022. 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. 4.3 Deferred Tax Deferred tax assets at the end of 2022 amount to DKK 1,921m (2021: DKK 1,490m) and deferred tax liabilities amount to DKK 294m (2021: DKK 169m). The net deferred tax assets amount to DKK 1,627m (2019: DKK 1,321m). Income tax paid DKKm Significant deferred tax assets, net DKKm 0 30 60 90 120 150 180 Denmark Peru Australia China Brazil Kazakhstan USA Indonesia South Africa Mexico India Ghana Other 2021 2022 - 100 200 300 400 500 600 700 800 900 Share of assets and tax losses valued at nil Deferred tax assets 2021 22 USA 2021 22 Chile 2021 22 Germany 2021 22 Denmark 2021 22 India 2021 22 Australia Composition of deferred tax 2022 Included in Income Statement within Tax for the year DKKm Balance sheet 1 January Acquisition of enterprises Currency adjustment Adjustment to previous years Changed tax rate Change in deferred tax Included in other compre- hensive income Balance sheet 31 December Intangible assets 115 1 (9) (12) (2) (7) 0 86 Property, plant and equipment 256 (24) (2) 14 0 0 0 244 Current assets (2) (32) 0 92 0 69 1 128 Liabilities 606 22 2 (170) (3) 229 (24) 662 Tax loss carry-forwards, etc. 497 10 5 22 (3) 112 0 643 Share of tax assets valued at nil (151) 0 (1) 32 0 (16) 0 (136) Net deferred tax assets/(liabilities) 1,321 (23) (5) (22) (8) 387 (23) 1,627 DKKm 2021 Included in Income Statement within Tax for the year Balance sheet 1 January Acquisition of enterprises Currency adjustment Adjustment to previous years Changed tax rate Change in deferred tax Included in other compre- hensive income Balance sheet 31 December Intangible assets 117 0 (10) (48) 1 55 0 115 Property, plant and equipment 232 0 1 0 0 23 0 256 Current assets 230 0 1 17 (2) (248) 0 (2) Liabilities 294 0 13 14 3 283 (1) 606 Tax loss carry-forwards, etc. 364 0 7 (7) 5 128 0 497 Share of tax assets valued at nil (189) 0 (3) 5 (3) 39 0 (151) Net deferred tax assets/(liabilities) 1,048 0 9 (19) 4 280 (1) 1,321 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 102 4.3 Deferred Tax – continued Recognition of net deferred tax assets is based on forecasted taxable income considering the appli- cation of a changed business model, including our pure play Mining and Cement strategies and fore- casted growth and margins for the coming years. Deferred tax assets valued at nil amounting to DKK 136m (2021: DKK 151m) 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 325-375m in 2022 (2021: DKK 325-375m). These liabilities are not recognised because the Group is able to control when the lia- bility is released and it is considered probable that the liability will not be triggered in the fore- seeable future. Net deferred tax DKK 108m (2021: DKK 92m) of foreign paid with- holding taxes in the USA are not recognised as a future benefit due to uncertainties relating to the ability to recoup the asset within in the foreseea- ble future. Maturity profile of tax assets valued at nil The deferred tax assets in Germany is not fully recognized as, based on management’s forecast earnings, the tax assets are not likely to be fully utilized within the foreseeable future. As of 31 December 2022, the non-recognised part of the tax asset in Germany amounts to DKK 66m (2021: DKK 66m) and relates to discontinued activ- ities and dormant entities. The non-recognised tax asset in Denmark was in 2022 reduced to 0 (2021: DKK 25m). Recognising tax assets is a key ac- counting estimate and is based on management’s forecast of earnings incorporating cost savings and the recovery of the market. Accounting policy Deferred tax is calculated using the balance sheet liability method on all temporary differences be- tween the carrying amounts for financial reporting purposes and the amounts used for taxation pur- poses, except differences relating to initial recog- nition of goodwill. Deferred tax is calculated based on the applicable tax rates for the individ- ual financial years. The effect of changes in the tax rates is stated in the income statement unless they are items previ- ously recognised 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 liabilities, 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 liabilities related to the financial year or previous years. No deferred tax liabilities regarding investments in subsidiaries are recog- nised 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 liabilities simultaneously. DKKm 2022 2021 Deferred tax assets 1,921 1,490 Deferred tax liabilities (294) (169) 1,627 1,321 DKKm 2022 2021 Within one year 12 64 Between one and five years 0 0 After five years 489 766 Base value of tax assets valued at nil 501 830 Tax value 136 151 Deferred tax assets valued at nil consist of: Temporary differences 51 3 Tax losses 450 827 501 830 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 in- come in the future can utilise the tax losses. For this purpose the income from the coming five years is estimated, based on forecasts. In assessing the probability of the future realisation of deferred tax assets, we have considered the economic outlook in our forecasts of taxable income and reversals of taxable temporary differ- ences. . The uncertainty of forecasts is related to macroeconomic developments, including the de- mand for environmental investments by our customers, not least within the Cement industry. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 103 4.4 Tax on other comprehensive income Tax recognised in other comprehensive income by the components of other comprehensive income to which it relates is shown in the table below. 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 uncertainty in regards to compliance requirements and dou- ble taxation are common issues faced by our busi- ness. We actively work to identify and mitigate tax risk and uncertainties. Tax on other comprehensive income 2022 2021 DKKm Deferred tax Current tax Tax income/ cost Deferred tax Current tax Tax income/ cost Value adjustments of hedging instruments 1 7 8 14 1 15 Actuarial gains/losses on defined benefit plans (24) 0 (24) (15) 0 (15) Tax on other comprehensive income (23) 7 (16) (1) 1 0 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 104 Section 5 Financial risks & capital structure 5.1 Shares and capital structure 105 5.2 Earnings per share 106 5.3 Financial risks 106 5.4 Financial income and costs 109 5.5 Derivatives 109 5.6 Fair value measurement 110 5.7 Net interest bearing debt 111 5.8 Financial assets and liabilities 111 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 105 5.1 Shares and capital structure Shares In 2021, 6,400,000 new shares of DKK 20 each at a price of DKK 228 were issued. Hereafter, share capital is DKK 1,153m and the total number of au- thorised and issued shares is 57,650,000. The is- sue increased shareholders’ equity in 2021 by the proceed received net of costs of DKK 25m. Each share entitles the holder to 20 votes and no shares have special rights attached to it. Shareholders at the end of 2022 At the end of 2022, FLSmidth had one major shareholder. Lundbeckfonden has disclosed hold- ings of voting rights exceeding 10% of total out- standing voting rights. No other shareholders have reported a participating interest above 5% at the end of 2022. As announced in our company announcement of 19 January 2023, Altor Invest 7 AS acquired above 10 % of the shares and voting rights in FLS- midth & Co. A/S. Capital structure The Board of Directors’ priority for capital struc- ture and capital allocation is as follows: ■ Leverage (NIBD/EBITDA < 2) ■ Dividend pay-out ratio (30-50% of net profit) For further information please refer to Shareholder information section. Shareholders’ equity includes the following reserves: ■ Share capital (nominal value of shares issued) ■ Foreign exchange adjustments (accumulated currency adjustments regarding translation of foreign entities) ■ Cash flow hedging (fair value of derivatives that hedge the currency risks on expected future cash flows and meet the criteria for cash flow hedging) ■ Retained earnings (all other components of shareholders’ equity including share premium) Treasury shares Our holding of treasury shares at the end of 2022 accounted for 1.6 % of the share capital (2021: 1.6%). The Board of Directors is authorised until the next Annual General Meeting to let the Company ac- quire treasury shares up to a total nominal value of 10% of the Company’s share capital in accord- ance with Section 12 of the Danish Companies Act. The treasury shares are used to hedge employees’ exercise of share-based incentive pro- grammes, and are recognised directly in equity in retained earnings (zero value in the balance sheet). Refer to note 6.1 for further information. Dividend per share The Board of Directors will propose at the Annual General Meeting that a dividend of DKK 3 per share (2021: DKK 3) corresponding to a divi- dend yield of 1.2% (2021: 1.2%) and a pay-out ratio of 49% (2021: 48%) will be distributed for 2022. The total dividend proposed amounts to DKK 173m (2021: DKK 173m). Movements in shares and share capital 2022 2021 Number of shares (1,000) Nominal value (DKKm) Number of shares (1,000) Nominal value (DKKm) Share capital at 1 January 57,650 1,153 51,250 1,025 Issue of new shares 0 0 6,400 128 Share capital at 31 December 57,650 1,153 57,650 1,153 Outstanding shares net of Treasury shares (1,000): 2022 2021 Treasury shares at 1 January 925 1,098 Used for share based payments (11) (173) Treasury shares at 31 December 914 925 Outstanding shares net of Treasury shares: Outstanding shares net of Treasury shares 1 January 56,725 50,152 Issue of new shares 0 6,400 Movement, treasury shares 11 173 Outstanding shares net of Treasury shares at 31 December 56,736 56,725 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 106 5.2 Earnings per share Earnings per share from continuing activities de- creased to DKK 6.5 in 2022 (2021: DKK 7.2) pri- marily driven by the increase in average number of outstanding shares. Earnings per share from discontinued activities equalled DKK 0.0 in 2022 (2021: DKK -0.3). The number of dilutive shares from share-based payment (see note 6.1) is determined as the num- ber of performance shares that are expected to vest, reduced by the numbers of shares that repre- sents the fair value of service during the remaining vesting period. 5.3 Financial risks Due to the international activities and the industry characteristics, risks are an embedded part of do- ing business. We are exposed to financial risks, that can have a material impact to the financial statements of the Group. The financial risks are to the extent possible man- aged centrally for the Group and are governed 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 are currency, credit, interest and liquidity risks. 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 inter- est 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 2022 or 2021. As of 31 December 2022, the majority of our inter- est-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 7m (2021: DKK 0m), calculated as 1% of the net interest bearing debt as of 31 December 2022. The sensitivity to changes in the interest rate has increased in 2022 due to the increase in debt. Currency risk The Treasury Policy aims to reduce the most sig- nificant currency risks to better predict the impact on the income statement as well as the cash flows to be paid or received and to protect the EBITDA of the individual entities from changes in ex- change rates. The risks are managed through hedging activities by entering commonly used de- rivatives such as forward contracts. The currency risks, which is transaction risk, arise primarily from purchase and sale in foreign currencies 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 applied. Hedge accounting is applied for the largest pro- ject transactions. For other project transactions, the currency risk is either not hedged or economi- cally hedged, dependent on the significance of the risk. We are, to a large extent, carrying out transac- tions in EUR and USD as these currencies are pre- ferred in the Mining and Cement industries. EUR against DKK is currently not considered an expo- sure due to the Danish Kroner being pegged to the Euro. Earnings per share from continuing and discontinuing activities DKKm 2022 2021 Profit for the year, continuing activities 351 374 Minority interests 18 1 FLSmidth's share of profit, continuing activities 369 375 Loss for the year, discontinued activities 1 (17) FLSmidth's share of loss, discontinuing activities 1 (17) FLSmidth's share of profit 370 358 Number of shares (1,000) 2022 2021 Issued shares 1 January 57,650 51,250 Issue of new shares, weighted 0 1,871 Treasury shares, weighted 920 1,041 Average number of outstanding shares 56,730 52,080 Dilutive effect of share based payment 149 0 Average diluted number of outstanding shares 56,879 52,080 DKK 2022 2021 Earnings per share from continuing activities 6.5 7.2 Earnings per share from discontinued activities 0.0 (0.3) Earnings per share from continuing and discontinued activities 6.5 6.9 DKK 2022 2021 Diluted earnings per share from continuing activities 6.5 7.2 Diluted earnings per share from discontinued activities 0.0 (0.3) Diluted earnings per share from continuing and discontinued activities 6.5 6.9 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 107 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. In the table ‘Transaction impact’, the sensitivity analysis is provided. The analysis assumes that all other variables, exposures and interest rates in particular, remain constant. The sensitivity analy- sis shows the gain/loss on net profit and other comprehensive income of a 5% percent increase in the specified currencies towards DKK (a 5% de- crease will have similar opposite effect). The anal- ysis includes the offsetting impact from monetary items and derivatives used to hedge the currency risk. The impact on net profit for the year includes monetary items in foreign currencies that are cur- rency adjusted through the income statement as well as any derivatives used for economic hedg- ing. The impact on other comprehensive income includes the value adjustment on derivatives des- ignated as hedge accounting in effective cash flow hedges. The value adjustments are trans- ferred to the income statement as the hedged cash flows through the work in progress are rec- ognised in the income statement. In addition to the transactional effects, in the event of currency developments, we will also be im- pacted by translation effects from the Group enti- ties with net assets in functional currencies other than Danish Kroner and Euro. During 2022 and 2021, significant translation impacts have been recognised in Other Comprehensive income. A 5 % appreciation in the specified currencies towards Danish Kroner will have the following effect on other comprehensive income (a 5% depreciation will have a similar negative effect). Translation impact Credit risk We are exposed to credit risks arising from cash and cash equivalents, derivatives and receivables including work in progress. At 31 December 2022, total credit risk was DKK 11,547m (2021: DKK 9,236m) as shown in the table below. 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 counterparties 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 coun- tries we operate in. However, due to the nature 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 countries. The credit risk is governed by the Group’s Credit Risk Policy. For receivables the credit risk is man- aged by continuous risk assessments and credit evaluations of customers and trading partners; having country specific risk factors in mind. To the extent possible, the credit risks are mitigated through use of payment securities, such as letters of credit and guarantees issued by first class rated banks, or by securing positive cash flow through- out the project execution. At the end of 2022, 7% (2021: 13%) of our work in progress asset and 9% (2021: 7%) of our trade receivables balance were covered by payment securities. Our customers and trading partners mainly con- sist of companies within the Cement and Mining industry. Credit risk is among other things depend- ent on the development in these industries. We consider the maximum credit risk to financial counterparties to be DKK 2,142m (2021: DKK 1,949m). All financial assets, excluding other secu- rities and investments, are expected to be settled during 2023. DKKm Change 2022 2021 USD 5.0% 84 78 INR 5.0% 39 38 CLP 5.0% 34 38 CAD 5.0% 34 (1) GBP 5.0% 16 17 MXN 5.0% 15 9 Transaction impact DKKm 2022 2021 Currency Change Net profit for the year Other compre- hensive income Net profit for the year Other compre- hensive income USD 5.0% 8 (30) 10 (16) CNY 5.0% 4 0 (1) 0 AUD 5.0% 1 0 0 0 MZN 5.0% 1 0 (1) 0 CAD 5.0% 1 (1) 0 (3) RUB 5.0% (1) 0 0 0 Total exposure to credit risk DKKm 2022 2021 Non-financial counterparties: Trade receivables, note 3.3 5,108 4,112 Work in progress, assets, note 3.4 3,147 2,358 Other receivables, note 3.5 1,145 799 of which derivatives (54) (31) Other securities and investments 59 49 Total non-financial counterparties 9,405 7,287 Financial counterparties: Derivatives, netted amount 12 14 Cash and cash equivalent 2,130 1,935 Total financial counterparties 2,142 1,949 Total exposure to credit risk 11,547 9,236 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 108 5.3 Financial risks – continued Liquidity risk The objective of the Treasury Policy is to ensure that the Group always has sufficient and flexible financial resources at our disposal to ensure con- tinuous operations and to honour liabilities when they become due. The financial resources are continuously moni- tored and consist of cash and cash equivalents and undrawn committed facilities. In 2022, a EUR 150m (DKK 1,115m) loan facility was agreed with Nordic Investment Bank. The facility will expire in 2030 and the margin is linked to our sustainability KPIs. By the end of 2022, total committed credit facili- ties were DKK 6,326m (2021: DKK 6,821m) of which DKK 1,929m (2021: DKK 726m) was utilised. The committed credit facilities will mature after 2026. Short-term liquidity risks are managed through cash-pools and by having short-term overdraft facilities in place with various financial institutions, through committed and uncommitted credit facilities. According to the Treasury Policy the available fi- nancial resources must not be lower than DKK 3bn at any point. The liquidity position is moni- tored daily. As of 31 December 2022, 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 2021 nor 2022. Restricted cash Restricted cash is cash, that is considered either very difficult or expensive to transfer from some of the countries, that FLSmidth subsidiaries operate in, to the Group. Cash and cash equivalents included cash with re- strictions amounting to DKK 1,459m (2021: DKK 868m). The restricted cash position has increased following the acquisition of Mining Technologies (ex-TK). The restricted cash coming from the Min- ing Technologies (ex-TK) acquisition amounts to DKK 361m. The cross border cash pool in China has a limit of CNY 100m (DKK 101m), hence cash in China above this limit is classified as restricted. Cash in Russia is also classified as restricted. Credit risk ratings per financial institution % Maturity profile of Group funding facilities DKKm Group restricted cash DKKm 0% 20% 40% 60% 80% 100% 2021 2022 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 2021 2022 0 50 100 150 200 250 300 350 400 450 500 China India Brazil Indonesia Morocco South Africa Russia Ghana Angola Other 2021 2022 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 109 5.4 Financial income and costs Net financial costs Cash flow effect from financial income and costs As shown in the table the large movement in for- eign exchange rates during 2022 led to significant gross foreign exchange gains and losses. On a net basis, foreign exchange adjustments, including the impact from economic hedges, amounted to DKK -6m (2021: DKK -18m), primarily related to the cost of hedging the loan portfolio to the functional currency of the borrowing entity (forward points) and exposures in non-hedgeable emerging mar- ket currencies, as well as timing differences be- tween cash flows and hedges. The net interest cost totalled DKK 38m (2021: DKK 49m) related to loans and deposits. Lease interest cost amounted to DKK 12m (2021: DKK 11m). Fair value adjustment of shares of net DKK -8m (2021: DKK -2m) relates to shareholdings in cement companies. Accounting policy Financial income and costs comprise interest in- come and costs, realised and unrealised foreign exchange gains and losses arising from monetary items, and fair value adjustments of shares and derivatives where hedge accounting is not ap- plied. 5.5 Derivatives The Group’s derivatives are entered into to hedge the currency risk and accounted for as hedge ac- counting or economic hedges. Economic hedge We use derivatives to hedge currency risks arising from monetary items recognised in the balance sheet. Fair value adjustments recognised in finan- cial items in the income statement amounted to DKK 26m (2021: DKK 112m). At 31 December 2022 the fair value of our hedge agreements that are not recognised as hedge ac- counting amounted to DKK -14m (2021: DKK 4m). The breakdown of the economic hedges by most important currencies for each of the years 2022 and 2021 is shown in the table below. Cash flow hedge We use forward exchange contracts to hedge cur- rency risks regarding expected future cash flows that meet the criteria for cash flow hedging. The fair value reserve of the derivatives is recog- nised in other comprehensive income until the hedged items affect the income statement through work in progress. The fair value of derivatives is rec- ognised in other receivables and other liabilities. The majority of the cash flow hedge instruments are expected to settle and affect the income statement within one year. DKKm 2022 2021 Interest income 36 24 Fair value adjustment of derivatives 728 354 Foreign exchange gains 822 490 Fair value adjustment of shares 2 2 Total financial income 1,588 870 Interest cost (74) (73) Loss from associates (3) (1) Lease interest cost (12) (11) Fair value adjustment of derivatives (702) (242) Foreign exchange losses (854) (620) Fair value adjustment of shares (10) (4) Total financial costs (1,655) (951) Net financial costs (67) (81) DKKm 2022 2021 Interest received 37 24 Interest paid (86) (93) Cash flow effect (49) (69) Carrying amount, net fair value DKKm 2022 2021 Econo- mic hedge Cash flow hedge Total hedge Econo- mic hedge Cash flow hedge Total hedge Financial instruments asset 17 37 54 19 12 31 Financial instruments liability (31) (49) (80) (15) (18) (33) Total (14) (12) (26) 4 (6) (2) Economic Hedge DKKm 2022 2021 Currency Notional amount Net fair value Notional amount Net fair value AUD (974) (15) (110) (1) USD (512) 3 (231) 1 EUR 358 (1) 840 4 CNY 43 (1) CAD (228) (2) Other 0 2 Total (14) 4 A negative notional amount represents a sale of the currency Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 110 5.5 Derivatives – continued Ineffectiveness is recognised in the income state- ment within financial items. Ineffectiveness was im- material in 2022 and 2021. At 31 December 2022, the fair value of our cash flow hedge instruments amounted to DKK -12m (2021: DKK -6m). The breakdown of the cashflow hedges by most important currencies for each of the years 2022 and 2021 is shown in the table be- low. Changes in the cash flow hedging reserve Accounting policy Derivatives are initially recognised in the balance sheet at fair value and subsequently remeasured at fair value. Fair value of derivatives is included in other receivables or other liabilities respec- tively. Fair value changes of derivatives that are ac- counted for as cash flow hedging instruments are recognised in other comprehensive income. Any ineffective portions of the cash flow hedges are recognised in the income statement within finan- cial item. When the hedged cash flows material- ises, the fair value of the hedging instrument 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 within financial items. Certain contracts contain conditions that corre- spond to derivatives. In case the embedded deriv- atives deviate significantly from the overall con- tract, they are recognised and measured as sepa- rate 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 are remeasured at fair value on a recurring basis and are categorised into the following levels of the fair value hierarchy: Level 1: Observable market prices for identical in- struments (quoted prices) Level 2: Valuation techniques primarily based on observable prices or traded prices for comparable instruments Level 3: Valuation techniques primarily based on non-observable input Securities and investments consist primarily of in- vestments in shares. The fair value is either deter- mined as the quoted price in an active market for the same type of instrument (level 1) or at fair value based on available data which include valu- ation based on multiple of earnings or equity from the latest available financial statements (level 3). The derivatives are forward exchange contracts not traded on an active market. The fair value is therefore estimated using a valuation technique, where all significant inputs are based on observa- ble market data; such as exchange rates, interest rates, credit risk and volatilities (level 2). There have been no transfers between the levels in 2022 or 2021. DKKm 2022 2021 Change in cash flow hedge reserve (28) (39) Reclassified from other comprehensive income to work in progress 12 (11) Financial instruments measured at fair value 2022 DKKm Level 1 Level 2 Level 3 Total Securities and investments 17 0 42 59 Derivatives, asset 0 54 0 54 Derivatives, liability 0 (80) 0 (80) 17 (26) 42 33 2021 DKKm Level 1 Level 2 Level 3 Total Securities and investments 6 0 43 49 Derivatives, asset 0 31 0 31 Derivatives, liability 0 (33) 0 (33) 6 (2) 43 47 Cash flow hedge DKKm 2022 2021 Currency Notional amount Net fair value Notional amount Net fair value USD (643) (8) (355) 2 CNY 0 0 EUR 374 (5) 323 (8) Other 1 0 Total (12) (6) A negative notional amount represents a sale of the currency Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 111 5.7 Net interest bearing debt 5.8 Financial assets and liabilities Accounting policy 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. Based on this, all financial assets and liabilities, except for hedging instruments, securities and in- vestments, are measured at amortised cost. The table on the next page shows the fair value of all financial instruments and compares it to the carrying amount. For the mortgage debt, the fair value is determined as the quoted price of the un- derlying mortgage bonds funding the debt. The carrying amount for the other items is a reasona- ble approximation of fair value. 2022 DKKm Carrying amount 1 January 2022 Cash flows Acquisition of enterprises Additional lease liability during the year Foreign exchange effect Carrying amount 31 December 2022 Lease liabilities 304 (134) 51 98 4 323 Mortgage debt 241 (14) 0 0 (1) 226 Bank debt 502 1,920 (104) 2,318 Other liability 0 0 0 0 Interest bearing debt 1,047 1,772 51 98 (101) 2,867 Cash and cash equivalents 1,935 254 (59) 2,130 Other receivables 1 11 (1) 11 Interest bearing assets 1,936 265 0 0 (60) 2,141 Net interest bearing debt / (assets) (889) 1,507 51 98 (41) 726 Cash flows from cash and cash equivalents are net of cash taken over from Mining Technologies (ex-TK) of DKK 1,019m. 2021 DKKm Carrying amount 1 January 2021 Cash flows Acquisition of enterprises Additional lease liability during the year Foreign exchange effect Carrying amount 31 December 2021 Lease liabilities 322 (122) 0 99 5 304 Mortgage debt 256 (15) 0 0 0 241 Bank debt 2,177 (1,481) (194) 502 Other liability 0 0 0 0 Interest bearing debt 2,755 (1,618) 0 99 (189) 1,047 Cash and cash equivalents 946 930 59 1,935 Other receivables 1 0 0 1 Interest bearing assets 947 930 0 0 59 1,936 Net interest bearing debt 1,808 (2,548) 0 99 (248) (889) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 112 5.8 Financial assets and liabilities – continued 2022 2021 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) 37 0 0 37 37 37 10 2 0 12 12 12 Hedging instruments (economic hedging) 17 0 0 17 17 17 19 0 0 19 19 19 Securities and investments 0 0 59 59 59 59 0 0 49 49 49 49 Fair value through profit and loss 17 0 59 76 76 76 19 0 49 68 68 68 Trade receivables 5,108 0 0 5,108 5,108 5,108 4,112 0 0 4,112 4,112 4,112 Work in progress 3,147 0 0 3,147 3,147 3,147 2,358 0 0 2,358 2,358 2,358 Other receivables 1,090 0 0 1,090 1,090 1,090 768 0 0 768 768 768 Cash and cash equivalents 2,130 0 0 2,130 2,130 2,130 1,935 0 0 1,935 1,935 1,935 Amortised cost 11,475 0 0 11,475 11,475 11,475 9,173 0 0 9,173 9,173 9,173 Total financial assets 11,529 0 59 11,588 11,588 11,588 9,202 2 49 9,253 9,253 9,253 2022 2021 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) (49) 0 0 (49) (49) (49) (18) 0 0 (18) (18) (18) Hedging instruments (economic hedging) (31) 0 0 (31) (31) (31) (15) 0 0 (15) (15) (15) Fair value through profit and loss (31) 0 0 (31) (31) (31) (15) 0 0 (15) (15) (15) Lease liabilities (128) (200) (22) (350) (323) (323) (106) (184) (39) (329) (304) (304) Mortgage debt (16) (63) (154) (233) (227) (226) (16) (64) (170) (250) (243) (241) Bank debt (542) (1,833) 0 (2,375) (2,318) (2,318) (2) (504) 0 (506) (502) (502) Trade payables (4,339) 0 0 (4,339) (4,339) (4,339) (3,367) 0 0 (3,367) (3,367) (3,367) Other liabilities (1,737) (85) 0 (1,822) (1,822) (1,822) (1,403) (55) 0 (1,458) (1,458) (1,458) Amortised cost (6,762) (2,181) (176) (9,119) (9,029) (9,028) (4,894) (807) (209) (5,910) (5,874) (5,872) Total financial liabilities (6,842) (2,181) (176) (9,199) (9,109) (9,108) (4,927) (807) (209) (5,943) (5,907) (5,905) Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 113 Section 6 Other notes 6.1 Share-based payment 114 6.2 Related party transactions 115 6.3 Audit fee 115 6.4 Events after the balance sheet date 115 6.5 List of Group companies 116 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 114 6.1 Share-based payment During 2022, the only share-based payment pro- gramme outstanding was the performance share programme as the exercise period for the last share option programme expired in 2021. Performance shares The performance shares units (PSU) are based on a three year performance period and the perfor- mance measurement is based on key financial performance indicators as well as contin- ued employment. For the programmes granted in 2022 and 2021, the key performance indicators are EBITA margin, total shareholder return (TSR) and a sustainability indicator (MZ). For programmes granted in prior years, the key per- formance indicators were EBITA margin and net working capital ratio. Under the programmes, the number of PSUs (shares) that will eventually vest depends on the level of achievement of the key performance indi- cators. The purpose of the performance share pro- gramme is to ensure common goals for Group Ex- ecutive Management, key employees and shareholders. The value of the PSUs at grant date is measured at fair value (market price) of the shares adjusted for the expected performance under the TSR KPI. The share price is not adjusted for dividend as participants of the programme will be compensated for any dividend pay-outs in the per- formance period. For the 2022 plan, a maximum of 75,703 shares (2021: 70,108 shares) were granted to Executive Management at the grant date. The total number of outstanding performance shares at the end of 2022 was 597,682 (2021: 549,172) of which 306,555 are expected to vest (2021: 149,098). In 2022, a further 10,740 of shares were allotted as other incentives. The shares are accounted for as equity settled share-based payment under IFRS 2. Accounting policy The performance share programme is classified as equity based, as the schemes settle in shares. The value of the services received in exchange for the granting of performance share units (PSUs), is measured as the fair value of the performance share units at grant date. The fair value of the PSUs is determined based on the quoted share price adjusted for the expected performance un- der the TSR KPI, both determined at grant date. The fair value is recognised in staff cost in the in- come statement and in equity over the vesting pe- riod which is three years. On initial recognition of the PSUs, the number of PSUs expected to vest are estimated. Subse- quently, the estimate is revised so that the total cost recognised is based on the actual number of PSUs expected to vest. 2022 2021 Specification of performance shares expected to vest Group Executive Management Key employees Total number Group Executive Management Key employees Total number Outstanding performance shares 1 January 37,106 111,992 149,098 28,420 85,754 114,174 Awards current year (maximum number) 75,703 198,213 273,916 70,108 164,646 234,754 Vested 0 0 0 0 0 0 Lapsed (10,650) (62,416) (73,066) (22,344) (9,875) (32,219) Adjusted to reflect expectations (15,146) (28,147) (43,293) (39,078) (128,533) (167,611) Change between positions (11,646) 11,646 0 0 0 0 Outstanding performance shares 31 December expected to vest 75,367 231,288 306,655 37,106 111,992 149,098 Performance shares Conditional grant March-22 March-21 March-20 Performance year Jan 2022 - Dec 2024 Jan 2021 - Dec 2023 Jan 2020 - Dec 2022 Vesting period Mar 2022 - Feb 2025 Mar 2021 - Feb 2024 Mar 2020 - Feb 2023 Vesting conditions, other than service conditions EBITA, TSR, MZ EBITA, TSR, MZ EBITA, NWC DKK/DKKm 2022 2021 Market price per share, end of year 251.70 244.30 Total fair value of performance shares to be vested at balance sheet date 77 36 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 115 6.1 Share-based payment – continued Share options The exercise period on the last share option pro- gramme expired in 2021. The options exercised during 2021 is shown in the table ‘Share options’. The exercise price was DKK 250.63 compared to an weighted average share price of DKK 258.67 when the options were exercised. 6.2 Related party transactions Related parties to FLSmidth are determined as members of the Board of Directors and Group Ex- ecutive Management, their close family members, or companies in which these persons have signifi- cant influence and the associated entities over which FLSmidth has significant influence. During 2022, FLSmidth has had ordinary sales transactions of DKK 15m (2021: DKK 14m) with its associate Intertek Robotic Laboratories Pty Ltd. Other than that, there were no significant transac- tions between FLSmidth and any of its related par- ties, other than ordinary remuneration of the Board of Directors and Group Executive Manage- ment in 2021 and 2022. Please refer to note 1.5 Staff cost and the Remuneration report 2022. 6.3 Audit fee Fees to independent auditor In addition to statutory audit, EY Godkendt Revisionspartnerselskab, the Group auditors ap- pointed at the Annual General Meeting, provided other assurance engagements, primarily consist- ing of limited assurance report on the Sustainabil- ity Report and reasonable assurance report on the Remuneration Report for FLSmidth & Co. A/S. Other services provided in 2022 included certain advisory services in respect of the integration of Mining Technologies (ex-TK). All non-audit ser- vices have been approved by the Audit Commit- tee. 6.4 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. DKKm 2022 2021 Statutory audit 21 16 Other assurance engagement 1 1 Total audit related services 22 17 Tax and indirect taxes consultancy 0 1 Other services 2 0 Total non-audit services 2 1 Total fees to independent auditor 24 18 Share options Group Executive Management Key employees Total number Outstanding options 31 December 2020 65,049 479,197 544,246 Exercised (45,371) (127,779) (173,150) Lapsed (19,678) (351,418) (371,096) Outstanding options 31 December 2021 and 2022 0 0 0 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 116 6.5 List of Group Companies Company name Country Direct Group holding (pct.) FLSmidth & Co. A/S Denmark ○ FLSmidth Real Estate A/S Denmark 100 ○ FLSmidth S.A.C. Peru 100 ○ FLSmidth (Beijing) Ltd. China 100 ○ FLSmidth Finans A/S Denmark 100 ○ Matr. nr. 2055 A/S Denmark 100 ○ SLF Romer XV ApS Denmark 100 ⌂ Gemena Sp. Z.o.o. Poland 100 ○ FLSmidth Dorr-Oliver Eimco Venezuela S.R.L. (under liquidation) Venezuela 100 FLSmidth Global Services A/S Denmark 100 ○ NLSupervision Company Angola, LDA. Angola 100 ○ NL Supervision Company Tunisia Tunisia 100 ○ ISIRNEL S.A. Uruguay 100 FLSmidth A/S Denmark 100 ○ FLSmidth MAAG Gear AG Switzerland 100 ⌂ FLSmidth MAAG Gear Sp. z o.o. Poland 100 ○ FLS Maroc Morocco 100 ○ FLSmidth Kenya Limited Kenya 100 ○ FLSmidth (Thailand) Co. Ltd. Thailand 100 ○ FLSmidth A/S (Jordan) Ltd. Jordan 100 ○ FLSmidth Panama Inc. Panama 100 ○ FLSmidth S.A. Ecuador 100 ○ FLSmidth Paraguay S.A. Paraguay 100 ○ Cement Knowledge Center ** Kingdom of Saudi Arabia 51 ○ The Pennies and Pounds Holding, Inc. Philippines 33 ○ FLSmidth S.A. Spain 100 ⌂ FLSmidth S.A.S. Colombia 100 ○ FLSmidth Mongolia Mongolia 100 ○ FLSmidth (UK) Limited United Kingdom 100 ○ FLSmidth Caucasus Limited Liability Company (LLC) Armenia 100 ○ NHI-Fuller (Shenyang) Mining Co. Ltd. China 50 Company name Country Direct Group holding (pct.) ○ FLSmidth Limited Ghana 100 ○ FLSmidth (Private) Ltd. Pakistan 100 ○ FLSmidth Argentina S.A. Argentina 100 ○ FLSmidth Zambia Ltd. Zambia 100 ○ FLSmidth Iranian (PJSCo) Iran 100 ○ FLSmidth Ventomatic S.p.A. Italy 100 ⌂ FLSmidth MAAG Gear S.p.A. Italy 100 ○ FLSmidth Ltda. Brazil 100 ○ PT FLSmidth Indonesia Indonesia 100 ○ FLSmidth Spol. s.r.o. Czech Republic 100 ○ FLSmidth GmbH Austria 100 ○ FLSmidth Co. Ltd. Vietnam 100 ○ FLSmidth Mekanik Sistemler Satis Bakim Ltd. Sti Turkey 100 ○ FLSmidth Philippines, Inc. Philippines 100 ○ FLSmidth LLP Kazakhstan 100 ○ FLSmidth Sales and Services Limited Nigeria 100 ○ FLSmidth Shanghai Ltd. China 100 ○ FLSmidth Qingdao Ltd. China 100 ○ Saudi FLSmidth Co. Kingdom of Saudi Arabia 100 ○ FLSmidth Nepal Private Limited Nepal 100 ○ FLSmidth SAS France 100 ○ FLSmidth Rusland Holding A/S Denmark 100 ⌂ FLSmidth Rus OOO Russia 100 FLS US Holdings, Inc. USA 100 ○ FLSmidth Inc. USA 100 ⌂ Phillips Kiln Services (India) Pvt. Ltd. India 50 ⌂ SLS Corporation USA 100 ⌂ Fuller Company USA 100 ⌂ FLSmidth Dorr-Oliver Eimco SLC Inc. USA 100 ⌂ Ludowici Mineral Processing Equipment Inc. USA 100 ⌂ FLSmidth Dorr-Oliver Inc. USA 100 › FLSmidth Dorr-Oliver International Inc. USA 100 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 117 6.5 LIST OF GROUP COMPANIES – continued Company name Country Direct Group holding (pct.) FLS Germany Holding GmbH Germany 100 ○ FLSmidth Wadgassen GmbH Germany 100 ⌂ FLSmidth Wadgassen Ltd. Russia 100 ○ FLSmidth Pfister GmbH Germany 100 ○ FLSmidth Real Estate GmbH Germany 100 ○ FLSmidth Wiesbaden GmbH Germany 100 ○ FLSmidth Mining Technologies GmbH Germany 100 ⌂ FLSmidth Industrial Solutions Ltda. Brazil 100 ⌂ thyssenkrupp Industrial Solutions Maroc SARL *** Morocco 100 ⌂ FLSmidth Industrial Solutions Chile Limitada Chile 100 ⌂ thyssenkrupp BulkTec (China) Ltd. *** China 100 ⌂ FLSmidth Industrial Solutions (Canada) Inc. Canada 100 ⌂ PT. FLSmidth Industries Southeast Asia Indonesia 100 ⌂ Mining Plants & Systems Bulgaria EOOD Bulgaria 100 ⌂ TOO FLSmidth Industrial Solutions Kazakhstan Kazakhstan 100 › TOO FLSmidth Plant Construction Kazakhstan Kazakhstan 100 › TOO FLSmidth Plant Engineering Kazakhstan Kazakhstan 100 ⌂ FLSmidth Mining Technologies USA Inc. USA 100 ⌂ KH Mineral S.A.S. France 100 ⌂ OOO FLSmidth Mining Technologies (RUS) Russia 100 ⌂ tk Mining Technologies (Thailand) Ltd. *** Thailand 100 ⌂ thyssenkrupp Industrial Solutions (Peru) S.A. *** Peru 100 ⌂ FLSmidth Industrial Solutions Africa (Pty) Ltd. South Africa 100 › FLSmidth Industrial Solutions South Africa (Pty) Ltd. South Africa 70 › thyssenkrupp Industrial Solutions (Botswana) (Proprietary) Limited *** Botswana 100 › FLSmidth Industrial Solutions Mozambique Limitada Mozambique 100 ⌂ FLSmidth Industrial Solutions Makine Sanayi Ve Ticaret A.Ş. Turkey 100 Company name Country Direct Group holding (pct.) FLSmidth Minerals Holding ApS Denmark 100 ○ FLSmidth Private Limited India 100 ○ FLSmidth S.A. Chile 100 ○ FLSmidth Ltd. Canada 100 ○ FLSmidth S.A. de C.V. Mexico 100 ○ FLSmidth (Pty.) Ltd. South Africa 100 ⌂ FLSMIDTH-SOCIEDADE UNIPESSOAL, LDA Angola 100 ⌂ FLSmidth Mozambique Limitada Mozambique 100 ⌂ FLSmidth (Pty) Ltd. Botswana 85 ⌂ FLSmidth South Africa (Pty.) Ltd. South Africa 75 ○ FLSmidth Pty. Ltd. Australia 100 ⌂ FLSmidth ABON Pty. Ltd. Australia 100 ⌂ IMP Group Pty Ltd Australia 100 ⌂ Intertek Robotic Laboratories Pty Ltd * Australia 50 ⌂ FLSmidth Industrial Solutions (Australia) Pty. Ltd Australia 100 ⌂ Ludowici Pty. Limited Australia 100 › Ludowici Hong Kong Investments Ltd. (under Members voluntary winding up) Hong Kong 100 › Ludowici Packaging Australia Pty. Ltd. (under Members voluntary liquidation) Australia 100 › Ludowici Australia Pty. Ltd. Australia 100 » Rojan Advanced Ceramics Pty. Ltd. (under Members voluntary liquidation) Australia 100 » Ludowici China Pty Limited Australia 100 → Ludowici Hong Kong Limited (under Members voluntary winding up) Hong Kong 100 ⌂ FLSmidth Krebs Australia Pty. Ltd. (under Members voluntary liquidation) Australia 100 ⌂ ESSA Australia Limited (under Members voluntary liquidation) Australia 100 ⌂ DMI Holdings Pty. Ltd. (under Members voluntary liquidation) Australia 100 ⌂ DMI (Australia) Pty. Ltd. (under Members voluntary liquidation) Australia 100 ⌂ Fleet Rebuild Pty. Ltd. (under Members voluntary liquidation) Australia 100 › Mayer Bulk Group Pty. Ltd. (under Members voluntary liquidation) Australia 100 » FLSmidth Mayer Pty. Ltd. (under Members voluntary liquidation) Australia 100 ⌂ FLSmidth M.I.E. Enterprises Pty. Ltd. (under Members voluntary liquidation) Australia 100 Associate Joint Venture *Companies undergoing name change All other enterprises are Group enterprises j Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 118 Section 7 Basis of reporting 7.1 Introduction 119 7.2 Basis of preparation 119 7.3 Defining materiality 119 7.4 Alternative Performance Measures 119 7.5 Accounting policies 119 7.6 Impact from new IFRS 120 7.7 New IFRS not yet adopted 120 7.8 Definition of terms 121 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 119 7.1 Introduction This section provides an overview of our principal accounting policies and judgements as well as new and amended IFRS standards and interpreta- tions. The following sections provide an overall descrip- tion of the accounting policies applied to the con- solidated financial statements. We provide a more detailed description of the accounting policies and key estimates and judgements in the notes. An overview of key accounting estimates and judge- ments are provided in a separate section after the primary financial statements. 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 22 February 2023. 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 FLSmidth Group have been prepared in accord- ance with IFRS as adopted by the EU and further requirements in the Danish Financial Statements Act for listed companies in class D. We have pre- pared the consolidated financial statements in ac- cordance with all the IFRS standards effective at 31 December 2022. The financial year for the Group is January 1 – December 31. The financial statements have been prepared on a going concern basis and under the historical cost convention, except for derivatives and securities, which are measured at fair value. The accounting policies are unchanged from last year except from changes included in note 7.6. As required under the Commission’s Delegated Regulation (EU) 2019/815 (ESEF Regulation), FLS- midth & Co. A/S’ annual report is filed in the Euro- pean Single Electronic Format (ESEF). The consoli- dated financial statements and notes are tagged using inline eXtensible Business Reporting Lan- guage (iXBRL). FLSmidth Group’s iXBRL tagging complies with the ESEF taxonomy included in the ESEF Regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. Where a financial statement line item is not de- fined in the ESEF taxonomy, an extension to the taxonomy has been created, except for exten- sions which are subtotals. The annual report sub- mitted to the Danish Financial Supervisory Author- ity consists of a zip-file (213800G7EG4156NNPG91-2022-12-31-en.zip) that includes an XHTML file, that can be opened in standard web browers and a number of tech- nical XBRL files that make automated extracts of the incorporated XBRL data possible. 7.3 Defining materiality The annual report is based on the concept of ma- teriality, to ensure that the content is material and relevant to the readers. The financial statements consist of many transactions. These transactions are aggregated into classes according to their na- ture or function, and presented in classes of simi- lar items in the financial statements and in the notes as required by IFRS. If items are individually immaterial, they are aggregated with other items of a similar nature in the primary financial state- ments or in the notes. The disclosure requirements throughout IFRS are substantial, and we provide the specific disclosures required by IFRS unless the infor- mation is considered immaterial to the economic decision-making of the readers of these financial statements. 7.4 Alternative Performance measures We present financial measures which are not de- fined according to IFRS. We use these alternative performance 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 de- fined under IFRS, but rather as supplementary in- formation. 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 commonly used are: Growth We use different alternative performance measures related to growth, such as order intake, 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 before special non-recurring items. EBITA is a measure which is commonly used within the industry and included in our calculation of return of capital employed. Note 1.7 provides further information on Special non-recurring items. To reflect the underlying performance, we have in 2022 supplementary included adjusted EBITA and adjusted EBITA margin in the management re- port. The adjustments cover the integration costs of DKK 252m related to the integration of Mining Technology and the costs of DKK 200m related to the exit of Russian activities. 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 after main- taining 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 in- terest-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 activ- ity. 7.5 Accounting policies The descriptions of accounting policies in the notes form part of the overall description of ac- counting policies. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 120 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) that is the func- tional currency of the parent company. Foreign currency transactions are translated into the functional currency defined for each company using the prevailing exchange rates at the trans- action date. Monetary items denominated in for- eign currencies are translated into the functional currency at the prevailing exchange rates at the reporting date. Financial statements of foreign subsidiaries are translated into Danish Kroner at the prevailing ex- change rates at the reporting date for assets and liabilities, and at average exchange rates for in- come statement items. All exchange rate differences are recognised as fi- nancial income or financial costs, except for the following, that are recognised in other comprehen- sive income, translated at the prevailing exchange rates at the reporting date: Translation of foreign subsidiaries’ net assets at the beginning of the year Translation of foreign subsidiaries’ income state- ments from average exchange rates to the ex- change rates prevailing at the reporting date Translation of long-term intercompany balances, which are considered to form part of the net in- vestment 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 Danish Kroner at prevailing exchange rates at the report- ing date. Unrealised gain/loss relating to hedging of future cash flow is recognised in other comprehensive in- come. 7.6 Impact from new IFRS We have implemented all changes to IFRS stand- ards as adopted by the EU and applicable for the 2022 financial year, including: Amendments to IFRS 3, Business Combinations (is- sued May 2020). The amendment updates the ref- erence to the new conceptual framework and adds a further exemption from the recognition principles to prevent changes to the accounting for business combinations. Amendments to IAS 16, Property, Plant and Equip- ment (issued in May 2020). The amendment pro- hibits the deduction of any proceeds from selling items produced while the asset is being tested in the cost of the tangible asset. Amendments to IAS 37, Provisions, Contingent Lia- bilities and Contingent Assets (issued in May 2020). The amendment clarifies that costs in- cluded when determining if a contract is loss mak- ing includes both incremental costs and an alloca- tion of other costs that relate directly to fulfilling contracts. Annual improvements 2018-2020 (issued in May 2020). The improvements cover primarily IFRS 9, Financial Instruments (clarification of which fees to include when applying the ’10 percent’ test to de- termine if a modification of a financial liability is substantial) and IFRS 16, Leases (clarifies that lease incentives are included in the value of a lease). The implementation of the above amendments has not had and is not expected to have a signifi- cant impact on the consolidated financial state- ments. 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 become ef- fective after 31 December 2022. The following amendments are relevant for FLSmidth & Co. A/S, but none of these are ex- pected to have a significant impact on the consoli- dated financial statements: IFRS Description Effective date Amendments to IAS 1, Disclosure of Accounting Policies Disclosure of material accounting policies rather than significant accounting policies (issued February 2021) 01/Jan/23 Amendments to IAS 8, Definition of Accounting Estimates Introduces a definition of accounting estimates and amendments to distinguish changes in accounting estimates from changes in accounting policies (issued February 2021) 01/Jan/23 Amendments to IAS 12, Deferred tax Clarifies the accounting for deferred tax on leases and decommissioning obligations (issued May 2021) 01/Jan/23 Amendments to IAS 1, Presentation of Financial Statements Amendment related to promoting consistency when classifying a liability with an uncertain settlement date as a current or non-current liability. The amendment also requires disclosure of information on the risk that a non-current liability becomes payable within twelve months (issued January 2020 and October 2022) 01/Jan/24 Amendments to IFRS 16, Leases Introduces measurement requirements for sale and leaseback transactions that satisfy the requirements in IFRS 15 for being accounted for as a sale (issued September 2022) 01/Jan/24 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 121 7.8 Definition of terms Acquisition development Development as a consequence of business ac- quisition, disregarding development from cur- rency. In general, business acquisitions are in- cluded in the development from organic growth after 12 months, unless it earlier is impracticable to distinguish acquisition development from organic growth, e.g. due to integration into existing busi- ness. Alternative performance measure A financial measure of historical or future financial 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 mi- norities divided by year-end number of shares. Capital employed, average In 2022, the average capital employed is adjusted due to the acquisition of Mining Technologies (ex- TK) by including the increase in capital employed coming from Mining Technologies (ex-TK) prorated to the period when FLSmidth was the owner. Capital employed, end of period Intangible assets (cost) + property, plant and equipment (carrying amount) + lease assets + net working capital. Capital expenditure (CAPEX) Investment in intangible assets as well as prop- erty, plant and equipment and leased assets. Ex- cluding impact from acquisitions. CFFF Cash flow from financing activities. CFFI Cash flow from investing activities. CFFO Cash flow from operating activities. CFFO / Revenue CFFO as a percentage of last 12 months’ revenue. 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 and adj. EBITA Earnings before, interest, tax, amortisation and im- pairments of investments in associated compa- nies. Adjusted EBITA equals EBITA plus integra- tion costs and costs to exit Russia (2022: DKK 452m). EBITA margin and adj. EBITA margin EBITA as a percentage of revenue. Adjusted EBITA margin calculated as Adjusted EBITA as a percentage of revenue. EBITDA before special non-recurring items Earnings before special non-recurring items, interest, tax, depreciation, amortisation and impairments of investments in associated companies. EBITDA margin before special non- recurring items EBITDA before special non-recurring items 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 decomposition Increase/decrease in percentage compared to last year. Currency effect is current year amount com- pared to current year amount at last year’s foreign exchange rate. Organic effect is growth +/- cur- rency effect and acquisition effect. Market capitalisation The share price multiplied by the number of shares issued end of year. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 122 7.8 Definition of terms – continued 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. Net working capital, end Inventories + trade receivables + work in progress 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 The total number of shares, excluding FLSmidth’s holding of treasury shares. NIBD/EBITDA Net interest-bearing debt (NIBD) divided by last 12 months’ EBITDA. 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 obligations on current contracts at end of year. On O&M con- tracts 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 contract becomes binding for both parties dependent 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 re- lated to transactions with owners of the company. 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 percentage 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. In the calculation of the average capital em- ployed, the increase coming from the acquisition of Mining Technologies (ex-TK) is included pro- rated to the period when FLSmidth was the owner. 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, in- cluding gains and losses from disposals of enter- prises and activities. Total shareholder return Share price increase and paid dividend. Sustainability related definition of terms EU Taxonomy – eligible CAPEX FLSmidth CAPEX linked to economic activities cur- rently defined in the EU Taxonomy as a percent- age of total additions to tangibles and intangibles, before depreciation, amortisations or any remeas- urements. Includes additions through acquisitions. EU Taxonomy – eligible OPEX FLSmidth OPEX linked to economic activities cur- rently defined in the EU Taxonomy as a percent- age of direct OPEX costs. These relate to day-to- day servicing, maintenance and repair of assets used for production, as well as non-capitalised R&D costs. EU Taxonomy – eligible revenue FLSmidth revenue linked to economic activities currently defined in the EU Taxonomy as a per- centage of total revenue. FLSmidth defines reve- nue-generating eligible equipment and technolo- gies as those aimed at substantial GHG emission reductions in the value proposition of the product offerings. EU Taxonomy – aligned CAPEX The portion of FLSmidth ‘EU Taxonomy - Eligible CAPEX’ that is aligned to technical screenings for environmentally sustainable economic activities defined in the EU Taxonomy. Measured as a per- centage of total additions to tangibles and intangi- bles, before depreciation, amortisations or any re- measurements. Includes additions through acquisitions. EU Taxonomy – aligned OPEX The portion of FLSmidth ‘EU Taxonomy - Eligible OPEX’ that is aligned to technical screenings for environmentally sustainable economic activities defined in the EU Taxonomy. Measured as a per- centage of direct OPEX costs. EU Taxonomy – aligned revenue The portion of FLSmidth ‘EU Taxonomy - Eligible Revenue’ that is aligned to technical screenings for environmentally sustainable economic activi- ties defined in the EU Taxonomy. Measured as a percentage of total revenue. Number of suppliers screened for sustainability Count of suppliers screened. Both active and po- tential new suppliers. A screening includes review of the suppliers Health and Safety, Environmental and Social performance. Scope 1 greenhouse gas emissions (in tonnes CO₂-equivalents) Scope 1 emissions are direct emissions of green- house gases and are measured as CO₂-equiva- lents. Scope 1 emissions for FLSmidth comprise fuel and gas use for various operational activities. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 123 7.8 Definition of terms – continued Scope 2 greenhouse gas emissions (GHG) (in tonnes CO₂-equivalents) Scope 2 emissions include indirect emissions from electricity, heat, steam and cooling purchased and consumed by FLSmidth. Scope 3: Economic intensity, use of sold prod- ucts (tCO₂e/DKKm order intake) Downstream scope 3 greenhouse gas emissions from lifetime use of sold products sold in the re- porting year, divided by order intake for the same period. Spend with suppliers with science-based targets FLSmidth external spend with companies as hav- ing set SBT targets on (website) versus total FLS- midth external spend. Total Recorded Incident Rate (including contrac- tors) TRIR TRIR accidents include fatalities, Lost time incident (LTI), medically treated injuries (MTI) and Re- stricted Work cases (RWC). The total recordable incident frequency rate (TRIR) is calculated as the number of TRI accidents per one million hours worked. Water withdrawal (m3) Water withdrawal includes all resources FLSmidth withdraws from groundwater or consumed from waterworks. Women managers, % Women employees with one or more direct re- ports. Share of Women managers by year-end di- vided by all managers at year-end. (Year-end or respective quarter end). Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 124 Primary statements Income statement 125 Balance sheet 126 Equity 127 Notes 1. Other operating income 128 2. Staff costs 128 3. Financial income 128 4. Financial cost 128 5. Tax for the year 128 6. Distribution of profit for the year 128 7. Property, plant and equipment 128 8. Financial non-current assets 129 9. Deferred tax assets and liabilities 129 10. Other receivables 129 11. Derivatives 129 12. Provisions 130 13. Other liabilities 130 14. Maturity profile of current and non- current liabilities 130 15. Audit Fee 130 16. Contractual and contingent liabilities 130 17. Related party transactions 130 18. Shareholders 131 19. Accounting policies (parent company) 131 Parent company financial statements Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 125 Management’s review Parent company FLSmidth & Co. A/S’ activities include holding of shares in Group enterprises and the Group’s Treasury activities. Regarding the holding of treasury shares reference is made to section 5.1 in the Group financial statements. Dividend from Group enterprises to the parent company, FLSmidth & Co. A/S, was DKK 41m in 2022 (2021: DKK 44m) and the profit for the year was DKK -41m (2021: DKK 61m). The increase in Other operating costs are caused by additional costs in respect to the inte- gration of Mining Technologies (ex-TK) (DKK 80m) into the FLSmidth group. Increase in financial income and cost is related to foreign exchange gains and losses. Net financial income is DKK 119m (2021: DKK 64m). The result is impacted by write downs of investments in Group enterprises. Total assets at year-end amounted to DKK 11,811m (2021: DKK 10,187m) and the equity was DKK 3,740m (2021: DKK 3,952m). Management consider the result to be in line with the ex- pected level. The financial guidance of 2023 for the Parent is that we expect to realize a profit for the year between DKK 0m and DKK -50m. The guidance of the year will be affected by poten- tial impairments of investments in Group enter- prises as well as integration costs relating to Mining Technologies (ex-TK). Income statement Notes DKKm 2022 2021 Dividend from Group enterprises 41 44 1 Other operating income 1 1 2 Staff costs (6) (8) Other operating costs (107) (21) 8 Impairment of investments in Group enterprises (52) (18) 7 Depreciation, amortisation and impairment (1) (1) EBIT (124) (3) 3 Financial income 1,693 808 4 Financial costs (1,612) (744) EBT (43) 61 5 Tax for the year 2 0 Profit for the year (41) 61 6 Distribution of profit for the year: Retained earnings (214) (112) Proposed dividend 173 173 (41) 61 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 126 Balance sheet Notes DKKm 2022 2021 Assets Land and buildings 7 8 7 Property, plant and equipment 7 8 8 Investments in Group enterprises 2,566 2,618 8 Other securities and investments 16 21 Financial non-current assets 2,582 2,639 Total non-current assets 2,589 2,647 Receivables from Group enterprises 8,520 6,781 9 Deferred tax assets 35 27 10 Other receivables 154 144 Receivables 8,709 6,952 Cash and cash equivalents 513 588 Total current assets 9,222 7,540 Total assets 11,811 10,187 Notes DKKm 2022 2021 Equity and liabilities Share capital 1,153 1,153 Retained earnings 2,414 2,626 Proposed dividend 173 173 Equity 3,740 3,952 12 Provisions 9 9 Provisions 9 9 14 Bank loans 1,716 499 Total non-current liabilities 1,716 499 14 Bank loans 583 0 14 Debt to Group enterprises 5,614 5,538 13+14 Other liabilities 149 189 Total current liabilities 6,346 5,727 Total liabilities 8,071 6,235 Total equity and liabilities 11,811 10,187 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 127 Each share entitles its holder to 20 votes, and there are no special rights attached to the shares. Profit for the year DKK -41m (2021: DKK 61m) is transferred to retained earnings, of which DKK 173m (2021: DKK 173m) is proposed as dividend. Equity DKKm Share capital Retained earnings Proposed dividend Total Equity at 1 January 2021 1,025 1,388 103 2,516 Profit for the year 61 61 Dividend paid 2 (103) (101) Issue of shares, net of costs 128 1,306 1,434 Proposed dividend (173) 173 0 Share-based payment (1) (1) Exercise of share options 43 43 Equity at 31 December 2021 1,153 2,626 173 3,952 Profit for the year (41) (41) Dividend paid 3 (173) (170) Proposed dividend (173) 173 0 Share-based payment (1) (1) Exercise of share options 0 Equity at 31 December 2022 1,153 2,414 173 3,740 Number of shares (1,000): 2022 2021 2020 2019 2018 Share capital at 1 January 57,650 51,250 51,250 51,250 51,250 Issue of shares 0 6,400 0 0 0 Share capital at 31 December 57,650 57,650 51,250 51,250 51,250 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 128 1. Other operating income 2. Staff costs Remuneration of the company’s Board of Direc- tors for 2022 amounts to DKK 7m (2021: DKK 7m), including DKK 0m (2021: DKK 0m) which was in- curred by the parent company. The total remuner- ation of the Group’s Executive Management amounted to DKK 79m (2021: DKK 71m), of which DKK 6m (2021: DKK 8m) was incurred by the par- ent company. In respect to Group's Executive Management in- centive program reference is made to section 6.1 Share-based payment in the Group financial statements. 3. Financial income 4. Financial cost 5. Tax for the year 6. Distribution of profit for the year Proposed distribution of profit: 7. Property, plant and equipment DKKm 2022 2021 Rent fee, etc. 1 1 1 1 DKKm 2022 2021 Salaries and other remuneration 3 3 Bonus 2 3 Share-based payment 1 1 Severance package 0 1 6 8 Average number of employees 8 8 DKKm 2022 2021 Interest income 8 0 Interest income from Group enterprises 144 85 Foreign exchange gains 1,541 723 1,693 808 DKKm 2022 2021 Write-down of loans to Group enterprises 38 0 Interest cost 41 36 Interest cost to Group companies 66 13 Foreign exchange losses 1,467 695 1,612 744 DKKm 2022 2021 Current tax on profit/loss for the year (3) (4) Withholding tax (2) (1) Adjustments of deferred tax 4 (1) Adjustments regarding previous years, deferred taxes 4 5 Adjustments regarding previous years, current taxes (1) 1 Tax for the year 2 0 DKKm 2022 2021 Proposed dividend 173 173 Retained earnings (214) (112) Profit for the year (41) 61 DKKm Land and buildings Operating equipment, fixtures and fittings Total Cost at 1 January 2022 23 2 25 Cost at 31 December 2022 23 2 25 Depreciation and impairment at 1 January 2022 (15) (2) (17) Depreciation (1) 0 (1) Depreciation and impairment at 31 December 2022 (16) (2) (18) Carrying amount at 31 December 2022 7 0 7 DKKm Land and buildings Operating equipment, fixtures and fittings Total Cost at 1 January 2021 23 2 25 Cost at 31 December 2021 23 2 25 Depreciation and impairment at 1 January 2021 (14) (2) (16) Depreciation (1) 0 (1) Depreciation and impairment at 31 December 2021 (15) (2) (17) Carrying amount at 31 December 2021 8 0 8 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 129 8. Financial non-current assets For specification of investments in Group enter- prises and for the acquisition of Mining Technol- ogy, see note 2.10 and 6.5 in the consolidated fi- nancial statements. Result of annual impairment test At the end of 2022, the cost price of the invest- ments in subsidiaries was tested for impairment. The impairment test based on value in use identi- fied impairment losses for 2022 amounting to DKK 52m (2021: DKK 18m). The impairment was related to the subsidiary FLSmidth Global Services A/S. 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 10% and re- flects the latest market assumptions for the risk free rate based on a 10-year US 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 annual growth rate for the terminal period of 3.0% has been applied. 9. Deferred tax assets and liabilities Deferred tax relates to the following items: 10. Other receivables Other receivables mainly include fair value of fi- nancial contracts (positive value) of DKK 82m (2021: DKK 55m), receivable from Canadian tax authorities DKK 18m (2021: DKK 18m) and tax on account for the Danish jointly taxed enterprises. 11. Derivatives The currency exposure for the Group is hedged according to the Financial Policy, however at Par- ent company level no hedge accounting is ap- plied (economic hedging). At 31 December 2022, the fair value of our hedge agreements amounted to DKK -3m (2021: DKK 3m). 12. Provisions DKKm 2022 2021 Tangible asset 17 16 Liabilities 18 11 Net value of deferred tax assets 35 27 Economic hedge, DKKm 2022 Currency Notional amount Net fair value AUD 86 9 CAD 422 2 GBP 581 (10) MXN 255 4 USD 1,821 (9) Other 0 1 Total (3) A negative notional amount represents a sale of the currency Economic hedge, DKKm 2021 Currency Notional amount Net fair value AUD 210 2 CAD 16 0 GBP 560 10 MXN 229 3 USD 1.179 (6) Other 0 (6) Total 3 A negative notional amount represents a sale of the currency DKKm 2022 2021 Provisions at 1 January 9 8 Addition 0 1 Reversals 0 0 Provisions at 31 December 9 9 DKKm Investments in Group enterprises Other securities and investments Total Cost at 1 January 2022 3,245 37 3,282 Additions 0 0 0 Share-based payment 0 0 0 Cost at 31 December 2022 3,245 37 3,282 Impairment at 1 January 2022 (627) (16) (643) Impairment (52) 0 (52) Fair value adjustments 0 (5) (5) Impairment at 31 December 2022 (679) (21) (700) Carrying amount at 31 December 2022 2,566 16 2,582 DKKm Investments in Group enterprises Other securities and investments Total Cost at 1 January 2021 3,121 37 3,158 Additions 125 0 125 Share-based payment (1) 0 (1) Cost at 31 December 2021 3,245 37 3,282 Impairment at 1 January 2021 (609) (18) (627) Impairment (18) 0 (18) Fair value adjustments 0 2 2 Impairment at 31 December 2021 (627) (16) (643) Carrying amount at 31 December 2021 2,618 21 2,639 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 130 13. Other liabilities Other liabilities include fair value of financial contracts (negative value) of DKK 84m (2021: DKK 52m). 14. Maturity profile of current and non-current liabilities Maturity profile of liabilities: 15. Audit Fee In addition to statutory audit, EY Godkendt Revisionspartnerselskab, the Parent company au- ditors provided other assurance engagements to the Parent company. 16. Contractual and contingent liabilities The parent company has provided guarantees pri- marily to financial institutions at a total amount of DKK 13,521m (2021: DKK 13,094m) of which DKK 6,794m have been utilized in 2022 (2021: DKK 5,200m). Out of the total amount, DKK 11,315m are related to parent corporate guarantees issued for guarantee facilities with banks (2021: DKK 1,715m), out of which DKK 5,157m is utilized (2021: DKK 4,489m). In connection with disposal of enterprises, normal guarantees, etc. are issued to the acquiring enter- prise. 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 interest, 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 liabil- ities apart from the above. See also note 2.9 in the consolidated financial statements. 17. Related party transactions Related parties include the parent company’s 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 2022 and 2021, apart from Group Executive Management´s remuneration stated in note 2, divi- dend and Treasury activities as mentioned below. Capital transactions with subsidiaries are included in note 8 and balances are disclosed separately in the balance sheet. Parent company’s sales of services consist of 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 FLSmidth Group’s in-house Treasury func- tion, which is performed by the parent company, FLSmidth & Co. A/S. Receivables and payables are mainly attributable to this activity. For guarantees provided by the parent company for related parties, please see note 16 in the par- ent company financial statements DKKm 2022 2021 Bank loans 583 0 Debt to Group enterprises 5,600 5,538 Other liabilities 163 189 Within one year 6,346 5,727 Bank loans 1,716 499 Other liabilities 0 0 Within one to five years 1,716 499 After five years 0 0 Total 8,062 6,226 DKKm 2022 2021 Statutory audit 4 3 Total audit related services 4 3 Total fees to independent auditor 4 3 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 131 18. Shareholders At the end of 2022: One shareholder has reported a participating in- terest above 10%: ■ Lundbeckfond Invest A/S, Denmark. As announced in our company announcement no. 4-2023 of 19 January 2023 and Altor Invest 7 AS acquired above 10 % of the shares and voting rights in FLSmidth & Co. A/S. No other shareholders have reported a participat- ing interest above 5%. 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 com- pany’s financial statements. The parent com- pany’s accounting policies on recognition and measurement are generally consistent with those of the Group. The instances in which the parent company’s accounting policies deviate from those of the Group have been described below. The accounting policies for the parent company are unchanged from 2021. The company’s main activity, dividend income from Group enterprises, is presented first in the in- come statement. Dividend from Group enterprises Dividend from investments in subsidiaries is recog- nised as income in the parent company’s income statement in the financial year in which the divi- dend is declared. This will typically be at the time of the approval by the Annual General Meeting of distribution from the company concerned. When the dividend distributed exceeds the accumulated earnings after the date of acquisition, the dividend is recognised in the income statement, however, this will trigger an impairment test of the invest- ment. 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 parent company’s financial statements, the depre- ciation period and the residual value are deter- mined at the time of acquisition and are reas- sessed every year. Investments in group enterprises Investments in Group enterprises are measured at cost less impairment. Where the cost exceeds the recoverable amount, an impairment loss is recog- nised to this lower value. To the extent the distrib- uted dividend exceeds the accumulated earnings after the date of acquisition, an impairment test of the investment is triggered. Other securities and investments Other securities and investments consist of shares in cement plants that are acquired in connection with the signing of contracts and are measured at fair value. Value adjustments are recognised in the income statement as financial items. Leases The company has chosen IAS 17 as an interpreta- tion for leases. Operating leases are recognised in the income statement on a straight line basis. Financial assets and liabilities Receivables are measured at amortised cost or lower net realizable value. The company has cho- sen IAS 39 as interpretation for impairment of fi- nancial assets. Financial liabilities are measured at amortised cost. Cash flow statement As the consolidated financial statements include a cash flow statement for the whole Group, no indi- vidual statement for the parent company has been included, see the exemption provision, sec- tion 86(4) of the Danish Financial Statements Act. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 132 The Board of Directors and the Executive Board have today considered and approved the Annual Report for the financial year 1 January – 31 December 2022. The consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU. The Parent company financial statements are prepared in accordance with the Danish Financial Statements Act. Further, the Annual Report is pre- pared in accordance with additional requirements 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 view of the Group’s and the Parent company’s financial position at 31 De- cember 2022 as well as of the results of their op- erations and the consolidated cash flows for the fi- nancial year 1 January – 31 December 2022. In our opinion, the management’s review gives a fair review of the development in the Group’s and the Parent company’s activities and financial mat- ters, results of operations, consolidated cash flows and financial position as well as a description 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 2022 with the file name 213800G7EG4156NNPG91-2022-12-31- en.zip is prepared, in all material respects, in com- pliance with the ESEF Regulation. We recommend the Annual report for adoption at the Annual General Meeting. Valby, 22 February 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 Gillian Dawn Winckler Richard Robinson Smith Thrasyvoulos Moraitis Carsten Hansen Claus Østergaard Leif Gundtoft Statement by Management Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 133 To the shareholders of FLSmidth & Co. A/S Report on the audit of the consol- idated financial statements and parent company financial state- ments 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 2022, which comprise income statement, balance sheet, statement of changes in equity and notes, including accounting policies, for the Group and the Parent Company, and a consolidated statement of comprehensive income and a consolidated cash flow statement. The consolidated financial statements are pre- pared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial 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 po- sition of the Group at 31 December 2022 and of the results of the Group's operations and cash flows for the financial year 1 January – 31 Decem- ber 2022 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 2022 and of the results of the Parent Company's operations for the financial year 1 Jan- uary – 31 December 2022 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 Di- rectors. 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 fi- nancial statements and the parent company finan- cial statements" (hereinafter collectively referred to as "the financial statements") section of our re- port. 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' International Code of Ethics for Pro- fessional Accountants (IESBA Code) and the addi- tional ethical requirements applicable in Denmark, and we have fulfilled our other ethical responsibil- ities in accordance with these requirements and the IESBA Code. To the best of our knowledge, we have not provided any prohibited non-audit ser- vices as described 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 to- tal consecutive period of 6 years including the fi- nancial year 2022. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the fi- nancial year 2022. 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 descrip- tion of how our audit addressed the matter is pro- vided in that context. We have fulfilled our responsibilities described in the "Auditor's responsibilities for the audit of the fi- nancial statements" section, including in relation to the key audit matters below. Our audit included the design and performance of procedures to re- spond to our assessment of the risks of material misstatement of the financial statements. The re- sults of our audit procedures, including the proce- dures performed to address the matters below, provide the basis for our audit opinion on the fi- nancial 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 consolidated financial statements. FLSmidth’s 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 macroeconomic and political factors as well as COVID-19 related challenges may have an adverse effect, changes in these estimates during the execution of projects can significantly impact the revenue, cost and contribution recognised. Ac- cordingly, we considered the accounting for pro- jects to be a key audit matter for the consolidated financial statements. As part of our procedures, we assessed the judg- ments made by management regarding the esti- mated costs to complete and the assumptions made in assessment of warranty provisions by comparing these to underlying accounting records and supporting documentation. We assessed the changes in estimated project cost and risk contin- gencies by comparing these to budgets and latest estimates, and discussed these with project ac- counting, project management and group man- agement. We further assessed management’s judgements regarding exposures related to claims and liquidated damages for projects and provi- sions to mitigate contract-specific financial risks as Independent auditor's report Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 134 well as the risk of credit losses. For those bal- ances subject to claims, we made inquiries of ex- ternal and internal legal counsel. 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 in- ventory 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 short notice. The valuation of inventory involves signifi- cant management judgements to determine whether inventory is still technical relevant when demand for the inventory items is expected. The current market conditions are also considered. Ac- cordingly, we considered this to be a key audit matter for the consolidated financial statements. As part of our procedures, we analysed the age- ing of inventory recorded and obtained supporting documentation regarding valuation of slow mov- ing items. Further, we assessed management’s judgements in respect of the expected market de- mand and expected sales price for significant aged items by comparing these to available sup- porting documentation. 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 characteris- tics and circumstances of the customer, e.g. the customer’s ability to 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. Ac- cordingly, we considered this to be a key audit matter for the consolidated financial statements. As part of our procedures, we analysed the age- ing of trade receivables and obtained supporting documentation regarding management’s ex- pected credit losses from items with particular risk characteristics. We evaluated management’s as- sessment of recoverability particularly for signifi- cant aged items by corroborating them against in- ternal and external evidence regarding the likelihood of payment. Acquisition accounting for thyssenkrupp Mining Technologies GmbH The accounting principles and disclosures about business acquisitions are included in note 2.10 to the consolidated financial statements. On 31 August 2022, FLSmidth completed the ac- quisition of thyssenkrupp Mining Technologies GmbH for a total consideration of DKK 3,122 mil- lion. In connection with the acquisition, manage- ment prepared a preliminary purchase price allo- cation for the acquisition to allocate the fair value of the identifiable assets and liabilities acquired. Significant judgements have been exercised by management in establishing the initial estimates of the fair values in preparing the purchase price allocation. These significant judgements and esti- mates mainly relate to assessing the fair value of the acquired patents and IP rights, customer rela- tions, order backlog and ongoing projects includ- ing related balances and provisions, etc. Accord- ingly, we considered accounting for the acquisition to be a key audit matter for the consol- idated financial statements. As part of our audit, we have assessed the appro- priateness of the accounting principles for busi- ness acquisitions applied by management com- pared to applicable accounting standards. We involved our internal specialists in assessing the valuation methodologies used by management when assessing the fair value of the acquired as- sets and liabilities including the determination of the initial estimates of the fair values. We as- sessed the key assumptions applied by manage- ment by comparing these to available market data, underlying accounting records, supporting documentation, past performance of the acquired business and our experience from comparable transactions. We further considered the adequacy of disclosures provided by management com- pared to applicable accounting standards. Statement on the Management's review Management is responsible for the Management'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 otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management's review provides the in- formation 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 Manage- ment's review. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 135 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 International Fi- nancial Reporting Standards as adopted by the EU and additional requirements of the Danish Fi- nancial Statements Act and for the preparation of parent company financial statements that give a true and fair view in accordance with the Danish Financial Statements Act. Moreover, Management is responsible for such in- ternal control as Management determines is nec- essary 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 go- ing concern, disclosing, as applicable, matters re- lated to going concern and using the going con- cern basis of accounting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. 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 obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, inten- tional omissions, misrepresentations or the over- ride of internal control. ■ Obtain an understanding of internal control rele- vant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Par- ent Company's internal control. ■ Evaluate the appropriateness of accounting pol- icies used and the reasonableness of account- ing 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 Company's ability to continue as a going concern. If we con- clude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial state- ments or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained 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 con- cern. ■ 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 direction, supervision and performance of the group audit. We remain solely responsible for our audit opin- ion. We communicate with those charged with govern- ance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with rele- vant 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 audit of the consolidated financial statements and the parent company financial statements of the cur- rent period and are therefore the key audit mat- ters. We describe these matters in our auditor's re- port unless law or regulation precludes public disclosure about the matter. Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 136 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 2022 with the file name 213800G7EG4156NNPG91-2022-12-31-en.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 including notes. 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 all financial infor- mation 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 deter- mines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. 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 ob- tained, and to issue a report that includes our opinion. The nature, timing and extent of proce- dures selected depend on the auditor’s judge- ment, including the assessment of the risks of ma- terial departures from the requirements set out in the ESEF Regulation, whether due to fraud or er- ror. The procedures include: ■ Testing whether the annual report is prepared in XHTML format; ■ Obtaining an understanding of the company's iXBRL tagging process and of internal control over the tagging process; ■ Evaluating the completeness of the iXBRL tag- ging of the consolidated financial statements in- cluding notes; ■ Evaluating the appropriateness of the compa- ny's use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; ■ Evaluating the use of anchoring of extension el- ements 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 2022 with the file name 213800G7EG4156NNPG91-2022-12-31- en.zip is prepared, in all material respects, in com- pliance with the ESEF Regulation. Copenhagen, 22 February 2023 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 Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 137 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 the COVID-19 pandemic, interest rate and ex- change rate fluctuations, delays or faults in pro- ject execution, fluctuations in raw material prices, delays in research and/or development of new products or service concepts, interruptions of sup- plies and production, unexpected breach or termi- nation of contracts, market-driven price reductions for FLSmidth & Co. A/S’ products and/or services, introduction of competing products, reliance on in- formation technology, FLSmidth & Co. A/S’ ability to successfully market current and new products, exposure to product liability and legal proceed- ings and investigations, changes in legislation or regulation and interpretation thereof, intellectual property protection, perceived or actual failure to adhere to ethical marketing practices, investments in and divestitures of domestic and foreign enter- prises, unexpected growth in costs and expenses, failure to recruit 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 up- date or revise any forward-looking statement after the distribution of this report. Forward looking statements Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements FLSmidth ■ Annual Report 2022 138 Annual report 2022 1 January – 31 December 2022 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 Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2022-01-012022-12-312021-01-012021-12-31Reporting class DFLSmidth & Co. 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