FLSmidth & Co. — Interim / Quarterly Report 2023

Aug 15, 2023

Untitled Interim Report H1 2023 1 January – 30 June 2023 Company announcement no. 15 FLSmidth & Co. A/S Vigerslev Allé 77 DK-2500 Valby CVR No. 58180912 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 2 Management review Highlights Q2 2023 4 Financial performance highlights 5 Sustainability performance highlights 6 Key figures 7 2023 financial guidance 8 Mining financial performance 9 Cement financial performance 11 Non-Core Activities financial performance 13 Consolidated financial performance Q2 2023 14 Consolidated financial performance H1 2023 17 Consolidated Condensed Financial statements Income statement 20 Statement of comprehensive income 20 Cash flow statement 21 Balance sheet 22 Equity statement 23 Notes 1. Key accounting estimates and judgements 25 2. Income statement by function 25 3. Segment information 26 4. Revenue 27 5. Provisions 28 6. Contractual commitments and contingent liabilities 28 7. Discontinued activities 29 8. Net working capital 29 9. Business acquisitions 30 10. Events after the balance sheet date 30 11. Accounting policies 30 Statements Statement by Management 32 Forward looking statements 33 Contents Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 3 Management review Highlights Q2 2023 4 Financial performance highlights 5 Sustainability performance highlights 6 Key figures 7 2023 financial guidance 8 Mining financial performance 9 Cement financial performance 11 Non-Core Activities financial performance 13 Consolidated financial performance Q2 2023 14 Consolidated financial performance H1 2023 17 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 4 We have maintained the strong momentum on our key transformation efforts, positively impacting both operational and financial performance during Q2 2023. While we have continued to progress on our MissionZero agenda, our safety performance has been unsatisfactory and mitigating actions have been taken. Our Mining business has seen good revenue growth and continued improvement in underlying profitability in a relatively stable mining market. This has primarily been driven by strong execution in the Service business coupled with a better- than-expected progression of the Mining Technologies integration. This positive development was offset by delays in some customers' larger investment deci- sions, mainly in the Products business. While our Cement business has been impacted by an increasing slow-down in market demand, a stable profitability has been maintained as a result of the operating model simplification and de-risking approach. Our Cement business remains on target for the full year, however its short- to mid-term market out- look has deteriorated. Consequently, continued organisational rightsizing is re- quired to preserve profitability. Going into the second half of the year we remain positive with a continued strong focus on executing our core transformation efforts. Mikko Keto, Group CEO Highlights Q2 2023 Mining Cement ■ 6% growth in order intake sup- ported by Mining Technologies ■ Revenue growth of 23% mainly driven by Service ■ Adj. EBITA margin of 10.8% ■ Morse Rubber acquired to strengthen mill liner business ■ FY’23 adj. EBITA guidance was raised mainly due to better-than- expected Service performance ■ 33% decline in order intake due to a slow-down in market demand ■ Revenue growth of 11% driven by order backlog execution ■ EBITA margin of 4.3% ■ FY’23 EBITA guidance was raised due to one-off net gain of around DKK 100m from sale of AFT media business Sustainability Performance and other ■ Two large MissionZero related orders received in Mining ■ Continued improvement in share of women managers ■ Unsatisfactory development on safety (TRIR) ■ Calcined clay technology gains sustainability recognition ■ Transformation progressing ahead of plans ■ Non-Core Activities order back- log reduced to DKK 1.4bn ■ Good cash flow generation ■ Financial guidance for 2023 was raised on 8 August 2023 Mining Technologies refers to the former thyssenkrupp Mining business, which FLSmidth acquired on 31 August 2022. Non-Core Activities order backlog includes around DKK 400m, which is expected to be transferred to KOCH Solutions as part of the Asset Purchase & Transfer Agreement announced on 14 June 2023. The transaction is expected to be completed in Q3 2023, subject to customary regulatory approvals from relevant authorities. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 5 Financial performance highlights Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Cash flow from operating activi- ties DKKm 372 ▲ from DKKm (214) in Q2 2022 GROUP 5,523 ▼ -6.4% 6,399 ▲ 27.3% 332 5.2% (adj. 6.7%) ▲ 8.1% Earnings per share DKK 2.0 ▼ from DKK 2.5 in Q2 2022 Net working capital ratio 10.1% ▲ from 9.2% end of Q2 2022 NIBD/EBITDA 1.0x ▲ from -0.3x end of Q2 2022 For an explanation on the calculation of the net working capital ratio refer to section 7.8 in the 2022 Annual Report. Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Products & Service MINING 4,215 ▲ 5.7% 4,351 ▲ 23.3% 372 8.6% (adj. 10.8%) ▲ 34.8% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Products & Service CEMENT 1,276 ▼ -33.3% 1,670 ▲ 11.5% 73 4.3% ▲ 135.5% Order intake DKKm Revenue DKKm EBITA & EBITA margin DKKm - % Revenue split by Products & Service NON -CORE ACTIVITIES 32 378 (113) -29.9% 12,919 11,155 5,901 5,523 H1 2022 H1 2023 Q2 2022 Q2 2023 9,733 12,415 5,027 6,399 H1 2022 H1 2023 Q2 2022 Q2 2023 609 567 307 332 H1 2022 H1 2023 Q2 2022 Q2 2023 3,989 4,215 Q2 2022 Q2 2023 3,529 4,351 Q2 2022 Q2 2023 276 372 Q2 2022 Q2 2023 65% (Q2 2022: 60%) 35% (Q2 2022: 40%) Service Products 1,912 1,276 Q2 2022 Q2 2023 1,498 1,670 Q2 2022 Q2 2023 31 73 Q2 2022 Q2 2023 52% (Q2 2022: 57%) 48% (Q2 2022: 43%) Service Products - 32 Q2 2022 Q2 2023 - 378 Q2 2022 Q2 2023 - (113) Q2 2022 Q2 2023 34% 66% Service Products Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 6 Sustainability performance highlights Safety (Total recordable injury rate) Total recordable injury rate/million working hours Women managers % MissionZero developments Through our MissionZero programme, we aim to drive the green transition in the mining and cement industries. Our customers continue to adopt our innovative technologies to reduce emissions, water consumption and waste across the full flowsheet. Australian gold mine aims to reduce energy consumption A range of crushing, milling, flotation and de- watering equipment will be supplied to a major gold mine in Australia. The unique flotation mechanism delivers the lowest power draw on the market compared to similar systems. The high-energy milling equipment will be opti- mised via our mill scanner smart sensor tech- nology and will incorporate lighter weight com- posite wear liners. A high-tech vision system across the circuit will further optimise productiv- ity and reduce energy consumption. Gearless mill drives for better energy effi- ciency A northern Chilean copper mine has ordered several FLSmidth grinding mills as part of its grinding capacity expansion plans, adding to its existing FLSmidth mineral processing technol- ogy. The order includes a SAG mill and two Ball mills installed with gearless mill drives of- fering improved efficiency, energy savings and long-lasting quality. Calcined clay technology gains recognition The Danish financial media Børsen selected our calcined clay technology as one of Denmark's 50 most innovative and green projects. In a se- ries of cases, Børsen features initiatives from various companies as inspiration for outstand- ing sustainable practices. Our work within scope 3 emissions reductions in cement pro- duction has been recognised for its innovation, scalability and impact on global CO2 reduc- tions. 3.0 2023 Target: 1.2 ▼ 1.5 deterioration 16.1 2023 Target: 16.3% ▲ 1.8%-points improvement In Q2 2023, we saw a rise to the number of incidents, particularly in North America. In response, we have im- plemented both immediate and long-term mitigation actions, and we will monitor the progress and success of these closely. We continue to work with team lead- ers and regional managers to ensure incident preven- tion. Safety is a top priority at all times and our em- ployees are trained to implement safe working practices. The share of women managers increased during Q2 2023. Dedicated activities such as diverse hiring pools, diverse interview panels, managers taking a more active role in hiring and promoting women plus continued restructuring contributed to this improve- ment especially in our products, engineering and R&D functions. Water withdrawal m 3 Scope 1 & 2 greenhouse gas emissions tCO 2 e (market-based) Spend with suppliers with science- based targets % 75,382 2023 Target: <205,093 ▲ 5.1% improvement 19,742 2023 Target: <46,019 ▼ 9.7% deterioration 10.5% 2023 Target: 10% ▲ 2.8% points improvement Water withdrawal in Q2 2023 decreased compared to Q1 2023 and H1 2022, showing a good progress towards our end-of-year target. The main reason for the decrease is less usage of water during the wet season in some regions, and less staff in some sites. We continue to focus on initiatives to reduce water withdrawal at our sites and improve water efficiency in our processes. CO2e emissions are higher compared to H1 2022. This is due to the increased number of sites after the acqui- sition of Mining Technologies. Q2 2023 emissions were lower than in Q1 2023 due to more renewable energy usage at three sites and less heating usage in regions with warmer temperatures. We are performing well and are on track to meet our end of year target. Spend with suppliers who have set science-based tar- gets has shown good development since 2022 and re- mains above our 2023 target of 10%. We continue to work closely with our suppliers to support them in set- ting their own science-based targets. Scope 1&2 target has been updated since Q1 2023 to reflect the inclusion of Mining Technologies. 1.5 3.0 2022 H1 2023 14.3% 16.1% 2022 H1 2023 79,436 75,382 H1 2022 H1 2023 18,002 19,742 H1 2022 H1 2023 7.7% 10.5% 2022 H1 2023 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 7 * Key figures DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 2022 Income statement Revenue 6,399 5,027 12,415 9,733 21,849 Gross profit 1,497 1,244 2,894 2,351 5,076 EBITDA 415 388 737 770 1,300 EBITA 332 307 567 609 943 Adjusted EBITA 429 402 791 741 1,395 EBIT 267 235 444 457 619 Financial items, net (73) (5) (89) (34) (67) EBT 194 230 355 423 552 Profit for the period, continuing activities 123 137 226 260 351 Loss for the period, discontinued activities (5) (3) (24) (3) 1 Profit for the period 118 134 202 257 352 Orders Order intake 5,523 5,901 11,155 12,919 24,644 Order backlog 20,544 19,461 23,541 Earning ratios Gross margin 23.4% 24.7% 23.3% 24.2% 23.2% EBITDA margin 6.5% 7.7% 5.9% 7.9% 5.9% EBITA margin 5.2% 6.1% 4.6% 6.3% 4.3% Adjusted EBITA margin 6.7% 8.0% 6.4% 7.6% 6.4% EBIT margin 4.2% 4.7% 3.6% 4.7% 2.8% EBT margin 3.0% 4.6% 2.9% 4.3% 2.5% Cash flow Cash flow from operating activities (CFFO) 372 (214) (32) (284) 968 Acquisitions of property, plant and equipment (34) (18) (58) (33) (88) Cash flow from investing activities (CFFI) (154) (83) (178) (48) (2,310) Free cash flow 218 (297) (210) (332) (1,342) Free cash flow adjusted for acquisitions and disposals of enterprises and activities 260 (281) (168) (316) 777 Balance sheet Net working capital 2,542 1,805 1,893 Net interest-bearing debt (NIBD) (1,214) 528 (726) Total assets 29,217 24,509 29,845 CAPEX 215 163 424 Equity 10,715 11,033 10,787 Dividend to shareholders, paid 170 170 170 170 170 DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 2022 Financial ratios Book-to-bill 86.3% 117.4% 89.9% 132.7% 112.8% Order backlog / Revenue 83.7% 99.7% 107.7% Return on equity 3.8% 4.8% 3.3% Equity ratio 36.7% 45.0% 36.1% ROCE, average 5.0% 8.4% 5.9% Net working capital ratio, end 10.1% 9.2% 7.8% NIBD / EBITDA 1.0x -0.3x 0.6x Capital employed, average 18,041 14,830 15,888 Number of employees 10,234 10,055 10,977 Share ratios Cash flow per share (CFPS), (diluted) 6.5 (3.8) (0.6) (5.0) 17.0 Earnings per share (EPS), (diluted) 2.0 2.5 3.6 4.8 6.5 Share price 330.2 174.5 251.7 Number of shares (1,000), end 57,650 57,650 57,650 Market capitalisation, end 19,036 10,060 14,511 Sustainability key figures Scope 1 & 2 GHG emissions (tCO2e) market-based 19,742 18,002 36,767 Water withdrawal (m3) 75,382 79,436 178,064 Safety, TRIR Total Recordable Injury Rate (including contractors) 3.0 1.3 1.5 Women managers 16.1% 14.1% 14.3% Spend with suppliers with science-based targets 10.5% n/a 7.7% Other key figures Quality, DIFOT Delivery In Full On Time 83.0% 81.2% 81.9% Use of alternative performance measures Throughout the report we present financial measures which are not defined according to IFRS. The financial ratios have been computed in accordance with the guidelines of the Danish Finance Society. We have included additional information in note 7.4 Alternative performance measures and 7.8 Definition of terms in the 2022 Annual Report and in note 12 of this report. To reflect the underlying business performance, we present an adjusted EBITA margin to adjust for the integration costs of DKK 224m in H1 2023 (2022: DKK 252m) related to the integration of Mining Technologies. In 2022, EBITA was also adjusted for cost related to the exit of Russian activities of DKK 200m. For an explanation on the ratios, please refer to the Annual Report 2022, pages 121 - 122. Return on equity is based on an annualised profit determined as two times the profit for H1. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 8 2023 financial guidance Note: Numbers in brackets represent realised H1 2023 results Mining Cement Non-Core Activities Group Guidance July 2023 Guidance August 2023 Revenue (DKKbn) 16.0-17.0 Around 17.0 (DKK 8.5bn) Adj. EBITA margin 9.0-10.0% 10.0-11.0% (10.2%) Guidance July 2023 Guidance August 2023 Revenue (DKKbn) Around 6.0 Around 6.0 (DKK 3.3bn) EBITA margin 5.5-6.5% 5.5-6.5% (4.3%) Guidance July 2023 Guidance August 2023 Revenue (DKKbn) 0.8-1.0 0.8-1.0 (DKK 627m) EBITA Loss of ~DKK 250-350m Loss of ~DKK 250-350m (Loss of DKK 220m) Guidance July 2023 Guidance August 2023 Revenue (DKKbn) 23.0-24.0 Around 24.0 (DKK 12.4bn) Adj. EBITA margin 6.5-7.5% 7.5-8.5% (6.4%) EBITA margin 4.5-5.5% 5.5-6.5% (4.6%) Following a strong 2022, we expect mining market activity levels in 2023 to remain largely stable versus 2022 with some delays in larger investment decisions, mainly within Products. The former Mining Technologies business is expected to contribute less than DKK 3bn in revenue in 2023 and is expected to have a di- lutive effect on the full year 2023 adjusted Mining EBITA margin of less than 2%-points. Guidance for Adjusted EBITA margin includes adjustments for integration costs of around DKK 550m for the full year 2023. The short- to mid-term outlook for the cement industry is increasingly impacted by a slow- down in market demand. Cement EBITA is positively impacted by a one- off net gain of around DKK 100m from the sale of the Advanced Filtration Technologies filter media business. The underlying operational performance of Cement is expected to remain unchanged. Non-Core Activities EBITA margin guidance for 2023 reflects the operationally loss-making nature of the business as well as costs related to contract negotiations aimed at reducing the scope of the Non-Core Activities order backlog. Consolidated Group guidance reflects the sum of the guidance for the three business seg- ments. Guidance for Adjusted EBITA margin includes adjustments for integration costs of around DKK 550m for the full year 2023. Guidance for 2023 is subject to uncertainty due to the global supply chain situation, poten- tial recession and geopolitical turmoil. Financial guidance for 2023, as set out in the Company Announcement no. 14-2023 on 8 August 2023, is maintained. Guidance for full year 2023 reflects continued improvement of the underlying legacy FLSmidth Mining business and integration of Mining Technologies. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 9 Market outlook and trends in Q2 2023 Q2 2023 continued to show an active mining mar- ket in major commodities, specifically in lithium, gold and copper. This has been partly offset by continued delays in large capital investment deci- sions due to political uncertainties and permitting issues in certain markets as well as prevailing macroeconomic uncertainty. The pipeline how- ever remains encouraging supporting the long- term demand for minerals across all regions, par- ticularly within copper, lithium and gold. The service market remained stable and active with continued healthy influx of inquiries as cus- tomers aim to optimise operations and maximise production volumes, partly offset by some timing delays within larger capital spares. Order intake development in Q2 2023 Q2 2023 order intake increased by 6% to DKK 4,215m. Excluding currency effects the order in- take increased by 12%. Compared to Q2 2022, Mining order intake in Q2 2023 includes Mining Technologies but does not include Non-Core Activities. If excluding a high- level estimate of the impact from those changes the underlying order intake in the quarter in- creased approximately 1% compared to Q2 2022. Products order intake increased 11% compared to Q2 2022. The second quarter of 2023 included two large, announced product orders with a com- bined value of around DKK 785m, whereas the comparative quarter included one large, an- nounced product order at around DKK 270m. The higher Products order intake in Q2 2023 re- flects continued healthy market conditions, partly offset by our continued de-risking approach and some customers delaying capex investments. Service order intake increased by 3% in Q2 2023 supported by the acquisition of Mining Technolo- gies. The increase was mainly driven by spare and wear parts in North America and Asia-Pacific as well as good Upgrade sales in North America, South America and Asia-Pacific. This reflects con- tinued focus on the larger post-acquisition in- stalled base and customers' needs for improving productivity. Service order intake growth was partly offset by timing of capital spares and our ef- forts of exiting low-margin basic labour services as our focus remains on maximising customers’ equipment reliability and improving energy effi- ciency. During the quarter, Service and Products order in- take represented 62% and 38% of Mining order in- take, compared to 64% and 36% in Q2 2022, re- spectively, reflecting our strong service focus. Order intake development in H1 2023 H1 2023 order intake, compared to H1 2022, de- creased by 8% to DKK 8,392m. Excluding cur- rency effects order intake decreased by 6%. Compared to H1 2022, Mining order intake in H1 2023 includes Mining Technologies but does not include Non-Core Activities or Russia. If excluding a high-level estimate of the impact from those changes the underlying order intake in H1 2023 declined approximately 12%. Product order intake decreased by 29% due to a continued delay in large capital investments due to political uncertainties and permitting issues and an extraordinary strong Products order intake in H1 2022 that included five large product orders with a combined value of around DKK 1.6bn. H1 2023 included three large, announced product or- ders with a combined value of approximately DKK 1.1bn. Service order intake increased by 9% in H1 2023 supported by the acquisition of Mining Technolo- gies. During the first half of the year, Service and Prod- ucts order intake represented 66% and 34% of Mining order intake, compared to 55% and 45% in H1 2022. Mining financial performance Order intake split per region Q2 2023 ECANA refers to the region of Europe, Central Asia and North Africa. Order intake split by Products & Service Q2 2023 Order intake split by commodity Q2 2023 Mining financial performance 21% 31% 7% 9% 32% NAMER SAMER ECANA SSAMESA APAC 62% (Q2 2022: 64%) 38% (Q2 2022: 36%) Service Products 41% 25% 6% 1% 7% 20% Copper Gold Coal Fertilizer Iron ore Other Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 10 Revenue development in Q2 2023 Q2 2023 revenue increased by 23%. Excluding currency effects revenue increased by 29% and by 39% excluding Russia compared to Q2 2022. Compared to Q2 2022, Mining revenue in Q2 2023 reflects our exit of Russia, the establishment of the separate Non-Core Activities segment and the acquisition of Mining Technologies. If exclud- ing a high-level estimate of the impact from these factors, the underlying revenue growth in the quarter was approximately 16%. Revenue growth was mainly driven by the Service business, fully in line with our ongoing transfor- mation strategy. Service revenue increased by 33% in the quarter and accounted for 65% of the total revenue in the quarter. This was mainly driven by a continued healthy demand for spare and wear parts especially in North and South America. Service revenue growth was further sup- ported by the acquisition of Mining Technologies. The Products business’ share of revenue de- creased from 40% in Q2 2022 to 35% in Q2 2023, reflecting our de-risking portfolio strategy as well as our increased service focus. Products revenue increased by 8% supported by the acquisition of Mining Technologies. Gross profit development in Q2 2023 Gross profit increased by 26% to DKK 1,107m from DKK 876m in Q2 2022. The corresponding gross margin increased to 25.4% as a result of the higher Service revenue, our de-risking strategy and scalability, partly offset by integration costs related to Mining Technologies. EBITA development in Q2 2023 Adjusted for integration costs of DKK 97m, the ad- justed EBITA margin was 10.8% in Q2 2023. The adjusted EBITA margin was realised with an ap- proximated dilutive effect from the acquisition of Mining Technologies of less than 2%-points in the quarter. Including integration costs, the EBITA margin increased to 8.6% from 7.8% in Q2 2022. The number of employees in Mining remains higher than in Q2 2022 mainly due to Mining Technologies. Since the end of Q3 2022, the num- ber of employees in Mining has however been re- duced by more than 1,400 employees. The reduc- tion reflects the establishment of the Non-Core Activities segment as of Q4 2022 and the ongoing synergy takeout related to the Mining Technolo- gies' integration. Revenue development in H1 2023 Mining revenue increased by 26% and 42% ex- cluding Russia compared to H1 2022. If excluding a high-level estimate of the impact from our exit of Russia, the establishment of the Non-Core Activi- ties segment and the acquisition of Mining Tech- nologies, the underlying revenue growth in H1 2023 was approximately 22%, compared to H1 2022. The increase was mainly driven by the Ser- vice business. Gross profit development in H1 2023 Gross profit increased by 33% to DKK 2,172m in H1 2023. The corresponding gross margin of 25.4% is 1.2%-points above H1 2022 as a result of good margin execution and higher Service revenue. EBITA development in H1 2023 Adjusted for integration costs of DKK 224m, the adjusted EBITA margin was 10.2% in H1 2023. Mining financial performance Growth in Mining in Q2 2023 (vs. Q2 2022) Revenue and EBITA margin DKKm EBITA margin % 0% 2% 4% 6% 8% 10% 12% 14% 16% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Products Service EBITA margin % Adj. EBITA margin % Order intake Revenue Organic 12% 29% Currency -6% -6% Total growth 6% 23% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q2 2022 includes Non-Core Activities. Mining (DKKm) Q2 2023 Q2 2022 Change (%) H1 2023 H1 2022 Change (%) Order intake 4,215 3,989 6% 8,392 9,146 -8% - Hereof service order intake 2,615 2,542 3% 5,517 5,072 9% - Hereof products order intake 1,600 1,447 11% 2,875 4,074 -29% Order backlog 13,472 12,544 7% 13,472 12,544 7% Revenue 4,351 3,529 23% 8,536 6,762 26% - Hereof service revenue 2,833 2,123 33% 5,533 3,943 40% - Hereof products revenue 1,518 1,406 8% 3,003 2,819 7% Gross profit 1,107 876 26% 2,172 1,636 33% Gross margin 25.4% 24.8% 25.4% 24.2% Adjusted EBITA 469 371 26% 869 657 32% Adjusted EBITA margin 10.8% 10.5% 10.2% 9.7% EBITA 372 276 35% 646 525 23% EBITA margin 8.6% 7.8% 7.6% 7.8% Number of employees 6,742 6,314 7% 6,742 6,314 7% Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 11 Market outlook and trends in Q2 2023 Following relatively stable market conditions in the beginning of the year, the cement market has been increasingly impacted by a slow-down in market demand during the second quarter of the year. While globally the long-term trend towards more sustainable cement production remains, which supports the long-term service potential, the short- to mid-term market outlook has deteriorated. As a result, cement producers are faced with difficulties in securing adequate budgets for new expansions leading to significant delays on major investment decisions. Market conditions continue to vary across regions. While certain markets like India and the US have shown increased demand for new capacity due to infrastructure expansions and modernisation plans, markets like China and Europe currently re- main weaker. Order intake development in Q2 2023 Cement order intake in Q2 2023 declined by 33% to DKK 1,276m. The underlying margins in the pipeline remain at stable levels and the profitabil- ity of the order intake is improving across all offer- ings. Compared to Q2 2022, the decline in order intake is mainly driven by a 43% decrease in Products or- der intake. Q2 2022 included one large, an- nounced product order at more than DKK 400m, whereas Q2 2023 did not include any large, an- nounced orders. This reflects our continuing de- risking approach and our strategy of not accept- ing product orders which do not support our ser- vice business or green ambitions. We continue to support customers through a blend of Service, Products, Upgrades & Retrofits and increased green offerings without engaging in high-risk projects. In addition, we continue to focus on standardisation and modularisation both within Service and Products. Service order intake decreased by 24% compared to Q2 2022. The decrease reflected the challeng- ing market conditions affected by the Ukrainian war, inflation and interest rates. In our main markets, our Service business has maintained at a satisfactory performance through- out Q2 2023. However, in some markets there has been a slow-down in market demand during the quarter. During the quarter Service and Products orders represented 59% and 41% of Cement order intake compared to 52% and 48% in Q2 2022, respec- tively, in line with our de-risking strategy and ser- vice focus. Order intake development in H1 2023 Cement order intake in H1 2023 declined by 31%. This is mainly due to a 43% decrease in Products order intake compared to H1 2022. Service order intake decreased by 19% compared to H1 2022 reflecting the current market condi- tions. In the main parts of our main markets, we have seen some growth in the Service order in- take versus H1 2022, offset by a decline in mar- kets we decided to serve through agents and/or exit. Cement financial performance Order intake split per region Q2 2023 Order intake split by Products & Service Q2 2023 33% 7% 15% 38% 7% NAMER SAMER ECANA SSAMESA APAC 59% (Q2 2022: 52%) 41% (Q2 2022: 48%) Service Products Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 12 Revenue development in Q2 2023 Q2 2023 revenue increased by 11%. Excluding cur- rency effects revenue increased by 14% driven by the Products business. Products revenue increased by 23% compared to Q2 2022 driven by good order backlog execution. Service revenue increased by 2% despite chal- lenging market conditions and the implementation of the new simplified operating model. Service ac- counted for 52% of revenue in Q2 2023. Gross profit development in Q2 2023 Gross profit increased by 13% to DKK 416m, re- flecting good execution on higher margin orders. The corresponding gross margin of 24.9% was largely in line with Q2 2022, impacted by footprint optimisation costs related to the implementation of the new operating model. EBITA development in Q2 2023 Cement EBITA continued the positive trend in im- proving profitability and increased by 135% com- pared to Q2 2022. EBITA amounted to DKK 73m in Q2 2023 compared to DKK 31m in Q2 2022, re- flecting continued focus on higher margin orders and cost improvements. The corresponding EBITA margin improved by 2.2%-points to 4.3% in Q2 2023. The number of employees in Cement has been re- duced by around 690 compared to Q2 2022. The reduction reflects the continued global footprint optimisation and operating model simplification to improve operations and ensure sustainable profit- ability. Revenue development in H1 2023 Cement revenue increased by 9% to DKK 3,252m in H1 2023 mainly driven by Products revenue. Service and Products revenue increased by 4% and 16%, respectively. Gross profit development in H1 2023 Gross profit increased by 10% to DKK 788m in H1 2023. The corresponding gross margin of 24.2% was in line with H1 2022. EBITA development in H1 2023 EBITA increased by 68% in H1 2023 with a corre- sponding EBITA margin of 4.3%, reflecting good execution on higher margin orders, partly offset by the effect of the current market conditions. Cement financial performance Growth in Cement in Q2 2023 (vs. Q2 2022) Revenue and EBITA margin DKKm EBITA margin % -4% -2% 0% 2% 4% 6% 8% 10% 0 500 1,000 1,500 2,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Service Products EBITA margin % Order intake Revenue Organic -31% 14% Currency -2% -3% Total growth -33% 11% Cement (DKKm) Q2 2023 Q2 2022 Change (%) H1 2023 H1 2022 Change (%) Order intake 1,276 1,912 -33% 2,620 3,773 -31% - Hereof service order intake 752 987 -24% 1,565 1,931 -19% - Hereof products order intake 524 925 -43% 1,055 1,842 -43% Order backlog 5,658 6,917 -18% 5,658 6,917 -18% Revenue 1,670 1,498 11% 3,252 2,971 9% - Hereof service revenue 870 849 2% 1,760 1,687 4% - Hereof products revenue 800 649 23% 1,492 1,284 16% Gross profit 416 368 13% 788 715 10% Gross margin 24.9% 24.6% 24.2% 24.1% EBITA 73 31 135% 141 84 68% EBITA margin 4.3% 2.1% 4.3% 2.8% Number of employees 3,053 3,741 -18% 3,053 3,741 -18% Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 13 Non-Core Activities outlook The Non-Core Activities segment was established as of Q4 2022 and comprises products that are no longer deemed to be of core strategic importance to FLSmidth and to a large extent are loss-making mining activities. Activities in the segment will be fully exited either by way of divestment or wind- down of the order backlog. In June 2023, FLSmidth signed an Asset Purchase & Transfer Agreement with KOCH Solutions, who will acquire a mix of intellectual property, order backlog, employees and facilities from the Non- Core Activities segment. Assuming completion of the transaction, it is expected that the Non-Core Activities segment will be exited around end of 2024 (previously towards end of 2025). Order intake development in Q2 2023 Order intake for Non-Core Activities amounted to DKK 32m. This related to contractual obligations and parts already in stock. Compared to Q1 2023, order intake in Q2 2023 decreased by 71%. Ser- vice and Products orders represented 66% and 34% of Non-Core Activities order intake in Q2 2023, respectively. Order backlog development in Q2 2023 The order backlog amounted to around DKK 1.4bn by end of Q2 2023. This represented a decrease of around DKK 0.7bn compared to Q1 2023 and a decrease of around DKK 1.5bn compared to Q4 2022. The decrease reflected the execution of the order backlog as well as continued re-scoping and contract terminations. The majority of the or- der backlog remains destined for countries within APAC and ECANA. Revenue development in Q2 2023 Non-Core Activities revenue in Q2 2023 amounted to DKK 378m. Products and Service accounted for 66% and 34% of total revenue, re- spectively. Gross profit development in Q2 2023 Gross profit was negative as expected, reflecting the general volatility and operationally loss-mak- ing nature of the Non-Core Activities business. The corresponding gross margin amounted to -6.9%. EBITA development in Q2 2023 EBITA amounted to DKK -113m with a correspond- ing EBITA margin of -29.9% driven by the negative gross profit and costs related to the exit. The number of employees amounted to 439 as of end of Q2 2023, which is a decline of 61 employ- ees compared to end of Q1 2023. Order intake development in H1 2023 Order intake for Non-Core Activities amounted to DKK 143m in H1 2023. Service and Products orders represented 71% and 29%, respectively. Revenue development in H1 2023 Non-Core Activities revenue amounted to DKK 627m in H1 2023. Service and Products revenue represented 35% and 65%, respectively. Gross profit development in H1 2023 Gross profit amounted DKK -66m in H1 2023 with a corresponding gross margin of -10.5% EBITA development in H1 2023 EBITA in H1 2023 amounted to DKK -220m with a corresponding EBITA margin of -35.1% reflecting the operationally loss-making nature of the Non- Core Activities business and costs related to the exit. Non-Core Activities financial performance Order intake split per region Q2 2023 Order intake split by commodity Q2 2023 6% 41% 16% 9% 28% NAMER SAMER ECANA SSAMESA APAC Non-Core Activities (DKKm) Q2 2023 H1 2023 Order intake 32 143 - Hereof service order intake 21 101 - Hereof products order intake 11 42 Order backlog 1,414 1,414 Revenue 378 627 - Hereof service revenue 130 222 - Hereof products revenue 248 405 Gross profit (26) (66) Gross margin -6.9% -10.5% EBITA (113) (220) EBITA margin -29.9% -35.1% Number of employees 439 439 3% 8% 70% 19% Copper Coal Iron ore Other Minerals Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 14 Growth Group order intake in Q2 2023 decreased 6% mainly driven by Products. Group revenue increased 27% driven primarily by the Mining service business supported by the acquisition of Mining Technologies. Order intake Q2 2023 order intake declined by 6% to DKK 5,523m. Excluding currency effects order intake declined by 1% compared to Q2 2022. Compared to Q2 2022, Group order intake in Q2 2023 includes Mining Technologies. If excluding a high-level estimate of the impact from Mining Technologies the underlying order intake in the quarter declined approximately 14%. Service order intake decreased by 4% compared to Q2 2022, reflecting current service markets in Cement. Service represented 61% of total order in- take in Q2 2023 against 60% in Q2 2022. Prod- ucts order intake decreased by 10% compared to Q2 2022, reflecting our de-risking strategy and prevailing macroeconomic uncertainty. Order backlog and maturity The order backlog decreased 7% to DKK 20.5bn compared to the prior quarter (Q1 2023: DKK 22.0bn) due to strong execution of the order backlog and the exit of our Russian and Belarusian activities as well as wind-down of our Non-Core Ac- tivities. Outstanding order backlog related to Rus- sian and Belarusian contracts declined to DKK 0.2bn at the end of Q2 2023 (end of Q1 2023: DKK 0.3bn) reflecting successful contract terminations. The remaining orders are suspended by FLSmidth and are due to uncertainty included in the ‘2025 and beyond’ maturity. The Non-Core Activities backlog represented around DKK 1.4bn at the end of Q2 2023. Backlog maturity Mining Cement Non-Core Activities FLSmidth Group 2023 33% 27% 20% 31% 2024 61% 49% 66% 58% 2025 & beyond 6% 24% 14% 11% Revenue Revenue increased by 27% to DKK 6,399m. Ex- cluding currency effects revenue increased by 32% and by 39% excluding Russia compared to Q2 2022. If excluding a high-level estimate of the impact from Russia and Mining Technologies the underly- ing revenue growth in the quarter was approxi- mately 12%. The quarter included DKK 378m in revenue from Non-Core Activities. The increase was driven by a 29% increase in Ser- vice revenue and 25% increase in Products reve- nue compared to Q2 2022. Service revenue ac- counted for 60% of total revenue in the quarter, compared to 59% in Q2 2022. Consolidated financial performance Q2 2023 Growth in order intake in Q2 2023 (vs. Q2 2022) Growth in revenue in Q2 2023 (vs. Q2 2022) Order intake DKKm Mining Cement Non-Core Activities FLSmidth Group Organic 29% 14% 32% Currency -6% -3% -5% Total growth 23% 11% n/a 27% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q2 2022 includes Non-Core Activities. Mining Cement Non-Core Activities FLSmidth Group Organic 12% -31% -1% Currency -6% -2% -5% Total growth 6% -33% n/a -6% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q2 2022 includes Non-Core Activities. Group – continued activities (DKKm) Q2 2023 Q2 2022 Change (%) H1 2023 H1 2022 Change (%) Order intake 5,523 5,901 -6% 11,155 12,919 -14% - Hereof service order intake 3,388 3,529 -4% 7,183 7,003 3% - Hereof products order intake 2,135 2,372 -10% 3,972 5,916 -33% Order backlog 20,544 19,461 6% 20,544 19,461 6% Revenue 6,399 5,027 27% 12,415 9,733 28% - Hereof service revenue 3,833 2,972 29% 7,515 5,630 33% - Hereof products revenue 2,566 2,055 25% 4,900 4,103 19% Gross profit 1,497 1,244 20% 2,894 2,351 23% Gross margin 23.4% 24.7% 23.3% 24.2% SG&A cost (1,082) (856) 26% (2,157) (1,581) 36% SG&A ratio 16.9% 17.0% 17.4% 16.2% Adjusted EBITA 429 402 7% 791 741 7% Adjusted EBITA margin 6.7% 8.0% 6.4% 7.6% EBITA 332 307 8% 567 609 -7% EBITA margin 5.2% 6.1% 4.6% 6.3% Number of employees 10,234 10,055 2% 10,234 10,055 2% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Service order intake Products order intake Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 15 Profit Gross profit increased 20% driven by the 27% increase in revenue compared to Q2 2022. Adjusted EBITA increased 7% reflecting positive impact from our key transformation efforts. Gross profit and margin Gross profit increased by 20% to DKK 1,497m, driven by the higher revenue level. The corre- sponding gross margin of 23.4% was impacted by the new simplified operating model in Cement, the integration cost of Mining Technologies and the ongoing handling of our Non-Core Activities. In Q2 2023, total research and development costs (R&D) amounted to DKK 96m, representing 1.5% of revenue (Q2 2022: 1.6%). Research & development costs (DKKm) Q2 2023 Q2 2022 Production costs 37 44 Capitalised 59 37 Total R&D 96 81 SG&A costs Sales, general and administrative costs (SG&A) and other operating items increased 26% com- pared to Q2 2022, mainly due to the cost base and integration costs related to Mining Technolo- gies in Q2 2023. On the contrary, currencies had a positive impact on SG&A of DKK 27m in the quarter. SG&A costs as a percentage of revenue was 16.9% in line with the comparative quarter, reflect- ing the increased revenue offset by the additional costs mainly related to Mining Technologies. EBITA and margin Excluding integration costs of DKK 97m related to the acquisition of Mining Technologies, adjusted Group EBITA margin was 6.7% in Q2 2023. Includ- ing integration costs, the EBITA margin was 5.2% in Q2 2023 compared to 6.1% in Q2 2022. Amortisation of intangible assets amounted to DKK 65m (Q2 2022: DKK 72m). The effect of pur- chase price allocations amounted to DKK 11m (Q2 2022: DKK 14m) and other amortisation to DKK 54m (Q2 2022: DKK 58m). Financial items Net financial items amounted to DKK -73m (Q2 2022: DKK -5m), of which net interest amounted to DKK -20m (Q2 2022: DKK -11m) and foreign ex- change and fair value adjustments amounted to DKK -53m (Q2 2022: DKK 8m). Tax Tax in Q2 2023 totalled DKK -71m (Q2 2022: DKK -93m), corresponding to an effective tax rate of 36.6% (Q2 2022: 40.4%). Profit for the period Profit in Q2 2023 was a gain of DKK 118m (Q2 2022: DKK 134m). Discontinued activities had a loss of DKK 5m in Q2 2023 (Q2 2022: DKK -3m). Return on capital employed Return on capital employed (ROCE) decreased to 5.0% (Q2 2022: 8.4%) due to a decreased EBITA as well as an increase in average capital em- ployed from the acquisition of Mining Technolo- gies and net working capital in general. Employees The number of employees decreased by 111 to 10,234 at the end of Q2 2023, compared to 10,345 at the end of Q1 2023. The decrease is a direct re- sult of workforce reductions carried out in both Mining and Cement in Q2 2023 relating to foot- print optimisation and synergies from the acquisi- tion of Mining Technologies. Backlog DKKm Revenue & EBITA margin DKKm EBITA margin % EBITA DKKm 0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Mining Cement NCA 0% 2% 4% 6% 8% 10% 12% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Revenue EBITA margin % Adj. EBITA margin % (500) (300) (100) 100 300 500 700 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Cement Mining Mining adj. NCA Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 16 Capital In line with expectations, cash flow from operations was positive in the quarter and the net working capital ratio decreased to 10.1% in Q2 2023. Net working capital Net working capital decreased DKK 71m to DKK 2,542m at the end of Q2 2023 (end of Q1 2023: DKK 2,613m). The primary drivers for the decrease in the quarter were good cash collection from trade receivables and work in progress and from the increase in trade payables partly offset by lower prepayments from customers. The corre- sponding net working capital ratio decreased from 10.6% of revenue in Q1 2023 to 10.1% of revenue in Q2 2023. Utilisation of supply chain financing increased to DKK 648m in Q2 2023 (Q1 2023: 626m). Cash flow from operating activities The increase in cash flow from operations (CFFO) in Q2 2023 amounted to DKK 372m (Q2 2022: DKK -214m). This relates to a positive impact in change in provision of DKK 174m as well as the decrease in net working capital, which positively impacted CFFO by DKK 62m. Discontinued activi- ties impacted CFFO by DKK 25m in Q2 2023 (Q2 2022: DKK -19m). Cash flow from investing activities Cash flow from investing activities amounted to DKK -154m (Q2 2022: DKK -83m). Cash flow from financing activities Cash flow from financing activities amounted to DKK -180m (Q2 2022: DKK -26m) due to dividend paid out amounting to DKK -170m. Free cash flow Free cash flow (cash flow from operating and in- vesting activities) adjusted for business acquisi- tions and disposals amounted to DKK 260m in the quarter (Q2 2022: DKK -281m) as a result of the decrease in net working capital. Net interest-bearing debt Net interest-bearing debt (NIBD) by 30 June 2023 increased to DKK 1,214m (Q1 2023: DKK 1,187m). The financial gearing end of Q2 2023 re- mained at 1.0x (Q1 2023: 1.0x). Financial position By the end of Q2 2023, FLSmidth had DKK 6.3bn of available committed credit facilities of which DKK 3.7bn was undrawn. The committed credit fa- cilities have a weighted average time to maturity of 4.8 years. Credit facilities of DKK 5.0bn and DKK 1.1bn will mature in 2027 and 2030, respectively. The re- maining DKK 0.2bn matures in later years. FLS- midth also had available DKK 0.8bn of uncommit- ted credit facilities. Equity ratio Equity at the end of Q2 2023 increased to DKK 10,715m (end of Q1 2023: DKK 10,611m), driven by currency adjustments and dividend paid out amounting to DKK 170m. The equity ratio was 36.7% (Q1 2023: 35.8%). Cash flow DKKm Net interest-bearing debt DKKm Net working capital DKKm NWC% (1,000) 0 1,000 2,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Net interest-bearing debt (NIBD) 0% 2% 4% 6% 8% 10% 12% 0 500 1,000 1,500 2,000 2,500 3,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Net working capital Net working capital ratio, end (600) (400) (200) 0 200 400 600 800 1,000 Q2 2021 Q3 Q4 Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Cash flow from operating activities Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 17 GROWTH Order intake Order intake decreased 14% to DKK 11,155m and by 11% excluding Russia compared to H1 2022. Service order intake increased by 3% driven by Mining. Products order intake decreased by 33%, driven by both Mining and Cement. Compared to H1 2022, Group order intake in H1 2023 includes Mining Technologies, but does not include Russia. If excluding a high-level estimate of the impact from Mining Technologies the under- lying order intake in H1 2023 declined approxi- mately 21%. Mining Service orders increased by 9% largely supported by the acquisition of Mining Technolo- gies. Mining Products orders decreased by 29% due to a strong Products order intake in H1 2022 that included five large, announced product or- ders with a combined value of around DKK 1.6bn compared to three large Mining Products orders announced in H1 2023 with a combined value of around DKK 1.1bn. Excluding currency effects, Min- ing order intake decreased 6% in H1 2023 com- pared to H1 2022. Cement order intake decreased by 31%, reflecting our de-risking strategy, challenging market condi- tions and one large, announced order of more than DKK 400m in the comparative quarter. Order backlog The order backlog increased 6% to DKK 20,544m by end of Q2 2023 and includes Russian con- tracts at a total value of approximately DKK 0.2bn. The higher backlog is related to Mining, which increased by 7%. Cement order backlog de- creased by 18%. Revenue Revenue grew by 28% to DKK 12,415m in the first half year of 2023 comprising an 28% increase in Mining and an 10% increase in Cement. Excluding Russia revenue grew by 39% compared to H1 2022. If excluding a high-level estimate of the impact from Russia and Mining Technologies the underly- ing revenue growth in H1 2023 was approximately 16%. In line with expectations, H1 2023 included DKK 627m in revenue from Non-Core Activities. Growth in Mining revenue comprised a 40% in- crease in Service revenue and a 7% increase in Products revenue. In the first half year of 2023, Cement continued the positive trend from Q1 2023 and showed growth of 4% and 16% in Service and Products revenue, respectively. PROFIT Gross profit and margin Gross profit in the first half year of 2023 increased by 23% to DKK 2,894m. The corresponding gross margin decrease to 23.3% was impacted by costs related to the implementation of the new simpli- fied operating model in Cement, the integration cost of Mining Technologies and the ongoing han- dling of our Non-Core Activities. In the first half year of 2023, Research and Devel- opment costs were DKK 178m (H1 2022: 146m), of which DKK 89m were capitalised (H1 2022: 64m) and the balance reported as production costs. EBITA and margin Adjusted EBITA of DKK 791m exclude integration costs of DKK 224m related to the acquisition of Mining Technologies. The corresponding adjusted Group EBITA margin was 6.4% in H1 2023. Includ- ing integration costs, EBITA was 567m with an EBITA margin of 4.6% in H1 2023 compared to 6.3% in H1 2022. Financial items Net financial items amounted to DKK -89m (H1 2022: DKK -34m), of which foreign exchange and fair value adjustments amounted to DKK -37m (H1 2022: DKK -1m). Net interest amounted to DKK -52m (H1 2022: DKK -33m). Tax Tax for H1 2023 totalled DKK -129m (H1 2022: DKK -163m), corresponding to an effective tax rate of 36.3% (H1 2022: 38.5%). Profit for the period Profit for the period was a gain of DKK 202m. Con- tinuing activities declined to DKK 226m from DKK 260m in H1 2022. Discontinued activities reported a DKK 24m loss in H1 2023, compared to a DKK 3m loss in the first half year of 2022. Earnings per share Earnings per share (diluted) decreased to DKK 3.6 from DKK 4.8 in the first half year of 2022. Consolidated financial performance H1 2023 Growth in order intake in H1 2023 (vs. H1 2022) Growth in revenue in H1 2023 (vs. H1 2022) EBITA split by segment DKKm Mining Cement Non-Core Activities FLSmidth Group Organic 28% 10% 30% Currency -2% -1% -2% Total growth 26% 9% n/a 28% Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q2 2022 includes Non-Core Activities. Mining Cement Non-Core Activities FLSmidth Group Organic -6% -30% -12% Currency -2% -1% -2% Total growth -8% -31% n/a -14% *Acquired growth from Mining Technologies is included in organic growth, as it is no longer possible to fully separate this from the legacy FLSmidth Mining business. Mining Q2 2022 includes Non-Core Activities. (200) 300 800 1,300 H1 2022 H1 2023 Cement Mining Mining adj. NCA Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 18 CAPITAL Net working capital Net working capital increased in H1 2023 to DKK 2,542m (end of 2022: DKK 1,893m). In line with ex- pectations, the corresponding net working capital ratio was 10.1% of 12-months trailing revenue, com- pared to 7.8% at the end of 2022. The increase related primarily to an increase in net work in progress driven by higher execution of Products orders and to a decrease in prepay- ments from customers due to the de-risking strat- egy creating a slow-down in Products orders. Cash flow from operating activities Cash flow from operating activities increased to DKK –32m (H1 2022: DKK -284m), due to the posi- tive impact of DKK 347m in change in provision and a smaller cash outflow of DKK 632m to work- ing capital in the period compared to the cash out- flow of DKK 785m in the comparison period H1 2022. Cash flow from investing activities Cash flow used for investments was DKK -178m compared to DKK -48m in the first half year of 2022. Cash flow from financing activities Cash flow from financing activities amounted to DKK -99m as paid dividend of DKK 170m and re- payment of lease liabilities was partially funded by increased net interest-bearing debt. Free cash flow Free cash (cash flow from operating and investing activities) adjusted for business acquisitions and disposals amounted to DKK -168m in H1 2023 (H1 2022: DKK -316m). Balance sheet Total assets decreased to DKK 29,217m by 30 June 2023 (end of 2022: DKK 29,845), primarily related to decreased net working capital assets and cash. Net interest-bearing debt Net interest-bearing debt (NIBD) by 30 June 2023 increased to DKK 1,214m (end of 2022: DKK 726m). The increase in debt was primarily due to the in- crease in working capital in the first half of 2023. The Group’s financial gearing in H1 2023 in- creased to 1.0x (end of 2022: 0.6x) following the increase in NIBD. Equity Equity at end H1 2023 decreased to DKK 10,715m (end of 2022: DKK 10,787m). The decrease was driven by currency adjustments and dividend paid out amounting to DKK 170m. Treasury shares The holding of treasury shares as of 30 June 2023 was unchanged from year end 2022 and amounts to 913,828 shares, representing 1.6% of the total share capital. Treasury shares are used to hedge our share-based incentive programmes. Cash flow from operating activities DKKm Cash flow from investing activities DKKm Free cash flow DKKm -300 -100 100 H1 2022 H1 2023 Cash flow from operating activities (200) (100) 0 100 H1 2022 H1 2023 Cash flow from investing activities -500 0 500 H1 2022 H1 2023 Free cash flow Free cash flow adjusted for net business acquisitons Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 19 Consolidated Condensed Financial Statements Income statement 20 Statement of comprehensive income 20 Cash flow statement 21 Balance sheet 22 Equity statement 23 Notes 24 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 20 Income statement Statement of comprehensive income Notes DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 3, 4 Revenue 6,399 5,027 12,415 9,733 Production costs (4,902) (3,783) (9,521) (7,382) Gross profit 1,497 1,244 2,894 2,351 Sales costs (425) (394) (858) (736) Administrative costs (670) (470) (1,337) (881) Other operating income 13 8 38 36 EBITDA 415 388 737 770 Depreciation and impairment of property, plant and equipment and lease assets (83) (81) (170) (161) EBITA 332 307 567 609 Amortisation and impairment of intangible assets (65) (72) (123) (152) EBIT 267 235 444 457 Financial income 367 391 791 728 Financial costs (440) (396) (880) (762) EBT 194 230 355 423 Tax for the period (71) (93) (129) (163) Profit for the period, continuing activities 123 137 226 260 3, 7 Profit (loss) for the period, discontinued activities (5) (3) (24) (3) Profit for the period 118 134 202 257 Attributable to: Shareholders in FLSmidth & Co. A/S 117 142 203 272 Minority interests 1 (8) (1) (15) 118 134 202 257 Earnings per share (EPS): Continuing and discontinued activities per share (DKK) 2.0 2.5 3.6 4.8 Continuing and discontinued activities per share, diluted (DKK) 2.0 2.5 3.6 4.8 Continuing activities per share (DKK) 2.1 2.6 4.0 4.9 Continuing activities per share, diluted (DKK) 2.1 2.6 4.0 4.9 Notes DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 Profit for the period 118 134 202 257 Items that will not be reclassified to profit or loss: Actuarial gains on defined benefit plans 4 15 9 42 Items that are or may be reclassified subsequently to profit or loss: Currency adjustments regarding translation of entities (25) 239 (152) 554 Cash flow hedging: - Value adjustments for the period 1 (52) 29 (52) - Value adjustments transferred to work in progress 4 3 9 17 Tax of total other comprehensive income (2) 7 (13) 2 Other comprehensive income for the period after tax (18) 212 (118) 563 Comprehensive income for the period 100 346 84 820 Attributable to: Shareholders in FLSmidth & Co. A/S 96 352 80 835 Minority interests 4 (6) 4 (15) 100 346 84 820 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 21 Cash flow statement Notes DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 EBITDA 415 388 737 770 3 EBITDA, discontinued activities (4) (3) (13) (4) Adjustment for gain on sale of property, plant and equipment and other non-cash items 19 7 8 (9) EBITDA adjusted to reflect cash flows 430 392 732 757 Change in provisions, pension and employee benefits 174 57 347 25 8 Change in net working capital 62 (566) (632) (785) Cash flow from operating activities before financial items and tax 666 (117) 447 (3) Financial items received and paid (20) (11) (38) (29) Taxes paid (274) (86) (441) (252) Cash flow from operating activities 372 (214) (32) (284) Acquisition of enterprises and activities (42) (16) (42) (16) Acquisition of intangible assets (77) (48) (120) (84) Acquisition of property, plant and equipment (34) (18) (58) (33) Acquisition of financial assets (2) (4) (2) (9) Disposal of property, plant and equipment 1 3 34 94 Disposal of financial assets 0 0 1 0 Dividend from associates 0 0 9 0 Cash flow from investing activities (154) (83) (178) (48) Dividend paid (170) (170) (170) (170) Buyout of minority interests (13) 0 (13) 0 Repayment of lease liabilities (38) (32) (67) (61) Change in net interest bearing debt 41 176 151 227 Cash flow from financing activities (180) (26) (99) (4) Change in cash and cash equivalents 38 (323) (309) (336) Cash and cash equivalents at beginning of period 1,757 1,954 2,130 1,935 Foreign exchange adjustment, cash and cash equivalents (41) 8 (67) 40 Cash and cash equivalents at 30 June 1,754 1,639 1,754 1,639 The cash flow statement cannot be inferred from the published financial information only Free cash flow DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 Free cash flow 218 (297) (210) (332) Free cash flow, adjusted for acquisitions and disposals of enterprises and activities 260 (281) (168) (316) Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 22 Balance sheet Notes DKKm 30/06 2023 31/12 2022 30/06 2022 Assets Goodwill 6,356 6,433 4,587 Patents and rights 731 766 752 Customer relations 359 392 387 Other intangible assets 131 148 162 Completed development projects 174 204 202 Intangible assets under development 527 422 354 Intangible assets 8,278 8,365 6,444 Land and buildings 1,908 1,983 1,798 Plant and machinery 461 493 369 Operating equipment, fixtures and fittings 120 131 94 Tangible assets in course of construction 67 40 23 Property, plant and equipment 2,556 2,647 2,284 Deferred tax assets 1,941 1,921 1,448 Investments in associates 130 157 164 Other securities and investments 56 59 58 Other non-current assets 2,127 2,137 1,670 Non-current assets 12,961 13,149 10,398 Inventories 3,978 3,971 2,976 Trade receivables 4,821 5,108 4,300 Work in progress 3,279 3,147 3,085 Prepayments 717 874 758 Income tax receivables 526 321 391 Other receivables 1,181 1,145 962 Cash and cash equivalents 1,754 2,130 1,639 Current assets 16,256 16,696 14,111 Total assets 29,217 29,845 24,509 Notes DKKm 30/06 2023 31/12 2022 30/06 2022 Equity and liabilities Share capital 1,153 1,153 1,153 Foreign exchange adjustments (674) (517) (111) Cash flow hedging (32) (70) (89) Retained earnings 10,290 10,247 10,098 Shareholders in FLSmidth & Co. A/S 10,737 10,813 11,051 Minority interests (22) (26) (18) Equity 10,715 10,787 11,033 Deferred tax liabilities 236 294 185 Pension obligations 404 414 296 5 Provisions 856 896 505 Lease liabilities 187 206 198 Bank loans and mortgage debt 2,646 1,929 757 Prepayments from customers 532 578 608 Income tax liabilities 103 103 119 Other liabilities 90 85 47 Non-current liabilities 5,054 4,505 2,715 Pension obligations 2 2 2 5 Provisions 1,967 1,611 670 Lease liabilities 101 117 105 Bank loans and mortgage debt 46 615 43 Prepayments from customers 1,713 2,193 1,902 Work in progress 3,505 3,592 2,754 Trade payables 4,166 4,339 3,687 Income tax payables 336 346 179 Other liabilities 1,612 1,738 1,419 Current liabilities 13,448 14,553 10,761 Total liabilities 18,502 19,058 13,476 Total equity and liabilities 29,217 29,845 24,509 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 23 Equity statement H1 2023 H1 2022 DKKm Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Share capital Currency adjust- ments Cash flow hedging Retained earnings Share- holders in FLSmidth & Co A/S Minority interests Total Equity at 1 January 1,153 (517) (70) 10,247 10,813 (26) 10,787 1,153 (665) (54) 9,937 10,371 (3) 10,368 Comprehensive income for the period Profit/loss for the period 203 203 (1) 202 272 272 (15) 257 Other comprehensive income Actuarial gains/(losses) on defined benefit plans 9 9 9 42 42 42 Currency adjustments regarding translation of entities (157) (157) 5 (152) 554 554 554 Cash flow hedging: - Value adjustments for the period 29 29 29 (52) (52) (52) - Value adjustments transferred to work in progress 9 9 9 17 17 17 Tax on other comprehensive income (13) (13) (13) 2 2 2 Other comprehensive income total 0 (157) 38 (4) (123) 5 (118) 0 554 (35) 44 563 0 563 Comprehensive income for the period 0 (157) 38 199 80 4 84 0 554 (35) 316 835 (15) 820 Transactions with owners: Dividend paid (170) (170) (170) (170) (170) (170) Share-based payment 27 27 27 15 15 15 Buyout of minority interests (13) (13) (13) 0 0 Equity at 30 June 1,153 (674) (32) 10,290 10,737 (22) 10,715 1,153 (111) (89) 10,098 11,051 (18) 11,033 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 24 Notes 1. Key accounting estimates and judgements 25 2. Income statement by function 25 3. Segment information 26 4. Revenue 27 5. Provisions 28 6. Contractual commitments and contingent liabilities 28 7. Discontinued activities 29 8. Net working capital 29 9. Business acquisitions 30 10. Events after the balance sheet date 30 11. Accounting policies 30 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 25 1. Key accounting estimates and judgements When preparing the consolidated condensed fi- nancial statements, we are required to make sev- eral estimates and judgements. The estimates and judgements that can have a significant impact on the consolidated condensed financial statements are categorised as key accounting estimates and judgements. Key accounting estimates and judge- ments are regularly assessed to adapt to market conditions and changes in political and economic factors. In general, key accounting judgements are made in relation to the accounting of revenue when determining the performance obligations and the recognition method, while key accounting estimates relate to the estimation of warranty pro- visions, valuation of inventories, trade receivables, work in progress and deferred tax. For further de- tails, reference is made to The Annual Report 2022, Key accounting estimates and judgements, pages 69-70 and to specific notes. H1 2023 showed an active mining market in major commodities partly offset by delays in some cus- tomers’ larger investment decisions. For the ce- ment market, relatively stable market conditions in the beginning of the year have been increas- ingly impacted by a slow-down in market demand during the second quarter of 2023. The change in market conditions has not resulted in any material impact on key accounting esti- mates and judgements in the consolidated con- densed financial statements in the first half of 2023. By nature, the updated key accounting estimates contain uncertainties, and it is possible that the outcomes in the next financial period can differ from those on which management’s estimates are based. More information on the uncertainties and the im- pact on key accounting estimates and judgements can be found on pages 69-70 of the 2022 Annual Report. On 31 August 2022, we obtained control of Mining Technologies. During the first half year 2023, no changes to the initial accounting of the acquisition as shown in note 2.10 in Annual report 2022 has been recognised. Due to the complexity of the transaction, the completion of the initial accounting will extend into Q3 2023. During the measurement period ending no later than 12 months after acquisition, new information on facts and circum- stances that existed on 31 August 2022 is adjusted retrospectively in the initial accounting with a result- ing impact on goodwill as will the change resulting from the final purchase price. Such changes may be significant. 2. Income statement by function It is our policy to prepare the income statement based on an adjusted classification of the cost by function in order to show the earnings before de- preciation, amortisation and impairment. Depreci- ation, amortisation, and impairment are therefore separated from the individual functions and pre- sented in separate lines. The income statement prepared on the basis of cost by function is shown below: Income Statement by function DKKm Q2 2023 Q2 2022 H1 2023 H1 2022 Revenue 6,399 5,027 12,415 9,733 Production costs (4,976) (3,860) (9,665) (7,542) Gross profit 1,423 1,167 2,750 2,191 Sales costs, including depreciation and amortisation (433) (402) (871) (753) Administrative costs, including depreciation and amortisation (736) (538) (1,473) (1,017) Other operating income 13 8 38 36 EBIT 267 235 444 457 Depreciation, amortisation and impairment consist of: Depreciation and impairment of property, plant and equipment and lease assets (83) (81) (170) (161) Amortisation and impairment of intangible assets (65) (72) (123) (152) (148) (153) (293) (313) Depreciation, amortisation and impairment are divided into: Production costs (74) (77) (144) (160) Sales costs (8) (8) (13) (17) Administrative costs (66) (68) (136) (136) (148) (153) (293) (313) Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 26 3. Segment information H1 2023 H1 2022 FLSmidth Group FLSmidth Group DKKm Mining Cement Non-Core Activities ¹⁾ Continuing activities Discontinued activities ²⁾ Mining Cement Continuing activities Discontinued activities ²⁾ Revenue 8,536 3,252 627 12,415 0 6,762 2,971 9,733 0 Production costs (6,364) (2,464) (693) (9,521) (8) (5,126) (2,256) (7,382) (3) Gross profit 2,172 788 (66) 2,894 (8) 1,636 715 2,351 (3) SG&A costs (1,409) (603) (145) (2,157) (5) (1,001) (580) (1,581) (1) EBITDA 763 185 (211) 737 (13) 635 135 770 (4) Depreciation and impairment of property, plant and equipment and lease assets (117) (44) (9) (170) 0 (110) (51) (161) 0 EBITA 646 141 (220) 567 (13) 525 84 609 (4) Amortisation and impairment of intangible assets (85) (37) (1) (123) 0 (111) (41) (152) 0 EBIT 561 104 (221) 444 (13) 414 43 457 (4) Order intake 8,392 2,620 143 11,155 0 9,146 3,773 12,919 0 Order backlog 13,472 5,658 1,414 20,544 0 12,544 6,917 19,461 0 Gross margin 25.4% 24.2% -10.5% 23.3% 24.2% 24.1% 24.2% EBITDA margin 8.9% 5.7% -33.7% 5.9% 9.4% 4.5% 7.9% EBITA margin 7.6% 4.3% -35.1% 4.6% 7.8% 2.8% 6.3% EBIT margin 6.6% 3.2% -35.2% 3.6% 6.1% 1.4% 4.7% Number of employees at 30 June 6,742 3,053 439 10,234 0 6,314 3,741 10,055 0 Reconciliation of profit for the period EBIT 444 (13) 457 (4) Financial income 791 2 728 0 Financial costs (880) (13) (762) (1) EBT 355 (24) 423 (5) 1) Non-Core Activities constitutes a separate reportable segment prospectively from 1 October 2022. Comparative information has not been restated. Further information can be found in the 2022 Annual Report note 1.2. Under the previous segmentation Mining and Non-Core Activities was presented as one segment. 2) Discontinued activities mainly consist of non-mining bulk material handling. Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 27 4. Revenue Revenue arises from sale of life cycle offerings to our customers. We sell a broad range of goods and services within the Mining and Cement seg- ments split into the main businesses Products and Services. Revenue within the Non-Core Activities segment reflect the performance of the backlog the sale of parts already in stock. In the graphs on the right, revenue is split by re- gions in which delivery takes place. Revenue is recognised either at a point in time where the control over the goods and/or services is transferred to the customer or over time to re- flect the percentage of completion of the perfor- mance obligations in the contracts. Percentage of completion covers a wide range of different types of contracts, from contracts where the customer consumes the services over time, such as fixed price service contracts, to more complex product bundles with engineering subject to the enhanced risk governance structure under the Risk Manage- ment Board and to risk quotas. More information on when and how the two recognition principles are applied can be found in note 1.4 in the Annual report 2022. To reflect the wide range of contracts that are accounted for using percentage of com- pletion, the category has been decomposed into two subcategories from 1 January 2023 with com- parative information restated. Backlog The order backlog at 30 June 2023 amounted to DKK 20,544m (end of H1 2022: DKK 19,461m). The backlog represents the value of outstanding performance obligations on current contracts. The value of outstanding performance obligations on current contracts is a combination of value from contracts where we will transfer control at a future point in time and the value of the remaining per- formance obligations on contracts where we transfer control over time. Revenue split by Regions H1 2023 % Revenue split by Regions H1 2022 % Backlog DKKm 24% 26% 19% 13% 18% NAMER SAMER ECANA SSAMESA APAC 26% 21% 20% 16% 17% NAMER SAMER ECANA SSAMESA APAC 6,741 6,290 9,553 11,964 3,167 2,290 0 4,000 8,000 12,000 16,000 20,000 24,000 H1 2022 H1 2023 Within current year Within next year Subsequent years 16% 49% 35% 11% 58% 31% Revenue split by recognition principle H1 2023 H1 2022 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Point in time 4,995 1,423 260 6,678 3,455 1,258 4,713 Percentage of completion - Service, single machines and product bundles 3,040 1,635 0 4,675 2,040 1,414 3,454 - Product bundles with engineering under enhanced risk governance 501 194 367 1,062 1,267 299 1,566 Total revenue 8,536 3,252 627 12,415 6,762 2,971 9,733 Revenue split on industry and category H1 2023 H1 2022 DKKm Mining Cement Non-Core Activities Group Mining Cement Group Products business 3,003 1,492 405 4,900 2,819 1,284 4,103 Service business 5,533 1,760 222 7,515 3,943 1,687 5,630 Total revenue 8,536 3,252 627 12,415 6,762 2,971 9,733 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 28 5. Provisions Net provisions increased by DKK 316m compared to 31 December 2022. The increase relates pri- marily to restructuring provisions following the im- plementation of our transformation strategy and from provisions for loss-making contracts in Non- Core Activities. For a description of the main provision categories see note 2.7 in the 2022 Annual Report. 6. Contractual Commitments and contingent liabilities Contingent liabilities at 30 June 2023 amounted to DKK 3.2bn excluding the Mining Technologies issued corporate guarantees mentioned below (31 December 2022: DKK 3.8bn). Contingent liabilities primarily relate to customary performance and payment guarantees. The vol- ume of such guarantees amounted to DKK 2.7bn (31 December 2022: DKK 3.3bn). At the end of 2022, additional corporate contract-support guar- antees to customers of DKK 0.7bn was outstand- ing. By the end of June 2023, almost all such guarantees have expired. It is customary market practice to issue guarantees to customers, which serve as a security that we will deliver as prom- ised in terms of performance, quality, and timing. The volume of the guarantees varies with the ac- tivity level and reflects the outstanding backlog, fi- nalised projects and deliveries that are covered by warranties etc. Only a minor share of such guarantees is expected to materialise into losses. In the event a guarantee is expected to materialise, a provision is recognised to cover the risk. Information on provisions is in- cluded in note 5. Other contingent liabilities of DKK 0.5bn (31 De- cember 2022: 0.5bn) relate to our involvement in legal disputes, which are already pending with courts or other authorities and other disputes which may or may not lead to formal legal pro- ceedings being initiated against us. No significant changes have occurred to the na- ture and extent of our contractual commitments and contingent liabilities compared to what was disclosed in note 2.9 in the 2022 Annual Report. Provisions DKKm 30/06 2023 31/12 2022 30/06 2022 Provisions at 1 January 2,507 1,147 1,147 Foreign exchange adjustments (22) (17) 15 Acquisition of Group enterprises 2 682 0 Additions 874 1,388 288 Used (400) (461) (212) Reversals (138) (232) (63) Provisions 2,823 2,507 1,175 The split of provisions is as follows: Warranties 1,009 980 605 Restructuring 516 404 13 Other provisions 1,298 1,123 557 2,823 2,507 1,175 The maturity of provisions is specified as follows: Current liabilities 1,967 1,611 670 Non-current liabilities 856 896 505 2,823 2,507 1,175 Provisions related to continued activities DKKm 30/06 2023 31/12 2022 30/06 2022 Provisions at 1 January 2,390 999 999 Foreign exchange adjustments (22) (17) 15 Acquisition of Group enterprises 2 682 0 Additions 869 1,385 288 Used (391) (428) (199) Reversals (136) (231) (63) Provisions 2,712 2,390 1,040 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 29 7. Discontinued activities Discontinued activities include the remaining re- sponsibilities to finalise legacy projects, handling of claims, etc. retained on the sale of the non-min- ing bulk material handling business in 2019. For further information on discontinued activities, please refer to note 2.11 of Annual report 2022. In addition to provisions of DKK 111m shown in the table below, discontinued activities accounts for DKK 332m (31 December 2022: DKK 362m) of the Group’s net working capital shown in note 8. 8. Net working capital Net working capital at 30 June 2023 has in- creased by DKK 0.6bn compared to 31 December 2022. The increase related primarily to an in- crease in net work in progress driven by higher ex- ecution of Products orders and prepayments from customers decrease due to the de-risking strategy creating a slow-down in Products orders. Utilisation of supply chain financing increased in the first half of 2023 to DKK 648m (31 December 2022: DKK 590m). Discontinued activities’ effect on cash flow from operating activities DKKm H1 2023 31/12 2022 H1 2022 EBITDA (13) (10) (4) Change in provisions (6) (31) (13) Change in net working capital 42 (6) (16) Cash flow from operating activities before financial items and tax 23 (47) (33) Financial items received and paid (3) (3) (1) Cash flow from operating activities 20 (50) (34) Discontinued activities share of Group provisions disclosed in note 5 DKKm 30/06 2023 31/12 2022 30/06 2022 Provisions at 1 January 117 148 148 Additions 5 3 0 Used (9) (33) (13) Reversals (2) (1) 0 Provisions 111 117 135 Net working capital DKKm 30/06 2023 31/12 2022 30/06 2022 Inventories 3,978 3,971 2,976 Trade receivables 4,821 5,108 4,300 Work in progress, assets 3,279 3,147 3,085 Prepayments 717 874 758 Other receivables 1,077 1,030 846 Derivative financial instruments 44 54 52 Prepayments from customers (2,245) (2,771) (2,510) Trade payables (4,166) (4,339) (3,687) Work in progress, liability (3,505) (3,592) (2,754) Other liabilities (1,417) (1,509) (1,173) Derivative financial instruments (41) (80) (88) Net working capital 2,542 1,893 1,805 Change in net working capital (649) (835) (747) Financial instruments and foreign exchange effect on cash flow 17 389 (38) Cash flow effect from change in net working capital (632) (446) (785) Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 30 9. Business Acquisitions Effective from 1 June 2023, FLSmidth has acquired the American company Morse Rubber. The acqui- sition supports FLSmidth Mining’s CORE’26 strat- egy and will be adding advanced molding capa- bilities for rubber and composite mill liners, as well as screen media and various rubber and rub- ber ceramic wear components to our existing of- ferings. The acquisition increased assets and liabilities by DKK 48m and DKK 6m, respectively. The impact on net profit was insignificant. 10. Events after the balance sheet date On 14 June 2023, FLSmidth and KOCH Solution signed an asset purchase & transfer agreement in- volving material handling technology that is part of the Non-Core Activities segment. The transac- tion is expected to be completed in the third quar- ter of 2023, subject to customary regulatory ap- provals from relevant authorities. No significant gain is expected and the impact on assets and lia- bilities from the divestment is expected to be insig- nificant. On 14 July 2023, FLSmidth Cement sold its Ad- vanced Filtration Technologies (AFT) business to Micronics, a leading global provider of industrial filtration solutions. The sale included all related assets, including intellectual property, technology, employees and customer contracts. The divestment of the AFT business is part of FLS- midth Cement’s pure play strategy, which includes focusing the cement Products portfolio on the core technologies required for the green transition in the cement industry. The sale led to a gain of around DKK 100m that will be included in the line item ‘Other operating income in the Q3 2023 interim report’. The impact on assets and liabilities is insignificant. We are not aware of any subsequent matters that could be of material importance to the Group’s fi- nancial position at 30 June 2023. 11. Accounting policies The condensed interim report of the Group for the first half year of 2023 is presented in accordance with IAS 34, Interim Financial Reporting, as ap- proved by the EU and additional Danish disclo- sure requirements regarding interim reporting by listed companies. Apart from the below mentioned changes, the ac- counting policies are unchanged from those ap- plied in the 2022 Annual Report. Reference is made to note 7.5, Accounting policies, note 7.6, Impact from new IFRS, note 7.7, New IFRS not yet adopted and to specific notes in the 2022 Annual Report for further details. Note 7.4, Alternative Performance Measures, and note 7.8, Definition of terms, in the 2022 Annual Report describes the APMs used throughout an- nual and interim reports. Following the significant integration of Mining Technology into the Mining segment it is impracticable to make the usual de- composition of growth into organic growth and ac- quired growth for the first 12 months. Starting from Q1 2023, organic growth therefore also includes acquired growth. Besides this, APMs are un- changed from those applied in the 2022 Annual Report. Changes in accounting policies As of 1 January 2023, the FLSmidth Group has im- plemented all new or amended accounting stand- ards and interpretations as adopted by the EU and applicable for the 2023 financial year. This in- cludes the changes to IAS 1 (Disclosure on Ac- counting Policies), IAS 8 (definition of Accounting Estimates) and IAS 12 (Deferred Tax). The implementation has not had and is not ex- pected to have significant impact on the consoli- dated condensed financial statements. FLSmidth ■ Interim Report H1 2023 31 Statements Statement by Management 32 Forward looking statements 33 Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 32 The Board of Directors and the Executive Board have today considered and approved the interim report for the period 1 January – 30 June 2023. The consolidated condensed interim financial statements are presented in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU and Danish disclosure requirements for interim reports of listed companies. The consolidated con- densed interim financial statements have not been audited or reviewed by the Group’s independent auditors. In our opinion, the consolidated condensed in- terim financial statements give a true and fair view of the Group’s financial position at 30 June 2023 as well as of the results of its operations and cash flows for the period 1 January – 30 June 2023. In our opinion, the management’s review gives a fair review of the development in the Group’s ac- tivity and financial matters, results of operations, cash flows and financial position as well as a de- scription of the principal risks and uncertainties that the Group faces. Valby, 15 August 2023 Executive management Mikko Juhani Keto Group CEO Roland M. Andersen Group CFO Board of directors Tom Knutzen Chair Mads Nipper Vice chair Anne Louise Eberhard Daniel Reimann Gillian Dawn Winckler Thrasyvoulos Moraitis Carsten Hansen Claus Østergaard Leif Gundtoft Statement by Management Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 33 FLSmidth & Co. A/S’ financial reports, whether in the form of annual reports or interim reports, filed with the Danish Business Authority and/or an- nounced via the company’s website and/or NASDAQ Copenhagen, as well as any presenta- tions based on such financial reports, and any other written information released, or oral state- ments made, to the public based on this report or in the future on behalf of FLSmidth & Co. A/S, may contain forward looking statements. Words such as ‘believe’, ‘expect’, ‘may’, ‘will’, ‘plan’, ‘strategy’, ‘prospect’, ‘foresee’, ‘estimate’, ‘project’, ‘anticipate’, ‘can’, ‘intend’, ‘target’ and other words and terms of similar meaning in con- nection with any discussion of future operating or financial performance identify forward-looking statements. Examples of such forward-looking statements include, but are not limited to: ■ Statements of plans, objectives or goals for fu- ture operations, including those related to FLSmidth & Co. A/S’ markets, products, product research and product development. ■ Statements containing projections of or targets for revenues, profit (or loss), CAPEX, dividends, capital structure or other net financial items. ■ Statements regarding future economic perfor- mance, future actions and outcome of contin- gencies such as legal proceedings and state- ments regarding the underlying assumptions or relating to such statements. ■ Statements regarding potential merger & acquisition activities. These forward-looking statements are based on current plans, estimates and projections. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which may be outside FLSmidth & Co. A/S’ influence, and which could materially affect such forward-looking statements. FLSmidth & Co. A/S cautions that a number of im- portant factors, including those described in this report, could cause actual results to differ materi- ally from those contemplated in any forward-look- ing statements. Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including the impact from interest rate and exchange rate fluctuations, delays or faults in project execution, fluctuations in raw material prices, delays in research and/or development of new products or service concepts, interruptions of supplies and production, unex- pected breach or termination of contracts, market- driven price reductions for FLSmidth & Co. A/S’ products and/or services, introduction of compet- ing products, reliance on information technology, FLSmidth & Co. A/S’ ability to successfully market current and new products, exposure to product lia- bility and legal proceedings and investigations, changes in legislation or regulation and interpre- tation thereof, intellectual property protection, perceived or actual failure to adhere to ethical marketing practices, investments in and divesti- tures of domestic and foreign enterprises, unexpected growth in costs and expenses, failure to recruit and retain the right employees and fail- ure 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 distribu- tion of this report. Forward looking statements Management review Consolidated Condensed Financial Statements Notes Statements FLSmidth ■ Interim Report H1 2023 34 Interim Report 1 January – 30 June 2023 FLSmidth & Co. A/S Vigerslev Allé 77 2500 Valby Denmark Tel.: +45 36 18 18 00 Fax: +45 36 44 11 46 corppr@flsmidth.com www.flsmidth.com CVR No. 58180912 Interim report (6 months)No audit assistanceParsePort XBRL Converter2023-01-012023-06-302022-01-012022-06-30213800G7EG4156NNPG91Reporting class D2023-05-11Leif Gundtoft213800G7EG4156NNPG91213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember9213800G7EG4156NNPG912023-04-012023-06-30213800G7EG4156NNPG912022-04-012022-06-30213800G7EG4156NNPG912023-01-012023-06-30213800G7EG4156NNPG912022-01-012022-06-30213800G7EG4156NNPG912023-03-31213800G7EG4156NNPG912023-06-30213800G7EG4156NNPG912022-03-31213800G7EG4156NNPG912022-06-30213800G7EG4156NNPG912022-12-31213800G7EG4156NNPG912021-12-31213800G7EG4156NNPG912022-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912023-01-012023-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912023-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912023-01-012023-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912023-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912022-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912023-01-012023-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912023-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912022-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912023-01-012023-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912023-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912023-01-012023-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912023-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912022-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912023-01-012023-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912023-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912021-12-31ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912022-01-012022-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912022-06-30ifrs-full:IssuedCapitalMember213800G7EG4156NNPG912021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912022-01-012022-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912022-06-30ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800G7EG4156NNPG912021-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912022-01-012022-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912022-06-30ifrs-full:ReserveOfCashFlowHedgesMember213800G7EG4156NNPG912021-12-31ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912022-01-012022-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912022-06-30ifrs-full:RetainedEarningsMember213800G7EG4156NNPG912021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912022-01-012022-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912022-06-30ifrs-full:EquityAttributableToOwnersOfParentMember213800G7EG4156NNPG912021-12-31ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912022-01-012022-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912022-06-30ifrs-full:NoncontrollingInterestsMember213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember1213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember2213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember1213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember2213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember3213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember4213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember5213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember6213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember7213800G7EG4156NNPG912023-01-012023-06-30cmn:ConsolidatedMember8iso4217:DKKiso4217:DKKxbrli:shares