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FLSmidth & Co. — Interim / Quarterly Report 2022
Aug 19, 2022
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Download source fileUntitled The information contained or referenced in this presentation is proprietary to FLSmidth and is protected by copyright law INTERIM REPORT H1 2022 1 January – 30 June 2022 Company announcement no. 14 FLSmidth & Co. A/S Vigerslev Allé 77 DK - 2500 Valby CVR No. 58180912 FLSmidth Interim Report H1 2022 2 Management Review Management Review 3 4 7 8 10 12 15 Consolidated Condensed Interim Financial Statements 17 17 18 19 20 Notes 21 21 22 24 25 25 26 26 27 27 27 27 Statements 28 CONTENTS FLSmidth Interim Report H1 2022 3 Management Review Mining highlights Q2 2022 Mining order intake increased 26% organically in Q2 2022, as a result of improved service activity compared to Q2 2021. The quarter included one large product order, valued at around DKK 270m. Revenue increased organically by 19%, driven by both service and capital. The quarter includes revenue of DKK 257m from contracts with non- sanctioned Russian and Belarusian customers. Mining EBITA increased by 19%. The EBITA mar- gin of 7.8% includes costs related to the acquisi- of DKK 45m and costs of DKK 50m to the wind-down of our Russian activities. Adjusted for these costs, the Mining EBITA margin was 10.5%. Cement highlights Q2 2022 Cement order intake increased 8% organically, as a result of improved underlying performance and improved market conditions. The quarter in- cluded one large product order, valued at more than DKK 400m. Cement revenue increased 12% organically, driven mainly by an increase in service revenue. Cement EBITA continued the positive trend and increased to DKK 31m in Q2 2022 compared to DKK -34m in Q2 2021. Cement EBITA margin was positive at 2.1%, compared to -2.7% in Q2 2021, driven by higher revenue in the quarter and improvements from the successfully exe- cuted reshaping activities in 2021. Consolidated highlights Q2 2022 Group order intake increased 20% organically, driven predominantly by Mining. Currency tail- winds supported order intake in the quarter by 8%. Capital orders increased by 23% and service orders increased 31%. The order backlog increased to DKK 19.5bn, of which around DKK 1.5bn related to Russian and Belarusian contracts at the end of Q2 2022 (around DKK 2.6bn at end Q1 2022). Organic revenue increased 17% driven primarily by Mining. Gross profit increased by 22%, with the corresponding gross margin decreasing slightly from 25.0% to 24.7%. EBITA increased by 56% and the corresponding EBITA margin in- creased to 6.1% from 4.8% in Q2 2021. Adjusted for the costs related to the wind-down of Russian Mining business, the EBITA margin was 8.0% in Q2 2022. Cash flow was, as expected, negative due to the increase in net working capital. Financial guidance 2022 FLSmidth financial guidance for 2022 is up- dated. Guidance for Mining revenue, consoli- dated Group revenue and Cement EBITA margin is raised. Please see page 4 for detailed guidance for Min- ing, Cement and consolidated for the Group. Following a solid start to the year, the second quarter of 2022 saw continued growth in order intake and financial performance. Revenue and EBITA in- creased by 23% and 56%, respectively, driven by a solid Mining performance with an underlying EBITA margin of 10.5% when adjusting for costs related to the acquisition of thyssenkrupp’s Mining business and the winding down of our Russian activities. In addition, Cement continued its positive trajectory on im- proving profitability. The increased revenue and EBITA was despite inflationary pressure, supply chain challenges and costs related to our ongoing wind-down of Russian activities. We are very pleased to have announced that all conditions and requirements for the acquisition of thyssenkrupp’s Mining business have been met and that all regulatory clearances have been obtained without imposition of any compe- tition related remedies. Accordingly, the transaction will close on 31 August 2022. We are very excited to soon welcome our ~2,000 new colleagues and TK Mining’s customers to FLSmidth. Our combined company will offer custom- ers a stronger, complementary value proposition, while creating significant af- termarket opportunities, driving value creation through compelling synergies and further strengthening our sustainability and digitalisation agenda. “As I reflect on my first six months as CEO, our common ambition is to drive faster decision-making, improved profitability and an ambitious sustainability agenda. To support this, and to prepare for the integration of thyssenkrupp’s Mining business, we have adjusted our organisation. Our three Mining Business Lines (Service, Products and Systems) have been elevated to Group Executive Management, and Cement is operating on a clearer standalone basis. I have no doubt this streamlined organisation will ensure clear accountability and drive more focused execution and profitability for both Mining and Cement.” - Mikko Keto, Group CEO HIGHLIGHTS Highlights FLSmidth Interim Report H1 2022 4 Management Review Mining The outlook for the mining industry remains posi- tive, despite current fears of a global recession. The outlook is driven by global economic devel- opment and increased demand for minerals re- quired for the green transition, positively impact- ing revenue and EBITA. Mining EBITA margin is expected to be impacted by a higher share of capital revenue, higher lo- gistics costs and inflation. Guidance includes around DKK 110m in integration costs until clos- ing of the thyssenkrupp Mining business transac- tion. The transaction will close on 31 August 2022. Mining revenue is expected to be negatively im- pacted by lower revenue in Russia, partly offset by mitigating actions. Due to costs related to the winding-down of our activities in Russia and miti- gating actions, the Mining EBITA margin is, as previously communicated, expected to remain in the lower end of the guidance range. Cement Following a year of reshaping, we expect the Ce- ment business to continue its positive EBITA tra- jectory in 2022. Cement EBITA margin is ex- pected to be impacted by higher logistics costs and inflation. The short-term outlook for the cement industry remains impacted by overcapacity and slow re- covery Mid-term recovery is expected in the ce- ment industry driven by increased demand for sustainability solutions. Our Cement business is still expected to see an insignificant impact from the winding down of our activities in Russia. Group The financial guidance for 2022 is for the FLSmidth Group standalone and excludes the Mining business. Guidance includes around DKK 110m in integration costs until closing of the thyssenkrupp Mining business transaction. The transaction will close on 31 August 2022. We will publish a new financial guidance no later than in connection with our 9M 2022 financial release. Guidance for 2022 is subject to increased uncer- tainty due to the pandemic, global supply chain situation and geopolitical turmoil. FINANCIAL GUIDANCE 2022 FLSmidth’s financial guidance for 2022 is updated. Guidance for Mining revenue, consolidated Group revenue and Cement EBITA margin is raised. The Mining EBITA margin is, as previously communicated, expected to remain in the lower end of the guidance range due to the impact from our Russian business. Mining H1 2022 Initial guidance 2022 Updated guidance 2022 Cement H1 2022 Initial guidance 2022 Updated guidance 2022 Highlights Group H1 2022 Initial guidance 2022 Updated guidance 2022 Russian wind-down well progressed in Q2 2022 Actions taken in Q2 2022 We have amended our outstanding or- der backlog from Russian and Belarus- ian contracts to around DKK 1.5bn at end Q2 2022 from around DKK 2.6bn at end Q1 2022 We have reduced the number of em- ployees in Russia by ~50% from +80 employees at end Q1 2022 and we will continue towards a full wind-down We have incurred DKK 50m in costs re- lated to the wind-down and taken a write-down of DKK 10m on deferred tax assets FLSmidth’s wind-down approach New business in Russia and Belarus is suspended and we are winding down activities in Russia in a responsible manner We are working on mitigating actions and efforts We are obliged to fulfil legal obligations with regards to ongoing activities to the extent possible We will donate any net profit gener- ated in 2022 from activities in Russia and Belarus to humanitarian purposes We have donated DKK 2m to Ukrainian conflict relief efforts FLSmidth Interim Report H1 2022 5 Management Review FINANCIAL HIGHLIGHTS Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Cash flow from operating activities DKKm (214) from DKKm 507 in Q2 2021 GROUP 5,901 28% 5,027 23% 307 6.1% 56% Earnings per share DKK 2.5 from DKK 1.1 in Q2 2021 Net working capital ratio 9.2% from 8.2% end of Q2 2021 NIBD/EBITDA -0.3x from 1.0x end of Q2 2021 Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by capital & service % MINING 3,989 36% 3,529 26% 276 7.8% 19% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by capital & service % CEMENT 1,912 14% 1,498 18% 31 2.1% 191% 9,600 12,919 4,615 5,901 H1 2021 H1 2022 Q2 2021 Q2 2022 7,786 9,733 4,073 5,027 H1 2021 H1 2022 Q2 2021 Q2 2022 387 609 197 307 H1 2021 H1 2022 Q2 2021 Q2 2022 2,933 3,989 Q2 2021 Q2 2022 2,802 3,529 Q2 2021 Q2 2022 231 276 Q2 2021 Q2 2022 40% (Q2 2021: 36%) 60% (Q2 2021: 64%) Capital Service 1,682 1,912 Q2 2021 Q2 2022 1,271 1,498 Q2 2021 Q2 2022 (34) 31 Q2 2021 Q2 2022 43% (Q2 2021: 46%) 57% (Q2 2021: 54%) Capital Service FLSmidth Interim Report H1 2022 6 Management Review MissionZero and ESG developments We continue to drive sustainabil- ity across our entire value chain. Our core focus is to deliver sus- tainability solutions to our cus- tomers while at the same time reducing the impact from our own operations. Upgrade of thickener to improve customer sustainability and profitability A recent thickener upgrade at one of performance. Plant capacity increased by 9% without increasing the amount of ore mined, while water going to the tailings dam has been reduced by 11%. Based on these benefits, the expected within less than 12 months. Cement MissionZero flagship product reaches signficant milestone The FLSmidth Cross-Bar Cooler delivers com- pelling financial and sustainability benefits to cement producers. In end April, the state-of- the-art clinker cooling technology reached the milestone of 200 units sold. Where our Cross- Bar coolers have replaced older, inefficient equipment, the combined estimated greenhouse gas emissions savings from reduced fuel and power consumption now accounts for more than 1.6 million tonnes of CO 2 equivalent per year. International partnership to eliminate fossil fuels in the cement clay calcination process Replacing limestone-based clinker with calcined clay is essential to reduce the environmental footprint of cement production. A new partner- ship led by FLSmidth is moving to the next stage in eliminating fossil fuels by electrifying the clay calcination process with renewable sources. The ECoClay partnership unites cement producers with research institutes and high-tech start-ups, who aim to develop and commercialise the tech- nology needed to halve C0 2 emissions from cur- rent levels. Reducing own carbon emissions through solar power in China During Q2 2022, the FLSmidth team in China completed a 1.4 MW solar power generation pro- solar installation is expected to generate 1.6 mil- lion kWh of electricity annually, covering 42% of city consumption and reduce CO 2 emissions by 32%. SUSTAINABILITY HIGHLIGHTS Safety (TRIR) Total Recordable Incident Rate/ million working hours Women managers % 1.3 Target: zero harm; 2022 Target: <1.3 14.1 2022 Target: 15.7% TRIR increased slightly during Q2 2022 due to increased medical treatment cases without lost time. TRIR however remains on target with an ongoing campaign to increase safety awareness aiming at key areas where the injury rates are the highest. Ongoing changes to the organisation have resulted in a decline in the percentage of women managers during Q2 2022 (Q1 2022: 14.6%). We have ongoing activities in place to address this including active recruitment and ca- reer development strategy. Water withdrawal m 3 Scope 1 & 2 GHG Emissions tCO 2 e (market-based) 79,436 18,002 Target: carbon neutral; 2022 Target: 43,622 tCO 2 e Water withdrawal is lower compared to 84,805m 3 in H1 2021. This is due to ongoing initiatives to save on water, as well as increased levels of remote working across the organisation. CO 2 e emissions are higher compared to 16,167 tCO 2 e in H1 2021 and is due to operations being back to full capac- ity: In H1 2021, we temporarily closed some sites due to the pandemic. We however remain on target for the year. 1.9 1.3 2021 H1 2022 14.3% 14.1% 2021 H1 2022 201,997 79,436 2021 H1 2022 34,737 18,002 2021 H1 2022 FLSmidth Interim Report H1 2022 7 Management Review KEY FIGURES DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 2021 INCOME STATEMENT ORDERS EARNING RATIOS CASH FLOW BALANCE SHEET DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 2021 FINANCIAL RATIOS SHARE RATIOS SUSTAINABILITY KEY FIGURES Use of alternative performance measures FLSmidth Interim Report H1 2022 8 Management Review The mining sector has remained resilient with few visible signs of a slowdown despite the sharp decline in commodity prices during the second quarter. Many industrial metals have ex- perienced the worst quarter since the 2008 fi- nancial crisis as the pace of construction slowed down in China and fears of a global recession in- tensified. The inflationary pressure is evidenced in the operational costs of the mines and many customers are now expecting that a possible re- cession is lurking. However, the global supply of many commodities remains at critically low levels and the green transition will require the mining industry to scale up on investments to meet the long-term demand for minerals. In South America, the mining market remains solid despite political uncertainty around new taxations and environmental protection rules in Chile and Peru. Mining activity is high in both Ar- gentina and Colombia with an increased demand for brownfield projects. The pipeline remains strong and price adjustments have not had any significant impact on order intake. Across regions, bottlenecks in supply chains and repeated pandemic lockdowns in China continue to cause challenges. Customers in some regions are concerned about the dependence on China as a major supplier. During the second quarter, we have seen a push towards localisation of sup- ply to de-risk the supply from China and a willing- ness to pay higher prices for reduced supply chain risk. In Australia, the supply chain risk remains an is- sue especially for items being supplied from overseas. While the iron ore price has dropped on the back of recession fears and lower Chi- nese steel mill uptake, it remains at profitable lev- els for miners. Gold prices have decreased from their peak but remain elevated and still at profita- ble margins levels. We have a healthy pipeline in Europe, North Af- rica and other countries of the Commonwealth of Independent States (CIS) that will partly compen- sate the loss of business in Russia. Customers in these regions are mainly concerned about the general inflation, raw material and freight pricing as well as increased lead time. FLSmidth Interim Report H1 2022 MINING MARKET DEVELOPMENTS Activity and sentiment in the mining industry continues to be positive, despite the decline in commodity prices during the quarter and current fears of a global recession. Copper and many other metal markets are still facing tight supply conditions. The long-term outlook for minerals required to meet global economic development and drive the green transition remains positive. Mining order intake split per Region Q2 2022 % Mining order intake split by commodity Q2 2022 % 27% 31% 8% 17% 5% 12% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 35% 18% 9% 2% 12% 24% Copper Gold Coal Fertilizer Iron ore Other FLSmidth Interim Report H1 2022 9 Management Review Q2 2022 Mining order intake increased 26% organically as a result of improved service activity compared to Q2 2021. Including currency effects, order intake increased by 36% to DKK 3,989m, comprising a 40% increase in service orders and a 29% in- crease in capital orders. Q2 2022 capital order intake contains one large announced product order valued at around DKK 270m, compared to Q2 2021 which contained one large order valued at DKK 200m. During the quarter, service orders and capital orders repre- sented 64% and 36% of Mining order intake, re- spectively. Revenue increased organically by 19% and by 26% including currency effects to DKK 3,529m. The quarter includes revenue of DKK 257m de- rived from contracts with non-sanctioned Russian and Belarusian customers. The increase in capital revenue of 38% was driven by the higher backlog entering the quarter and improved market conditions compared to Q2 2021. Service revenue increased by 19% driven mainly by higher demand for spare and wear parts. Service accounted for 60% of Mining revenue in Q2 2022 compared to 64% in Q2 2021. Gross profit increased by 17% to DKK 876m, from DKK 749m in Q2 2021. The corresponding gross margin decreased to 24.8% due to the higher share of capital revenue, increased inflationary pressure, supply chain challenges and cost re- lated to the wind-down of our activities in Russia. EBITA increased by 19% to DKK 276m in Q2 2022 as a result of the higher revenue. The cor- responding EBITA margin decreased to 7.8% from 8.2% in Q2 2021. EBITA in Q2 2022 was im- pacted by costs related to the acquisition of well as costs of DKK 50m related to the wind- down of our activities in Russia. Adjusted for these costs, the EBITA margin was 10.5%. H1 2022 Mining order intake in H1 2022 increased by 40% to DKK 9,146m (H1 2021: DKK 6,518m). The main driver was the extraordinary strong capital order intake in the first quarter of the year, which in- cluded four large capital product orders with a combined value of around DKK 1.4bn. Mining or- der backlog in H1 2022 increased 22% to DKK 12,544m (H1 2021: DKK 10,310m). Mining revenue increased by 30% to DKK 6,762m (H1 2021: DKK 5,214m), driven mainly by capital revenue. EBITA increased by 18% to DKK 525m (H1 2021: DKK 444m) and the correspond- ing EBITA margin decreased to 7.8% from 8.5% in H1 2021. EBITA in H1 2022 was impacted by Mining business of DKK 82m and costs of DKK 50m related to the wind-down of our activities in Russia. Adjusted for these costs, the EBITA mar- gin was 9.7% in H1 2022. MINING FINANCIAL PERFORMANCE Growth in Mining in Q2 2022 (vs. Q2 2021) Order intake Revenue Total growth 36% 26% Order intake Q2 2022 split by capital & service % Revenue and EBITA margin DKKm EBITA % 36% (Q2 2021: 38%) 64% (Q2 2021: 62%) Capital Service 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 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Service Capital EBITA % Adjust. for tk costs Mining (DKKm) Q2 2022 Q2 2021 Change (%) H1 2022 H1 2021 Change (%) Order intake (gross) 3,989 2,933 36% 9,146 6,518 40% Order backlog 12,544 10,310 22% 12,544 10,310 22% Revenue 3,529 2,802 26% 6,762 5,214 30% Gross profit 876 749 17% 1,636 1,384 18% EBITA 276 231 19% 525 444 18% EBIT 222 170 31% 414 322 29% Industry and therefore included in the relevant lines of gross profit and EBITA. The comparison quarter Q1 2021 has been restated accordingly. FLSmidth Interim Report H1 2022 10 Management Review Cement is navigating the high inflationary environment coupled with persisting supply chain challenges and an emerging recession. While the surge in energy prices has forced some cement producers to temporarily shut down production of older and inefficient cement plants, it has also created new opportunities in terms of increased interest in productivity enhancement solutions. This drives sales of both new products capable of reducing energy consumption as well as technologies related to change to lower cost and more sustainable fuels. In South America, activity remains stable but with increased political and economic uncertainty. In North America, cement demand remains high and service activity continues to be solid. Supply chain disruptions and the increase in fuel cost are the main concerns of our customers. Energy prices and import costs in North America have skyrocketed at the same time as private construction is facing pressure from production bottlenecks, higher interest rates and rising construction costs. In Asia, China remains stable and a significant market for FLSmidth. There are concerns of an anticipated recession, but the focus on reducing energy consumption continues to drive a significant upgrade market for FLSmidth, regardless of reduced cement production levels. Investment activity in Europe is stable but a po- tential recession could change this picture. A high utilisation is still driving service activity, but supply chain challenges are causing some de- lays. Current investments continue to be directed towards productivity and sustainability solutions. CEMENT MARKET DEVELOPMENTS The cement market remains at a stable level, despite an emerging recession. Cement consumption is driven by economic expansion and the anticipated global recession could impact market demand. The soaring cost inflation and supply chain challenges continue to create a difficult environment for many cement producers. On the positive side, it drives increased interest for productivity and sustainability solutions. Cement order intake split per Region Q2 2022 % 28% 5% 12% 20% 34% 1% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia FLSmidth Interim Report H1 2022 11 Management Review Q2 2022 Cement order intake increased 8% organically compared to Q2 2021. Including favourable cur- rency effects, the order intake in Q2 2022 in- creased by 14% to DKK 1,912m, comprising an in- crease in both service orders and capital orders of 13% and 15%, respectively. The increase in Cement order intake was a result of improved underlying performance and im- proved market conditions compared to Q2 2021, where order intake was still impacted by sub- dued investment appetite and travel restrictions. The improved capital order intake was due to the announced large order to deliver process tech- nology equipment for a greenfield cement plant at a total value of more than DKK 400m. The comparative quarter in 2021 contained one large order at a value of around DKK 200m. Service orders and capital orders represented 52% and 48% of cement order intake, respec- tively, which was unchanged compared to Q2 2021. Revenue increased 12% organically compared to Q2 2021, driven mainly by the increase in service revenue and a higher demand for spare and wear parts. Including favourable currency effects, revenue increased by 18% to DKK 1,498m in Q2 2022. The financial impact from our business in Russia has been insignificant. Service accounted for 57% of Cement revenue in Q2 2022 com- pared to 54% in Q2 2021. Gross profit increased 36% to DKK 368m, com- pared to DKK 271m in Q2 2021. The correspond- ing gross margin increased by 3.3%-point to 24.6% as a result of the successful implementa- tion of reshaping activities in 2021, improved ex- ecution management and mitigation of material price increases. Cement EBITA continued the positive trend seen in Q1 2022, driven by higher revenue in the quar- ter and improvements from the successfully exe- cuted reshaping activities in 2021. EBITA amounted to DKK 31m in Q2 2022 compared to DKK -34m in Q2 2021. The corresponding EBITA margin was positive at 2.1%, compared to -2.7% in Q2 2021. H1 2022 Cement order intake in H1 2022 increased by 22% to DKK 3,773m (H1 2021: DKK 3,082m), driven by growth in both capital by 31% and ser- vice by 15%. Cement revenue increased by 16% to DKK 2,971m in H1 2022 (H1 2021: DKK 2,572m). Ser- vice and capital revenue increased by 14% and 18%, respectively. EBITA improved in H1 2022 and amounted to DKK 84m (H1 2021: DKK -57m) with a corre- sponding EBITA margin of 2.8% (H1 2021: -2.2%). Adjusted for a gain of DKK 23m from a sale of a property related to the Cement business in Q1 2022, the Cement EBITA margin in H1 2022 was 2.1%. CEMENT FINANCIAL PERFORMANCE Growth in Cement in Q2 2022 (vs. Q2 2021) Order intake Revenue Total growth 14% 18% Order intake Q2 2022 split by capital & service % Revenue and EBITA margin DKKm EBITA % 48% (Q2 2021: 48%) 52% (Q2 2021: 52%) Capital Service -6% -4% -2% 0% 2% 4% 6% 8% 10% 0 300 600 900 1,200 1,500 1,800 2,100 2,400 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Capital revenue Service revenue EBITA margin Cement (DKKm) Q2 2022 Q2 2021 Change (%) H1 2022 H1 2021 Change (%) Order intake (gross) 1,912 1,682 14% 3,773 3,082 22% Order backlog 6,917 6,367 9% 6,917 6,367 9% Revenue 1,498 1,271 18% 2,971 2,572 16% Gross profit 368 271 36% 715 571 25% EBITA 31 (34) 191% 84 (57) 247% EBIT 13 (61) 121% 43 (112) 138% Industry and therefore included in the relevant lines of gross profit and EBITA. The comparison quarter Q1 2021 has been restated accordingly. FLSmidth Interim Report H1 2022 12 Management Review GROWTH Group order intake increased by 20% organically, driven predomi- nantly by Mining. Currency tail- winds supported order intake in the quarter by 8%. Solid organic revenue growth of 17%. Order intake Order intake in Q2 2022 increased 28% to DKK 5,901m and by 20% organically. Q2 2022 order intake included two large orders at a combined value of DKK 670m, compared to a combined value of DKK 400m of large orders in Q2 2021. Following a period of lower investments and ser- vice activity, demand has significantly increased as a result of improved market conditions. Ser- vice orders increased by 31% and capital orders increased 23% in Q2 2022 compared to Q2 2021. Order backlog and maturity The order backlog amounted to around DKK 19.5bn, an increase by 17% compared to Q2 2021. Russian contracts of a total value of ap- proximately DKK 750m were amended during the quarter. Outstanding order backlog related to Russian and Belarusian contracts amounted to around DKK 1.5bn at the end of Q2 2022 (end of Q1 2022: around DKK 2.6bn) and is due to uncer- turity. 35% of the backlog is expected to be con- verted to revenue in the remainder of 2022. Backlog maturity Mining Cement FLSmidth Group Revenue Revenue increased 23% to DKK 5,027m in Q2 2022, driven by a 20% increase in service reve- nue and 28% increase in capital revenue. Service revenue accounted for 59% of the total revenue during the quarter, compared to 61% in Q2 2021. Organic revenue increased 17% driven primarily by a 19% organic growth in Mining, however Ce- ment also contributed with an organic growth of 12%. The increase was a result of a higher order backlog entering Q2 2022 and improved market conditions compared to Q2 2021. Cost inflation and global supply chain issues re- main challenging. However, we have been able to partly mitigate the supply chain pressure due to our flexibility to switch between suppliers and use regional sourcing. CONSOLIDATED FINANCIAL PERFORMANCE IN Q2 2022 Order intake DKKm 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Service Order intake Capital Order intake Growth in order intake in Q2 2022 (vs. Q2 2021) Mining Cement FLSmidth Group Total growth 36% 14% 28% Growth in revenue in Q2 2022 (vs. Q2 2021) Mining Cement FLSmidth Group Total growth 26% 18% 23% Group – continued activities (DKKm) Q2 2022 Q2 2021 Change (%) H1 2022 H1 2021 Change (%) Order intake (gross) 5,901 4,615 28% 12,919 9,600 35% Order backlog 19,461 16,677 17% 19,461 16,677 17% Revenue 5,027 4,073 23% 9,733 7,786 25% Gross profit 1,244 1,020 22% 2,351 1,955 20% SG&A cost (856) (735) 16% (1,581) (1,383) 14% EBITA 307 197 56% 609 387 57% EBIT 235 109 116% 457 210 118% FLSmidth Interim Report H1 2022 13 Management Review PROFIT Gross profit increased by 22% and EBITA increased by 56% com- pared to the second quarter of 2021, as a result of higher revenue and healthy underlying perfor- mance. The adjusted EBITA margin improved to 8.0%. Gross profit and margin Gross profit increased by 22% to DKK 1,244m, due to the higher revenue. The corresponding gross margin decreased slightly from 25.0% to 24.7%, impacted by the higher share of capital revenue, inflationary pressure, supply chain chal- lenges and cost related to the wind-down of our activities in Russia. In Q2 2022, total research and development costs (R&D) amounted to DKK 81m, representing 1.6% of revenue (Q2 2021: 2.0%). R&D costs (DKKm) Q2 2022 Q2 2021 SG&A costs As a result of the increased revenue, SG&A costs as a percentage of revenue declined to 17.0% in Q2 2022 compared to 18.0% in Q2 2021. Sales, general and administrative costs (SG&A) and other operating items increased 16% com- pared to Q2 2021, mainly due to the higher activ- ity level, wage inflation and cost related to the wind-down of our activities in Russia. Further, currencies had a negative impact on SG&A of DKK 31m in the quarter. Cost related to the acqui- amounted to DKK 45m in the quarter. EBITA and EBITA margin EBITA increased by 56% to DKK 307m, as a re- sult of the higher revenue. The EBITA margin in- creased to 6.1% from 4.8% in Q2 2021. Adjusted for the costs of DKK 50m related to the wind- down of our Russian activities and costs of DKK 45m related to the acquisition of Mining business, the EBITA margin was 8.0% in Q2 2022. Amortisation in Q2 2022 was DKK 72m (Q2 2021: DKK 88m) of which the effect of purchase price allocations amounted to DKK 14m (Q2 2021: DKK 23m) and other amortisations to DKK 58m (Q2 2021: DKK 65m). Earnings before interest and tax (EBIT) increased 116% to DKK 235m. Financial items Net financial items amounted to DKK -5m (Q2 2021: DKK -27m), of which foreign exchange and fair value adjustments amounted to DKK 9m (Q1 2021: DKK -12m). Net interest amounted to DKK -11m (Q2 2021: DKK -15m) and income from asso- ciates amounted to DKK -3m (Q2 2021: 0m). Tax Tax for Q2 2022 totalled DKK -93m (Q2 2021: DKK -32m), corresponding to an effective tax rate of 40% (Q2 2021: 39%). The increased effective tax rate is due to a DKK 10m write-down of de- ferred tax assets in Russia. Profit for the period Profit for the period increased to DKK 134m (Q2 2021: DKK 47m), equivalent to DKK 2.5 per share (Q2 2021: DKK 1.1). The increase resulted from the significantly higher EBT, partly offset by higher tax. Return on capital employed As a result of the higher EBITA in the quarter and only slightly higher average capital employed compared to Q2 2021, return on capital em- ployed (ROCE) increased to 8.4% (Q2 2021: 5.4%). Employees The number of employees increased slightly to 10,055 at the end of Q2 2022, compared to 10,039 at the end of Q1 2022. Backlog DKKm Revenue & EBITA margin DKKm EBITA% EBITA DKKm 0 4,000 8,000 12,000 16,000 20,000 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Mining Cement 0% 2% 4% 6% 8% 10% 12% 0 1,000 2,000 3,000 4,000 5,000 6,000 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Revenue EBITA margin (100) 0 100 200 300 400 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Mining Cement FLSmidth Interim Report H1 2022 14 Management Review CAPITAL Net working capital increased to DKK 1,805m, driven by an in- crease in inventories. The net working capital ratio increased from 7.3% in Q1 2022 to 9.2% in Q2 2022. Net working capital Net working capital increased to DKK 1,805m at the end of Q2 2022 (end of Q1 2022: DKK 1,354m). The primary driver of the increase in the quarter was trade receivables that increased as a result of increased activity. Inventories increased in line with expectations to mitigate the supply chain challenges. The net working capital ratio increased to 9.2% of 12-months trailing revenue (Q1 2022: 7.3%). Utilisation of supply chain financing increased slightly in the second quarter of 2022 to DKK 614m (Q1 2022: DKK 547m). Cash flow from operating activities Cash flow from operating activities (CFFO) de- clined in line with expectations to DKK -214m in Q2 2022 (Q2 2021: DKK 507m). The main contributor to the negative CFFO was the net working capital outflow of DKK 566m in Q2 2022, compared to a net working capital in- flow of DKK 320m in Q2 2021. Cash flow from investing activities Cash flow from investing activities resulted in a net cash outflow of DKK 83m in Q2 2022, mainly due to the acquisition of intangible assets. Cash flow from financing activities Cash flow from financing activities amounted to DKK -26m as paid dividend of DKK 170m and re- payment of lease liabilities was funded by in- creased net interest-bearing debt. Free cash flow Free cash flow (cash flow from operating and in- vesting activities) adjusted for business acquisi- tions and disposals amounted to DKK -281m in Q2 2022 (Q2 2021: DKK 451). Net interest-bearing debt As a result of the completed issue of new shares, raising proceeds of approximately DKK 1.4bn in 2021, the net interest-bearing debt (NIBD) re- mains at a net cash position. The net cash posi- tion was DKK 528m at the end of Q2 2022 (Q1 2022: DKK 864 m) and corresponds to a financial gearing of -0.3x (Q1 2022: -0.6x). Financial position By the end of Q2 2022, FLSmidth had DKK 5.2bn of available committed credit facilities of which DKK 5.0bn was undrawn. The committed credit facilities have a weighted average time to maturity of 4.7 years. DKK 5.0bn of credit facili- ties will mature in 2027 and the remaining DKK 0.2bn matures in later years. In addition, FLS- midth has a credit facility commitment specifically for the purpose of funding the acquisition of with the proceeds from the completed issue of new shares. Equity ratio Equity at the end of Q2 2022 increased to DKK 11,033m (Q1 2022: DKK 10,679m), due to the pos- itive profit for the period and the translation ef- fect from foreign currencies. The equity ratio was largely stable at 45.0% (Q1 2022: 44.7%). At the Annual General Meeting held in March 2022, it was approved to pay a dividend of DKK 3 per share. The corresponding pay out of DKK 170m was paid in Q2 2022. OTHER BUSINESS Acquisition of TK Mining As announced on 11 August 2022, all conditions and requirements for the acquisition of (TK Mining) have been met. All regulatory clearances have been obtained without imposition of any competition related remedies. In accordance with the sale and purchase agreement, final closing of the transaction will take place on the last business day of the month. Accordingly, the transaction will close on 31 August 2022. The combination of FLSmidth and TK Mining will create a leading global mining technology and service provider with operations from pit-to-plant with a strong focus on productivity and sustaina- bility. Further impact of the transaction, including updated financial guidance for 2022, will be communicated no later than in connection with the release of our 9M 2022 financial results. New members in Group Executive Management Our organisation has been adjusted to ensure clear accountability and drive more focused exe- cution and profitability. As a result, our three Min- ing Business Lines have been elevated to Group Executive Management. To this end, Joshua Meyer has been appointed President, Mining Service, Chris Reinbold has been appointed President, Mining Products and Axel Baumeister, President Mining Systems. In addition to his role as Chief Operating Officer, Asger Lauritsen has been appointed President for Cement. Cash flow DKKm Net interest-bearing debt DKKm Net working capital DKKm NWC% (400) (200) 0 200 400 600 800 1,000 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Cash flow from operating activities (4,000) (3,000) (2,000) (1,000) 0 1,000 2,000 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Net interest bearing debt (NIBD) 0% 3% 6% 9% 12% 15% 0 500 1,000 1,500 2,000 2,500 Q2 2020 Q3 Q4 Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Net working capital Net working capital ratio, end FLSmidth Interim Report H1 2022 15 Management Review GROWTH Order intake Order intake increased 28% organically, driven by both Mining and Cement. Including currency effects, order intake in the first half year of 2022 increased 35% to DKK 12,919m (H1 2021: DKK 9,600m). Service order intake and capital order intake increased by 29% and 42% respectively, driven by both Mining and Cement. Mining service orders increased by 35%, and capital orders by 48%. Several large Mining or- ders with a combined value of around DKK 1.6bn were announced in H1 2022 (H1 2021: large Min- ing orders with a combined value of DKK 0.4bn). As a result, Mining order intake increased 32% organically in the first half year. Cement contrib- uted to the growth by an order intake increase of 17% organically. Order backlog The order backlog increased 17% to DKK 19,461m by 30 June 2022 (30 June 2021: DKK 16,677m), and includes amendment of Russian contracts at a total value of approximately DKK 750m. The higher backlog is related to both Mining and Ce- ment which increased by 22% and 9% respec- tively. Revenue Organically, revenue grew by 20%, comprising a 24% increase in Mining and an 11% increase in Cement. Including favourable currency effects, Group revenue increased 25% to DKK 9,733m in the first half year of 2022. Growth in Mining revenue comprised a 16% in- crease in service revenue and a 54% increase in capital revenue. In the first half year of 2022, Cement continued the positive trend from Q4 2021 and showed rev- enue growth of 14% and 18% in service and capi- tal revenue, respectively. PROFIT Gross profit and margin Gross profit in the first half year of 2022 in- creased by 20% to DKK 2,351m. Gross margin decreased to 24.2% from 25.1% in the compari- son period H1 2021, impacted by the higher share of capital revenue, inflationary pressure, supply chain challenges and cost related to the wind-down of our activities in Russia. In the first half year of 2022, Research and De- velopment costs were DKK 146m (H1 2021: 133m), of which DKK 64m were capitalised (H1 2021: 65m) and the balance reported as production costs. EBITA and margin EBITA increased 57% to DKK 609m, as a result of higher revenue and improved gross margin in Cement. Group EBITA margin was 6.3%, up from 5.0% in the first half year of 2021. The improve- ment was despite the impact from costs related to the acquisition of thyssenkrupp's Mining busi- ness of DKK 82m in H1 2022 as well as costs of DKK 50m related to the wind-down of our activi- ties in Russia. Adjusted for these costs, the EBITA margin was 7.6% in H1 2022. Financial items Net financial items amounted to DKK -34m (H1 2021: DKK -36m), of which foreign exchange and fair value adjustments amounted to DKK -1m (H1 2021: DKK -9m). Termination of hedging Russian Rubles had a negative impact of DKK 36m on for- eign exchange adjustments. Net interest amounted to DKK -30m (H1 2021: DKK -28m) and income from associates amounted to DKK -3m (H1 2021: DKK 1m). Tax Tax for H1 2022 totalled DKK -163m (H1 2021: DKK -67m), corresponding to an effective tax rate of 39% (H1 2021: 39%). The high effective tax rate is impacted by a DKK 10m write-down of de- ferred tax assets in Russia. Profit for the period Profit for the period increased by 154% to DKK 257m. Continuing activities improved to DKK 260m from DKK 107m. Discontinued activities re- ported a DKK 3m loss, compared to a DKK 6m loss in the first half year of 2021. Earnings per share Earnings per share (diluted) increased to DKK 4.8 from DKK 2.1 in the first half year of 2021. CONSOLIDATED FINANCIAL PERFORMANCE IN H1 2022 EBITA split by segment DKKm (200) 0 200 400 600 800 H1 2021 H1 2022 Mining Cement Growth in order intake in H1 2022 (vs. H1 2021) Mining Cement FLSmidth Group Total growth 40% 22% 35% Growth in revenue in H1 2022 (vs. H1 2021) Mining Cement FLSmidth Group Total growth 30% 16% 25% FLSmidth Interim Report H1 2022 16 Management Review CAPITAL Net working capital Net working capital increased in H1 2022 to DKK 1,805m (end of 2021: DKK 1,058m). In line with expectations, the corresponding net working capital ratio was 9.2% of 12-months trailing reve- nue, compared to 6.0% at the end of 2021. The increase related primarily to the expected in- crease in inventories to mitigate the supply chain challenges and an increase in net work in pro- gress driven by the higher execution of capital orders. Trade receivables increased mainly due to currency effects. Cash flow from operating activities In line with expectations, cash flow from operat- ing activities decreased to DKK -284m (H1 2021: DKK 792m), due to the large cash outflow of DKK 785m to working capital in the period compared to a cash inflow of DKK 469m in the comparison period H1 2021. Cash flow from investing activities Cash flow used for investments was DKK -48m compared to DKK -115m in the first half year of 2021. Cash flow from financing activities Cash flow from financing activities amounted to DKK -4m as paid dividend of DKK 170m and re- payment of lease liabilities was funded by in- creased net interest-bearing debt. Free cash flow Free cash flow adjusted for business acquisitions and disposals was DKK -316m in H1 2022 (H1 2021: DKK 683m). Balance sheet Total assets increased to DKK 24,509m by 30 June 2022 (end of 2021: DKK 23,053), primarily related to increased net working capital assets and foreign exchange effects. Net interest-bearing debt Net interest-bearing debt (NIBD) by 30 June 2022 decreased to a positive net cash position of DKK 528m (end of 2021: DKK 889m). The -0.3x (end of 2021: -0.6x). Equity Equity at end H1 2022 increased to DKK 11,033m (end of 2021: DKK 10,368m). The increase related to profit for the period and currency adjustments regarding translation of entities, less dividend paid. Treasury shares The holding of treasury shares as of 30 June 2022 was unchanged from year end 2021 and amounts to 924,568 shares, representing 1.6% of the total share capital. 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 -400 -200 0 200 400 600 800 1,000 H1 2021 H1 2022 Cash flow from operating activities (200) (150) (100) (50) 0 H1 2021 H1 2022 Cash flow from investing activities -400 -200 0 200 400 600 800 1,000 H1 2021 H1 2022 Free cash flow Free cash flow adjusted for net business acquisitons FLSmidth Interim Report H1 2022 17 Financial Statements Notes DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 3, 4 Revenue 5,027 4,073 9,733 7,786 Production costs (3,783) (3,053) (7,382) (5,831) Gross profit 1,244 1,020 2,351 1,955 Sales costs (394) (337) (736) (652) Administrative costs (470) (404) (881) (742) Other operating items 8 6 36 11 EBITDA before special non-recurring items 388 285 770 572 Special non-recurring items 0 (4) 0 (19) Depreciation and impairment of property, plant and equipment and lease assets (81) (84) (161) (166) EBITA 307 197 609 387 Amortisation and impairment of intangible assets (72) (88) (152) (177) EBIT 235 109 457 210 Financial income 391 232 728 531 Financial costs (396) (259) (762) (567) EBT 230 82 423 174 Tax for the period (93) (32) (163) (67) Profit for the period, continuing activities 137 50 260 107 3, 7 Loss for the period, discontinued activities (3) (3) (3) (6) Profit for the period 134 47 257 101 Attributable to: Shareholders in FLSmidth & Co. A/S 142 50 272 103 Minority interests (8) (3) (15) (2) 134 47 257 101 Earnings per share (EPS): Continuing and discontinued activities per share 2.5 1.1 4.8 2.1 Continuing and discontinued activities per share, diluted 2.5 1.1 4.8 2.1 Continuing activities per share 2.6 1.1 4.9 2.2 Continuing activities per share, diluted 2.6 1.1 4.9 2.2 Notes DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 Profit for the period 134 47 257 101 Items that will not be reclassified to profit or loss: Actuarial gains on defined benefit plans 15 (25) 42 (18) Items that are or may be reclassified subsequently to profit or loss: Currency adjustments regarding translation of entities 239 (90) 554 268 Cash flow hedging: - Value adjustments for the period (52) 1 (52) (12) - Value adjustments transferred to work in progress 3 (6) 17 (14) Tax of total other comprehensive income 7 2 2 4 Other comprehensive income for the period after tax 212 (118) 563 228 Comprehensive income for the period 346 (71) 820 329 Attributable to: Shareholders in FLSmidth & Co. A/S 352 (67) 835 332 Minority interests (6) (4) (15) (3) 346 (71) 820 329 CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME Financial performance FLSmidth Interim Report H1 2022 18 Financial Statements CASH FLOW STATEMENT Notes DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 EBITDA before special non-recurring items 388 285 770 572 3 EBITDA, discontinued activities (3) (3) (4) (6) Adjustment for gain on sale of property, plant and equipment and other non-cash items 7 (1) (9) (15) Adjusted EBITDA 392 281 757 551 Change in provisions, pension and employee benefits 57 41 25 28 8 Change in net working capital (566) 320 (785) 469 Cash flow from operating activities before financial items and tax (117) 642 (3) 1,048 Financial items received and paid (11) (10) (29) (29) Taxes paid (86) (125) (252) (227) Cash flow from operating activities (214) 507 (284) 792 Acquisition of enterprises and activities (16) (8) (16) (8) Acquisition of intangible assets (48) (47) (84) (79) Acquisition of property, plant and equipment (18) (9) (33) (28) Acquisition of financial assets (4) (1) (9) (4) Disposal of enterprises and activities 0 0 0 2 Disposal of property, plant and equipment 3 1 94 2 Cash flow from investing activities (83) (64) (48) (115) Dividend paid (170) (18) (170) (101) 10 Issue of shares, net of costs 0 0 0 0 Capital injection, minority interests 0 3 0 3 Exercise of share options 0 0 0 1 Repayment of lease liabilities (32) (31) (61) (64) Change in net interest bearing debt 176 (306) 227 (177) Cash flow from financing activities (26) (352) (4) (338) Change in cash and cash equivalents (323) 91 (336) 339 Cash and cash equivalents at beginning of period 1,954 1,256 1,935 976 Foreign exchange adjustment, cash and cash equivalents 8 0 40 32 Cash and cash equivalents at 30 June 1,639 1,347 1,639 1,347 The cash flow statement cannot be inferred from the published financial information only Free cash flow DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 Free cash flow (297) 443 (332) 677 Free cash flow, adjusted for acquisitions and disposals of enterprises and activities (281) 451 (316) 683 FLSmidth Interim Report H1 2022 19 Financial Statements Notes DKKm 30/06 2022 31/12 2021 30/06 2021 ASSETS Goodwill 4,587 4,364 4,288 Patents and rights 752 784 830 Customer relations 387 401 430 Other intangible assets 162 165 145 Completed development projects 202 233 209 Intangible assets under development 354 310 351 Intangible assets 6,444 6,257 6,253 Land and buildings 1,798 1,792 1,672 Plant and machinery 369 383 355 Operating equipment, fixtures and fittings 94 112 114 Tangible assets in course of construction 23 21 123 Property, plant and equipment 2,284 2,308 2,264 Deferred tax assets 1,448 1,490 1,262 Investments in associates 164 162 163 9 Other securities and investments 58 49 48 Other non-current assets 1,670 1,701 1,473 Non-current assets 10,398 10,266 9,990 Inventories 2,976 2,464 2,489 Trade receivables 4,300 4,112 3,209 Work in progress 3,085 2,358 2,316 Prepayments 758 871 552 Income tax receivables 391 248 441 Other receivables 962 799 733 Cash and cash equivalents 1,639 1,935 1,347 Current assets 14,111 12,787 11,087 Total assets 24,509 23,053 21,077 Notes DKKm 30/06 2022 31/12 2021 30/06 2021 EQUITY AND LIABILITIES 10 Share capital 1,153 1,153 1,025 Foreign exchange adjustments (111) (665) (862) Cash flow hedging (89) (54) (30) 10 Retained earnings 10,098 9,937 8,242 Shareholders in FLSmidth & Co. A/S 11,051 10,371 8,375 Minority interests (18) (3) (6) Equity 11,033 10,368 8,369 Deferred tax liabilities 185 169 221 Pension obligations 296 320 403 5 Provisions 505 450 404 Lease liabilities 198 200 196 Bank loans and mortgage debt 757 726 2,199 Prepayments from customers 608 587 279 Income tax liabilities 119 119 140 Other liabilities 47 55 118 Non-current liabilities 2,715 2,626 3,960 Pension obligations 2 2 3 5 Provisions 670 697 652 Lease liabilities 105 104 97 Bank loans and mortgage debt 43 17 14 Prepayments from customers 1,902 1,903 1,606 Work in progress 2,754 2,373 1,800 Trade payables 3,687 3,367 3,001 Income tax liabilities 179 193 250 10 Other liabilities 1,419 1,403 1,325 Current liabilities 10,761 10,059 8,748 Total liabilities 13,476 12,685 12,708 Total equity and liabilities 24,509 23,053 21,077 BALANCE SHEET FLSmidth Interim Report H1 2022 20 Financial Statements EQUITY STATEMENT H1 2022 H1 2021 DKKm Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Equity at 1 January 1,153 (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 period Profit/loss for the period 272 272 (15) 257 103 103 (2) 101 Other comprehensive income Actuarial gains/(losses) on defined benefit plans 42 42 42 (18) (18) (18) Currency adjustments regarding translation of entities 554 554 554 269 269 (1) 268 Cash flow hedging: - Value adjustments for the period (52) (52) (52) (12) (12) (12) - Value adjustments transferred to work in progress 17 17 17 (14) (14) (14) Tax on other comprehensive income 2 2 2 4 4 4 Other comprehensive income total 0 554 (35) 44 563 0 563 0 269 (26) (14) 229 (1) 228 Comprehensive income for the period 0 554 (35) 316 835 (15) 820 0 269 (26) 89 332 (3) 329 Transactions with owners: Dividend paid (170) (170) (170) (101) (101) (101) Share-based payment 15 15 15 7 7 7 Exercise of share options 0 0 0 1 1 1 Capital injection, minority interests 0 0 0 0 0 3 3 Equity at 30 June 1,153 (111) (89) 10,098 11,051 (18) 11,033 1,025 (862) (30) 8,242 8,375 (6) 8,369 FLSmidth Interim Report H1 2022 21 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 market conditions and changes in politi- cal and economic factors. In general, key ac- counting judgements are made in relation to the accounting of revenue when determining the performance obligations and the recognition method, while key accounting estimates relate to the estimation of warranty provisions, valuation of inventories, trade receivables, work in pro- gress and deferred tax. For further details, refer- ence is made to The Annual Report 2021, Key ac- counting estimates and judgements, pages 57- 58 and to specific notes. In the first half year of 2022, the geopolitical situ- ation was on top of the agenda following the war in Ukraine. Sanctions are continuously being im- posed on Russian and Belarusian entities and in- dividuals resulting in restrictions on imports and exports. We are closely monitoring the impact from the war and the sanctions imposed by EU, US and other western countries. We have sus- pended new business in Russia and Belarus and will in a responsible manner wind-down our activities in Russia. Costs to wind-down have been recognised. We are, however, obliged to fulfil our remaining legal obligations with regards to existing orders, provided the customer is not sanctioned and to the extent possible. During the second quarter of 2022, sanctions were introduced to further limit the possibilities for the shipment of products to Russia. 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 energy prices, contributed to rising inflation and fluctuations in foreign exchange rates. Further, the COVID-19 pandemic and government-im- posed restrictions continue to pose challenges in some parts of the world. The resulting uncertainties have impacted our key accounting estimates as described below. We have reassessed our projects to reflect the expected implications on project financials. This includes updating of project costs to ensure that significant expected cost increases are reflected in the total cost to complete. In cases where cus- tomers are severely impacted by the war, we as- sess the likelihood that the customer will be able to pay the agreed consideration for goods or ser- vices provided by us. The assessment reflects the risk of any potential additional expected credit losses (ECL) on trade receivables against Russian and Belarussian customers. The assess- ments also consider the need for write-down of inventory and other assets. The change in estimates had no material impact on the financial statements in the first half year of 2022. By nature, the updated key accounting es- timates 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). Special non-re- curring items, depreciation, amortisation and im- pairment are therefore separated from the individual functions and presented in separated lines. The income statement classified by function in- cludes allocation of special non-recurring items, depreciation, amortisation and impairment. Interim Report H1 2022 Income Statement by function DKKm Q2 2022 Q2 2021 H1 2022 H1 2021 Gross profit 1,167 931 2,191 1,783 EBIT 235 109 457 210 Special non-recurring items, depreciation, amortisation and impairment consist of: (153) (176) (313) (362) Special non-recurring items, depreciation, amortisation and impairment are divided into: (153) (176) (313) (362) FLSmidth Interim Report H1 2022 22 Notes 3. SEGMENT INFORMATION H1 2022 H1 2021 FLSmidth Group FLSmidth Group DKKm Mining Cement Continuing activities Discontinued activities 2 ⁾ Mining 1 ⁾ Cement 1 ⁾ Continuing activities Discontinued activities 2 ⁾ Revenue 6,762 2,971 9,733 0 5,214 2,572 7,786 0 Gross profit 1,636 715 2,351 (3) 1,384 571 1,955 0 EBITDA before special non-recurring items 635 135 770 (4) 566 6 572 (6) EBITA 525 84 609 (4) 444 (57) 387 (6) EBIT 414 43 457 (4) 322 (112) 210 (6) Gross margin 24.2% 24.1% 24.2% 26.5% 22.2% 25.1% EBITDA margin before special non-recurring items 9.4% 4.5% 7.9% 10.9% 0.2% 7.3% EBITA margin 7.8% 2.8% 6.3% 8.5% -2.2% 5.0% EBIT margin 6.1% 1.4% 4.7% 6.2% -4.4% 2.7% Number of employees at 30 June 6,314 3,741 10,055 0 6,124 3,965 10,089 0 Reconciliation of profit for the period EBT 423 (5) 174 (7) 1) Starting from 1 January 2022, shared costs are directly attributed to the industries based on consumption and therefore included in the relevant line items. Previously, the costs were allocated to the industries after the The numbers have been restated to include shared costs in the cost line items for the industries. See next page for further explanation. 2) Discontinued activities mainly consist of non-mining bulk material handling. FLSmidth Interim Report H1 2022 23 Notes 3. SEGMENT INFORMATION CONTINUED Starting from 1 January 2022, shared costs are directly attributed to the industries 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 industries and in- For 2021, the information has been restated to reflect the change. The table below shows the impact on the line items and margins in the segment information in H1 2021 for the two industries. Restated segment information for H1 2021, shared costs DKKm Mining Cement Other companies Shared costs Gross profit (384) (250) (1) 635 Gross margin -0.6% -0.5% EBITDA margin before special non-recurring items -6.5% -9.2% EBITA margin before allocation of shared costs -7.4% -9.7% EBITA margin 0.0% 0.0% EBIT margin 0.0% 0.0% Number of employees at 30 June 852 508 0 (1,360) FLSmidth Interim Report H1 2022 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. 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 2022, both North America and Europe, North Africa and Russia regions picked up a higher share of the Group revenue than the same period last year. South America, Asia and Australia regions each represented a 2%-point lower share of Group revenue in the first half year of 2022 compared to same period in 2021. Backlog The order backlog at 30 June 2022 amounts to DKK 19,461m (end of H1 2021: DKK 16,677m) and represents the value of outstanding performance obligations on current contracts. The value of outstanding performance obligations on current contracts is a combination of value from con- tracts where we will transfer control at a future point in time and the value of the remaining per- formance obligations on contracts where we transfer control over time. 35% of the backlog is expected to be converted to revenue in the remainder of 2022. Outstand- ing order backlog related to Russian and Bela- rusian contracts amounted to around DKK 1.5bn at the end of Q2 2022 (end of Q1 2022: DKK 2.6bn) and is due to uncertainty included in the . Revenue split by Regions H1 2022 % Revenue split by Regions H1 2021 % Backlog DKKm 26% 21% 20% 16% 8% 9% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 22% 23% 17% 17% 10% 11% North America South America Europe, North Africa, Russia Sub-Saharan Africa, Middle East & South Asia Asia Australia 42% 35% 41% 49% 17% 16% 0 4,000 8,000 12,000 16,000 20,000 H1 2021 H1 2022 Within current year Within next year Subsequent years Revenue split by recognition principle H1 2022 H1 2021 DKKm Mining Cement Group Mining Cement Group Total revenue 6,762 2,971 9,733 5,214 2,572 7,786 Revenue split by industry and category H1 2022 H1 2021 DKKm Mining Cement Group Mining Cement Group Capital business 2,819 1,284 4,103 1,826 1,090 2,916 Service business 3,943 1,687 5,630 3,388 1,482 4,870 Total revenue 6,762 2,971 9,733 5,214 2,572 7,786 FLSmidth Interim Report H1 2022 25 Notes 5. PROVISIONS Net provisions increased by DKK 28m compared to 31 December 2021. Additions to provisions amounted to DKK 288m in H1 2022, compared to DKK 261m in H1 2021. Additions to warranty provisions have increased in line with the increasing level of activity. For a description of the main provision catego- ries see note 2.7 in the 2021 Annual Report. 6. CONTRACTUAL COMMITMENTS AND CONTINGENT LIABILITIES Contingent liabilities at 30 June 2022 amounted to DKK 3.2bn (31 December 2021: DKK 3.1bn). Contingent liabilities primarily relate to perfor- mance and payment guarantees issued to cover project-related risks, such as performance, pay- ment, quality, and delay. The volume of such guarantees amounted to DKK 2.3bn (31 Decem- ber 2021: DKK 2.3bn). 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, which are already pending with courts or other authorities and other disputes which may or may not lead to formal legal proceedings be- ing initiated against us. No significant changes have occurred to the na- ture and extent of our contractual commitments and contingent liabilities compared to what was disclosed in note 2.9 in the 2021 Annual Report. Provisions DKKm 30/06 2022 31/12 2021 30/06 2021 Provisions 1,175 1,147 1,056 1,175 1,147 1,056 1,175 1,147 1,056 Provisions related to continued activities DKKm 30/06 2022 31/12 2021 30/06 2021 Provisions 1,040 999 879 FLSmidth Interim Report H1 2022 26 Notes 7. DISCONTINUED ACTIVITIES Discontinued activities include the remaining re- sponsibilities to finalise legacy projects, handling of claims, etc. retained on the sale of the non- mining bulk material handling business in 2019. Progress on projects has been delayed, amongst others, due to the COVID-19 pandemic and most recently by the war in Ukraine. For further infor- mation on discontinued activities, please refer to note 2.11 of Annual report 2021. In addition to provisions of DKK 135m shown in the table below, discontinued activities accounts for DKK 364m (31 December 2021: DKK 350m) of 8. 8. NET WORKING CAPITAL Net working capital at 30 June 2022 has in- creased DKK 0.7bn compared to 31 December 2021. The increase is primarily driven by in- creased levels of inventories of DKK 0.5bn to mitigate the supply chain challenges. Trade re- ceivables increased DKK 0.2bn mainly due to currency effects. Increased activities led to an in- crease in net work in progress at 30 June 2022. Utilisation of supply chain financing increased slightly in the first half year of 2022 to DKK 614m (31 December 2021: DKK 490m). Net working capital DKKm 30/06 2022 31/12 2021 30/06 2021 Net working capital 1,805 1,058 1,305 Cash flow effect from change in net working capital (785) 612 469 Discontinued activities effect on cash flow from operating activities DKKm H1 2022 2021 H1 2021 Cash flow from operating activities before financial items and tax (33) (187) (16) Cash flow from operating activities (34) (188) (16) Discontinued activities share of Group provisions disclosed in note 5 DKKm 30/06 2022 31/12 2021 30/06 2021 Provisions 135 148 177 FLSmidth Interim Report H1 2022 27 Notes 9. 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 2022 or during 2021. 10. SHAREHOLDERS’ EQUITY At the Annual General Meeting 30 March 2022, a dividend of DKK 3 per share was declared. The total dividend amounting to DKK 170m was paid out in April 2022. In September 2021, an issue of 6,400,000 new shares of DKK 20 each at a price of DKK 228 per share was completed. The proceeds received net of transaction costs of DKK 25m increased 11. EVENTS AFTER THE BALANCE SHEET DATE As announced on 11 August 2022 (refer to Com- pany Announcement No. 13-2022), all conditions and requirements for the acquisition of been met. In accordance with the sale and pur- chase agreement, final closing of the transaction will take place on the last business day of the month. Accordingly, the transaction will close on 31 August 2022. We are not aware of any other subsequent mat- ters that could be of material importance to the position at 30 June 2022. 12. ACCOUNTING POLICIES The condensed interim report of the Group for the first half year of 2022 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 2021 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 2021 Annual Report for further details. Alternative Performance Measures (APM) are un- changed from those applied in the 2021 Annual Report, refer to note 7.4 in the 2021 Annual Re- port for a description of used APM. Changes in accounting policies As of 1 January 2022, the FLSmidth Group has implemented all new or amended accounting standards and interpretations as adopted by the EU and applicable for the 2022 financial year. This includes the changes to IFRS 3 Business Combinations, IAS 16 Property, Plant and Equip- ment, IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Annual Improvement 2018-2020. The latter includes changes to IFRS 9 Financial Instruments and IFRS 16 Leases. The implementation has not had and is not ex- pected to have significant impact on the consoli- dated financial statements. Financial instruments H1 2022 DKKm Level 1 Level 2 Level 3 Total 4 140 53 197 2021 DKKm Level 1 Level 2 Level 3 Total 6 (2) 43 47 FLSmidth Interim Report H1 2022 28 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 2022. 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 view of the Group0 June 2022 as well as of the results of its operations and cash flows for the period 1 January 30 June 2022. 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, 19 August 2022 Executive management Mikko Juhani Keto Group CEO Roland M. Andersen Group CFO Board of directors Tom Knutzen Chair Mads Nipper Vice chair Anne Louise Eberhard Gillian Dawn Winckler Richard Robinson Smith Thrasyvoulos Moraitis Carsten Hansen Claus Østergaard Leif Gundtoft STATEMENT BY MANAGEMENT FLSmidth Interim Report H1 2022 29 Statements the form of annual reports or interim reports, filed with the Danish Business Authority and/or an- NASDAQ Copenhagen, as well as any presenta- tions based on such financial reports, and any other written information released, or oral state- ments made, to the public based on this report or in the future on behalf of FLSmidth & Co. A/S, may contain forward looking statements. other words and terms of similar meaning in con- nection with any discussion of future operating or financial performance identify forward-looking statements. Examples of such forward-looking statements include, but are not limited to: Statements of plans, objectives or goals for fu- ture operations, including those related to FLS- 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, 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 – 30 June 2022 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 Interim report (other than 6 months)No audit assistanceParsePort XBRL Converter2022-01-012022-06-302021-01-012021-06-30213800G7EG4156NNPG91Reporting class D213800G7EG4156NNPG9158180912FLSmidth & Co. 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