1 January – 31 December 2022 Annual Report 2022

FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby CVR No. 58180912

Annual Report 2022

2022 FLSmidth reports

Sustainability Report 2022

In our Sustainability Report 2022, we disclose our progress towards achieving our sustainability ambitions.

Corporate Governance Statement 2022

In our Corporate Governance Statement, you can read more about how we have incorporated and follow the recommendations prepared 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.

Management review

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

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

Financial statements

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

FLSmidth ■ Annual Report 2022 3

Consolidated financial statements	64
Consolidated notes	69
Parent company financial statements	124
Statement by Management	132
Independent auditor's report	133

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 Statement, a Sustainability Report and a Remuneration Report. FLSmidth & Co. A/S is listed on NASDAQ OMX Copenhagen (Denmark).

FY22 highlights Non-Core Activities

Mining Technologies (ex-TK)*

TK Mining* acquisition completed 31 August 2022

Creating a leading global mining technology and service provider Mining

15,082 Mining revenue (DKKm)

10.6% Adjusted EBITA margin

Organisation

Mikko Keto, new CEO as of 1 January 2022

Tom Knutzen, new Chair as of 30 March 2022

Cement

6,264 Cement revenue (DKKm)

3.3% EBITA margin

Strategy

New pure play strategies

New pure play strategies launched for Mining and Cement including new long-term financial targets

Non-Core Activities segment established in Q4 2022

Full exit by way of divestment or wind-down

*Mining Technologies (ex-TK) refers to the former thyssenkrupp Mining business (TK Mining)

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 significantly improved profitability despite the everchanging environ-

ment.

FLSmidth kickstarted its pure

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 macroenvironment and numerous business changes.

No green transition without minerals

The importance of minerals to the green transition cannot be overestimated. Supply of critical minerals like copper, lithium, nickel, and cobalt faces continued pressure to meet the ever-growing demand, and hundreds of new mines are required for these critical minerals by 2030 to avoid a delay 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 CO² emissions, it is critical that the environmental impact of cement production is reduced.

Solving these crucial challenges is what drives us at FLSmidth. It is both an opportunity and our responsibility. With our MissionZero technologies and solutions, we are uniquely positioned to significantly 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 mining customers with best-in-class full flowsheet technologies 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, reduced 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 opportunities. This also kickstarted our transformation journey, including a sharpened strategic focus on technology, products, services and sustainability.

To support our transformation, we have also begun 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 Technologies (ex-TK) acquisition and moving towards a principal company model. As a result, we have reduced 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 opportunities we pursue and the contracts we accept carry less risks, are reduced in terms of complexity, are more profitable and are aligned with our long-term strategic priorities.

It has been crucial for us to reinvigorate ourselves and provide a clear strategic direction to create a new foundation of trust. Focus is now on execution to build trust through results.

Tom Knutzen, Chair

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 ensure strong execution of this.

Following the completion of the Mining Technologies (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 segment. This ensures a clear focus and stronger exe-

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 suspend 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 order intake and revenue especially due to improved Service activity. Cement has shown a stable performance and continued the positive trend of improving profitability, and thereby returned to positive EBITA.

Letter to our shareholders

As a result of this, we delivered an improved performance in 2022 with Mining and Cement revenue growth of 29% and 7% over 2021, respectively. 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 integration 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 improved 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 strategies for Mining and Cement including new longterm 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 Technologies (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 introduced 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 Mining 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 challenges such as geopolitical turmoil, an energy crisis and a potential recession, we believe these challenges are manageable and significantly outweighed by the fundamental long-term business drivers – that are: the much-required green transition, economic growth and specific industry opportunities 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 results together.

To all employees at FLSmidth, thank you for all your efforts in 2022 and we look forward to bringing our new strategies to life together with you during 2023.

Mikko Keto CEO

Tom Knutzen Chair

With the launch of our new pure play strategies, we have now set clear directions and ambitions for our transformation journey including the long-term financial potential for both Mining and Cement. Key focus is to walk-the-talk to ensure strong strategy execution to the benefit of our employees, customers, society and shareholders.

Mikko Keto, CEO

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

FLSmidth ■ Annual Report 2022 7

Financial performance highlights 2022

Sustainability performance highlights 2022

Spend with suppliers with sciencebased targets % of total supplier spend

7.7

▲ 2.8% points 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 suppliers to support them in setting emission reduction targets.

Safety (Total recordable injury rate)

Total recordable injury rate/million working hours

1.5

▲ 0.4 improvement 1.9 1.5 2021 2022

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.

Return to work after COVID-19 and less use of renewable energy drove up scope 2 emissions, while scope 1 emissions decreased. Despite this, combined emissions were below our 43,622 tCO2e target. Increasing the use of renewable energy will be a key driver towards carbon neutrality by 2030.

We did not achieve our 15.7% target for women managers in 2022 and saw no improvement from 2021. Through active recruitment, career development and leadership training, we aim to achieve our diversity target of having 25% women managers by 2030.

Key factors in the improvement were lower sales of heavy-CO2-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%.

2021

Global supply chain issues have been challenging throughout the year. The situation has eased somewhat 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.

85.1

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.

Suppliers assessed for sustainability No.

Supplier assessments help us to encourage environmental 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.

FLSmidth ■ Annual Report 2022 9

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 sciencebased 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

2023 financial guidance

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.

Mining	Cement	Non-Core Activities	Group
Revenue (DKKbn) 16.0-17.0 (DKK 15.1bn)	Revenue (DKKbn) 6.0-6.5 (DKK 6.3bn)	Revenue (DKKbn) 0.8-1.0 (DKK 0.5bn)	Revenue (DKKbn) 23.0-24.5 (DKK 21.8bn)
Adj. EBITA margin 9-10% (10.6%)	EBITA margin 4.0-5.0% (3.3%)	EBITA Loss of ~DKK 250-350m (Loss of DKK 0.4bn)	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	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.

cludes adjustments for integration costs of around DKK 550m for the full year 2023.

Long-term financial targets

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.

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	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	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
tion of our operating model, de-risking, Service business growth, improved Service and Products mix as well as growth from our Products business.	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	investments ■ Effective tax rate expected to be reduced from business sim plification

Service and Products mix.

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

FLSmidth ■ Annual Report 2022 13

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

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. 2021: 30%

2021: 18%

revenue growth

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-

The core drivers of our transformation are sustain-

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.

The benefits are clear, as the pure play approach caters for increased independence, enhanced operating 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 segment was established as of Q4 2022. The Non-Core Activities segment comprises products and activities that are no longer deemed to be of core

To maximise our potential and value creation for strategic importance to FLSmidth. This segment will be fully exited over the next three years.

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 including 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 proximity 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 ambitions, 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 execution 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

Pure play approach

two segments.

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

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 purpose is rooted in the much-needed green transi tion in the mining and cement industries and how we at FLSmidth can support this.

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 inclusion 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

Our approach to sustainability

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.

Progress on MissionZero

Mining and cement operations have a significant impact on the environment – together contributing approximately 10% of global CO² 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 Agreement, 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 energyefficient, less CO2-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 CO2-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 CO2 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 CO² intensiveness 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 intensity 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 CO² improvements. Key innovations released include the Alumina Gas Sus pension Calciner and the Indirect Cooler for lithium processing.

Technical partnerships with customers, universi ties and other organisations are essential to our MissionZero programme, enabling us to accelerate 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)

tCO2e/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 Development Goals

In 2022, we saw more progress towards our MissionZero ambition, including:

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.

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.

Find out more at MissionZero Mine

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 Green Cement Plant

EU taxonomy

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.

The EU taxonomy represents a new opportunity for us to demonstrate how we support our custom ers in reducing their greenhouse gas (GHG) footprints, while detailing the environmental perfor mance of our MissionZero portfolio.

The EU taxonomy targets six environmental objectives:

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 revenue¹ , CAPEX and OPEX need to pass screen ing criteria to be considered sustainable. This de fines alignment in the EU taxonomy. The

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.

screenings for alignment included proving sub-

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.

2) Total eligible revenue, OPEX and CAPEX represent both "Eligible and aligned" and "Eligible and non-aligned".

Progress in 2022

Total eligible² 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

¹⁾ We use the term revenue instead of turnover to align with the terminology in our financial reporting.

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

FLSmidth ■ Annual Report 2022 22

At a glance – FLSmidth Mining Governance 16-17bn

Our purpose is "mining for a sustainable world" and our mission is "delivering solutions for tomorrow's mine"

revenue¹

~60/40 Service vs. Capital revenue split

~50% exposure to minerals critical to the green transition²

7,126 employees³

¹Based on FY2023 guidance ²Based on order intake FY 2022 ³At FY 2022

FLSmidth Mining in the world

Note: FLSmidth Mining in the world comprises the Mining segment including Mining Technologies (ex-TK) excluding the Non-Core Activities segment.

2021: 16%

revenue growth

Market outlook and trends

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 postponed 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 globally. 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 activities to the changing environment. Miners are

rethinking their business models to gain competitive advantage and ESG is becoming an integrated part of the mining companies' strategies. This creates multiple opportunities for water management, decarbonisation and productivity solutions in the mining sector.

Disruption in supply chain caused by COVID-19, China's zero COVID-19 policy and geopolitical turmoil 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 important component of the supply chain risk mitigation.

Despite the challenges caused by longer lead time and increasing energy costs in Europe, the commodity prices' elevation and supply and logistics price stabilisation have kept the service business at a healthy level across all regions during 2022.

Capex trend in mining USDbn

Source: Bloomberg, FLSmidth estimates

Global copper consumption Million tonnes

Source: Bloomberg, FLSmidth estimates

Strategy (CORE'26) and business model

Transformation

Our path forward focuses on restructuring our Mining organisation to create the basis for strong performance 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 management, 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 business – 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.

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.

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 installed 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 identified 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 flowsheet. 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 increasingly focused on improving productivity and their returns, while reducing their environmental footprint 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 continue 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 PerformanceIQ for digital services.

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

FLSmidth ■ Annual Report 2022 28

At a glance – FLSmidth Cement

6.0-6.5bn "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

~55/45 Service vs. Capital revenue split

+50% presence at all cement plants across the world

3,270 employees²

¹Based on FY2023 guidance ²At FY 2022

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.

Market outlook and trends

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 increased 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 market, 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 alternative fuel solutions in Asia during the year. However, the transition to these solutions is moving forward at different paces country by country.

The ongoing war in Ukraine, inflation and increasing interest rates have impacted the business climate 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 sustainability 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 energy costs. For the Capital business the pipeline continued to be healthy but actual decision-making 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 systems supporting fuel substitution.

Capex trend in cement USDbn

Source: Bloomberg, FLSmidth estimates

Global cement consumption Billion tonnes

Source: Bloomberg, FLSmidth estimates

FLSmidth ■ Annual Report 2022 32

Strategy (GREEN'26) and business model

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 CO² 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 organisation 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 focus on the core business opportunities and to take more control over the cost base as well as to develop 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 understanding 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 installed base.

Going forward, we will help our customers transi tion their installed base to carbon neutral solutions. 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 CO² emissions. 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 requirements 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.

Non-Core Activities

FLSmidth ■ Annual Report 2022 33

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

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.

Strategic portfolio review

The review intended to assess all combined mining activities and products from a strategic, finan cial and sustainability perspective against FLSmidth'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:

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;

Consequently, FLSmidth will either divest or wind down the following activities and products:

All legacy FLSmidth and former Mining Technologies (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 employees 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.

Financial performance

Mining	36
Cement	37
Non-Core Activities	38
Consolidated - Quarterly financial performance	39
Consolidated - Annual financial performance	43

FLSmidth ■ Annual Report 2022 35

Mining

Financial performance in Q4 2022

Mining order intake grew organically 5% compared 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 impact from the acquisition of Mining Technologies (ex-TK), formerly referred to as TK Mining, order intake 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 orders represented 55% and 45% of Mining order intake, 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-sanctioned 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 demand. 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 excluding 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 activities in Russia.

Financial performance in 2022

Mining order intake grew 20% organically. In 2022 Service order intake was strong and increased 37%. Seven large capital orders at a combined value of around DKK 2.8bn were announced compared to four large orders with a combined value of around DKK 950m in 2021. Service orders and Capital orders accounted for 59% and 41% of Mining order intake. For the year, currency 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%.

Growth in order intake and revenue in Q4 2022 (vs. Q4 2021)

	Order intake	Revenue
Organic	5%	6%
Acquisition	15%	20%
Currency	7%	6%
Total growth	27%	32%

Note: Mining Q4 2021 includes Non-Core Activities

Q4 2022 order intake split by Region and Commodity

Revenue and EBITA margin

DKKm EBITA margin %

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%

Cement

		Change	2022	2021	Change
1,223	1,473	-17%	6,613	5,952	11%
794	792	0%	3,752	3,457	9%
429	681	-37%	2,861	2,495	15%
6,386	5,993	7%	6,386	5,993	7%
1,618	1,814	-11%	6,264	5,866	7%
954	979	-3%	3,536	3,154	12%
664	835	-20%	2,728	2,712	1%
482	373	29%	1,602	1,248	28%
29.8%	20.6%		25.6%	21.3%
70	35	100%	204	(19)	1,174%
4.3%	1.9%		3.3%	-0.3%
3,270	3,901	-16%	3,270	3,901	-16%
		Q4 2022 Q4 2021

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

Cement

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% decrease in Capital order intake compared to Q4 2021, which included one large order of DKK 200m. During the quarter Service orders and Capital 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 currency 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 quarter included DKK 70m in revenue from contracts

with non-sanctioned Russian and Belarusian customers.

Gross profit increased by 29% as a result of our efforts to focus on higher value orders. The corresponding gross margin increased 9.2%-points, impacted by financial closure of specific service contracts. 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 improved 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, respectively. Order backlog increased by 7% to DKK 6,386m.

Revenue increased by 2% organically, and by 7% including currency effects. Service revenue increased 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.

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%

Revenue and EBITA margin

Non-Core Activities

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 majority 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 revenue, 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 Activities. The corresponding gross margin amounted to -63.6%. EBITA for Non-Core Activities amounted to DKK -407m, corresponding to a margin of -80.9% driven by the negative gross profit.

Total number of employees of the segment amounted to 581 at 31 December 2022.

(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

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%

(DKKm) Q4 2022 Q4 2021 Change 2022 2021 Change

Group – continued activities

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. Currency effects had a 6% positive impact on order intake in the quarter. Organically, order intake decreased by 1%. This was due to a decline in Cement capital orders compared to Q4 2021, which contained 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 represented 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) acquisition and 5% in organic growth. Cement order intake 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 backlog and the exit of our Russian and Belarusian activities. Outstanding order backlog related to Russian 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 Technologies (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%

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

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

Group order intake in Q4 2022 increased 18%, predominantly driven by Mining. Mining order

intake was supported by currency tailwinds and the

Growth

Consolidated - Quarterly financial performance

Revenue

Revenue increased 26% to DKK 6,495m in Q4 2022, driven by a 36% increase in Service revenue 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 primarily by a 6% organic growth in Mining while Cement partly offset the organic growth with a 14% decrease. 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 acquisition 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 beyond' maturity and have been suspended by FLSmidth
Revenue of DKK 139m from non-sanctioned 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 employees in Russia by >95% at end Q4 2022
The exit of activities in Russia has resulted in a net loss for the FY 2022 on Russian activities

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 Technologies (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% compared to Q4 2021, mainly due to costs related to the exit of our activities in Russia, the new simplified operating model in Cement and integration costs related to the acquisition of Mining Technologies (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 margin 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 purchase 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 exchange 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). Discontinued activities had a profit of DKK 8m in Q4 2022.

Backlog

DKKm

Revenue & EBITA margin

EBITA DKKm

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 receivables 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 positive 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 interest-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 remaining 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 working capital.

The equity ratio was 36.1% (end of Q3 2022: 37.2%).

Net working capital

Consolidated - Annual financial performance

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 following a higher post-pandemic demand and improved market conditions. Currency positively affected order intake by 7% in the year. Including currency effects and the impact of the acquisition of Mining Technologies (ex-TK), order intake increased by 28% to DKK 24,644m.

Service order intake increased by 30% in 2022, in line with our focus on increasing the share of

Mining, Cement & NCA revenue DKKm

higher margin Service orders and portfolio de-risking approach. A resilient mining market throughout 2022 and improved logistics also contributed to the high Service order intake. Service accounted 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% increase in Service order intake. Investment appetite 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 Cement. 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 included in the '2025 and beyond' maturity and have been suspended by FLSmidth.

24%

Copper Gold Coal Iron ore Fertilizer Other

26% Cement

28%

Order intake by commodity

5% 7% 1%

Revenue

Market conditions improved in 2022 with regards to investment appetite, site access and impact from supply chain constraints. Based on a strong backlog 2022 organic revenue increased by 11%, despite the exit of Russian activities. The increase was driven mostly by Service revenue in Mining, Including the impact of the acquisition of Mining Technologies (ex-TK) as well as currency effects of 6% revenue increased by 24% to DKK 21,849m.

Service revenue accounted for 59% of total revenue, compared to 57% in 2021. Capital revenue increased 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

Backlog maturity DKKm

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% mainly due to higher Service revenue. Adjusted EBITA margin was 6.4% excluding the costs

Profit

Gross profit increased by 21% in 2022, due to the increase in revenue, mitigation of inflationary pressure and focus on high margin Service revenue. 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 production costs were DKK 169m. The increase in R&D was mainly driven by the acquisition of Mining Technologies (ex-TK). The R&D costs mainly related to several innovations, including new sustainable cement technologies, tailings management, 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 addition, the SG&A costs of Mining Technologies (ex-TK) itself contributed to the increase in overall SG&A costs. The corresponding SG&A ratio increased by 1.5%-points to 17.3%.

EBITA and margin

Reported EBITA decreased 8% to DKK 943m despite positive impact from a higher revenue. The corresponding EBITA margin declined to 4.3% from 5.9% due to costs for exiting of Russia, integration costs, cost related to the new simplified operating model in Cement and cost related to exiting Non-Core Activities. Adjusted for costs incurred 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 Cement have improved compared to prior years, as a result of our increased focus on higher margin Service, de-risking the portfolio and focus on our strategic 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 remaining cost. Termination of hedging Russian Rubles 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 decreased 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 acquisition 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 Technologies (ex-TK) business.

SG&A cost and SG&A ratio

1,500

2018 2019 2020 2021 2022 SG&A cost SG&A ratio

EBITA by Mining, Cement & NCA DKKm

Gross profit and Gross margin

12%

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 purchase 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

Return on capital employed

assets of DKK 13,308m, which was mostly goodwill as well as patents and rights and customer relations. 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 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. The corresponding net working capital ratio was 7.8% (2021: 6%) and reflects a strong cash focus considering the increase in activity levels. The currency effect on net working capital was an increase 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-bearing 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 Mining Technologies (ex-TK). The level is well below our capital structure target of < 2.0.

Equity

DKKm

(1,000)

1,000

2,000

3,000

Equity at the end of 2022 increased to DKK 10,787m (end of 2021: DKK 10,368m) mainly related to comprehensive income for the year. Currency adjustments regarding translation of foreign entities added to the equity as well. The equity ratio was 36.1% (2021: 45.0%).

Treasury shares

Net interest-bearing debt

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.

2018 2019 2020 2021 2022 Net interest-bearing debt

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 distributed. for 2023. The total dividend proposed amounts to DKK 173m.

Equity ratio %

Net working capital

DKKm %

Cash flow from operating activities

Cash flow from operating activities (CFFO) declined 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 Technologies (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 result 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

CFFI DKKm

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 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.

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, FLSmidth 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 uncovered.

The annual cost synergy target is expected to be around DKK 560m (previously DKK 360m) and the pace to realise these synergies has been accelerated. Consequently, the annual cost synergy runrate 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 recognised 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 Copenhagen. The headquarter is currently in the construction phase and it is expected that the lease will be effective in 2025.

DKKm

-2,500 -2,000 -1,500 -1,000 -500 0 2018 2019 2020 2021 2022 Cash flow from investing activities

Governance

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

FLSmidth ■ Annual Report 2022 47

Risk management	48
Corporate governance	52
Management	56
Remuneration	60
Shareholder information	61

Risk management

Risks are an integral part of our business with a constant evolving risk exposure. It requires a robust governance model and top management involvement to ensure that risks are minimized and mitigated while at the same time focusing on turning risks into opportunities 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 ensure we turn them into opportunities.

Governance

Group Executive Management leads our risk management programme, with oversight from the Audit Committee and ultimately the Board of Directors having the overall responsibility for deciding the risk appetite and monitoring the risk exposure.

Through a bottom-up approach, risks are assessed by the Business Lines and Shared Functions 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 mitigation and attention.

During the year the Risk Committee meets to review 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 outlined 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 potential to significantly impact the entire business and organisation. Many of this year's top risks – company transformation, compliance, looming recession, 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 geopolitical challenges from a compliance point of view and for the safety and well-being of our employees as well as to logistics. The challenges set into motion collective mitigation efforts across the

entire organisation. Our extended focus on compliance, health and safety of our employees and investments in additional resources along with our continued flexibility managing the supply chain allowed us to deal with the new challenges effectively.

Company Transformation was identified as a top risk in 2022 – an evolution of the acquisition integration risk identified in 2021. With integration of the newly acquired Mining Technologies (ex-TK) business still high on the priority list, the integration team has merged into our Strategy & Transformation team, becoming a vital part of our

journey towards more profitable growth and full flowsheet leadership to ensure operational excellence.

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.

In project execution, our focus on value over volume has already produced positive results. We work to expand our share of services and standardised equipment relative to the share of large projects while simultaneously de-risking the project 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 solutions across the full flowsheet. In Cement, we focus 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 projectrelated risks.

For information on financial risks and mitigation activities, including liquidity, credit and foreign exchange rates see section 5 in the financial statements. For tax see section 4 in the financial statements 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 action 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 strategic priorities. While both constitute a risk of increased niche competition, we see them as even greater business opportunities considering our strong efforts to maintain and develop a leading position within both areas.

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.

	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.

FLSmidth ■ Annual Report 2022 51

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

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 Board of Directors

of the Group Executive Management by specifying targets and assessing at what level or degree such targets have been met.

continually evaluates the work

Corporate governance

The adoption of a resolution to amend the Company'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 information 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

	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%)

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.

Board of Directors (6 AGM and 3 employee elected members)
Chairship	Compliance Chair
Nomination Committee	Audit Committee
Compensation Committee	Technology Committee

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

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 Annual 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	6/61+3)	2+4) 5/5	2/22+4)
Mads Nipper (Vice chair)	9/9	5/5	3/3	1/1
Richard Robinson Smith	12/14				3/32+4)
Anne Louise Eberhard	14/14	6/64)
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	1/11)	2/23)	1/13)

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

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 Presidents 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 candidates.

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 biased. 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

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 related to external assistance in connection with evaluation of the performance of the Board of Di rectors, where the company only complies par tially.

Length of service

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)

Board of directors

- Continued

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

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
--------------	------------	----------	-----------------	-----------------	---------------------	-----------------------	------------	----------------------

Group executive management

- Continued

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- Head of Group Legal (2013-2016). Various manage 2022), Senior Vice President in Metso (2017-2019), rial positions in FLSmidth (2006-2013). Corporate Region Mining Manager/Commercial Director in counsel FLSmidth (2004-2006). Caterpillar Inc. (2012-2017), Various managerial po Lawyer Ashurst 1998-2003. Trainee lawyer Lett, Vil sitions in Caterpillar Inc. (1998-2012). 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

Remuneration

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:

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 Directors' 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:

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 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

Shareholder information

Total shareholder return was 4% in 2022. Dividend of DKK 3 per share is proposed.

Development in shareholder structure

Capital and share structure

FLSmidth & Co. A/S is listed on Nasdaq Copenhagen. 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 approximately 195 Danish, Nordic, European and global share indices, including the leading Danish stock index C25.

The company had approximately 53,500 shareholders at the end of 2022 (end of 2021: approximately 54,000). In addition, around 1,590 present and former employees hold shares in the company (end of 2021: approximately 1,670).

At the time of issuing the 2022 financial statements for FLSmidth & Co. A/S, FLSmidth & Co. A/S had two major shareholders - Lundbeckfonden, Scherfigsvej 7, 2100 Copenhagen Ø and Altor Invest 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 institutional investors excluding Lundbeckfonden, was 37% by the end of 2022. FLSmidth's holding of treasury shares remained at 1.6% (2021: 1.6%).

Share price development in 2022

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 shareholder return was included as a KPI in the longterm incentive program during 2022.

*Change in methodology for differentiating between Danish retail and institutional investors

Volume, 1,000 Share price DKK 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

Financial calendar 2023

29 Mar 2023	Annual General Meeting
11	First quarter
May 2023	Interim Report 2023
15	Half year
Aug 2023	Interim Report 2023
09	Nine months
Nov 2023	Interim Report 2023

Capital structure and allocation

FLSmidth takes a conservative approach to capital structure with an emphasis on relatively low debt, gearing and financial risk. The Board of Directors' 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 capital allocation is to ensure a strong balance sheet while allowing for growth investments and valueadding M&A. Excess cash can be distributed either via extraordinary dividends or share buyback programmes.

On 31 August 2022, FLSmidth completed the acquisition of Mining Technologies (ex-TK) business. The acquisition was mainly financed by proceeds from the issuance of new share in Q3 2021 accompanied 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 distributed 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 regulation for companies listed on Nasdaq Copenhagen
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 capital 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 investors, analysts and other stakeholders

To achieve these goals, an open and active dialogue with the capital markets takes place through stock exchange announcements and financial reporting, investor presentations, webcasts, conference calls and other forms of electronic communication investor meetings, roadshows, AGMs and capital market days

FLSmidth & Co. A/S is generally categorised as a capital goods or industrial company and is currently 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 relations contact information are available to investors 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

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 63

Consolidated financial statements

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

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

Income statement	Statement of comprehensive income
------------------	-----------------------------------

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

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

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.

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

The cash flow statement cannot be inferred from the published financial information only

Balance sheet

Notes	DKKm	31-12-2022	31-12-2021	Notes	DKKm	31-12-2022	31-12-2021
	Assets				Equity and liabilities
	Goodwill	6,433	4,364	5.1	Share capital	1,153	1,153
	Patents and rights	766	784		Foreign exchange adjustments	(517)	(665)
	Customer relations	392	401		Cash flow hedging	(70)	(54)
	Other intangible assets	148	165	5.1	Retained earnings	10,247	9,937
	Completed development projects	204	233		Shareholders in FLSmidth & Co. A/S	10,813	10,371
	Intangible assets under development	422	310		Minority interests	(26)	(3)
2.2	Intangible assets	8,365	6,257		Equity	10,787	10,368

	Land and buildings	1,983	1,792	4.3	Deferred tax liabilities	294	169
	Plant and machinery	493	383	2.8	Pension obligations	414	320
	Operating equipment, fixtures and fittings	131	112	2.7	Provisions	896	450
	Tangible assets in course of construction	40	21	5.7	Lease liabilities	206	200
2.4, 2.5	Property, plant and equipment	2,647	2,308	5.7	Bank loans and mortgage debt	1,929	726
				3.4	Prepayments from customers	578	587
4.3	Deferred tax assets	1,921	1,490		Income tax liabilities	103	119
2.6	Investments in associates	157	162	3.7	Other liabilities	85	55
	Other securities and investments	59	49		Non-current liabilities	4,505	2,626
	Other non-current assets	2,137	1,701
				2.8	Pension obligations	2	2
	Non-current assets	13,149	10,266	2.7	Provisions	1,611	697
				5.7	Lease liabilities	117	104
3.2	Inventories	3,971	2,464	5.7	Bank loans and mortgage debt	615	17
3.3	Trade receivables	5,108	4,112	3.4	Prepayments from customers	2,193	1,903
3.4	Work in progress	3,147	2,358	3.4	Work in progress	3,592	2,373
	Prepayments	874	871	3.6	Trade payables	4,339	3,367
	Income tax receivables	321	248		Income tax liabilities	346	193
3.5	Other receivables	1,145	799	3.7	Other liabilities	1,738	1,403
	Cash and cash equivalents	2,130	1,935		Current liabilities	14,553	10,059
	Current assets	16,696	12,787
	Total assets	29,845	23,053		Total liabilities	19,058	12,685

					Total equity and liabilities	29,845	23,053

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

Key accounting estimates and judgements

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 financial statements of those estimates and judgements is categorised into three levels: low, medium and high.

Impact significance

Key accounting	Low
estimates and	Medium
judgements	High

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 fulfillment 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 customers 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

Note	Key accounting estimates and judgements	Nature of accounting impact
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

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-looking 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.

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

FLSmidth ■ Annual Report 2022 71

1.1 Income statement

by function

It is our policy to prepare the income statement

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) product 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 organisational 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:

	(681)	(733)
Amortisation and impairment of intangible assets	(324)	(362)
Depreciation and impairment of property, plant and equipment and lease assets	(357)	(314)
Special non-recurring items	0	(57)

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
--------------	------------	----------	-----------------	-----------------	---------------------	-----------------------	------------	----------------------

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.

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 included below in the subtotal 'EBITA before allocation 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.

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)

Non-Core Activities segment

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.

Old segmentation

	2022
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

1.3 GEOGRAPHICAL INFORMATION

NORTH AMERICA, NAMER 1

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)

EUROPE, NORTH AFRICA & RUSSIA, ENAR 3

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)

SUB-SAHARAN AFRICA, MIDDLE EAST & SOUTH ASIA, SSAMESA 4

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)

**ASIA, AUSTRALIA, APAC\* 5**

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)

SOUTH AMERICA, SAMER 2

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)

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

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

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

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 performance 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

Revenue by Revenue stream

Revenue by Mining, Cement and Non-Core Activities

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 contract has been signed and the prepayment (if any) has been received.

Of the increase, DKK 5,451m related to the acquisition 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.

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.

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.

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

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

During 2022 the remuneration of the Board of Di rectors and Group Executive Management was as follows:

Remuneration Board of Directors

DKKm	2022	2021
Board of Directors fees	6.6	6.5
Total	6.6	6.5

Remuneration Group Executive Mana gement

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

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

Remuneration of Group Executive Management

1.5 Staff costs – continued

Remuneration registered executives

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

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.

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.

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 80

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

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

ROCE

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)

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 follows:

Intangible assets are written down to recoverable amount if lower. Further information can be found in note 2.3.

Introduction	Highlights	Business	Mining business	Cement business	Non-Core Activities	Financial performance	Governance	Financial statements

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

FLSmidth ■ Annual Report 2022 83

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

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%.

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-

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

Investments reflect both maintenance and expecta tions of organic growth.

Mining

uct business.

Cement

solutions.

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

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-

Carrying amounts of intangible assets included in the impairment test are specified in the table be-

ing units to zero or less.

low.

Cash generating units

changed compared to last year.

ing and Cement.

period.

Key assumptions

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-

As no non-current assets (including goodwill and other intangible assets) relate to Non-Core Activities the impairment test for 2022 only covers Min-

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

equity and the cost of debt.

dustries.

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

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-

FLSmidth ■ Annual Report 2022 84

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%

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.

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

2.3 Impairment of assets

Sensitivity analysis

– continued

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:

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.

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:

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.

2022 2021

Carrying amount of property, plant and equipment

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

2.5 Leases

ble.

of lease liabilities

of DKK 0.2bn.

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 average discount rate applied for land and buildings is

The amounts included in the income statement re lated to expensed leases are presented in the ta-

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

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 Copenhagen. 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

3,71% at the end of 2022 (2021: 3.19%).

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 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
Land and buildings	Plant and machinery	Operating equipment	Total
260	9	43	312
5	1	0	6
0	0	0	0
5	0	(1)	4
76	2	24	102
(7)	0	0	(7)
(87)	(4)	(29)	(120)
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

2.5 Leases – continued

The following factors are normally the most rele vant:

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.

Name of associate	Country	Date of acqui sition	Owner ship interest	Voting share
Intertek Robotic Laboratories Pty Ltd	Australia	31-May 2019	50%	50%

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

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

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
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.

Investments in associates, FLSmidth share

DKKm	2022	2021
FLSmidth's share of equity, 50%	84	89
Goodwill	73	73
Carrying value at 31 December	157	162

2.7 Provisions

Provisions are liabilities of uncertain timing or amount. Our provisions consist of:

Total provisions have increased compared to last year reflecting the acquisition of Mining Technologies (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 period. 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 combination 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).

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 table to the right.

Cash flow effect from change in provisions, pension and employee benefits

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

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.

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.

FLSmidth ■ Annual Report 2022 89

		2.8 Pension Obligations
--	--	-------------------------

Defined contribution plans

Pension obligations

Actuarial gains and losses from financial assumptions

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

of pension 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)

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)

Fair value of plan assets

Net obligations

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

	2022	2021
Average discounting rate applied	3.3%	1.5%
Expected future pay increase rate	3.3%	2.9%

2022 2021

Fair value of plan assets

Present value of pension obligations

217 (116) 101 35 35 70

Pension contributions by plan types

Pension obligations by country

Fair value of plan assets by Instruments

DKKm Present value

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

Net obligations

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

DKKm	2022	2021
Discount rate - 1%, increase	110	145
Discount rate + 1%, decrease	(103)	(132)

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 December 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 recognised 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 Tunisia contract'). FLSmidth is rejecting the claim in ar bitration.

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 Technologies (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 additional 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 competencies 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 business 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.

FLSmidth ■ Annual Report 2022 91

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.

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

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.

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

DKKm	2022	2021
Provisions at 1 January	148	182
Additions	3	0
Used	(33)	(34)
Reversals	(1)	0
Provisions	117	148

In addition to the provisions of DKK 117m, discontinued 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.

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)

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

FLSmidth ■ Annual Report 2022 94

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

Net working capital

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 December 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).

1,893 1,058

3.2 Inventories

Inventories net of impairment

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

Impairment of inventories

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

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 organic 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:

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

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)

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.

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

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

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

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

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 included 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.

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 recoverability.

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 historical 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

FLSmidth ■ Annual Report 2022 97

3.4 Work in progress

Composition of work in progress

	DKKm	2022	2021
Work in progress relates to contracts with custom	Gross work in progress	46,107	33,338
ers where revenue is recognised over time. As the
costs to produce the output under a contract are	Invoicing on account	(46,552)	(33,353)
incurred, revenue is calculated reflecting the	to customers
share of costs incurred compared to total ex	Net work in progress	(445)	(15)
pected costs to fulfil the contract (percentage of
completion). The revenue is recognised as work in	Of which is recognised
progress (gross work in progress) and consists of	as work in progress:
cost incurred including margin. Balances on a spe	Under assets	3,147	2,358
cific contract is removed from work in progress	Under liabilities	(3,592)	(2,373)
once the work is completed and accepted by the	Net work in progress	(445)	(15)

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 liabilities 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.

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 increases 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.

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.

3.5 Other receivables

Specification of other receivables

DKKm	2022	2021
Indirect taxes receivables	522	402
Deposits	107	30
Derivatives	54	31
Other	462	336
	1,145	799

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

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

DKK 85m (2021: DKK 55m) is included in non-cur rent liabilities and DKK 1,738m (2021: DKK 1,403m) in current liabilities.

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

FLSmidth ■ Annual Report 2022 99

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 related 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 recognised 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

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

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%

2022

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

Composition of deferred tax

			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

Significant deferred tax assets, net DKKm

Share of assets and tax losses valued at nil

Deferred tax assets

501 830

4.3 Deferred Tax

– continued

Recognition of net deferred tax assets is based on forecasted taxable income considering the application 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

DKKm	2022	2021
Deferred tax assets	1,921	1,490
Deferred tax liabilities	(294)	(169)
	1,627	1,321

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

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

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.

Tax losses 450 827

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 between 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.

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.

4.4 Tax on other comprehensive income

4.5 Our approach to tax and tax risk

Tax recognised in other comprehensive income by the components of other comprehensive income to which it relates is shown in the table below.

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

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 104

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-

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

Capital structure

The Board of Directors' priority for capital structure and capital allocation is as follows:

For further information please refer to Shareholder information section.

Shareholders' equity includes the following reserves:

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 programmes, 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 dividend 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).

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

5.1 Shares and capital

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 issue 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 holdings of voting rights exceeding 10% of total out standing voting rights. No other shareholders have reported a participating interest above 5% at the

structure

Shares

end of 2022.

midth & Co. A/S.

5.2 Earnings per share

Earnings per share from continuing activities decreased 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.

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

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 exposure due to the Danish Kroner being pegged to the Euro.

USD 5.0% 8 (30) 10 (16) CNY 5.0% 4 0 (1) 0

Transaction impact

FLSmidth ■ Annual Report 2022 107

includes the value adjustment on derivatives des cash flows through the work in progress are rec-

In addition to the transactional effects, in the event % appreciation in the specified currencies towards will have a similar negative effect).

Translation impact

DKKm 2022 2021

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

profit for the year

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

Other comprehensive income

Net profit for the year

Other comprehensive income

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.

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

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% decrease 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

Currency Change Net

ignated as hedge accounting in effective cash flow hedges. The value adjustments are trans ferred to the income statement as the hedged ognised in the income statement.

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 Danish Kroner will have the following effect on other comprehensive income (a 5% depreciation

5.3 Financial risks

– continued

The credit risk is governed by the Group's Credit Risk Policy. For receivables the credit risk is managed 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.

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

Group restricted cash

DKKm

and costs

Net financial costs

5.4 Financial income

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)

Cash flow effect from financial income and costs

DKKm	2022	2021
Interest received	37	24
Interest paid	(86)	(93)
Cash flow effect	(49)	(69)

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.

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

Cash flow hedge

A negative notional amount represents a sale of the currency

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

DKKm	2022	2021
Change in cash flow hedge reserve	(28)	(39)
Reclassified from other comprehensive income to work in progress	12	(11)

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.

Net fair value

Notional amount

Net fair value

amount

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.

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

DKKm 2022 2021

USD (643) (8) (355) 2 CNY 0 0 EUR 374 (5) 323 (8) Other 1 0 Total (12) (6)

Currency Notional

5.7 Net interest bearing debt

						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)

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:

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 underlying mortgage bonds funding the debt. The carrying amount for the other items is a reasona ble approximation of fair value.

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			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)

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

FLSmidth ■ Annual Report 2022 113

Performance shares
Conditional grant	March-22	March-21	March-20
Performance year	Jan 2022 -	Jan 2021 -	Jan 2020 -
	Dec 2024	Dec 2023	Dec 2022
Vesting period	Mar 2022 -	Mar 2021 -	Mar 2020 -
	Feb 2025	Feb 2024	Feb 2023

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

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

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

6.1 Share-based payment

– continued

Share options

The exercise period on the last share option programme 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

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

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

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.

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

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

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

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

FLSmidth ■ Annual Report 2022 118

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 defined 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 report. 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.

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 (issued 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

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 companies. 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 activities - 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 activities - 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 +/- currency effect and acquisition effect.

Market capitalisation

The share price multiplied by the number of shares issued end of year.

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 prorated 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, including 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 greenhouse gases and are measured as CO₂-equivalents. Scope 1 emissions for FLSmidth comprise fuel and gas use for various operational activities.

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 reporting 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).

Parent company financial statements

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

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

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 integration 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 expected 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 potential impairments of investments in Group enterprises as well as integration costs relating to Mining Technologies (ex-TK).

Balance sheet

Notes	DKKm	2022	2021	Notes	DKKm	2022	2021
	Assets				Equity and liabilities
	Land and buildings	7	8		Share capital	1,153	1,153
7	Property, plant and equipment	7	8		Retained earnings	2,414	2,626
					Proposed dividend	173	173
8	Investments in Group enterprises	2,566	2,618		Equity	3,740	3,952
8	Other securities and investments	16	21
	Financial non-current assets	2,582	2,639	12	Provisions	9	9
					Provisions	9	9
	Total non-current assets	2,589	2,647
				14	Bank loans	1,716	499
	Receivables from Group enterprises	8,520	6,781		Total non-current liabilities	1,716	499
9	Deferred tax assets	35	27
10	Other receivables	154	144	14	Bank loans	583	0
	Receivables	8,709	6,952	14	Debt to Group enterprises	5,614	5,538
				13+14	Other liabilities	149	189
	Cash and cash equivalents	513	588		Total current liabilities	6,346	5,727

	Total current assets	9,222	7,540		Total liabilities	8,071	6,235

	Total assets	11,811	10,187		Total equity and liabilities	11,811	10,187

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

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.

1. Other operating income

DKKm	2022	2021
Rent fee, etc.	1	1
	1	1

2. Staff costs

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

Remuneration of the company's Board of Directors for 2022 amounts to DKK 7m (2021: DKK 7m), including DKK 0m (2021: DKK 0m) which was incurred by the parent company. The total remuneration of the Group's Executive Management amounted to DKK 79m (2021: DKK 71m), of which DKK 6m (2021: DKK 8m) was incurred by the parent company.

In respect to Group's Executive Management incentive program reference is made to section 6.1 Share-based payment in the Group financial statements.

3. Financial income

DKKm	2022	2021
Interest income	8	0
Interest income from Group enterprises	144	85
Foreign exchange gains	1,541	723
	1,693	808

4. Financial cost

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

5. Tax for the year

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

6. Distribution of profit for the year

Proposed distribution of profit:

DKKm	2022	2021
Proposed dividend	173	173
Retained earnings	(214)	(112)
Profit for the year	(41)	61

7. Property, plant and equipment

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

8. Financial non-current assets

For specification of investments in Group enterprises and for the acquisition of Mining Technology, see note 2.10 and 6.5 in the consolidated financial statements.

Result of annual impairment test

At the end of 2022, the cost price of the investments in subsidiaries was tested for impairment. The impairment test based on value in use identified 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.

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

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 longterm swaps. Based on these factors, a long-term annual growth rate for the terminal period of 3.0% has been applied.

The applied discount rate after tax is 10% and re-

9. Deferred tax assets and liabilities

Deferred tax relates to the following items:

DKKm	2022	2021
Tangible asset	17	16
Liabilities	18	11
Net value of deferred tax assets	35	27

10. Other receivables

Other receivables mainly include fair value of financial 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 Parent company level no hedge accounting is applied (economic hedging). At 31 December 2022, the fair value of our hedge agreements amounted to DKK -3m (2021: DKK 3m).

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

12. Provisions

DKKm	2022	2021
Provisions at 1 January	9	8
Addition	0	1
Reversals	0	0
Provisions at 31 December	9	9

13. Other liabilities

Maturity profile of 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

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

15. Audit Fee

In addition to statutory audit, EY Godkendt Revisionspartnerselskab, the Parent company auditors provided other assurance engagements to the Parent company.

DKKm	2022	2021
Statutory audit	4	3
Total audit related services	4	3
Total fees to independent auditor	4	3

16. Contractual and contingent liabilities

The parent company has provided guarantees primarily 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 enterprise. Provisions are made for estimated losses on such items.

The parent company is the administration company 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 liabilities 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 Management and the Group companies and associates that are part of the Group.

There has been no transactions with related parties in 2022 and 2021, apart from Group Executive Management´s remuneration stated in note 2, dividend 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 function, 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 parent company financial statements

18. Shareholders

At the end of 2022:

One shareholder has reported a participating interest 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 participating 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 Statements 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 company's financial statements. The parent company'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 income statement.

Dividend from Group enterprises

Dividend from investments in subsidiaries is recognised as income in the parent company's income statement in the financial year in which the dividend is declared. This will typically be at the time of the approval by the Annual General Meeting of distribution from the company 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 investment.

Property, plant and equipment

Depreciation is charged on a straight line basis over the estimated useful life of the assets until they reach the estimated residual value. In the parent company's financial statements, the depreciation period and the residual value are determined at the time of acquisition and are reassessed 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 recognised to this lower value. To the extent the distributed 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 interpretation 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 chosen IAS 39 as interpretation for impairment of financial 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 individual statement for the parent company has been included, see the exemption provision, section 86(4) of the Danish Financial Statements Act.

Statement by Management

The Board of Directors and the Executive Board have today considered and approved the Annual Report for the financial year 1 January – 31 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 December 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

ments

Opinion

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 December 2022 in accordance with International Finan cial Reporting Standards as adopted by the EU and additional requirements of the Danish Finan cial Statements Act.

To the shareholders of FLSmidth & Co. A/S

Report on the audit of the consolidated financial statements and parent company financial state-

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 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 January – 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

Independent auditor's report

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

Danish Financial Statements Act.

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 allocation 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 estimates 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 appropriateness 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 assets 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.

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:

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 matters. We describe these matters in our auditor's re port unless law or regulation precludes public disclosure about the matter.

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:

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:

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

Forward looking statements

FLSmidth & Co. A/S' financial reports, whether in the form of annual reports or interim reports, filed with the Danish Business Authority and/or announced via the company's website and/or NASDAQ Copenhagen, as well as any presentations based on such financial reports, and any other written information released, or oral statements 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 connection 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 future 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 performance, future actions and outcome of contingencies such as legal proceedings and statements 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 important factors, including those described in this report, could cause actual results to differ materially from those contemplated in any forward-looking statements.

Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including the impact from the COVID-19 pandemic, interest rate and exchange rate fluctuations, delays or faults in project execution, fluctuations in raw material prices, delays in research and/or development of new products or service concepts, interruptions of supplies and production, unexpected breach or termination of contracts, market-driven price reductions for FLSmidth & Co. A/S' products and/or services, introduction of competing products, reliance on information technology, FLSmidth & Co. A/S' ability to successfully market current and new products, exposure to product liability and legal proceedings 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 enterprises, 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 update or revise any forward-looking statement after the distribution of this report.

Annual report 2022 1 January – 31 December 2022

Introduction Highlights Business Mining business Cement business Non-Core Activities Financial performance Governance Financial statements

FLSmidth & Co. A/S Vigerslev Allé 77 2500 Valby Denmark

Tel.: +45 36 18 18 00 Fax: +45 36 44 11 46 [email protected]

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3364_10-k_2023-02-22_82a895f4-e5cb-4951-a3fb-8055d207d271.pdf

Annual Report 2022

2022 FLSmidth reports

Contents

Management review

Financial statements

About this report

FY22 highlights Non-Core Activities

Mining Technologies (ex-TK)*

Organisation

Strategy

New pure play strategies

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 significantly improved profitability despite the everchanging environ-

No green transition without minerals

Strengthened our Mining business

Kickstarted our transformation in 2022

An event unlike any other

Improved performance in 2022

Our new long-term financial targets

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

Financial performance highlights 2022

Sustainability performance highlights 2022

Safety (Total recordable injury rate)

5-year key figures

2023 financial guidance

Long-term financial targets

Business

At a glance – FLSmidth

FLSmidth Group in the world

Lifecycle profit approach

Strategy and business model

Our approach to sustainability

Progress on MissionZero

Scope 3: Economic intensity (use of sold products)

R&D spend

Supported Sustainable Development Goals

Measuring eligibility (in scope)

Progress in 2022

Eligibility and alignment 2022

Mining business

At a glance – FLSmidth Mining Governance 16-17bn

FLSmidth Mining in the world

Market outlook and trends

Capex trend in mining USDbn

Global copper consumption Million tonnes

Strategy (CORE'26) and business model

Cement business

At a glance – FLSmidth Cement

~55/45 Service vs. Capital revenue split

+50% presence at all cement plants across the world

FLSmidth Cement in the world

Market outlook and trends

Capex trend in cement USDbn

Global cement consumption Billion tonnes

FLSmidth ■ Annual Report 2022 32

Strategy (GREEN'26) and business model

Operating model transition

Non-Core Activities

Strategic rationale, decision criteria and exit strategy

Financial performance

Mining

Financial performance in Q4 2022

Financial performance in 2022

Growth in order intake and revenue in Q4 2022 (vs. Q4 2021)

Revenue and EBITA margin

Mining

Cement

Cement

Financial performance in Q4 2022

Financial performance in 2022

Growth in order intake and revenue in Q4 2022 (vs. Q4 2021)

Revenue and EBITA margin

Non-Core Activities

Financial performance in Q4 2022

Order intake

Order backlog and maturity

Growth in order intake in Q4 2022 (vs. Q4 2021)

Growth in revenue in Q4 2022 (vs. Q4 2021)