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FLSmidth & Co. — Interim / Quarterly Report 2021
Aug 12, 2021
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Download source fileUntitled WE DISCOVER POTENTIAL INTERIM REPORT H1 2021 1 January – 30 June 2021 Company announcement no. 9 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby CVR No. 58180912 FLSmidth Interim Report H1 2021 2 Management Review Management Review 3 6 7 10 12 14 16 Consolidated Condensed Interim Financial Statements 18 18 19 20 21 Notes 22 22 23 24 25 25 26 26 27 27 28 28 Statements 29 CONTENTS Towards zero emissions in mining and cement Read more on page 5 FLSmidth Interim Report H1 2021 3 Management Review Highlights Q2 2021 Order intake increased 42% organically year-on-year driven by both Mining and Cement. Service orders increased 20%. The book-to-bill was 113% Revenue increased 9% organically, en- tirely attributable to Mining and driven equally by service and capital EBITA was up by 50% on a low compari- son and the EBITA margin increased to 4.8%, driven by both Mining and Cement Continued positive effects from imple- mented business improvement activities Q2 included costs in Mining of DKK 40m related to the acquisition of TK Mining Net working capital has improved over the past five quarters and the net working capital ratio decreased to 8.2% Free cash flow was strong at DKK 443m and financial gearing improved to 1.0x NIBD to EBITDA Mining Mining order intake increased 36% organi- cally. Capital orders increased by 86% and service orders increased 12%, accounting for 62% of Mining order intake. Revenue increased by 13% organically and EBITA increased by 18%. The EBITA margin increased to 8.2% from 7.8% in Q2 2020. Adjusted for acquisition costs, the EBITA margin was 9.7%. Cement Cement order intake increased 55% organi- cally. Capital orders increased 59% and Service orders increased 42%, accounting for 52% of Cement order intake. Organically, revenue in Q2 2021 was in line with Q2 2020. The EBITA margin was -2.7% compared to -4.9% in Q2 2020, still im- pacted by reshaping activities to improve profitability in Cement. Highlights H1 2021 Order intake increased 1% organically, driven by Cement and increased base or- ders in Mining, whereas H1 2020 included a higher level of large Mining orders. Ser- vice orders increased 5% Revenue decreased 3% organically, com- prising a 3% increase in Mining and a 13% decline in Cement compared to H1 2020 EBITA margin increased to 5.0%, from 4.3% in H1 2020, positively impacted by a higher share from service and positive ef- fects from implemented business im- provement activities Guidance 2021 FLSmidth updates its guidance to group reve- nue of DKK 16.0-17.0bn (previously: DKK 15.5- 17.0bn) and a group EBITA margin of 5-6%. The guidance includes cost related to the ac- quisition of thyssen estimated at around DKK 100m for the full year. The Mining business revenue is ex- pected to grow in 2021 with modest growth in the second half of the year. EBITA margin for Mining is expected to be high-single digit for the full year. The Cement business revenue is expected to remain soft in the second half of 2021 and decline for the full year. Initiatives to reshape the Cement business are progressing well. The Cement business is not expected to be EBITA positive in 2021 due to continued Cement reshaping costs and low capacity utili- sation in the service business, particularly re- lated to the impact of the pandemic in H1. Our second quarter showed positive progress across the board: A strong order intake, including the award of Europe’s first full-scale clay calcina- tion installation which will cut plant CO2 emissions by up to 16%. Higher revenue from both service and capital businesses and 50% higher EBITA compared to Q2 2020. Further reduction in net working capital and a strong free cash flow. Overall, a good performance by our organisation. On 29 July, we announced the acquisition of thyssenkrupp’s Mining busi- ness. 1 A transformational deal, creating one of the world’s largest and strongest suppliers to the mining industry, and at the same time a signifi- cant milestone in our MissionZero sustainability ambitions. The transac- tion offers an attractive opportunity to create long-term value for our shareholders, a stronger value proposition for our customers and im- proved career pathways for the combined pool of talented employees. - Thomas Schulz, Group CEO 1 Closing of the transaction is expected in H2 2022 and is subject to customary approvals from relevant authorities. HIGHLIGHTS Guidance 2021 H1 2021 Initial Guidance 2021 Updated Guidance 2021 Highlights FLSmidth Interim Report H1 2021 4 Management Review FINANCIAL HIGHLIGHTS Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Cash flow from operating activities DKKm 507 from DKKm 533 in Q2 2020 GROUP 4,615 38% 4,073 6% 197 4.8% 50% Earnings per share DKK 1.1 from DKK (0.3) in Q2 2020 Net working capital ratio 8.2% from 12.3% end of Q2 2020 NIBD/EBITDA 1.0x from 1.5x end of Q2 2020 Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by service & capital % MINING 2,933 32% 2,802 11% 231 8.2% 18% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by service & capital % CEMENT 1,682 50% 1,271 4% -34 -2.7% 48% 9,874 9,600 3,348 4,615 H1 2020 H1 2021 Q2 2020 Q2 2021 8,371 7,786 3,846 4,073 H1 2020 H1 2021 Q2 2020 Q2 2021 359 387 131 197 H1 2020 H1 2021 Q2 2020 Q2 2021 2,223 2,933 Q2 2020 Q2 2021 2,520 2,802 Q2 2020 Q2 2021 196 231 Q2 2020 Q2 2021 64% Q2 2020: 64% 36% Q2 2020: 36% Service Capital 1,125 1,682 Q2 2020 Q2 2021 1,326 1,271 Q2 2020 Q2 2021 (65) (34) Q2 2020 Q2 2021 54% Q2 2020: 55% 46% Q2 2020: 45% Service Capital FLSmidth Interim Report H1 2021 5 Management Review MissionZero developments Through our sustainability pro- gramme MissionZero, we de- velop and deliver solutions that enable our customers to operate with zero emissions by 2030. Following the approval of our science-based targets in May, we are taking the next step to create a robust measurement system to track progress against them. This work will also pave the way to meeting the requirements of the up- coming EU Taxonomy. Europe’s first full-scale clay calcination installation At a new project in France, FLSmidth will de- liver equipment to replace clinker with environ- mentally friendly clay, cutting up to 16% of CO 2 emissions compared to existing cement prod- ucts. The order includes the new FLSmidth flash calciner technology, environmental con- trol system and alternative fuel storage at the Carbon Capture Partnership Innovation is a cornerstone of the MissionZero programme. Increasingly we are working in partnerships to further drive innovation. In June, we announced a partnership with Car- bon8 Systems (C8S) to accelerate carbon cap- ture in the global cement industry. The combi- technology and our extensive process knowledge will make a significant contribution to Plugging in to the growing demand for lithium Lithium is key for the green energy transition due to its use in batteries for electric and hybrid vehi- cles and its ability to store energy produced by solar, tidal and wind sources. It is an area where MissionZero can play a big role if we can help make lithium extraction more sustainable, then the path to a low-carbon future becomes more sustainable. Increasing demand for lithium has led to some exciting new projects in the second quarter. FLSmidth will provide product engineering for pi- -boron project in Nevada, while in Europe, Keliber a Finnish company producing sustainable, battery-grade lithium appointed FLSmidth for process engi- neering services at its Päiväneva concentrator plant. FLSmidth has also started delivering ad- vanced lithium-centred technologies, including acid roasting, rotary cooler and pre-heat cyclone technology to Covalent in Australia, following an order placed in 2019. SUSTAINABILITY HIGHLIGHTS Safety (TRIR) Total Recordable Injury Rate/ million working hours Women managers % 1.7 Target: zero harm (10% y-o-y reduction through 2030) 14.5 2021 Target: 14.3% Following a strong safety performance in Q1, our safety performance deteriorated in Q2, mostly as a result of em- ployees returning to sites following relaxation of COVID-19 restrictions. Mitigation plans are being implemented. Progress on gender diversity has continued in Q2 in line with our long-term target. Improvements driven by re- gional actions focused on diversity in recruitment and in- ternal growth opportunities as well as retention of talent. Water withdrawal m 3 Greenhouse gas emissions (CO 2 emissions) tonnes 84,805 2021 Target: 187,479 16,167 2021 Target: 38,685 Solid progress against our 2021 target. Slight increase in water withdrawal from Q1 to Q2 due to pipe burst occur- rence on two sites and re-opening of sites as pandemic eases in some regions During the quarter, we saw a positive progress against our target to reduce greenhouse gas emissions with an addi- tional 13 sites having implemented energy efficiency pro- grammes, including savings in using air conditioning, in- stallation of LED systems as well as compressed air systems. 1.0 1.7 2020 H1 2021 13.1% 14.5% 2020 H1 2021 197,346 84,805 2020 H1 2021 41,155 16,167 2020 H1 2021 FLSmidth Interim Report H1 2021 6 Management Review KEY FIGURES DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 2020 INCOME STATEMENT ORDERS EARNING RATIOS CASH FLOW BALANCE SHEET DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 2020 FINANCIAL RATIOS SHARE RATIOS SUSTAINABILITY KEY FIGURES Use of alternative performance measures FLSmidth Interim Report H1 2021 7 Management Review GROWTH Group order intake increased 42% organically year-on-year, driven by both Mining and Cement. Service orders increased by 20%. Two large orders were announced in the quarter, including the award of Europe’s first full-scale clay calcina- tion installation which will cut plant CO 2 emissions by up to 16%. Group revenue increased 9% organically, attributable to Mining. The book-to- bill was 113% in Q2. Order intake Order intake in Q2 increased 38% to DKK 4,615m (Q2 2020: DKK 3,348m) and by 42% organically, related to both Mining and Cement. Service or- ders increased by 20% and accounted for 58% of the total order intake in Q2 2021. Capital order intake increased by 74% in Q2 2021 and in- cluded two large orders with a combined value of more than DKK 400m (Q2 2020: No large or- ders). Order backlog and maturity The order backlog increased 3% on the previous quarter to DKK 16,677m (Q1 2021: DKK 16,251m), based on a book-to-bill of 113% in Q2 2021, partly offset by currency adjustments of DKK 0.1bn. It is expected that 42% of the backlog will be converted to revenue in 2021, 41% in 2022, and 17% in 2023 and beyond. Backlog maturity Mining Cement FLSmidth Group Revenue Revenue increased 6% to DKK 4,073m in Q2 2021 (Q2 2020: DKK 3,846m), driven by both service and capital revenue. A positive trajectory following a period of substantial headwind from the pandemic. Organically, revenue increased 9%, entirely related to Mining, whereas Cement revenue was in line with Q2 2020. Service revenue accounted for 61% of the total revenue during the quarter (Q2 2020: 61%). Based on a higher backlog and easing of the pandemic in parts of the world, Mining revenue is expected to show modest year-on-year growth in the second half of the year. Cement revenue is expected to remain soft and decline in 2021. FLSmidth Interim Report H1 2021 QUARTERLY FINANCIAL PERFORMANCE Order intake DKKm 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Mining Cement Growth in order intake in Q2 2021 (vs. Q2 2020) Mining Cement FLSmidth Group Total growth 32% 50% 38% Growth in revenue in Q2 2021 (vs. Q2 2020) Mining Cement FLSmidth Group Total growth 11% -4% 6% Group – continued activities (DKKm) Q2 2021 Q2 2020 Change (%) H1 2021 H1 2020 Change (%) Order intake (gross) 4,615 3,348 38% 9,600 9,874 -3% Order backlog 16,677 15,227 10% 16,677 15,227 10% Revenue 4,073 3,846 6% 7,786 8,371 -7% Gross profit 1,020 912 12% 1,955 1,959 0% SG&A cost (735) (689) 7% (1,383) (1,417) -2% EBITA 197 131 50% 387 359 8% EBIT 109 46 137% 210 192 9% FLSmidth Interim Report H1 2021 8 Management Review PROFIT Gross profit increased by 12% and gross margin improved 1.3%-points, positively impacted by business improvement initiatives. EBITA in- creased by 50%, despite the ef- fects from costs related to acquisi- tion and continued reshaping of the Cement business. Gross profit and margin Gross profit increased 12% to DKK 1,020m (Q2 2020: DKK 912m), due to higher revenue and an increase in the gross margin which improved to 25.0% (Q2 2020: 23.7%). The gross margin im- proved for both Mining and Cement and was positively impacted by implementation of busi- ness improvement activities and Cement reshap- ing activities. In Q2 2021, total research and development costs (R&D) amounted to DKK 81m (Q2 2020: DKK 77m), representing 2.0% of revenue (Q2 2020: 2.0%). R&D costs (DKKm) Q2 2021 Q2 2020 R&D costs in Q2 related especially to new and improved sustainable mining and cement tech- nologies as well as digital solutions. In addition to the reported R&D, products and solutions are be- ing developed on-site in cooperation with cus- tomers in the ordinary course of business. SG&A costs Sales, general and administrative costs (SG&A) and other operating items increased 7% to DKK 735m (Q2 2020: DKK 689m), explained by costs related to the acquisition of TK Mining of DKK 40m and Cement reshaping activities in the quar- ter. SG&A costs as a percentage of revenue were largely unchanged at 18.0% (Q2 2020: 17.9%). EBITA and EBITA margin EBITA increased by 50% to DKK 197m compared to a low quarter last year (Q2 2020: DKK 131m) as a result of the higher revenue and gross margin. The Group EBITA margin increased to 4.8% (Q2 2020: 3.4%), related to both Mining and Cement and showing a clear positive underlying develop- ment. Cement profitability improved but the Ce- ment business remained loss-making, still im- pacted by costs of reshaping the Cement business, while Mining EBITA was impacted by costs related to the acquisition of TK Mining, as described above. The comparison quarter in- cluded costs related to the implementation of business improvement initiatives of DKK 74m for the Group. Amortisation of intangible assets amounted to DKK 88m (Q2 2020: DKK 85m). The effect of purchase price allocations amounted to DKK 23m (Q2 2020: DKK 24m) and other amortisation to DKK 65m (Q2 2020: DKK 61m). Earnings before interest and tax (EBIT) increased 137% to DKK 109m (Q2 2020: DKK 46m), mainly due to the growth in revenue and implemented business improvement activities, as described above. Financial items Net financial items amounted to DKK -27m (Q2 2020: DKK -55m), of which foreign exchange and fair value adjustments amounted to DKK -12m (Q2 2020: DKK -37m) and net interest amounted to DKK -15m (Q2 2020: DKK -18m). Tax Tax for Q2 2021 totalled DKK 32m (Q2 2020: DKK 5m), corresponding to an effective tax rate of 39% (Q2 2020: Negative EBT). Reduced tax credits on withholding taxes and an increase in the profit before tax derived from countries with a higher base corporate tax rate caused the high effective tax rate in Q2. Profit for the period Mainly as a result of the higher EBIT and lower net financial cost, profit for the period increased to DKK 47m (Q2 2020: DKK -17m), equivalent to DKK 1.1 per share (diluted) (Q2 2020: DKK -0.3). Return on capital employed ROCE decreased to 5.4% (Q2 2020: 8.0%) as a Employees The number of employees decreased by 100 to 10,089 at the end of Q2 2021 (end of Q1 2021: 10,189). The decrease related to ongoing activi- ties to reshape the Cement business. Backlog DKKm Revenue & EBITA margin DKKm EBITA% EBITA DKKm 0 3,000 6,000 9,000 12,000 15,000 18,000 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Mining Cement 0% 2% 4% 6% 8% 10% 12% 14% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Revenue EBITA margin (100) 0 100 200 300 400 500 600 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Mining Cement FLSmidth Interim Report H1 2021 9 Management Review CAPITAL Net working capital has declined by DKK 1.5bn over the past five quarters and the net working capi- tal ratio decreased to 8.2% in the quarter. Q2 posted strong free cash flow of DKK 443m. The net debt to EBITDA ratio improved to 1.0x from 1.4x in Q1 2021. Net working capital Net working capital has declined by DKK 1.5bn over the past five quarters and decreased to DKK 1,305m at the end of Q2 2021 (end of Q1 2021: DKK 1,678m). The reduction related mainly to an increase in prepayments from customers and trade payables. As expected, utilisation of supply chain financing increased in Q2. The net working capital ratio decreased to 8.2% of 12-months trail- ing revenue in Q2 (Q1 2021: 10.7%), which was the lowest level in several years and a result of ersistent cash focus throughout the pandemic. Cash flow from operating activities Cash flow from operating activities (CFFO) was solid at DKK 507m, albeit marginally below the strong comparison quarter (Q2 2020: DKK 533m). In addition to higher EBITDA, the main positive contributor to CFFO was the net working capital inflow of DKK 320m, however, this was lower than the net working capital inflow of DKK 431m in Q2 2020. Provisions had a DKK 41m pos- itive impact in Q2 2021 (Q2 2020: DKK -17m), whereas taxes paid increased to DKK 125m from DKK 83m in Q2 2020. Cash flow from investing activities Cash flow from investing activities was largely unchanged at DKK -64m (Q2 2020: DKK -65m). Free cash flow Free cash flow (cash flow from operating and in- vesting activities) adjusted for business acquisi- tions and disposals amounted to DKK 451m in Q2 2021 (Q2 2020: DKK 476). Net interest-bearing debt Due to the positive free cash flow, net interest- bearing debt (NIBD) decreased to DKK 1,159m (end of Q1 2021: DKK 1,577 m), and financial gear- ing improved to 1.0x (end of Q1 2021: 1.4x), repre- senting a positive development in the quarter. Financial position By the end of Q2 2021, FLSmidth had DKK 6.8bn of available committed credit facilities of which DKK 4.6bn was undrawn. The committed credit facilities have a weighted average time to ma- turity of 4.0 years. DKK 1.6bn of credit facilities will mature in 2023 and the majority, DKK 5.0bn, will mature in 2026. The remaining DKK 0.2bn matures in later years. Equity ratio Equity at the end of Q2 2021 decreased to DKK 8,369m (end of Q1 2021: DKK 8,451 m) as the positive profit for the period was more than offset by negative currency adjustments regarding translation of foreign entities in the quarter. The equity ratio was 39.7% (end of Q1 2021: 40.2%), above our capital structure target of minimum 30% through-the-cycle. Acquisition of TK Mining On 29 July, FLSmidth and thyssenkrupp Indus- trial Solutions AG reached an agreement that business (TK Mining) for a total consideration (en- terprise value) of EUR 325 million, corresponding to approximately DKK 2.4 billion. This is a trans- formational deal which will add more than 50% to mining industry. Closing of the transaction is ex- pected in H2 2022 and is subject to customary approvals from relevant authorities (see Com- pany announcement No. 7-2021). Funding of the acquisition is secured through debt facilities which are available beyond trans- action close and are expected to be supple- mented with equity before transaction close. Ac- cording to plan, FLSmidth has delivered a good cash flow in recent quarters. Despite this and given the carve-out nature of this transaction, the project focused nature of the current TK Mining business, and the expected duration of the inte- gration period, FLSmidth plans to seek approval to raise up to 20% new equity at an Extraordinary General Meeting, to be held on 26 August 2021. Based on current market conditions, FLSmidth expects to raise 15-20% new equity. Cash flow DKKm Net interest-bearing debt DKKm Net working capital DKKm NWC% (100) 0 100 200 300 400 500 600 700 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Cash flow from operating activities 0 500 1,000 1,500 2,000 2,500 3,000 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Net interest bearing debt (NIBD) 0% 3% 6% 9% 12% 15% 18% 0 500 1,000 1,500 2,000 2,500 3,000 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Net working capital Net working capital ratio, end FLSmidth Interim Report H1 2021 10 Management Review GROWTH Order intake Order intake increased 1% organically, driven by Cement and a higher level of base orders in Min- ing. Including currency effects, order intake in the first half of 2021 decreased 3% to DKK 9,600m compared to the same period last year (H1 2020: DKK 9,874m). The decrease was attributable to the booking of three large Mining orders in the comparison period, with a combined value of DKK 2.4bn. As a result, Mining order intake de- creased 12% for the first half of the year. This de- crease was offset by Cement which, in addition to a higher level of service orders, booked a se- ries of sustainability-related orders, resulting in a 26% increase in Cement order intake. This in- cluded the new FLSmidth flash calciner order for France and two me- dium-sized sustainability related product orders booked in Q1 2021. Service order intake for the Group picked up by 5% from the comparison period driven by both Mining and Cement. Order backlog Order backlog increased 10% to DKK 16,677m by the end of H1 2021 (end of H1 2020: DKK 15,227m). The increase came from both Cement and Mining which saw 11% and 9% increases re- spectively. This is the third consecutive quarter in which the order backlog has increased. Revenue Revenue decreased 7% to DKK 7,786m in H1 2021, driven by negative growth in Cement. Or- ganically, revenue declined by 3%, comprising a 3% increase in Mining and a 13% decline in Ce- ment. The pandemic and a low backlog entering the year continued to reduce Cement capital and service revenue which decreased 25% and 11% respectively in the first half of the year, with Q1 having the greater negative impact. In compari- son, Mining revenue was resilient with a 3% in- crease in service revenue offsetting a capital rev- enue decrease of 8%. PROFIT Gross profit and margin Gross profit in H1 2021 was largely unchanged at DKK 1,955m. Gross margin went up 1.7-points to 25.1%, positively impacted by a higher share from service and effects from implemented business improvement activities. In the first half of 2021, research and develop- ment costs were DKK 133m (H1 2020: 143m), of which DKK 65m were capitalised (H1 2020: 49m) and the balance reported as production costs. EBITA and margin EBITA increased 8% to DKK 387m, a further re- flection of the savings realised from business im- provement initiatives which have reduced SG&A costs in the first half of the year. The EBITA mar- gin was 5.0% up from 4.3% in H1 2020. The im- provement was despite the impact from costs re- lated to the acquisition of TK Mining of DKK 40m in the second quarter of 2021. Profit for the period Profit for the period increased by 20% to DKK 101m. Continuing activities improved to DKK 107m from DKK 94m. Discontinued activities re- ported a DKK 6m loss, compared to a DKK 10m loss in H1 2020. Earnings per share Earnings per share (diluted) increased to DKK 2.1 from DKK 1.7 in H1 2020. FINANCIAL PERFORMANCE IN H1 2021 EBITA split by segment DKKm (200) 0 200 400 600 800 H1 2020 H1 2021 Mining Cement Growth in order intake in H1 2021 (vs. H1 2020) Mining Cement FLSmidth Group Total growth -12% 26% -3% Growth in revenue in H1 2021 (vs. H1 2020) Mining Cement FLSmidth Group Total growth -1% -17% -7% FLSmidth Interim Report H1 2021 11 Management Review CAPITAL Net working capital Following the strong development in net working capital in 2020 improving processes related to cash manage- ment has supported further efficiencies, driving net working capital lower for the first half of 2021. Net working capital decreased to DKK 1,305m (end of 2020: DKK 1,752m), and the correspond- ing net working capital ratio was 8.2% of 12- months trailing revenue, compared to 10.7% at the end of 2020. The decrease was primarily through good cash collection, with a DKK 244m reduction in trade receivables from the end of 2020 and an in- crease in prepayments from customers of DKK 619m. This was partly offset by lower trade paya- bles and increased inventories to support our growth agenda for standardised products and parts services. Cash flow from operating activities Cash flow from operating activities increased to DKK 792m (H1 2020: DKK 498m), mainly due to the positive change in net working capital. Cash flow from investing activities Cash flow used for investments decreased to DKK -115m from DKK -174m in H1 2020. Cash flow from financing activities Cash flow from financing activities amounted to DKK -338m primarily spent on reducing net inter- est-bearing debt. A dividend was paid out in the first half of 2021 amounting to DKK 101m whereas no dividend was paid in the same period last year. Free cash flow Free cash flow adjusted for business acquisitions and disposals was DKK 683m in H1 2021 (H1 2020: DKK 373m). Balance sheet Total assets increased to DKK 21,077m at the end of H1 2021 (end of 2020: DKK 20,456), pri- marily related to foreign exchange effects. Net interest-bearing debt Net interest-bearing debt (NIBD) by the end of H1 2021 decreased to DKK 1,159m (end of 2020: DKK 1,808m). This has been supported by posi- was 1.0x (end of 2020: 1.6x). Equity Equity at the end of H1 2021 increased to DKK 8,369m (end of 2020: DKK 8,130m). The increase related to profit for the period and currency ad- justments regarding translation of entities, less dividend paid. Treasury shares The holding of treasury shares amounted to 1,093,928 shares at the end of H1 2021 (2020: 1,097,718 shares), representing 2.1% of the total share capital (2020: 2.1%). Treasury shares are used to hedge our share-based incentive pro- grammes. Cash flow from operating activities DKKm Cash flow from investing activities DKKm Free cash flow DKKm 0 200 400 600 800 1,000 H1 2020 H1 2021 (500) (400) (300) (200) (100) 0 H1 2020 H1 2021 0 200 400 600 800 1,000 H1 2020 H1 2021 Free cash flow Free cash flow adjusted for business acquisitons and disposals FLSmidth Interim Report H1 2021 12 Management Review Overall, the situation improved during Q2 and the mining industry is emerging from the pan- demic, though with regional differences. Produc- tion levels remain high and lockdowns and site access restrictions are easing in some regions. In North America, there is increased focus on re- placement of equipment which was delayed dur- ing the pandemic. Australia remains steady with continued high production of iron ore and gold. Battery metals, nickel and lithium, are seeing in- creased activity with mines that were in care and maintenance being restarted. Activity in Africa, the Middle East and South Asia remained resilient, notwithstanding the severe situation in India where conditions have subse- quently improved towards the end of Q2. In Asia, ex-China, COVID-19 is starting to have an impact on some of the major mines in the region. South America also experienced lockdowns dur- ing the quarter and political risk is growing in Peru and Chile. Concern about the potential for higher mining royalty payments has led to cus- tomers holding back on making large invest- ments. Brazil, by comparison, is stable and grow- ing, despite a high level of COVID-19 infections. While the rally in commodity prices is supporting market sentiment, it has also led to projects in Europe being put on hold for investment review and has triggered mounting concern within the Chinese government about the impact of higher costs for raw materials on domestic businesses. The outlook for investments in mining remains positive, particularly for copper, gold and battery metals that are critical materials for the green en- ergy transition. The sustainability agenda contin- ues to gather steam with the Majors aligning their business models to the Paris Agreement. In addi- tion, miners are well capitalised though we ex- pect that they will take a more disciplined and sustainable approach to investment compared to the last period of high commodity prices. We maintain a healthy pipeline in both larger and smaller opportunities and the postponement of refurbishment and maintenance during the lock- downs continues to translate into opportunities as the market normalises this year. MINING MARKET DEVELOPMENTS Conditions in the mining industry are gradually returning to normal, albeit at different speeds across the regions. Market sentiment is positive with commodity prices at high levels and the long-term outlook remains strong for copper, battery metals and other minerals required for the green energy transition. Political risk is rising in Peru and Chile. Mining order intake split per Region Q2 2021 % Mining order intake split by commodity Q2 2021 % 27% 35% 9% 12% 5% 12% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 36% 13% 9% 2% 17% 23% Copper Gold Coal Fertilizer Iron ore Other FLSmidth Interim Report H1 2021 13 Management Review Q2 2021 Mining order intake increased 36% organically compared to Q2 2020. Including currency ef- fects, the order intake in Q2 2021 increased by 32% to DKK 2,933m (Q2 2020: DKK 2,223m), comprising a 12% increase in service orders and an 86% increase in capital orders. The increase in order intake related to an emerging activity level as compared to Q2 2020 which was more severely impacted by the pandemic. Q2 2021 in- cluded one large order valued at approximately DKK 200m, whereas the comparison quarter in- cluded no large orders. During the quarter, ser- vice orders and capital orders represented 62% and 38% of Mining order intake respectively. Revenue increased by 13% organically and by 11% including currency effects, to DKK 2,802m in Q2 2021 (Q2 2020: DKK 2,520m). Service revenue increased by 11% supported by higher order in- take in the past two quarters and improved site access for local service technicians. Capital reve- nue increased by 12% driven by the higher back- log and a comparison quarter which was more severely impacted by COVID-19. Service ac- counted for 64% of Mining revenue in Q2 2021 (Q2 2020: 64%). Gross profit, before allocation of shared cost, in- creased by 15% to DKK 768m (Q2 2020: DKK 666m). The corresponding gross margin increased to 27.4% (Q2 2020: 26.4%), mainly due to the posi- tive effects from the business improvement pro- gramme completed in 2020. EBITA increased by 18% to DKK 231m in Q2 2021 (Q2 2020: DKK 196m) as a result of the higher gross profit. The corresponding EBITA margin in- creased to 8.2% from 7.8% in Q2 2020. EBITA was impacted by costs related to the acquisition of TK Mining of DKK 40m. The EBITA margin ad- justed for acquisition costs was 9.7%. There will be acquisition related costs in H2 2021 as well, estimated at around DKK 60m. H1 2021 Mining order intake in H1 2021 decreased by 12% to DKK 6,518m (H1 2020: DKK 7,437m), mainly due to exceptionally strong capital order intake in the comparable period. This related to the three large orders received in Russia and Bela- rus, with a combined value of around DKK 2.4bn, in the first quarter of 2020. Mining order backlog in H1 2021 increased 9% to DKK 10,310 (H1 2020: DKK 9,500m) Mining revenue decreased slightly by 1% to DKK 5,214m (H1 2020: DKK 5,255m) with a 3% in- crease in service revenue and a capital revenue decline of 8%. EBITA increased by 12% to DKK 444m (H1 2020: DKK 397m) and the correspond- ing EBITA margin increased to 8.5% from 7.6% in H1 2020, owing to a higher service share and cost efficiencies. MINING FINANCIAL PERFORMANCE Growth in Mining in Q2 2021 (vs. Q2 2020) Order intake Revenue Total growth 32% 11% Service and capital order intake Q2 2021 % Revenue and EBITA margin DKKm EBITA % 62% 38% Service Capital 0% 2% 4% 6% 8% 10% 12% 14% 16% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Capital revenue Service revenue EBITA margin Mining (DKKm) Q2 2021 Q2 2020 Change (%) H1 2021 H1 2020 Change (%) Order intake (gross) 2,933 2,223 32% 6,518 7,437 -12% Order backlog 10,310 9,500 9% 10,310 9,500 9% Revenue 2,802 2,520 11% 5,214 5,255 -1% Gross profit before allocation of shared cost 768 666 15% 1,416 1,346 5% EBITA before allocation of shared cost 425 404 5% 828 818 1% EBITA 231 196 18% 444 397 12% EBIT 170 135 26% 322 278 16% FLSmidth Interim Report H1 2021 14 Management Review The cement industry is emerging from the pan- demic with significant regional differences. Economic recovery and higher construction ac- tivity have led to improved sentiment in North America with more opportunities tied to our digi- tal and MissionZero products. The Build Back Better stimulus programme, currently in progress, is also expected to drive momentum going for- ward. In Europe, activity has recovered somewhat, and customers are making smaller investments driven by sustainability and capacity limitations at certain plants. The launching of the NextGenera- tionEU stimulus package is expected to trigger upgrades to decarbonise and digitalise cement plants, and we have a healthy pipeline for up- grade projects driven by the ongoing conversion to alternative fuels. Forthcoming spending plans by member governments, particularly in infra- structure, are also expected to stimulate activity when they are released. However, regulatory uncertainty remains for Eu- ropean producers over the treatment of alloca- tions in the EU Emissions Trading System and the implementation of the new Carbon Border 55 package of proposals launched in July with the aim of cutting the bloc's greenhouse gas emissions by 55 per cent by 2030. In Asia, China continues to be the main driver of growth in the region whereas the rest of the re- gion, including Indonesia and the Philippines, is challenged by COVID-19 restrictions which tight- ened in Q2. Cement despatches in South Asia dipped by around 20% in Q2 compared to Q1 due to COVID-19 lockdowns. In addition, travel re- strictions in the region are still hampering our business, especially for service jobs. In South America, activity remained soft due to the pan- demic. Overall, we are seeing increased demand for so- lutions and upgrade projects to decarbonise and de-bottleneck cement plants, although not enough to compensate for a lacklustre market in the short to medium-term. CEMENT MARKET DEVELOPMENTS The cement industry is slowly emerging from the pandemic with growing demand for green solutions. Overall, the market outlook remains unchanged with significant overcapacity and a recovery expected mid- term fueled by large economic stimulus programmes combined with an increasing focus on lower-carbon cement. Cement order intake split per Region Q2 2021 % Cement revenue split by categories Q2 2021 % 22% 6% 35% 21% 15% 1% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 20% 26% 54% Projects Products Service FLSmidth Interim Report H1 2021 15 Management Review Q2 2021 The organic order intake in Q2 2021 increased by 55% compared to Q2 2020. Including cur- rency effects, the order intake in Q2 2021 in- creased by 50% to DKK 1,682m (Q2 2020: DKK 1,125m), comprising a 42% increase in service or- ders and a 59% increase in capital orders. During the quarter, service orders and capital orders represented 52% and 48% of cement order in- take, respectively. The increase in Cement service order intake re- lated mainly to higher construction activity in North America and pent-up service orders in Sub-Saharan Africa and the Middle East. The improvement in capital order intake was due -scale clay calcination installation valued above DKK 200m. A solution which will cut CO 2 emissions from the French cement plant by up to 16%. Organically, revenue in Q2 2021 was in line with Q2 2020 but decreased by 4% to DKK 1,271m when including currency effects. Cement service revenue decreased by 5% while capital revenue declined by 3%. Service accounted for 54% of Cement revenue in Q2 2021 (Q2 2020: 55%). Following a period of declining activity level in Cement, the order backlog at end of Q2 2021 was up 11% year-on-year. Gross profit, before allocation of shared cost, was unchanged at DKK 279m (Q2 2020: DKK 279m), and the gross margin increased to 22.0% (Q2 2020: 21.0%). EBITA amounted to DKK -34m (Q2 2020: DKK -65m) and the corresponding EBITA margin was -2.7% (Q2 2020: -4.9%). EBITA in Q2 included costs related to continued reshaping of Cement, i.e., adjusting the cost structure and repositioning the Cement business to benefit from and support the green transition. Q3 2021 is expected to carry a similar level of reshaping costs. H1 2021 Cement order intake in H1 2021 increased by 26% to DKK 3,082m (H1 2020: DKK 2,437m) driven by both service and capital order growth. This was a strong development considering the challenging market circumstances. Order back- log increased 11% to DKK 6,367 (H1 2020: DKK 5,727m). Cement revenue decreased by 17% to DKK 2,572m in H1 2021 (H1 2020: DKK 3,116m), im- pacted by the pandemic and a low backlog at the start of the year. Service and capital revenue declined by 11% and 25% respectively. EBITA decreased to DKK -57m (H1 2020: DKK -33m), due to the revenue decline and ongoing costs related to Cement reshaping. The corre- sponding EBITA margin declined to -2.2% from -1.1% in H1 2020. CEMENT FINANCIAL PERFORMANCE Growth in Cement in Q2 2021 (vs. Q2 2020) Order intake Revenue Total growth 50% -4% Service and capital order intake Q2 2021 % Revenue and EBITA margin DKKm EBITA % 52% 48% Service Capital -7% -5% -3% -1% 1% 3% 5% 7% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Q2 2019 Q3 Q4 Q1 2020 Q2 Q3 Q4 Q1 2021 Q2 Service revenue Capital revenue EBITA margin Cement (DKKm) Q2 2021 Q2 2020 Change (%) H1 2021 H1 2020 Change (%) Order intake (gross) 1,682 1,125 50% 3,082 2,437 26% Order backlog 6,367 5,727 11% 6,367 5,727 11% Revenue 1,271 1,326 -4% 2,572 3,116 -17% Gross profit before allocation of shared cost 279 279 0% 585 670 -13% EBITA before allocation of shared cost 86 91 -5% 193 288 -33% EBITA (34) (65) -48% (57) (33) 73% EBIT (61) (89) -31% (112) (81) 38% FLSmidth Interim Report H1 2021 16 Management Review QUARTERLY KEY FIGURES DKKm 2019 2020 2021 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 INCOME STATEMENT Gross profit 1,315 1,126 1,327 1,047 912 884 1,022 935 1,020 EBITDA before special non-recurring items 574 459 580 319 223 255 337 287 285 EBITA 487 377 487 228 131 177 235 190 197 EBIT 381 294 393 146 46 91 145 101 109 EBT 349 284 323 150 (7) 89 149 92 82 Profit/loss on continuing activities for the period 234 190 229 106 (12) 48 84 57 50 Profit/loss for the period 223 190 227 101 (17) 43 78 54 47 Gross margin 24.0% 23.8% 22.0% 23.1% 23.7% 23.1% 24.1% 25.2% 25.0% EBITDA margin before special non-recurring items 10.5% 9.7% 9.6% 7.0% 5.8% 6.7% 8.0% 7.7% 7.0% EBITA margin 8.9% 8.0% 8.1% 5.0% 3.4% 4.6% 5.5% 5.1% 4.8% EBIT margin 6.9% 6.2% 6.5% 3.2% 1.2% 2.4% 3.4% 2.7% 2.7% FLSmidth Interim Report H1 2021 17 Management Review DKKm 2019 2020 2021 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 SEGMENT REPORTING Mining Gross margin before allocation of shared costs 26.1% 25.2% 23.4% 24.9% 26.4% 25.0% 25.1% 26.9% 27.4% EBITA margin before allocation of shared costs 16.8% 16.3% 14.9% 15.1% 16.0% 16.8% 16.4% 16.7% 15.2% EBITA margin 10.4% 9.2% 9.1% 7.3% 7.8% 9.0% 9.3% 8.8% 8.2% EBIT margin 8.5% 6.9% 7.2% 5.2% 5.4% 6.8% 7.2% 6.3% 6.1% Cement Gross margin before allocation of shared costs 22.0% 22.8% 21.9% 21.8% 21.0% 19.5% 23.3% 23.5% 22.0% EBITA margin before allocation of shared costs 14.1% 13.8% 13.3% 11.0% 6.9% 6.7% 9.7% 8.2% 6.8% EBITA margin 6.3% 5.8% 6.6% 1.8% -4.9% -4.8% -1.9% -1.7% -2.7% EBIT margin 4.4% 4.9% 5.5% 0.4% -6.7% -7.1% -4.1% -3.9% -4.8% FLSmidth Interim Report H1 2021 18 Financial Statements Notes DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 3, 4 Revenue 4,073 3,846 7,786 8,371 Production costs (3,053) (2,934) (5,831) (6,412) Gross profit 1,020 912 1,955 1,959 Sales costs (337) (352) (652) (730) Administrative costs (404) (339) (742) (701) Other operating items 6 2 11 14 EBITDA before special non-recurring items 285 223 572 542 Special non-recurring items (4) (13) (19) (13) Depreciation and impairment of property, plant and equipment and lease assets (84) (79) (166) (170) EBITA 197 131 387 359 Amortisation and impairment of intangible assets (88) (85) (177) (167) EBIT 109 46 210 192 Income from associates 0 2 1 3 Financial income 232 106 530 545 Financial costs (259) (161) (567) (597) EBT 82 (7) 174 143 Tax for the period (32) (5) (67) (49) Profit for the period, continuing activities 50 (12) 107 94 3, 8 Loss for the period, discontinued activities (3) (5) (6) (10) Profit for the period 47 (17) 101 84 Attributable to: Shareholders in FLSmidth & Co. A/S 50 (14) 103 84 Minority interests (3) (3) (2) 0 47 (17) 101 84 Earnings per share (EPS): Continuing and discontinued activities per share 1.1 (0.3) 2.1 1.7 Continuing and discontinued activities per share, diluted 1.1 (0.3) 2.1 1.7 Continuing activities per share 1.1 (0.2) 2.2 1.9 Continuing activities per share, diluted 1.1 (0.2) 2.2 1.9 Notes DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 Profit for the period 47 (17) 101 84 Items that will not be reclassified to profit or loss: Actuarial gains/(losses) on defined benefit plans (25) (21) (18) (21) Items that are or may be reclassified subsequently to profit or loss: Currency adjustments regarding translation of entities (90) (51) 268 (387) Cash flow hedging: - Value adjustments for the period 1 (1) (12) (32) - Value adjustments transferred to work in progress (6) 10 (14) 9 Tax of other comprehensive income 2 6 4 6 Other comprehensive income for the period after tax (118) (57) 228 (425) Comprehensive income for the period (71) (74) 329 (341) Attributable to: Shareholders in FLSmidth & Co. A/S (67) (71) 332 (340) Minority interests (4) (3) (3) (1) (71) (74) 329 (341) CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME Financial performance FLSmidth Interim Report H1 2021 19 Financial Statements CASH FLOW STATEMENT Notes DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 EBITDA before special non-recurring items 285 223 572 542 3 EBITDA, discontinued activities (3) (4) (6) (6) Adjustment for gain on sale of property, plant and equipment and other non-cash items (1) 12 (15) 22 Adjusted EBITDA 281 231 551 558 Change in provisions, pension and employee benefits 41 (17) 28 (75) 9 Change in net working capital 320 431 469 234 Cash flow from operating activities before financial items and tax 642 645 1,048 717 Financial items received and paid (10) (29) (29) (47) Taxes paid (125) (83) (227) (172) Cash flow from operating activities 507 533 792 498 7 Acquisition of enterprises and activities (8) (8) (8) (49) Acquisition of intangible assets (47) (28) (79) (63) Acquisition of property, plant and equipment (9) (34) (28) (66) Acquisition of financial assets (1) (3) (4) (6) 7 Disposal of enterprises and activities 0 0 2 0 Disposal of property, plant and equipment 1 1 2 3 Dividend from associates 0 7 0 7 Cash flow from investing activities (64) (65) (115) (174) Dividend (18) 0 (101) 0 Capital injection, minority interests 3 0 3 0 Exercise of share options 0 0 1 0 Repayment of lease liabilities (31) (27) (64) (57) Change in net interest bearing debt (306) (524) (177) (501) Cash flow from financing activities (352) (551) (338) (558) Change in cash and cash equivalents 91 (83) 339 (234) Cash and cash equivalents at beginning of period 1,256 811 976 1,001 Foreign exchange adjustment, cash and cash equivalents 0 (25) 32 (64) Cash and cash equivalents at 30 June 1,347 703 1,347 703 The cash flow statement cannot be inferred from the published financial information only Free cash flow DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 Free cash flow 443 468 677 324 Free cash flow, adjusted for acquisitions and disposals of enterprises and activities 451 476 683 373 Cash and cash equivalents at beginning of period DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 Cash and cash equivalents 1,256 811 946 1,001 Cash and cash equivalents included in assets held for sale 0 0 30 0 Cash and cash equivalents at beginning of period 1,256 811 976 1,001 FLSmidth Interim Report H1 2021 20 Financial Statements Notes DKKm 30/06 2021 31/12 2020 30/06 2020 ASSETS Goodwill 4,288 4,194 4,305 Patents and rights 830 875 910 Customer relations 430 466 539 Other intangible assets 145 172 81 Completed development projects 209 234 215 Intangible assets under development 351 299 367 Intangible assets 6,253 6,240 6,417 Land and buildings 1,434 1,414 1,506 Plant and machinery 346 369 407 Operating equipment, fixtures and fittings 77 89 89 Tangible assets in course of construction 123 137 98 Property, plant and equipment 1,980 2,009 2,100 Lease assets 284 312 286 Deferred tax assets 1,262 1,248 1,130 Investments in associates 163 159 157 10 Other securities and investments 48 43 47 Other non-current assets 1,473 1,450 1,334 Non-current assets 9,990 10,011 10,137 Inventories 2,489 2,368 2,721 Trade receivables 3,209 3,453 3,748 Work in progress 2,316 2,175 2,133 Prepayments 552 333 475 Income tax receivables 441 178 294 Other receivables 733 868 828 Cash and cash equivalents 1,347 946 703 Current assets 11,087 10,321 10,902 Assets classified as held for sale 0 124 0 Total assets 21,077 20,456 21,039 Notes DKKm 30/06 2021 31/12 2020 30/06 2020 EQUITY AND LIABILITIES Share capital 1,025 1,025 1,025 Foreign exchange adjustments (862) (1,131) (686) Cash flow hedging (30) (4) (51) Retained earnings 8,242 8,246 8,173 Shareholders in FLSmidth & Co. A/S 8,375 8,136 8,461 Minority interests (6) (6) 13 Equity 8,369 8,130 8,474 Deferred tax liabilities 221 200 237 Pension obligations 403 375 379 5 Provisions 404 426 440 Lease liabilities 196 209 187 Bank loans and mortgage debt 2,199 2,250 2,636 Prepayments from customers 279 240 176 Income tax liabilities 140 139 139 Other liabilities 118 125 116 Non-current liabilities 3,960 3,964 4,310 Pension obligations 3 3 3 5 Provisions 652 589 480 Lease liabilities 97 113 109 Bank loans and mortgage debt 14 183 68 Prepayments from customers 1,606 1,026 1,071 Work in progress 1,800 1,834 1,768 Trade payables 3,001 3,055 3,386 Income tax liabilities 250 162 202 Other liabilities 1,325 1,306 1,168 Current liabilities 8,748 8,271 8,255 Liabilities associated with assets classified as held for sale 0 91 0 Total liabilities 12,708 12,326 12,565 Total equity and liabilities 21,077 20,456 21,039 BALANCE SHEET FLSmidth Interim Report H1 2021 21 Financial Statements EQUITY STATEMENT H1 2021 H1 2020 DKKm Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Equity at 1 January 1,025 (1,131) (4) 8,246 8,136 (6) 8,130 1,025 (300) (28) 8,082 8,779 14 8,793 Comprehensive income for the period Profit/loss for the period 103 103 (2) 101 84 84 0 84 Other comprehensive income Actuarial gains/(losses) on defined benefit plans (18) (18) (18) (21) (21) (21) Currency adjustments regarding translation of entities 269 269 (1) 268 (386) (386) (1) (387) Cash flow hedging: - Value adjustments for the period (12) (12) (12) (32) (32) (32) - Value adjustments transferred to work in progress (14) (14) (14) 9 9 9 Tax on other comprehensive income 4 4 4 6 6 6 Other comprehensive income total 0 269 (26) (14) 229 (1) 228 0 (386) (23) (15) (424) (1) (425) Comprehensive income for the period 0 269 (26) 89 332 (3) 329 0 (386) (23) 69 (340) (1) (341) Transactions with owners: Dividend paid (101) (101) (101) 0 0 0 Share-based payment 7 7 7 22 22 22 Exercise of share options 1 1 1 0 0 0 Capital injection, minority interests 0 3 3 0 0 Equity at 30 June 1,025 (862) (30) 8,242 8,375 (6) 8,369 1,025 (686) (51) 8,173 8,461 13 8,474 FLSmidth Interim Report H1 2021 22 Notes 1. KEY ACCOUNTING ESTIMATES AND JUDGEMENTS When preparing the financial statements, we are required to make several estimates and judge- ments. The estimates and judgements that can have a significant impact on the financial state- ments are categorised as key accounting esti- mates and judgements. Key accounting esti- mates and judgements are regularly assessed to adapt to the market conditions and changes in political and economic factors. In general, key ac- counting judgements are made in relation to the accounting for revenue when determining the performance obligations and the recognition method, while key accounting estimates relate to the estimation of warranty provisions, valuation of inventories, trade receivables, work in pro- gress and deferred tax. For further details, refer- ence is made to The Annual Report 2020, Key accounting estimates and judgements, pages 63- 64 and to specific notes. Similarly to what was disclosed in the Annual Re- port 2020 the COVID-19 pandemic has imposed additional uncertainty to the interim financial statements. As of 30 June 2021, we have included updated estimates to assess the recoverability of our as- set base, including inventories, work in progress, trade receivables, intangible assets and deferred tax assets. The uncertain market and liquidity conditions still prevail globally, which continue to be reflected in our expected credit losses (ECL). We have reassessed our projects to reflect esti- mated implications on project financials, includ- ing cost forecasts due to the severity of re- strictions. By nature, the updated key accounting estimates contain uncertainties and it is possible that the outcomes in the next financial period can mates are based. 2. INCOME STATEMENT BY FUNCTION It is our policy to prepare the income statement based on an adjusted classification of the cost by function in order to show the earnings before special non-recurring items, depreciation, amorti- sation and impairment (EBITDA). Depreciation, amortisation and impairment are therefore sepa- rated from the individual functions and presented in separated lines. The income statement classified by function in- cludes allocation of depreciation, amortisation and impairment. Interim Report H1 2021 Income Statement by function DKKm Q2 2021 Q2 2020 H1 2021 H1 2020 Gross profit 931 834 1,783 1,791 EBIT 109 46 210 192 (172) (164) (343) (337) (172) (164) (343) (337) FLSmidth Interim Report H1 2021 23 Notes 3. SEGMENT INFORMATION H1 2021 H1 2020 FLSmidth Group FLSmidth Group DKKm Mining Cement Shared costs¹⁾ Other com- panies ²⁾ Continuing activities Discon- tinued activities³⁾ Mining Cement Shared costs¹⁾ Other com- panies ²⁾ Continuing activities Discon- tinued activities³⁾ Revenue 5,214 2,572 - 0 7,786 0 5,255 3,116 - 0 8,371 0 Gross profit 1,416 585 (46) 0 1,955 0 1,346 670 (57) 0 1,959 0 EBITDA before special non-recurring items 903 242 (574) 1 572 (6) 896 333 (684) (3) 542 (6) EBITA before allocation of shared costs 828 193 (635) 1 387 (6) 818 288 (744) (3) 359 (6) EBITA 444 (57) 0 0 387 (6) 397 (33) 0 (5) 359 (6) EBIT 322 (112) - 0 210 (6) 278 (81) - (5) 192 (6) Gross margin 27.2% 22.7% 25.1% 25.6% 21.5% 23.4% EBITDA margin before special non-recurring items 17.3% 9.4% 7.3% 17.1% 10.7% 6.5% EBITA margin before allocation of shared costs 15.9% 7.5% - 15.6% 9.2% - EBITA margin 8.5% -2.2% 5.0% 7.6% -1.1% 4.3% EBIT margin 6.2% -4.4% 2.7% 5.3% -2.6% 2.3% Number of employees at 31 June 5,272 3,457 1,360 10,089 0 5,432 4,643 1,429 11,504 2 Reconciliation of profit for the period EBT 174 (7) 143 (7) 1) Shared costs consist of costs that are managed on Region or Group level and subsequently allocated to the divisions. Cost include administration, procurement, logistic and digital. 2) Other companies consist of companies with no activity, real estate companies, eliminations and the parent company. 3) Discontinued activities mainly consist of bulk material handling. FLSmidth Interim Report H1 2021 24 Notes 4. REVENUE Revenue arises from sale of life cycle offerings to our customers. We sell a broad range of goods and services within the Mining and Cement In- dustries split into the main categories projects, products and services. Six Regions support the sales within the Mining and Cement Industries. Revenue is presented in the Regions in which delivery takes place. In the first half year of 2021, South America repre- sented a 3%-point lower share of Group revenue than the same period last year. Asia and Australia picked up a higher share of the Group revenue in the first half year of 2021 compared to same pe- riod in 2020. Backlog The order backlog at 30 June 2021 amounts to DKK 16,677m (H1 2020: DKK 15,227m) and repre- sents the value of outstanding performance obli- gations on current contracts. The value of out- standing performance obligations on current contracts is combined of value from contracts where we will transfer control at a future point in time and the value of the remaining performance obligations on contracts where we transfer con- trol over time. Based on the order backlog maturity profile, the majority, 42% (H1 2020: 43%) of the order back- log is expected to be converted into revenue in 2021, while 58% (H1 2020: 57%) is expected to be converted to revenue in subsequent years. Revenue split by Regions H1 2021 % Revenue split by Regions H1 2020 % Backlog DKKm 22% 23% 17% 17% 10% 11% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 23% 26% 18% 17% 8% 8% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 43% 42% 34% 41% 23% 17% 0 3,000 6,000 9,000 12,000 15,000 18,000 H1 2020 H1 2021 Within current year Within next year Subsequent years Revenue split by industry and category H1 2021 H1 2020 DKKm Mining Cement Group Mining Cement Group Capital business 1,826 1,090 2,916 1,976 1,456 3,432 Service business 3,388 1,482 4,870 3,279 1,660 4,939 Total revenue 5,214 2,572 7,786 5,255 3,116 8,371 Revenue split by recognition principle H1 2021 H1 2020 DKKm Mining Cement Group Mining Cement Group Total revenue 5,214 2,572 7,786 5,255 3,116 8,371 FLSmidth Interim Report H1 2021 25 Notes 5. PROVISIONS Additions to provisions amounted to DKK 261m in H1 2021, compared to DKK 240m in H1 2020, due to continued restructuring measures with sites closed in US and Germany and marginal changes to provision estimates for warranties, loss-making projects as well as disputes and law- suits. Of the total used provisions of DKK 176m in H1 2021 restructuring provision used had a higher share in H1 2021 compared to H1 2020. DKK 5m related to discontinued activities in line with H1 2020 level. See note 8 for provision details re- lated to discontinued activities. For a description of the main provision catego- ries see note 2.7 in the 2020 Annual Report. 6. CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES Contingent liabilities at 30 June 2021 amounted to DKK 3.0bn (31 December 2020: DKK 2.7bn). Contingent liabilities primarily relate to perfor- mance and payment guaranteed issued to cover project-related risks, such as performance, pay- ment, quality, and delay. The volume of such guarantees amounted to DKK 2.5bn (31 Decem- ber 2020: DKK 2.4bn). In the event a guarantee is expected to materialise, a provision is recog- nized to cover the risk. The remaining contingent liabilities relate to our involvement in legal dis- putes, certain of which are already pending with courts or other authorities and others of which some may or may not lead to formal legal pro- ceedings being initiated against us, including by public authorities. Except from the above mentioned no other sig- nificant changes have occurred to the nature and extent of our contractual obligations and contin- gent liabilities compared to what was disclosed in note 2.9 in the 2020 Annual Report. FLSmidth has entered into a conditional agree- ment to sell all and lease back part of its head- quarters in Valby, Denmark. As described in the Annual Report 2020 it has been decided to re- visit the plans for the headquarter and options are being explored. More certainty of the out- come is expected during Q3 of 2021. On 22 July 2021, a customer informed that it in- tends to initiate arbitration against FLSmidth and certain partners for an amount of EUR 28 million, for alleged contractual breaches. The case was our 2020 annual general meeting. FLSmidth will reject a potential claim. Provisions DKKm 30/06 2021 31/12 2020 30/06 2020 Provisions 1,056 1,015 920 1,056 1,015 920 1,056 1,015 920 Provisions related to continued activities DKKm 30/06 2021 31/12 2020 30/06 2020 Provisions 879 833 717 FLSmidth Interim Report H1 2021 26 Notes 7. DISPOSAL AND ACQUISITION OF ENTERPRISES On 23 December 2020, FLSmidth announced the sale of advanced fabric filter technology fective as of 1 March 2021. The gain from the transaction was DKK 2m in H1 2021. The transac- tion price was DKK 3m and the transaction costs amounted to DKK 1m. On 29 December 2020, FLSmidth announced the sale of Möller pneumatic conveying systems business to REEL. The sale of Möller pneumatic conveying systems business was closed 1 Janu- ary 2021. The disposal has no income statement effect in H1 2021. The assets related to the disposals were in- cluded in assets classified as held for sale as of 31 December 2020. Following the two disposals being effective in the first quarter of 2021 there are no remaining assets classified as held for sale. On 1 June 2019, FLSmidth acquired the IMP Au- tomation Group that was integrated into the Min- ing segment. In relation to the acquisition FLS- midth paid DKK 8m in H1 2021 related to a deferred payment from the acquisition. 8. 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. The progress has been delayed, amongst others, due to the COVID-19 pandemic. For further infor- mation on discontinued activities, please refer to note 2.11 of Annual report 2020. In addition to provisions of DKK 177m shown in the table below, discontinued activities include DKK 222m (31 December 2020: DKK 220m) of . As of 30 June 2021, DKK 130m of contingent liabilities relate to discontinued activi- ties. Loss for the period from discontinued activities amounted to DKK -6m (H1 2020: DKK -10m), pri- marily consisting of SG&A cost, refer to note 3. Cash flow from discontinued operating activities totalled DKK -16m (H1 2020: DKK -4m). The cash outflow was due to a combination of the loss from the period, used provisions of DKK -5m (H1 2020: DKK -8m) and cash flow from net working capital of DKK -5m (H1 2020: DKK 14m). Discontinued activities effect on cash flow from operating activities DKKm H1 2021 2020 H1 2020 Cash flow from operating activities before financial items and tax (16) (48) 0 Cash flow from operating activities (16) (52) (4) Discontinued activities share of Group provisions disclosed in note 5 DKKm 30/06 2021 31/12 2020 30/06 2020 Provisions 177 182 203 FLSmidth Interim Report H1 2021 27 Notes 9. NET WORKING CAPITAL Net working capital as at 30 June 2021 de- creased due to a significant increase in prepay- ments from customers. A lower level of trade re- ceivables was offset by an increase in work in progress and an increase in inventories. Utilisation of supply chain financing increased slightly in H1 compared to year end 2020. 10. FAIR VALUE MEASUREMENT Financial instruments measured at fair value are measured on a recurring basis and categorised into the following levels of the fair value hierar- chy: Level 1: Observable market prices for identical instruments Level 2: Valuation techniques primarily based on observable prices or traded prices for com- parable instruments Level 3: Valuation techniques primarily based on unobservable prices Securities and investments measured at fair value through profit/loss are either measured at quoted prices in an active market for the same type of instrument (level 1) or at fair value based on available data (level 3). Hedging instruments are not traded in an active market based on quoted prices. They are meas- ured instead using a valuation technique, where all significant inputs are based on observable market data; such as exchange rates, interest rates, credit risk and volatilities (level 2). There have been no significant transfers be- tween the levels in the first half year of 2021 or during 2020. Net working capital DKKm 30/06 2021 31/12 2020 30/06 2020 Net working capital 1,305 1,752 2,351 Cash flow effect from change in net working capital 469 706 234 Financial instruments 30/06 2021 DKKm Level 1 Level 2 Level 3 Total 9 14 39 62 31/12 2020 DKKm Level 1 Level 2 Level 3 Total 9 30 34 73 FLSmidth Interim Report H1 2021 28 Notes 11. EVENTS AFTER THE BALANCE SHEET DATE As announced on 29 July 2021, FLSmidth and thyssenkrupp Industrial Solution AG have reached an agreement that FLSmidth will acquire for a total com- pensation of EUR 325m corresponding to ap- proximately DKK 2.4 billion. Closing is expected in H2 2022 and is conditional upon customary regulatory approvals and formal approval by the supervisory board of thyssenkrupp AG and the supervisory board of thyssenkrupp Industrial So- lution AG. We are not aware of any subsequent matters that nancial position at 30 June 2021. 12. ACCOUNTING POLICIES The condensed interim report of the Group for the first half year of 2021 is presented in accord- ance with IAS 34, Interim Financial Reporting, as approved by the EU and additional Danish dis- closure requirements regarding interim reporting by listed companies. Apart from the below mentioned changes, the accounting policies are unchanged from those applied in the 2020 Annual Report. Reference is made to note 7.5, Accounting policies, note 7.6, Impact from new IFRS, note 7.7, New IFRS not yet adopted and to specific notes in the 2020 An- nual Report for further details. Alternative Performance Measures (APM) are un- changed from those applied in the 2020 Annual Report, refer to note 7.4 in the 2020 Annual Re- port for a description of used APM. Changes in accounting policies As of 1 st January 2021, the FLSmidth Group has implemented all new or amended accounting standards and interpretations as adopted by the EU and applicable for the 2021 financial year, in- cluding the following, which is the most relevant for FLSmidth: Interest Rate Benchmark Reform Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (issued 2020) The implementation has not had and is not ex- pected to have significant impact on the consoli- dated financial statements. FLSmidth Interim Report H1 2021 29 Statements The Board of Directors and Executive Manage- ment have today considered and approved the consolidated condensed interim financial state- ments for the period 1 January 30 June 2021. The consolidated condensed interim financial statements are presented in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU and Danish disclosure requirements for interim reports of listed companies. The consoli- dated condensed interim financial statements have not been audited or reviewed by the In our opinion, the consolidated condensed in- terim financial statements give a true and fair 0 June 2021 as well as of the results of its operations and cash flows for the period 1 January 30 June 2021. In our opinion, the management review gives a tivity and financial matters, results of operations, cash flows and financial position as well as a de- scription of the principal risks and uncertainties that the Group faces. Valby, 12 August 2021 Executive management Thomas Schulz Group CEO Roland M. Andersen Group CFO Board of directors Vagn Ove Sørensen Chairman Tom Knutzen Vice chairman Gillian Dawn Winckler Thrasyvoulos Moraitis Richard Robinson Smith Anne Louise Eberhard Carsten Hansen Leif Gundtoft Claus Østergaard STATEMENT BY MANAGEMENT FLSmidth Interim Report H1 2021 30 Statements A/S the form of annual reports or interim reports, filed with the Danish Business Authority and/or an- NASDAQ Copenhagen, as well as any presenta- tions based on such financial reports, and any other written information released, or oral state- ments made, to the public based on this report or in the future on behalf of FLSmidth & Co. A/S, may contain forward looking statements. Wo other words and terms of similar meaning in con- nection with any discussion of future operating or financial performance identify forward-looking statements. Examples of such forward-looking statements include, but are not limited to: Statements of plans, objectives or goals for fu- ture operations, including those related to FLS- search and product development. Statements containing projections of or targets for revenues, profit (or loss), CAPEX, dividends, capital structure or other net financial items. Statements regarding future economic perfor- mance, future actions and outcome of contin- gencies such as legal proceedings and state- ments regarding the underlying assumptions or relating to such statements. Statements regarding potential merger & acquisition activities. These forward-looking statements are based on current plans, estimates and projections. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which may be outside FLSmidth & fect such forward-looking statements. FLSmidth & Co. A/S cautions that a number of im- portant factors, including those described in this report, could cause actual results to differ materi- ally from those contemplated in any forward- looking statements. Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including 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 and/or services, introduction of competing prod- ucts, reliance on information technology, ully market current and new products, exposure to product liability and legal proceedings and investigations, changes in legislation or regulation and interpre- tation thereof, intellectual property protection, perceived or actual failure to adhere to ethical marketing practices, investments in and divesti- tures of domestic and foreign enterprises, unex- pected growth in costs and expenses, failure to recruit and retain the right employees and failure to maintain a culture of compliance. Unless re- quired by law FLSmidth & Co. A/S is under no duty and undertakes no obligation to update or revise any forward-looking statement after the distribution of this report. FORWARD LOOKING STATEMENTS Forward looking statement MAIN CONCLUSIONS – continued 5 Interim report Q3 2017 FLSMIDTH Interim Report 1 January – 3 0 June 2021 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby Denmark Tel.: +45 36 18 18 00 Fax: +45 36 44 11 46 corppr@smidth.com www.smidth.com CVR No. 58180912 213800G7EG4156NNPG912021-01-012021-06-30213800G7EG4156NNPG912021-01-012021-06-30cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-301cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-302cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-301cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-302cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-303cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-304cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-305cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-306cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-307cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-308cmn:ConsolidatedMember213800G7EG4156NNPG912021-01-012021-06-309cmn:ConsolidatedMember213800G7EG4156NNPG912020-01-012020-06-30cmn:ConsolidatedMember213800G7EG4156NNPG912021-04-012021-06-30213800G7EG4156NNPG912020-04-012020-06-30213800G7EG4156NNPG912020-01-012020-06-30213800G7EG4156NNPG912021-03-31213800G7EG4156NNPG912021-06-30213800G7EG4156NNPG912020-03-31213800G7EG4156NNPG912020-06-30213800G7EG4156NNPG912020-12-31213800G7EG4156NNPG912019-12-31213800G7EG4156NNPG912020-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912021-01-012021-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912021-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912021-01-012021-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912021-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912020-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912021-01-012021-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912021-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912020-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912021-01-012021-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912021-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912021-01-012021-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912021-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912020-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912021-01-012021-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912021-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912019-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912020-01-012020-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912020-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912020-01-012020-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912020-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912019-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912020-01-012020-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912020-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912019-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912020-01-012020-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912020-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912020-01-012020-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912020-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912019-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912020-01-012020-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912020-06-30ifrs-full:NoncontrollingInterestsMemberxbrli:pureiso4217:DKKiso4217:DKKxbrli:sharesInterim report (6 months)No audit assistanceParsePort XBRL Converter2021-01-012020-01-012020-06-30213800G7EG4156NNPG91Reporting class Bwww.flsmidth.comcorppr@flsmidth.com1008911504213800G7EG4156NNPG9158180912FLSmidth & Co. A/SVigerslev Allé 772500 Valby