Assets

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Revenue

Type	Start date	End date	Amount	Unit

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The full data:

 

FILSMIGTA & CO.

in brief

 

 

Vision

it is FLSmidth's vision to be our customers"
preferred full-service provider of sustain-
able minerals and cement technologies.

 

 

Business concept

FLSmidth is a market-leading supplier
of equipment and services to the global
minerals and cement industries. FLSmidth
provides its key industries with core
equipment, process know-how and an
extended range of services.

FLSmidth is a global company with
headquarter in Denmark and a local
presence in more than 50 countries
including project and technology centres
in Denmark, India, USA and Germany.

FLSmidth primarily focuses on the fol-
lowing industries: copper, gold, coal,
iron ore, fertilizers and cement, and is a
leading and preferred supplier in each of
these industries.

FLSmidth differentiates itself as the pre-
ferred full-service provider of sustainable
products and solutions based on the best
technology and services combined with a
strong focus on safety and quality.

The Group's in-house resources are primar-
ily engineers who develop, plan, design,
commission and service equipment, with
most of the manufacturing being out-
sourced to a global network of subcon-
tractors. This has proven to be a robust
and sustainable business model. FLSmidth,
therefore, has a flexible cost structure,
which makes it possible to plan and adjust
resources to prevailing market conditions.

Fundamental values

Over the past 132 years, FLSmidth has
developed a business culture based
on three fundamental values, which
are firmly rooted in our Danish herit-
age: cooperation, competence and
responsibility.

Ensuring that safety stays on top of mind
is part of FLSmidth's commitment to CSR
and builds on our company culture of
being a responsible employer, corporate
citizen, and a reliable business partner.

 

 

Investing in FLSmidth

FLSmidth & Co. A/S has been listed on
NASDAQ OMX Copenhagen since 1968.
Today, it is best characterised as a capital
goods or industrial company. Minerals
and cement are vital for continued global
economic, societal and technological de-
velopment. FLSmidth excels in sustainable
and eco-efficient technological solutions
to produce cement and to process and
handle minerals. FLSmidth has a proven
ability to support the global minerals and
cement industries" lower environmental
impact, increase capacity and reduce
operating costs.

FLSmidth has a sustainable business
model and good growth opportunities.
With two-thirds of revenue being gener-
ated in emerging markets, an investment
in FLSmidth is an investment in

the emerging markets" growth story.

Share and dividend figures:

+ Earnings per share (diluted) amounted to
DKK -15.6 2013 (2012: DKK 25.0)

+ The total return on the FLSmidth & Co.
A/S share in 2013 was -7% (2012: 0%)

+ The Board of Directors will propose
at the Annual General Meeting that
a dividend of DKK 2 per share (2012:
DKK 9) and a dividend yield of 0.7%
(2012: 3%) be distributed for 2013

+ The Board of Directors will propose
to the Annual General Meeting that
1,950,000 shares acquired in con-
nection with the share buy-back
programme of DKK 521m in 2013 be
cancelled, which will reduce the share
capital to DKK 1,025,000,000 and
the total number of issued shares to
51,250,000 after the Annual General
Meeting.
. |t is FLSmidth's dividend policy to pay
out 30-50% of the year's profit in
dividend depending on the capital
structure and investment opportuni-
ties. However, there will be a deviation
from this policy in 2013, as the year's
profit was impacted by a number of
special items.
FLSmidth takes a conservative approach
to capital structure, which is gener-
ally reflected in low debt, gearing and
financial risk. The aim is to achieve an
equity ratio in excess of 30% and a net
debt position with financial gearing
up to maximum 2 times EBITDA. AS a
consequence of numerous special items
in 2013, the capital structure is tempo-
rarily outside the targeted range, but is
expected to have normalised by the end
of 2014.

 

 

Contents

Customer Material Mineral Cement
Services Handling Processing

Management's review

Group financial highlights (5-year summary)
FiSmidth & Co. in brief

Meet the Chairman and Group CEO
Business model

Strategy update

Global efficiency programme .…
Management's review

Customer Services

Material Handling

Mineral Processing .

Cement

Risk Management

Innovation

Board of Directors

The Executive Management
Corporate social responsibility ….
Shareholder information

Statement by Management on the annual report
Independent auditor's report .
Quarterly key figures

Company announcements

Consolidated financial statements

Table of contents and list of notes

Consolidated income statement

Consolidated statement of comprehensive income .
Consolidated cash flow statement …

Consolidated balance sheet

Consolidated equity

Norr dels Ee eat el Is ir STeR i Te. Tal et IKE INT ea <en

List of Group companies .…

FLSmidth & Co. A/S financial statements

 

Group financial highlights

5-year summary

 

 

 

 

 

 

 

 

 

 

 

DKKm 2009 I 2010 I 20113 2012 3 2013 2013 EUR”
INCOME STATEMENT

Revenue 23,134 20,186 21,998 26,284 26,923 3,610
Gross profit 5,406 5,207 5,734 6,526 5,209 698
Earnings before non-recurring items, depreciation, amortisation and 2,725 2,387 2,647 2,867 1,304 175
impairment (EBITDA)

Earnings before amortisation and impairment of intangible assets (EBITA) — 2,503 2,177 2,405 2,559 977 131
Earnings before interest and tax (EBIT) 2,261 1,990 2,171 2,041 (339) (45)
Earnings from financial items, net (153) (118) (101) (80) (261) (35)
Earnings before tax (EBT) 2,108 1,872 2,070 1,961 (600) (80)
Profit/loss for the year, continuing activities 1,705 1,282 1,424 1,308 (786) (105)
Profit/loss for the year, discontinued activities (41) (4) 13 (5) 2 0
Profit/loss for the year 1,664 1,278 1,437 1,303 (784) (105)
CASH FLOW

Cash flow from operating activities 2,470 1,335 1,148 1,720 (157) (21)
Acquisition and disposal of enterprises and activities (286) (45) (915) (2,508) 27 4
Acquisition of tangible assets (210) (473) (497) (739) (524) (71)
Other investments, net (34) (208) (236) (151) (70) (9)
Cash flow from investing activities (530) (726) (1,648) (3,398) (567) (76)
Cash flow from operating and investing activities of continuing activities 1,719 577 (496) (1,642) (720) (96)
Cash flow from operating and investing activities of discontinued activities 221 32 (4) (36) (4) (1)
WORKING CAPITAL 21 878 1,620 1,950 2,382 319
NET INTEREST-BEARING RECEIVABLES/(DEBT) (Including Cembrit) 1,085 1,254 (98) (3,084) (4,718) (632)
ORDER INTAKE, CONTINUING ACTIVITIES 13,322 20,780 24,044 27,727 20,911 2,803
ORDER BACKLOG, CONTINUING ACTIVITIES 21,194 23,708 27,136 29,451 22,312 2,991
BALANCE SHEET

Non-current assets 8,464 9,240 10,795 13,004 12,120 1,625
Current assets 13,438 13,359 14,745 17,327 15,208 2,038
Assets held for sale 0 0 0 1,544 0 0
Total assets 21,902 22,599 25,540 31,875 27,328 3,663
Equity 6,627 8,139 8,907 9,419 6,922 928
Long-term liabilities 3,338 3,145 3,533 6,178 7,284 976
Short-term liabilities 11,937 11,315 13,100 15,784 13,122 1,759
Liabilities directly associated with assets classified as held for sale 0 0 0 494 0 O
Total equity and liabilities 21,902 22,599 25,540 31,875 27,328 3,663
PROPOSED DIVIDEND TO SHAREHOLDERS 372 479 479 479 106 14
DIVIDEND PAID OUT DURING THE YEAR 105 262 472 471 467 63
FINANCIAL RATIOS

Continuing activities

Gross margin 23.4% 25.8% 26.1% 24.8% 19.3% 19.3%
EBITDA margin 11.8% 11.,8% 12.0% 10.9% 4.8% 4.8%
EBITA margin 10.8% 10.8% 10.9% 9.7% 3.6% 3.6%
EBIT margin 9.8% 9.9% 9,9% 7.8% (1.3%) (1.3%)
EBT margin 9.1% 9.3% 9.4% 7.5% (2.2%) (2.2%)
Return on equity 29% 17% 17% 14% (10%) (10%)
Equity ratio 30% 36% 35% 30% 25% 25%
ROCE (Return on capital employed) ” 29% 23% 21% 18% 6% 6%
Net working capital ratio 0.1% 4.3% 7.4% 7.4% 8.8% 8.8%
Capital employed (end of period) 8,407 10,259 12,498 16,129 16,013 2,146
Number of employees at 31 December, Group 10,664 11,229 13,204 15,900 15,317 15,317
Number of employees in Denmark 1,650 1,564 1,609 1,687 1,547 1,547
Share and dividend figures, the Group

CFPS (cash flow per share), (diluted) 47.1 25.3 21.8 33.0 (3.1) (0.4)
EPS (earnings per share), (diluted) 31.9 24.4 27.1 25.0 (15.6) (2.1)
Net asset value per share, (Group) 126 154 169 181 139 18.6
Dividend per share 7 9 9 9 2 0.3
Pay-out ratio 22% 37% 33% 36% n/a n/a
FLSmidth & Co. share price 367.0 532.0 337.5 327.2 296.1 39.7
Number of shares (1,000), 31 December 53,200 53,200 53,200 53,200 53,200 53,200
Average number of shares (1,000) (diluted) 52,429 52,693 52,550 52,233 49,891 49,891
Market capitalisation 19,524 28,302 17,955 17,407 15,753 2,112

The financial ratios have been computed in accordance with the guidelinies of the Danish Society of Financial Analysts from 2010.

1) Income statement items are translated at tne average EUR exchange rate of 7.4579 and the balance sheet and cash flow items are translated at the year end EUR exchange rate of 7.4603.
2) ROCE (Return on capital employed) is calculated on a before tax basis as EBITA divided by average capital employed including goodwill.
3) The income statement figures have been restated as Cembrit is presented as continued activities.

 

 

 

 

 

 

Revjewecd and adopted
at the Com panv "S i FLSmidth: Annual Report 2013 BENE
Junnval Geueral Heel: 3)

Ol 20 March old KORS

 
 
 
 
  

One Source

FLSmidth delivers a unique combination
of technology, service and expertise to its
customers. All from one source.

 

 

 

 

Strategy Long-term financial targets

To become the market leader in six Long-term financial goals for FLSmidth subject
growth industries to normalised market conditions:

In 2012, FLSmidth launched a global growth strategy Annual growth in revenue Above the market average
with a view to unfolding the Group's growth poten- ”

tial. FLSmidth differentiates itself by being a supplier EBITA margin 10-13%

 

of full-service solutions to six focus industries: copper,
gold, coal, iron ore, fertilizers and cement. A com-

plete portfolio of core technologies and extensive Tax rate 32-34%
process know-how enables FLSmidth to be a single ”

ROCE +) >20%

 

 

 

 

 

. . o
source of reliable full-service solutions and expertise. Equity ratio >30%

Financial gearing (NIBD/EBITDA) <2
FLSmidth combines more than a century of ” —
engineering and technological leadership with a Pay-out ratio 30-50% of the profit for the year
strong commitment to life-cycle Services and close ”) ROCE: Return on Capital Employed calculated on a before tax basis as EBITA divided by
cooperation with our customers. FLSmidth offers average Capital Employed including goodwill.

complete solutions that include single pieces of
equipment, complete production lines, optimi-
sation of existing plants including reduction of

operating costs and environmental impact, and Guidance 2014

full scope operation and maintenance.

 

 

 

 

In 2014, FLSmidth & Co. A/S expected to be 11-13% in 2014
Adherence to FLSmidth's three core values enables expects consolidated revenue of (2013: 6%).
us to remain strongly focused on matching our DKK 21-24bn (2013: DKK 26.9bn)
products and solutions closely with our customers' and an EBITA margin of 7-9% The effective tax rate is expected to
needs (Customer intimacy); on maintaining a (2013: 3.6%). be 33-35% in 2014. (2013: 35%
commitment to product and technology innovation estimated underlying).
(Product leadership); and on providing a consist- Cost associated with the efficiency
ently high level of efficient execution (Operational programme is expected to amount Cash flow from investments is
excellence). All of which create future value for to approximately DKK -70Om in 2014, expected to be around DKK -0.4bn
our customers by helping them operate more which is included in the guidance. (2013: DKK -0.6bn). '
efficiently and profitably. In step with increased The return on capital employed is
focus and differentiation, the goal is to generate
above market average growth in revenue. The four divisions are expected to see the following developments in 2014:
To support the realisation of the group's strategy, Expected revenue Expected EBITA margin
FLSmidth is structured in four divisions with a com- Customer Services DKK 7.5-8.5bn (2013: 7.6bn)  13-15% (2013: 9,1%)
bined Customer Services division for both minerals
and cement and a dedicated Cement project Material Handling DKK 3.5-4.5bn (2013: 4.6bn) 0-2% (2013: -11.2%)

 

division, while the minerals project activities are
divided in a Material Handling division (material

handling technologies) and a Mineral Processing Cement DKK 3.5-4.5bn (2013: 5.2bn) 5-7% (2013: 2.4%)
division (mineral processing technologies).

Mineral Processing DKK 5.5-6.5bn (2013: 9.3bn) 6-8% (2013: 8.2%)

 

 

Cembrit DKK 1.4bn (2013: 1.4bn) 0-2% (2013: -4.4%)

 

HOLTEN 5.

HH REE

ELSMidth & Co. in briet

Malin COACUSIGAS
2013

 

2013 was a year marked by preemptive management decisions to prepare FLSmidth for the future and to
manage the business cycle. Revenue was historically high despite currency headwind, while order intake
declined due to the cyclical downturn of mining investments. Profitability and returns were significantly
impacted by one-off costs related to management decisions and other issues. Group revenue and EBITA

margin delivered as most recently guided.

 

 

Financial results
in Q4 2013

Both revenue and order intake increased sequentially,
but declined compared to Q4 last year. Planned costs
related to the efficiency programme and the surpris-
ing Buxton arbitration award had an adverse impact on
profitability in the quarter. The underlying EBITA margin
was 8.7%.

The order intake decreased
8% to DKK 5,616m (Q4 2012: DKK 6,104m)

Revenue decreased
12% to DKK 7,420m (Q4 2012: DKK 8,395m)

Earnings before amortisation and impairment

of intangible assets (EBITA) decreased

75% to DKK 222m (Q4 2012: DKK 893m), corre-
sponding to an EBITA margin of 3.0% (Q4 2012: 10.6%)

Earnings before amortisation and impairment

of intangible assets (EBITA) adjusted for special items
amounted to DKK 643m, corresponding to an EBITA
margin of 8.7%

Earnings before interest and tax (EBIT) decreased
92%0 to DKK 60m (Q4 2012: DKK 797m) corre-
sponding to an EBIT margin of 0.8% (Q4 2012: 9.5%)

The profit
amounted to DKK -179m (Q4 2012: DKK 462m)

Cash flow from operating activities
amounted to DKK 77m (Q4 2012: DKK 1,532m)

Financial results
for 2013

The order intake decreased
25% to DKK 20,911m (2012: DKK 27,727m)

The order backlog decreased
24.9/0 to DKK 22,312m (end of 2012: DKK 29,451m)

Revenue increased
29/0 to DKK 26,923m (2012: DKK 26,284m)

Earnings before amortisation and impairment

of intangible assets (EBITA) decreased

62% to DKK 977m (2012: DKK 2,559m), corresponding
to an EBITA margin of 3.6% (2012: 9.7%)

Earnings before amortisation and impairment of
intangible assets (EBITA) adjusted for special items
amounted to DKK 2,217m corresponding to an EBITA margin
of 8.2%

Earnings before interest and tax (EBIT)
amounted to DKK -339m (2012: DKK 2,041m) corresponding
to an EBIT margin of -1.3% (2012: 7.8%)

The profit
amounted to DKK -784m (2012: DKK 1,303m)

Cash flow from operating activities
amounted to DKK -157m (2012: DKK 1,720m)

Net interest-bearing debt
amounted to DKK -4,718m (end of 2012: DKK -3,084m)

Working capital
amounted to DKK 2,382m (end of 2012: DKK 1,950m)

Return on Capital Employed (ROCE)
declined to 6% (2012: 18%)

 

 

 

 

FLSmidth: Annual Report 2013 MERE

Outlook
In 2014, FLSmidth & Co. A/S expects consolidated
revenue of DKK 21-24bn (2013: DKK 27bn) and an

 

 

 

 

EBITA margin of 7-9% (2013: 3.6%).

 

 

Market trends

2013 has been a year of divergent macro-
economic trends. The world economy

is steadily improving but the drivers of
growth are changing, challenging both of
FLSmidth's core industries, minerals and
cement, in the short-term.

Most important to FLSmidth's minerals
business is the widely discussed China rebal-
ancing theme. The fear of a hard landing in
China and a resulting commodity collapse
led to declining commodity prices, especially
in the first half of the year. Lately, the new
Chinese leadership has announced an
ambitious reform blueprint and there seems
to be optimism in the market concerning
the actual implementation. Therefore, the
fear of a hard landing in China diminished
somewhat in the second half of the year.

Most commodity prices declined in 2013,
reducing miners' returns after a period of
extensive capacity expansions. Conse-
quently, miners are focusing on cost and
capital efficiency, resulting in the present
mining capex downturn. That said, most
commodity prices are still well above cash
costs and investment thresholds, whereas
the short-term outlook for most bulk
materials, and in particular coal, continue

to be weak. Overall, the downturn is
expected to continue throughout 2014
and to flatten out or slightly drop in 2015,
before returning to slow growth in 2016.
Long term, the positive outlook for mining
capex remains encouraging.

FLSmidth's mining aftermarket has held up
well. First of all, mines are running continu-
ously causing wear and tear, and generally
mines need to run at full, or close to full,
speed in order for the equipment to work
efficiently. Besides, there is an increasing
demand for productivity enhancing servic-
es. The high degree of technology content
in FLSmidth's products and services means
that FLSmidth, in general, has managed to
push back on concession requests.

In cement, the industry has been walking
on the bottom of a cycle for a few years
already. In 2013, the standstill of the Chi-
nese market has clearly intensified compe-
tition outside of China. Capacity utilisation
in the global cement industry excluding
China remains relatively subdued around
70-75%, although with good local or re-
gional opportunities. The struggling Indian
economy is a weigh on global growth,
while the continuation of the US recovery

should entail renewed opportunities in
North America. Medium to long term ce-
ment fundamentals are encouraging with
expectations of a continued expansion of
cement consumption and a renewed need
for additional capacity. in 2014, the activ-
ity level is expected to be slightly higher or
similar to 2013.

Productivity and efficiency improvements
are increasingly requested by cement pro-
ducers, and as the world's only provider
of full scale operation and maintenance
solutions to the global cement industry,
FLSmidth helps its customers achieve
productivity targets. Also, the composi-
tion of FLSmidth's service business with a
high degree of spare parts, and less wear
parts and consumables business makes it
relatively resilient to pricing pressure.

The overall service business remains in rela-
tively good shape with coal being the only
notable exception. However, with lacking
contribution from acquisitions and both the
mining and cement industry in low gear,
the past year's double digit growth rates
are not expected to be repeated in the near
future. Single digit growth rates are more
realistic in the short term.

 

Financial results 201

 

3

 

Revenue DKK 26,923m
EBITA margin 3.6%
EBITA margin adjusted for special items 8.2%

 

  

 

 

(SUNS Material Mineral
Sats Handling Processing
Revenue DKK 7,565m DKK 4,552m DKK 9,256m DKK 5,201m
EBITA margin 9.1% (11.2%) 8.2% 2.4%
EBITA margin adjusted for special items 13.3% 0.0% 9.1% 7.5%

 

1404014RogsN67933

 

Meet the Chairman and Group CEO

Preparing F
une Next

o The short term focus is to manage the
Group safely through the cyclical down-
turn and to ensure that the company is

well positioned and fully efficient when

growth returns.

New CEO

Late 2012, FLSmidth announced the upcoming retirement of
Group CEO Jørgen Huno Rasmussen and the appointment of
Thomas Schulz as new Group CEO from 1 May 2013. Thomas
Schulz is a 48 year old German citizen, who earned his PhD in
Minerals and Mining. Thomas Schulz carries with him more than
20 years of experience in the mining industry and comments on
his first impressions of FLSmidth:

”El Smidth has a compelling business model and is a top service
provider into the cement and minerals industries. With its unique
combination of engineering skills, in-house technology and value-
added services, FLSmidth has an outstanding competitive position.
Additionally, a high degree of outsourcing and off-shoring provides
the company with a flexible cost structure. Last but not least, the
customer focus and the social competences in the company, and

in particular the value setting, firmly rooted in FLSmidth's Danish
heritage, are on a very high level.”

Preparing FLSmidth for the next 130 years
FLSmidth operates in cyclical industries, and always has done. The
opportunity lies in managing the cycles and to ensure that the
company is constantly prepared for change. In parallel with the
initiatives launched under the Group's efficiency programme, we
are responding to market developments through 'right-sizing”, with
the purpose of adjusting production capacity to market demand.

"It is my clear belief that one should always prepare for the down-
turn in the up-cydle, just as one should prepare for the upturn in

LSmMidth for

30) Vears

the down-cycle, which is why I am so focused on optimising
the business and preparing for the upturn right now,” Thomas
Schulz says.

As a consequence of important strategic decisions some 10 years
ago, the business mix of FLSmidth has changed considerably over
the last decade and turned the company from being predominantly
an equipment supplier to the cement industry into a supplier of
complete plants and solutions to the minerals and cement indus-
tries. At the same time, the service side of the business has grown
from DKK 1-2bn to some DKK 8-Ybn in revenue, and the growth
potential is still huge. Operation & Maintenance, in particular, is
seeing a constantly growing business volume.

”ELSmidth has been on a fantastic and transformational journey
over the last 10 years. It has built a remarkable position in minerals
in a very short time frame, which will be very difficult for anyone to
replicate. More than 25 companies have been acquired in a period
when the market was very active. After such a period, it is natural
to focus on fully integrating the acquired businesses and consolidat-
ing the company's global footprint as well as on improving overall
efficiency, which is exactly what we are doing with the efficiency
programme that was launched in August 2013,” Thomas Schulz
comments.

The growth strategy and in particular the many acquisitions have
had a short term adverse impact on profitability and especially on
the return on capital employed.

”YVe have the strategic platform we want and in the coming years
we will focus on organic growth. We will leverage and optimise our
current business. It is our clear target to deliver top-tier financial
performance and above-market organic growth. But most impor-
tantly, we want to increase the return on capital employed and to
generate a higher free cashflow, which also necessitates a lower
level of investments,” Chairman of the Board of Directors, Vagn
Sørensen emphasises.

 

 

 

 

     

Thomas Schulz
Group Chief Executive Officer

1404014EogSN67934

 

FLSmidth: Annual Report 2013 UHRE ENE

   

Vagn Ove Sørensen
Board Chairman

 

 

 

Meet the Chairman and Group CEO

Results delivered in 2013 and outlook for
2014

Capital investments in the mining industry took a deep dive in
2013 after a prolonged period of growth in the preceding 7-8
years. As a consequence, the order intake in Mineral Processing
dropped significantly in 2013.

”We believe that what we are witnessing is an ordinary mining
capex cycle. A typical cycle lasts 10 years; 3-4 years down, and 6-7
years up. The cycle started to show the first signs of weakness in
late 2011, and we believe the downturn will continue at least until
late 2014. Recent budget announcements by mining companies
suggest that it may continue into 2015. However, it is hard to see
that our mining related order intake can become much lower, as
long as existing mines are running at full capacity. in fact, we didn't
announce any large orders in Mineral Processing in 2013, and we
deliberately held back on taking orders in Material Handling, until
we had the legacy backlog under control,” says Thomas Schulz.

The financial results in 2013 were clearly not satisfactory, however
impacted by a number of special items and one-off costs, most

of which were announced in connection with the half-year results
in August.

”Revenue booked in 2013 was at the lower end of the original
guidance for the year, whilst the EBITA margin was clearly below
the expectations due to the special items and one-off costs booked
in 2013. It is of little comfort that the underlying EBITA margin
was 8.2% and in line with the original guidance. Return on Capital
Employed dropped to a disappointing 6%, which is far below our
target of minimum 20%. As a consequence, we launched the ef-
ficiency programme and initiated significant right-sizing activities
to adjust capacity to the current market situation,” Vagn Sørensen
comments.

"We expect Group revenue to drop to DKK 21-24bn and the
Group EBITA margin to increase to 7-9% in 2014. At the same
time, Return on Capital Employed is expected to increase to
11-13%. Our target is to reach our long term goals as set out in
February 2012 in the not too distant future provided the market
situation does not deteriorate further,” Thomas Schulz concludes.

 

BEER

FLSmidth: Annual Report 2013 REE

 

 

 

 

1404014EogSN67835 "

 

 

FLSmidth in cement and minerals

Cement and minerals are vital for economic, social and technological
developments. Such developments need to be based on sustainable
use of the world's resources. As a leading supplier of sustainable
technologies and services to the global cement and minerals indus-
tries, FLSmidth contributes to sustainable world development and
helps to meet the inevitable demand for resources — a demand
driven by GDP growth, population growth, industrialisation and
urbanisation, especially in developing countries.

Customer base and value proposition

FLSmidth's customer base is composed of global and regional
cement and mining companies that invest in new capacity or in ex-
panding, upgrading, maintaining and servicing existing production
capacity. FLSmidth has a unique ability to meet the full range of
customer requirements, from single equipment to complete plants
and from spare parts to full operation and maintenance services.
FLSmidth's primary value-proposition is based on a full service total-
cost-of-ownership approach based on sustainable and eco-efficient
technologies. FLSmidth has a proven ability to help customers
increase capacity, reduce operating costs and lower environmental
impact. FLSmidth has an excellent track record of reliability, time to
market and project follow-through.

Navigating through cycles

The longer term outlook for cement and minerals is encouraging.
However, both industries are cyclical by nature — particularly with
regard to investments in new capacity. FLSmidth's business model
is engineered to account for that. A dynamic business model with
outsourced manufacturing and a flexible cost structure, resulting
in a high cash conversion allows FLSmidth to manoeuvre safely
through the cycles. Furthermore, a growing service business
(-40% of today's business) reduces the cyclicality of the entire
Group as services are more resilient and stable by nature. At the
same time, FLSmidth has a scalable business model and is well
positioned to benefit from mid and longer term structural growth
opportunities.

Business model

 

Full service provider in six key industries
It is FLSmidth's strategy to be a full service provider in its six focus
industries, which are copper, gold, coal, iron ore, fertilizers and
cement. Being a full service provider means supplying everything
from single products to complete flow sheets and overall plant
optimisation solutions.

In cement that means supplying a complete array of equipment
and systems ranging from, for example, a raw mill to a complete
cement plant on an EP (engineering and procurement) or EPC
(engineering, procurement and construction) basis to a full scale
operation & maintenance solution. In mining, it means supply-
ing, for example, a ball mill, a bundled equipment ”island” a full
production plant, a plant optimisation solution or a maintenance
solution. In mining, full flow sheets are confined to the areas of
material handling, comminution and separation.

FLSmidth sees products as ”the means” to service customers rather
than ”the end”. Typically the initial investment is only around 20%
of the life-cycle costs, whereas the aftermarket makes up around
80% of the costs, which also is the reason why FLSmidth engages
with its customers from a total cost of ownership perspective.
Though the aftermarket offers great business potential, FLSmidth is
convinced that servicing the aftermarket alone is not a viable path.
FLSmidth believes that capturing the sizable aftermarket is best
achieved via a unique combination of key products, systems knowl-
edge and service solutions. A high degree of outsourced manufac-
turing makes it easier to adjust the cost structure to prevailing Mar-
ket conditions. However, internal manufacturing of key products is
necessary for competitive and innovative reasons. Besides, product
knowledge is important for optimising systems. Often, customers
do not just request a product. Instead, they may ask: "How can
you help me improve my copper recovery rate?” The answer lies in
combining systems and product competencies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

Business model

Operation & Maintenance (0&M) concept

In FLSmidth's focus industries, O&M services are the ultimate proof
of a full service provider. In cement, FLSmidth offers a full-scale
O&M solution. FLSmidth is the only company globally who is able
to issue a production guarantee and assure a minimum output
over a longer period. In short, FLSmidth can offer the owner of a
cement plant to run the plant with FLSmidth staff and to guarantee
output levels for an agreed price per tonne. A typical contract has
a duration of five years.

Risk sharing between FLSmidth and the customer is based on

a rational division of responsibility. FLSmidth's responsibility is
contained to risks within its control, i.e. the efficient running and
professional upkeep of a facility. The plant owner accounts for
fundamental supply issues relating to, for example, power, water,
fuel and raw materials.

FLSmidth's O&M concept is offered to all plant owners but is espe-
cially an obvious option to producers who have limited operational
expertise. FLSmidth helps the customer ensure optimal plant condi-
tions, using a proprietary ”autopilot” control and optimisation
system to fine-tune processes and by incorporating a computerised
maintenance management system into the plant. This not only
increases uptime but also helps to diagnose problems accurately
and find solutions in a timely manner. Finally, FLSmidth's advanced
process simulators provide state-of-the-art staff training and raise
skill levels.

A spin-off benefit from operating customers" plants is that it ena-
bles FLSmidth to shorten the "innovative loop”. As a plant operator,
FLSmidth obtains on-site, real-time experience of, for example,
product or process inefficiencies or improvement potential which
can be fed straight back into FLSmidth's innovation centres.

To date, FLSmidth has been awarded contracts to operate and
maintain 15 cement production lines — delivered by FLSmidth as
well as by peers. This is just a fraction of the installed capacity of
some thousand cement production lines worldwide.

In mining, FLSmidth currently provides comprehensive maintenance
solutions and it is our ambition to also offer operation in the future.

Synergies between Cement and Minerals
While cement and mining are distinct industries, there are mean-
ingful similarities and synergies between the two. First of all, there
is a significant technology overlap. Several of the products used

in each of the industries are either identical or very similar, for

example, crushers, mills and material handling equipment. Secondly,
FLSmidth often works on larger projects in both cement and minerals,
and there are many similarities in the project management skill

set needed. This provides the benefit of being able to transfer
resources and best practices between the two industries. A recent
example is the transfer of competencies and best practices to the
Material Handling division.

Global organisation

The head office of FLSmidth is located in Copenhagen, Denmark
and FLSmidth & Co. A/S has been listed on the Copenhagen Stock
Exchange since 1968. The Group has five major global engineering
and technology centres; Chennai (India), Copenhagen (Denmark),
Salt Lake City, UT (USA), Bethlehem, PA (USA) and Wadgassen
(Germany). The biggest single location is FLSmidth in Chennai
(India) totaling 2,075 employees, servicing the local Indian market
and providing engineering, IT and financial shared services

to the global organisation.

FLSmidth is present in more than 50 countries around the world with
sales offices, workshops, service centres, technology centres, etc.

Most of the actual manufacturing of machinery and equipment
(-80%) is outsourced to a global network of subcontractors and
external partners.

The company is managed through a line organisation consisting of
four divisions, which are supported by global functions.

C Main office - legal entity
O Business locations

HO Centre office

[JO Country office

MO Product office

MO Sales/service office/service supercenter

O Manufacturing/foundry/warehouse

HO R&D/test centre, O&M office/O&M site, IT services

 

 

FLSmidth: Annual Report 2013 ERNE E

 

 

15

åRogSN67937 REE

Strategy update

health check

o With the on-boarding of Thomas
Schulz as Group CEO in May 2013,
FLSmidth conducted a health check of
its strategy. The conclusion was clear —
FLSmidth's overall strategic direction as
well as the long-term financial targets
have been verified and confirmed.

Strategy health check

The health check on FLSmidth's Group Strategy was a natural step
one year after its launch. Also, it was needed as a consequence of
a significantly changed business environment. The conclusion was
clear; there is no need to change the overall strategic direction
including FLSmidth's focus on the six specific key industries (Cop-
per, gold, coal, iron ore, fertilisers and cement) and the fact that
FLSmidth remains a Danish company based on Danish values. The
long-term financial targets of growth above market average, an
EBITA margin of 10-13% and Return on Capital Employed (ROCE)
above 20% were also confirmed.

Strategy adjustments

FLSmidth has a strong foothold in our key industries and the divi-
sional set-up of the organisation supports the strategic goals. How-
ever, the health check revealed that a few adjustments are needed.
Going forward, we will focus even more on areas such as organic
growth, integration, quality and safety, research and development,
and human resource development.

Full service provider

To be the preferred, full service provider of sustainable minerals and
cement technologies, FLSmidth will increase its focus on providing
leading products and services. Leading products will be the means
by which FLSmidth can provide customers with full-service solutions,
full product flowsheets and subsequent service of technology.

An important step in this direction was taken with the signing of
two Operations & Maintenance (0&M) contracts with Dangote
Cement PLC in November 2013 (see company announcement no.
27-2013). The orders are for servicing not only FLSmidth equip-
ment, but also servicing competitors' equipment. In the future we
will sæe more orders where FLSmidth not only supplies proprietary
machinery and technology, but is also seen as a full service pro-
vider. FLSmidth will become the partner that customers can rely on
to deliver expert service on minerals and cement technologies. We
are called in to service and operate because FLSmidth has the most
experience and best product knowledge to make a difference for
customers" plants.

Preparing FLSmidth for the next 130 years

To achieve the long-term goal of being the preferred, full service
supplier, FLSmidth will first focus on the short-term with the goal
of navigating safely through the cyclical downturn, which is an
inherent feature of the industries the company serves. Through the
efficiency programme launched in August 2013 (see the following
pages), FLSmidth is preparing for sustainable growth in the mid-
term. Sustainable profitable growth with focus on organic growth,
integration, quality and safety, research and development as well
as a human resource development will secure a strong platform for
FLSmidth's position as a full service provider.

 

 

 

 
   
   
   
   
   
   
     
   

 

Full Service
It is FLSmidth's vision to be
our customers" preferred full-
service provider of sustainable
minerals and cement technol-
ogies. FLSmidth continuously
strives to generate a profitable
return for its owners through
value creating growth.

  

LONG TERM
Full service provider

 

em

MID TERM
| Sustainable profitable growth

i

 

SHORT TERM. .
Navigate through cyclical downturn

1404014EogSN67938 | 17

Global efficiency programme

Creating sustalmable
ermicdcency

In 2013, FLSmidth initiated a global
efficiency programme to create sustainable
efficiency improvements and profitable
growth, which will secure the future of
the company.

The efficiency programme was an outcome of disappointing finan-
cial performance in the beginning of 2013 and a strategy health
check conducted in connection with the on-boarding of Thomas
Schulz as new Group CEO. The programme runs irrespective of the
underlying market developments.

The program was launched in August 2013 and is on track. Pro-
gress in the programme is monitored by Group Executive Manage-
ment and progress will be reported continuously in the quarterly
financial reports.

Background

Five years ago, FLSmidth was one of the most efficient players
among its industry peers. However, in recent years, as part of its
strategy to become a full service provider, FLSmidth has acquired

a significant number of companies. All the acquisitions have been
strategically important, but along with acquisitions come increased
business complexity, a need to integrate, and a requirement to fully
realise synergies. Consequently, FLSmidth is no longer an industry
leader in terms of efficiency. it is FLSmidth's ambition to regain the
position as one of the most efficient players among peers, which is
the purpose of the efficiency programme.

Seven initiatives

The efficiency programme consists of seven initiatives, which will
improve the company's efficiency and profitability. Currently, more
than 400 actions have been identified within the seven initiatives.
The initiatives have been put together by managers and employ-
ees across the Group, which has created a high commitment level
throughout the organisation.

Cost optimisation aims at consolidating the business, making

 

immediate cost reductions, and accelerating integration. It covers
headcount reductions, closing of sites, accelerated integration, sim-
plification of organisation and increased off-shoring of engineering
and back-office functions.

As an example of efforts to optimise costs, the large number of
operating legal entities in the US has been consolidated into two
legal entities. Besides, a number of entities have merged offices,
renegotiated lease contracts or are relocating to more cost efficient
offices. An important part of the cost optimisation building block
has also been headcount reductions throughout the Group.

In Material Handling the focus is on the turnaround and further
improvements of the Material Handling division. It covers finalisa-
tion of unprofitable projects, alignment of global processes and
building up a backlog of profitable projects.

In Material Handling, the many actions that are part of the divi-
sion's short term strategy are progressing as planned. One example
is to divest non-core businesses, and hence it has been decided to
sell the workshop in Wadgassen, Germany since in-house manufac-
turing of the equipment currently handled at the workshop, is not
a core activity for FLSmidth, and as such not part of the long term
strategy.

Profit boost is focused on increasing profits. It covers focus on
high margin products, pricing principles and supplier performance.

One example of a profit boost initiative is within the Mineral
Processing division where work is being done to expand the range
of standardised products and service offerings. Standardisation
leads to a profit boost in two ways. First, it will lower execution
costs by reducing the time consumed on custom engineering,
project management, quality assurance, procurement and shipping.
Second, the time saved will allow FLSmidth to utilise the resources
more efficiently.

 

 

Optimised sourcing involves evaluating and improving sourcing
and procurement, and adapting to best practice principles to bring
down costs. It covers simplification and off-shoring of sourcing and
increased sourcing from low cost countries.

it is within optimised sourcing that FLSmidth has the biggest
potential for improvements. One of the many initiatives comes
from the Mineral Processing division where engineering, sales, and
procurement jointly and systematically review products to reduce
the amount of commodities used and redesign them for improved
transportation, assembly, and localised sourcing

Net working capital is about regaining our focus and excellence
when it comes to working capital management, i.e. receivables,
payables, inventory management, etc. This covers payment terms,
invoicing processes and vendor financing.

As an example of regained focus on net working capital, some
product companies have successfully negotiated better payment
terms of trade payables, and key vendors have been approached

in an effort to get better payment terms, most of whom have
accepted. The key to implementing this change is good communi-
cation with vendors and ensuring they know exactly when they can
expect payment.

In general, inventory management has been tightened in an effort
to decrease stock levels related to slow moving and obsolete parts.

Sales optimisation involves meeting our clients' needs better,
both in terms of pricing models, geographical footprint, services
and aftermarket sales. It covers cross-selling, market strategies,
investments in Customer Services and sales synergies throughout
the Group.

Under the sales optimisation initiative, FLSmidth has for example
established a sales office in Colombia in a region with increasing
activity in both the cement and minerals industries. The FLSmidth
service consultants and sales resources in this region will move into
this office to facilitate One Source selling in Colombia.

In leading technology focus is on creating a stronger product
portfolio through more efficient and focused research and devel-
opment. Leading technology is also about product pruning, and
divesting or discontinuing activities that are not sufficiently profit-
able. The building block covers adjustment of product portfolio, in-

creased investments in R&D and new products faster to the market.

One example of a leading technology initiative is the Mineral
Processing division's refocused research and development strategy,
where spending will be increased on selected key areas. At the
project launch stage, a more rigorous prioritisation of projects will

1404014EogSN67939

FLSmidth: Annual Report 2013 HØRE

be made, meaning resources will be allocated to fewer, more highly
focused R&D projects that are more closely tied to the identified
needs of the customers. This will lead to new technology being
introduced to the market in a more timely fashion, thus increased
revenue with the same overall spend level.

Financial impact

The aim of the efficiency programme is to create sustainable
efficiency improvements, irrespective of the underlying market
developments. The efficiency programme is expected to result in
annual EBITA improvements of around DKK 750m with full-year ef-
fect in 2015. The implementation will entail one-off re-structuring
costs of around DKK -500m of which DKK -428m were booked in
2013. The share of costs in 2013 were higher than estimated, due
to a decision to discontinue two development projects in Customer
Services.

As a consequence of the programme, the Group headcount will be
reduced by some 1,100, equivalent to a 7% reduction in work-
force, and the number of locations will be reduced by more than
20, a reduction of more than 10%.

At the end of 2013, implementation of the efficiency programme
is progressing according to plan. A total of 1,102 employees have
been given notice and 41 locations are in the process of being
closed down.

The actions that are under implementation at the end of 2013 are
expected to have a DKK 498m positive EBITA impact when fully
implemented in 2015.

The EBITA improvement of DKK 498m is related to the following
initiatives of the efficiency programme:

 

 

Cost optimisation 33%
Material Handling 23%
Profit boost 37%

 

Net Working capital no EBITA effect

 

 

 

Optimised sourcing 6%
Sales optimisation Started
Leading technology 1%

 

19

 

20

Managemenrt's

Review

o 2013 was a year marked by preemp-
tive management decisions to prepare
FLSmidth for the future and to manage
the business cycle. Revenue was histori-
cally high despite currency headwind,
while order intake declined due to the
cyclical downturn of Mining invest-
ments. Profitability and returns were
significantly impacted by one-off costs
related to management decisions and
other issues. Group revenue and EBITA
margin delivered as most recently guided.

 

Financial developments in Q4 2013
Both revenue and order intake increased sequentially, but
declined versus Q4 last year. Costs related to the efficiency
programme and the Buxton arbitration award had an adverse
impact on profitability in the quarter. The EBITA margin adjusted
for special items was 8.7%.

Quarterly order intake and order backlog

Order intake in Q4 2013 amounted to DKK 5,616m representing

a decrease of 8% compared to Q4 2012 (Q4 2012: DKK 6,104m),
but a sequential increase of 21% on the previous quarter (Q3
2013: DKK 4,642m). The decrease in order intake is almost entirely
explained by currency development, although the organic growth
rates in the divisions differ significantly.

 

 

 

 

 

 

 

 

 

 

 

 

Group

DKKm 2013 2012 Change (%) Q4 2013 Q4 2012 Change (%)
Order intake 20,911 27,727 -25% 5,616 6,104 -8%
Order backlog 22,312 29,451 -24% 22,312 29,451 -24%
Revenue 26,923 26,284 2% 7,420 8,395 -12%
Gross profit 5,209 6,526 -20% 1,380 1,975 -30%
Gross margin 19.3% 24.8% 18.6% 23.5%

EBITDA 1,304 2,867 -54% 286 971 -70%
EBITDA margin 4.8% 10.9% 3.9% 11.6%

EBITA 977 2,559 -62% 222 893 -75%
EBITA margin 3.6% 9.7% 3.0% 10.6%

EBIT -339 2,041 -117% 60 797 -92%
EBIT margin -1.3% 7.8% 0.8% 9.5%

Number of employees 15,317 15,900 -4% 15,317 15,900 -4%

 

 

 

 

 

 

 

 

FLSmidth: Annual Report 2013 HEN E

Financial results for 2013

 

 

Order intake declined by

25%

 

 

Revenue increased by

2 Vo

 

 

EBITA margin adjusted for
special items was

8.2%

Return of Capital Employed
(ROCE) decreased to

6%

Safety — LTIFR (lost time injury
frequency rate) decreased to

3.9

 

 

 

 

 

21

 

 

22

Management's review

Order intake growth in Q4 2013

 

 

 

 

 

Order intake growth ao 0 se ze E £82
(vs. Q4 2012) E-5 SE Sa 2 29
SE å8£ 58 å EG
ad” 2 s V z
a
Organic growth -10% 157%  -52% 92% -1%
Acquisitions 0% 0% 0% 0% 0%
FX effect -7%  -11% -6% -5% -7%
Total growth -17% 146%  -58% 87% -8%

 

Organic growth declined significantly in Mineral Processing, while
order intake in Cement and Material Handling increased as large
orders were received in Q4.

Quarterly order intake related to projects is inherently volatile.
Announced orders in Q4 2013 amounted to DKK 1.8bn (Q4 2012:
DKK 1.9bn) and included a DKK 1bn Material Handling order in
Qatar, a DKK 515m Cement order in Qatar and a DKK 300m Ce-
ment order in Indonesia. Additionally, FLSmidth announced receipt
of the largest order in the company's history related to a five year
operation and maintenance contract for five cement production
lines for Dangote Cement in Nigeria. However, the value of the
contract is undisclosed and the order intake will be recognised
based on 12 months' rolling revenue. The contract will ramp up
during 2014. The two first cement production lines are expected
to start up in May 2014 and the remaining three production lines
towards the end of 2014. The contract value included in the Q4
order intake and backlog is DKK 360m.

The level of unannounced orders amounted to DKK 3.8bn in Q4

(Q4 2012: DKK 4.2bn). Unannounced orders in Mineral Processing
dedlined from the level seen in the previous three quarters of around
DKK 1.5bn per quarter to around DKK 1.0bn in Q4. The level of
order intake in Mineral Processing in 2014 is expected to be similar to
2013. Quarterly variations may occur.

The order backlog for the Group decreased 24% to DKK 22,312m
compared to the same period last year (end of 2012: DKK
29,451m), and declined 9% relative to the previous quarter (end of
Q3 2013: DKK 24,595m) as a consequence of higher revenue than
order intake in Q4 2013. Foreign exchange translation had a nega-
tive impact of 2% on the backlog.

Special items impacting earnings in Q4

Quarterly revenue and earnings
Revenue decreased 12% to DKK 7,420m in Q4 (Q4 2012: DKK
8,395m) based on tough comparison as revenue in Q4 2012 was

  

record high, and due to a negative foreign exchange translation
effect of 7%. The negative developments were attributable to all
segments but Material Handling, where the quarterly revenue was
the highest in two years.

Revenue growth in Q4 2013

 

 

 

 

 

Revenue growth oo se se E se
(vs. Q4 2012) E: B= og o 9
82 85) 8% 8£ 88
88 5 58 & gs?
ar L o z
nn
Organic growth 2% 22%  -22% 3% -5%
Acquisitions 0% 0% 0% 0% 0%
FX effect -8%  -11% -7% -3% -7%
Total growth -6% 11%  -29% 0%  -12%

 

The gross profit amounted to DKK 1,380m (Q4 2012: DKK
1,975m), corresponding to a gross margin of 18.6%, which is
considerably down from last year (Q4 2012: 23.5%), primarily due
to booking of one-off costs related to an arbitration award and
the efficiency programme in Q4. The costs realised in the quarter
exceeded expectations, primarily due to discontinuation of two
development projects in Customer Services. Additionally, an ICC
(International Chamber of Commerce) arbitration was concluded
on 2 December 2013 in a case between MT Højgaard A/S and
FLSmidth A/S dating back to 2004, Contrary to expectations, the
ICC arbitration award rendered FLSmidth liable to pay a significantly
higher compensation than expected and reserved for. As a conse-
quence, DKK -160m is booked as production costs in the Cement
division in Q4.

Q4 2013 saw total research and development expenditures of DKK
129m (Q4 2012: DKK 108m), representing 1.7% of revenue (Q4
2012: 1.3%), of which DKK 46m was capitalised (Q4 2012: DKK
53m) and the balance reported as production costs. In addition,
project financed developments are taking place in cooperation with
customers and reported as regular production costs.

Sales, distribution and administrative costs, etc. amounted to DKK
1,094m (Q4 2012: DKK 1,004m) equivalent to 14.7% of revenue

 

 

 

 

 

DKKm Customer Material Mineral Cement Cembrit FLSmidth

Services Handling Processing Group
Efficiency programme -37m -72m -15m -36m -A1m -261m
Buxton arbitration award -160m -160m
Total EBITA impact -97m -72m -15m -196m -4A1m -421m
Reported EBITA margin 9.8% -2.0% 6.4% -2.9% -7.0% 3.0%
EBITA margin adjusted for special items 14.6% 2.9% 7.1% 10.2% 4.0% 8.7%

 

 

 

(Q4 2012: 11.9%). The increase of 9% compared to the same

period last year is primarily related to one-off costs in connection
with the efficiency programme.

Earnings before interest, tax, depreciation and amortisation
(EBITDA) decreased 70% DKK 286m (Q4 2012: DKK 971) cor-
responding to an EBITDA margin of 3.9% (Q4 2012: 11.6%) as a
consequence of the decrease in gross margin and increase in cost
ratio as explained above.

Depreciation and impairment of tangible assets amounted to DKK
83m (Q4 2012: DKK 80m), which is slightly higher than last year.

Earnings before amortisation and impairment of intangible assets
(EBITA) amounted to DKK 222m (Q4 2012: DKK 893m), corresponding
to an EBITA margin of 3.0% (Q4 2012: 10.6%). Adjusted for one-off
costs booked in Q4 (efficiency programme DKK 261m, Buxton arbitra-
tion award DKK 160m), the EBITA margin adjusted for special items in
Q4 2013 was 8,7%.

Amortisation and impairment of intangible assets amounted to
DKK 162m (Q4 2012: DKK 96m) of which the effect of purchase
price allocations related to acquisitions accounted for DKK 79m
(Q4 2012: DKK 88m). The increase is primarily related to
amortisations in connection with the gradual roll-out of the
ERP/business system.

Earnings before interest and tax (EBIT) decreased 92% to DKK 60m
(Q4 2012:.DKK 797m) corresponding to an EBIT margin of 0.8%
(Q4 2012: 9.5%).

Financial items amounted to DKK -150m (Q4 2012: DKK -37m).
This amount includes foreign exchange and fair value adjustments
of DKK -124m (Q4 2012: DKK -21m).

Earnings before tax (EBT) decreased to DKK -90m (Q4 2012: DKK
760m), but even so tax for the period amounted io DKK -94m
(2012: DKK -283m), as local taxes are paid regardless of the Group
result. As a consequence, profit for the period including discontin-
ued activities decreased to DKK -179m (Q4 2012: DKK 462m).

Quarterly cash flow developments and working capital

Q4 2013 saw a positive development in cash flow from operating
activities, amounting to DKK 77m (Q4 2012: DKK 1,532m). The cash
flow was negatively impacted by to one-off costs in connection with
the efficiency programme and the Buxton arbitration award. Addition-
ally, working capital increased by DKK 97m in the fourth quarter to
DKK 2,382m (Q3 2013: DKK 2,285m). The net amount of advance
payments (prepayments and work-in-progress) declined by DKK 933m
in the quarter as a consequence of delayed payments by customers
and high activity late in the year but no invoicing yet, which is pushing

1404014EogSN67941

FLSmidth: Annual Report 2013 HE ENE

Quarterly order intake

DKKm
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
olti, 1 1 . .

Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2012 2012. 2012. 2013

Announced O&M orders
MH Announced capital orders
EC] Un-announced orders

Q2 Q3 Q4
2013 2013 2013

Quarterly revenue and EBITA margin

DKKm
10,000

8,000 12%
NM 10%
6,000 80;
4,000 6%
« R 4%

2,000 £ | ml
2%

o .

Q4 Q1 Q2  Q3 Q4 01
2011 2012 2012 2012 2012. 2013

EIRevenue  = EBITA margin

Working capital
DKKMm
3,000
2,500
2,000
1,500
1,000
500
0

EBITA-%
14%

0%
Q2 Q3 Q4
2013 2013 2013

 

Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2012 2012 2012. 2013

EO Working Capital

Q2 Q3 Q4
2013 2013. 2013

23

 

 

Management's review

up working capital. On the other hand, trade payables increased by
DKK 353m and inventories declined by DKK 122m, both pulling work-
ing capital down.

Cash flow from investing activities amounted to DKK -101m in Q4
2013 (Q4 2012: DKK -382m), and as a consequence, the free cash
flow (cash flow from operating activities less cash flow from investing
activities) amounted to DKK -24m in Q4 (Q4 2012: DKK 1,150m).

Financial results for 2013

Changes to the reporting in 2013

As a consequence of the decision to stop the sale of Cembrit, the
company is reported as continuing business and profit and loss com-
parative figures for 2012 have been adjusted accordingly. In the 2012
Annual Report, Cembrit was reported as discontinued activities.

A decision was taken in Q3 2013 to change how the order intake
and order backlog in connection with operation and maintenance
contracts are recognised. As from 7 November 2013, new opera-
tion and maintenance contracts are included in the order backlog
with 12 months rolling revenue only. Previously, operation and
maintenance contracts were included in the order backlog with the
expected full revenue over the lifetime of the contract.

In 2013, it has been decided to apply a More stringent approach to
capitalisation of internal costs in relation to R&D development pro-
jects, including the ERP/business system. Capitalisation will apply to
fewer, larger R&D development projects, and only to costs related
to IT employees on the ERP/business system.

As from the third quarter of 2013, it was decided to apply a more
stringent assessment of ageing inventory items, which resulted in
an inventory write-down in the third quarter 2013.

Order intake

DKKm Growth

60%

DKKm

30.000 30,000

20.000 40% 25,000

10.000 20% 20,000

0% 15,000
-20% 10,000

-40% 5,000

 

-60%

2009

EH Order intake

2010 2011 2012. 2013

2009

2010

=> Growth MH Order backlog

= Book-to-bill ratio definition:
Order backlog in relation to revenue

24

Order backlog and book-to-bill ratio

 

Revenue
Book-to-bill ratio” DKKM Growth
15 30,000 20%
15%
12 20,000 ?
10%
10,000
0.9 5%
0.6 0 0%
-5%
0.3
-10%
0.0 15%
2011 2012. 2013 2009 2010 2011 2012 2013
= Book-to-bill ratio EH Revenue > Growth

    

Growth efficiency
Despite currency headwind, FLSmidth executed record high rev-
enue in 2013 on the back of a high order backlog at the beginning
of the year. While revenue increased 2%, order intake declined
25% as the mining industry cut back on investments to focus more
on short term cash and cost efficiency. The decline in order intake
will have an adverse impact on revenues in 2014 and 2015.

Order intake and order backlog

The order intake decreased 25% to DKK 20,911m (2012: DKK
27,727m). Acquisitive growth of 5% was almost offset by a foreign
exchange translation effect of -4%. Organic growth was -26%,
which is primarily explained by declining order intake in Mineral
Processing and Cement.

Order intake growth in 2013

 

 

 

 

 

Order intake growth va KH Ze E se
(vs. 2012) ES BE bg då 383
Sz £$3 E&4 £E EØ
88 38 5% $g aA”
an så 9 mæ
[3
Organic growth -16% 14%  -44%  -24%  -26%
Acquisitions 7% 0% 2% 0% 5%
FX effect -4% -6% -4% -2% -4%
Total growth -13% 8%  -46%  -26%  -25%

 

After an extended period of high investmenis in both acquisitive and
organic growth, mining companies turned their focus to cost and
capital efficiency in 2013, resulting in significantly reduced capex plans
and hence, postponement of large capital projects. As a consequence,
Mineral Processing did not receive any large orders in 2013. The level
of unannounced orders has been relatively stable throughout the year,
except for what is believed to be a temporary dip in the fourth quarter.

The order intake in Cement declined 26% due to fewer large orders
as a consequence of prolonged decision making by customers and

 

 

 

1404014EogSN67942

more time required to raise project financing. The cement industry
is still challenged by low utilisation rates in certain regions, whereas
economic growth is triggering demand for capacity additions in
others. On a global scale, the market for new cement capacity is still
relatively subdued, although signs of recovery are getting stronger.

The order intake in Customer Services declined 13% in 2013.
However, the decline is solely explained by the change in reporting
practice in connection with new long-term operation and mainte-
nance contracts which are included in the order intake and backlog

FLSmidth: Annual Report 2013 MM ENR

Revenue 2013
— by segment

   

Cement 19%
== Cembrit 5%

Customer Services 27%

Material Handling 16%

Mineral Processing 33%

 

with 12 months" trailing revenue only. Adjusted for announced
operation and maintenance contracts and foreign exchange effect,
the growth was above 10%.

Customer Services is expected to continue its growth trend,
however at single digit growth rates. The operation and mainte-
nance business is driving the growth, as is demand for value-added
services and spares.

Material Handling has applied a rigorous tender process through-

EBITA result 2013
— by segment

Cement 13%
Cembrit -7%
Customer Services 71%
Material Handling -52%
Mineral Processing 77%

 

out the last 18 months to ensure a satisfactory risk/return on

all new contracts and that sufficient and qualified resources are
available to handle same. As a consequence, order intake has been
relatively low compared to the available market in both 2012 and
2013. Towards the end of 2013, significant progress had been
made in relation to the legacy backlog, and new large orders were
taken in, resulting in an increase in order intake in Material Han-
dling in 2013 of 8%.

The order backlog for the Group decreased 24% in 2013 to
DKK 22,312m (end of 2012: DKK 29,451m), of which -8% was at-

Revenue 2013

— by geography

Asia 25%
Europe 16%

/

North America 18%

 
   

South America 20%
Africa 14%
Australia 7%

rd

 

 

tributable to foreign exchange translation effects. 65% of the back-
log is expected to be converted to revenue in 2014, 20% in 2015,
and 15% in 2016 and beyond. Long term operation and mainte-

EBITA and EBITA margin

Revenue 2013
— by country category

High income countries 34%

BRIC countries 20%

Developing countries
(excl. BRIC) 46%

 

DKKM EBITA margin
3,000 12%
2,500 mm 10%
2,000 | 8%
1,500 6%
1,000 4%
500 2%
0 0%
2009 2010 2011 2012. 2013
HM EBITA == EBITA margin

Order intake 2013
— by industry

em Other 24%

  
    

Cement 35%

Copper 19%

Gold 7%
Coal 9%

Iron ore 4%
Fertilizers 2%

Cc

25

 

26

Management's review

nance contracts accounted for DKK 5.1bn of the order backlog at
the end of 2013, equivalent to 23%. The conversion time from
order intake to revenue is 12-18 months on average — ranging from
over-the-counter sale of consumables to capital projects with 2-3
years” execution time and up to 7-year operation and maintenance
contracts. As previously mentioned, operation and maintenance con-
tracts received after the beginning of November will only be included
in the order backlog with expected 12 months" trailing revenue.

Revenue

Revenue increased by 2% to DKK 26,923m in 2013 (2012: DKK
26,284m), despite a negative foreign exchange translation effect
of -6%. Acquisitions accounted for 6% growth, and hence, the
organic growth was 2% in 2013.

Revenue growth in 2013

 

 

 

 

 

Revenue growth 7 9 3 ' se E s2
(vs. 2012) EZ SE ag 9 33
s2 $5 ER £ 85
Rø ec Så u 9
3 27 o UV i
Uu = mm
aa
Organic growth 3% -3% 1% 26% 2%
Acquisitions 9% 0% 2% 0% 6%
FX effect -5% -6% -6% -3% -6%
Total growth 7% -9% -3% 23% 2%

 

Organic growth amounted to 26% in the Cement division, which is
explained by high conversion of order backlog to revenue in 2013.

Total service activities accounted for 36% of revenue in 2013

(2012: 35%). In addition to the Customer Services division, total
service activities consist of service business that is embedded in

Special items impacting earnings in 2013

  

product companies contained in the three capital divisions. Product
companies (excluding these service activities) accounted for a total
of 12% of revenue in 2013 in cement and minerals (2012: 13%).
Product companies are characterised by having an integrated busi-
ness model including manufacturing and aftermarket services in
relation to a specialised product portfolio. An increasing share of
revenue related to product companies has a positive mix effect on
margins, but an adverse impact on capital employed.

Profit efficiency

After six consecutive years of stable EBITA margins of around 10%,
the EBITA margin took a deep dive in 2013 to 3.6% as a conse-
quence of numerous special items. The EBITA margin adjusted for
special items declined to 8.2% as the backlog was emptied of high
margin orders received before the global financial crisis.

Special items impacting profits in 2013

Profitability in 2013 was significantly impacted by special items,
affecting both production costs, SG&A costs and impairment of
intangible assets, and as such, filter through the whole profit and
loss account.

Material Handling reassessment

In connection with the on-boarding of Thomas Schulz as new
Group CEO, a reassessment and cross risk analysis of the order
backlog in Material Handling was undertaken. The principles were
unchanged, however with a more prudent evaluation of time to
complete the projects. This resulted in one-off costs of DKK -323m
being recognised in Q2 to reflect the risk of future negative sur-
prises. The provisions were primarily related to 6 projects (out of 15
risky projects) in Material Handling.

 

 

 

 

 

 

 

 

 

 

 

DKKm Customer Material Mineral Cement Cembrit FLSmidth
Services Handling Processing Group
Inventory write-down (Q3) -114 -30 -29 -30 0 -203
Efficiency programme (Q3+Q4) -149 -118 -50 -52 -59 -428
Material Handling risk assessment of order backlog (Q2) -323 -323
Buxton arbitration award (Q4) -160 -160
Other costs of non-recurring nature included in the
original guidance for 2013 (related to ERP system,
restructuring, integration) (Q1+Q2) -53 -41 -46 -23 -163
Sale of assets (Q3) 37 37
Total EBITA impact -316 -512 -88 -265 -59 -1,240
Ludowici impairment loss (Q3) -539 0 -362 0 0 -901
Total EBIT impact -855 -512 -450 -265 -59 -2,141
Reported EBITA margin 9.1% -11.2% 8.2% 2.4% -4.4% 3.6%
EBITA margin adjusted for special items above 13.3% 0.0% 9.1% 7.5% -0.3% 8.2%

 

 

 

 

 

Efficiency programme

As announced at the end of August 2013, an efficiency pro-
gramme was launched to create sustainable efficiency improve-
ments, irrespective of the underlying market developments. The
efficiency programme will result in annual EBITA improvements of
around DKK 750m with full-year effect in 2015. The implementa-
tion will entail one-off restructuring costs of around DKK -500m of
which DKK -428m was booked in 2013, impacting both production
costs and SG&A costs. For more information about the efficiency
programme, please see pages 18-19.

Inventory write-down

Ås a consequence of a thorough inventory review and a more
stringent assessment of ageing inventory items, an inventory write-
down of DKK -203m was recognised in Q3. The inventory write-
down is accounted for as production costs.

Ludowici impairment loss

In Q3, an impairment loss of DKK -901m in relation to Ludo-
wici was booked as a consequence of a deteriorating outlook
for mining investments in general and for the Australian coal
industry in particular. The amount has been adjusted from previ-
ously reported DKK -880m as a consequence of changes in the
average year-to-date currency rate used to translate profit and
loss items into Danish Kroner. The impairment loss is impacting
the EBIT line.

Buxton arbitration award

An ICC (International Chamber of Commerce) arbitration was
concluded on 2 December 2013 in a case between MT Højgaard
A/S and FLSmidth A/S dating back to 2004. Contrary to expecta-
tions, the ICC arbitration award rendered FLSmidth liable to pay a
significantly higher compensation than expected and reserved for.
This resulted in DKK -160m one-off production costs being booked
in the Cement division in Q4.

Sale of assets

Sales, distribution and administrative costs, etc. included operat-
ing income of a non-recurring nature of DKK 37m related to the
disposal of assets in the Mineral Processing division.

Other costs of a non-recurring nature

The profits for 2013 are impacted by costs of a non-recurring
nature amounting to DKK -163m, related to roll-out of an ERP
business system and the integration and restructuring of acquired
businesses in 2012. These costs were included in the original guid-
ance for 2013 and booked in Q1 and Q2, prior to the launch of the
efficiency programme in August.

The gross profit amounted to DKK 5,209m (2012: DKK 6,526m),
corresponding to a gross margin of 19.3%, which is considerably

1404014EogSN67943

FLSmidth: Annual Report 2013 MURE ER

down from last year (2012: 24.8%), primarily due to special items
and one-off costs as described above, but also as a consequence
of lower margins in the backlog compared to previous years, par-
ticularly in Cement and Material Handling. In 2012, the Cement
division benefitted from high gross margins originating from good
order execution as well as reversal of contingencies and provisions
in relation to orders taken before the global financial crisis.

2013 saw total research and development expenses of DKK 419m
(2012: DKK 367m), representing 1.6% of revenue (2012: 1.4%),
of which DKK 117m was capitalised (2012: DKK 104m) and the
balance reported as production costs. In addition, project financed
developmenis are taking place in cooperation with customers. In
accordance with international accounting standards, research costs
are expensed, whereas development costs are to be capitalised if
substantiated by an underlying business case.

Sales, distribution and administrative costs and other operation
income including costs of a one-off nature amounted to DKK
3,905m in 2013, which represents a cost percentage of 14.5% of
revenue (2012: 13.9%) and a 7% increase on 2012 (2012: DKK
3,659m). Adjusted for one-off costs, the cost percentage was 13.7%.

Earnings before interest, tax, depreciation, amortisation and impair-
ment (EBITDA) decreased 53% to DKK 1,304m (2012: DKK 2,867m)
corresponding to an EBITDA margin of 4.8% (2012: 10.9%).

Special non-recurring items reported as a separate line item and
specified in note 7 in the consolidated financial accounts (profit
and loss on disposal of enterprises and run-off on purchase
price allocations to inventories in connection with acquisitions),
amounted to DKK 6M (2012: DKK -9m).

Depreciation and impairment of tangible assets amounted to
DKK -333m (2012: DKK 299m). The increase is a consequence
of high capital investments in the past three years and increased
depreciation related to the roll out of a new ERP system.

Earnings before amortisation and impairment of intangible
assets (EBITA) decreased 62% to DKK 977m (2012: DKK 2,559m),
corresponding to an EBITA margin of 3.6% (2012: 9,7%).

Amortisation and impairment of intangible assets amounted to

DKK -1,316m (2012: DKK -518m), DKK -901m of which was related
to impairment loss in connection with the acquisition of Ludowici
assets as a consequence of a deteriorating outlook for mining invest-
ments in general and for the Australian coal industry in particular.
The effect of purchase price allocations amounted to DKK -322m
(2012: DKK 27Om) and other amortisations to DKK -93m (2012:
DKK -224m).

27

 

28

Management's review

The comparison number for 2012 included a one-off impairment loss
of DKK 188m (capitalised development costs and decommissioning
costs) related to a development project, pertaining to Cement, Mineral
Processing and Customer Services.

Earnings before interest and tax (EBIT) decreased to DKK -339m
(2012: DKK 2,041m) corresponding to an EBIT margin of -1.3%
(2012: 7.8%).

Net financial items amounted to DKK -261m (2012: DKK -80m),
of which foreign exchange and fair value adjustments amounted
to DKK -134m (2012: DKK -18m). Net interest costs amounted to
DKK 127m (2012: DKK 62m) and increased as a consequence of
increasing net interest bearing debt.

Earnings before tax (EBT) decreased to DKK -600m (2012:
DKK 1,961m).

The tax for the year amounted to DKK -186m (2012: DKK -653m).
As a consequence of the special items" impact on profits in 2013,

the tax rate is heavily distorted. It is estimated that the underlying
effective tax rate in 2013 was 35%.

Profit/loss for the year decreased to DKK -784m (2012: DKK 1,303m)
including discontinued activities of DKK 2m (2012: DKK -5m).

Capital efficiency

While FLSmidth has been efficient in delivering both growth and profit-
ability in previous years, capital efficiency has been under pressure due
to acquisitions and a change in business mix leading to increasing
working capital. Return on Capital Employed (ROCE) has fallen from
a peak of 44% in 2007 to 6% in 2013. Increased capital efficiency is
Management's top priority. ROCE is expected to increase in 2014 and
to get close to the long term target of minimum 20% in 2015.

Capital Employed and ROCE

DKKM

20,000 30%
25%

15,000
20%
10,000 15%
10%

5,000
5%
0 0%

2009 2010 2011 2012 2013

I Capital Employed <= ROCE

 

 

 

 

 

 

1404014EogSN67944

 

FLSmidth: Annual Report 2013 MM NE

Customer
intimacy

FLSmidth works to build
close, long-term relation-

ships with our customers.
We build solutions to
match customer needs,
which in term create value
and loyalty.

 

 

 

 

Management's review

Capital Employed and ROCE

Definition of Capital Employed and ROCE

Capital Employed represents the capital investment made
by FLSmidth to conduct its business.

Return on Capital Employed (ROCE) measures the effi-
ciency and profitability of FLSmidth's capital investmentis.

FLSmidth defines Capital Employed as net working capital
plus the carrying amount of tangible assets and the cost
price of intangible assets including acquired goodwill.

The Return on Capital Employed (ROCE) is calculated on
a before-tax-basis as EBITA divided by average Capital
Employed including goodwill:

ROCE = EBITA

Net working capital
+ Tangible assets (Ccarrying amount)
+ Intangible assets (cost price)

 

ROCE will primarily be impacted by developments in rev-
enue, gross margin, SG&A costs, non-current assets and net
working capital. SG&A costs and net working capital are the
parameters that are most manageable in the short term. The
efficiency programme launched in August 2013 is targeting
both. Please see page 18-19 for more information.

Average Capital Employed increased by 12% in 2013 to DKK 16.0bn
(2012: DKK 14.3bn) due to full year effects of acquisitions made

in 2012, while EBITA decreased 62% to DKK 977m (2012: DKK
2,559m). As a consequence, ROCE decreased to 6% (2012: 18%).

Acquisitions - and in particular acquired goodwill - are the main expla-
nation behind the increased Capital Employed in FLSmidth over the

Cash flow from operating activities

DKKM
3,000

2,500
2,000
1,500
1,000
500

0

-500

2009 2010 2011

EH Cash flow from operating activities

30

 

2012

   

last couple of years. Additionally, several of the acquired businesses
are product companies with more in-house manufacturing and
inventories. The level of prepayments has fallen, as the business mix
has shifted to relatively less cement and relatively more minerals and
customer services. Cement projects generally account for the highest
prepayments amounting to 15-25% of the total contract price. In
minerals, the down payments on projects are typically smaller and in
customer services, there are typically no down payments.

Cash flow developments and working capital

Cash flow from operating activities amounted to DKK -157m

in 2013 (2012: DKK 1,720m). The negative developments were
primarily attributable to the numerous one-off costs and special
items booked in 2013, of which several had significant cash ef-
fect, including the one-off costs associated with the efficiency
programme, the reassessment of the order backlog in Material
Handling as well as the Buxton arbitration award. Additionally,
working capital increased by DKK 432m in 2013, as described
below.

Working capital amounted to DKK 2,382mM at the end of 2013 (end
of 2012: DKK 1,950m), representing 8.8% of revenue (2012: 7.4%
of revenue). Advance payments (the net of prepayments and work-
in-progress) declined by DKK 2.2bn, as a consequence of fewer
large orders and execution of the order backlog, pulling working
capital up, whereas trade receivables declined by DKK 816m, push-
ing working capital down.

Working capital increased significantly in 2011 and 2012 as a con-
sequence of acquisitions and a changing business mix from cement
projects to more customer services and more minerals products and
projects. As such, the increase in working capital was healthy and
a proof that FLSMidth has succeeded in delivering on its strategy to
grow both the minerals and customer services businesses.

Working capital

DKKMm
2,500

% of revenue
10%
2,000 8%
1,500 6%
1,000 4%

500 2%

 

0%

2013 2009 2010 2011 2012 2013

EH Working capital

 

 

Today, a major part of the Group's working capital is tied up in
product companies. Thus, product companies accounted for 70%
of total working capital at the end of 2013 compared to 23% of
group revenue (including service part). Typically, product companies
have in-house manufacturing and a material portion (20-50%) of
their revenue tied up in working capital, particularly in inventories.
On the other hand, profit levels are also significantly higher than in
the project business.

Working capital management is part of the efficiency programme.
The first phase of the programme has been to go for the quick
wins, and to make up for the shortfall of advance payments. The
next and present phase is to go deeper into the business and to
have workshops in all relevant business units with particular focus
on accounts receivable days and accounts payable days as well as
on inventory management and project cash flow.

The ambition is to reduce working capital from the present level
both in value and percent of revenue.

Investing in the business

In 2013, FLSmidth reduced investments significantly compared to
previous years in response to changed market conditions, negative
effect on operating cash flow from one-off costs and special items,
and in order to consolidate the business after a period of numerous
acquisitions.

Cash flow from investing activities amounted to DKK -567m (2012:
DKK -3,398m) and was significantly lower than both the original
guidance of DKK 1bn and the most recent guidance of DKK 0.8bn.

The total net cash flow effect of acquisition and disposal of enter-
prises amounted to DKK 27m (2012: DKK -2,508m). For further
details regarding acquisitions and disposals please see note 15 and
16, page 108-111 in the consolidated financial statements.

Equity and equity margin

 

DKKm DKKm
10,000 40% 5,000
35% 4,000
8,000
30%
3,000
25%
6,000 2,000
20%
1,000
4,000 15%
10% 0 Tor
2,000 —
5% -1,000
0% -2,000
2009 2010 2011 2012 2013 2009 2010
M Equity <= Equity margin HE NIBD

1404014EogSN67945

NIBD and financial gearing

 

2011

æ Financial gearing

FLSmidth: Annual Report 2013 BØRNE

In future, particularly in times when the industries served are in
a cyclical downturn, the level of cash flow from investments will
be more aligned with the level of depreciation and amortisation
(excluding amortisation related to purchase price allocations),

Balance sheet, capital structure and dividend
The balance sheet total amounted to DKK 27,328m at the end of
2013 (end of 2012: DKK 31,875m).

Equity at the end of 2013 decreased to DKK 6,922m (2012: DKK
9,419m), and the equity ratio temporarily decreased to 25% at
the end of 2013 (2012: 30%). The decline in equity ratio is a
consequence of the realised loss of DKK -784m in 2013 and other
comprehensive income of DKK -624, primarily related to foreign
exchange adjustments to foreign enterprises. Additionally, the total
distribution to shareholders amounted to DKK 1bn in 2013 (divi-
dend DKK 467m, share buyback programme of DKK 521m).

Net interest-bearing debt by the end of 2013 amounted to DKK
4,718 (end of 2012: DKK 3,084m) and the Group's financial
gearing (calculated as NIBD divided by 12 months trailing EBITDA)
amounted to 3.6 at the end of 2013 (end of 2012: 1.1). The gear-
ing is temporarily impacted by the many one-off costs booked in
2013, and the gearing is currently outside Management's targeted
capital structure of maximum two times EBITDA. It is Manage-
ment's expectation that the financial gearing will be back on target
by the end of 2014,

The capital resources currently consist of committed credit facilities
of DKK 8.3bn (excluding mortgage) with a weighted average time
to maturity of 2.8 years.

Although it is FLSmidth's policy to pay out 30-50% of the year's
profit, which is nil for 2013, the Board of Directors proposes to the
Annual General Meeting that a dividend of DKK 2 per share (2012:

Cash flow from investments

DKKm
2,000

1,000
0
-1,000
-2,000
-3,000

74,000

2013

2012 2009 2010 2011 2012 2013

IE Cash flow from investments

31

 

32

Management's review

DKK 9) be distributed, corresponding to a total cash distribution of
DKK 106m and a dividend yield of 0.7% (2012: 2.8%).

Corporate governance and organisation

The following information is provided pursuant to Section 107a in

the Danish Financial Act:

+ The share capital amounts to DKK 1,064,000,000 consisting of
53,200,000 issued shares at DKK 20 each. Each share entitles the
holder to 20 votes. No special rights are attached to any share
and there are no restrictions on the transferability of the shares

+ The members of the Board elected at the Annual General Meet-
ing retire at each Annual General Meeting. Re-election may take
place. The Nomination Committee identifies and recommends
candidates to the Board of Directors

+ The Board of Directors is authorised until 1 March 2017 to increase
the share capital by issuing new shares in one or more tranches at
a total nominal value of DKK 100,000,000 — with or without pre-
emption rights for the company's existing shareholders.

«+ The Board of Directors is authorised until the next Annual
General Meeting to let the Company acquire treasury shares up
to a total nominal value of 10 per cent of the Company's share
capital pursuant to Section 12 of the Danish Companies Act

+ The adoption of a resolution to amend the Companys Articles of
Association or to wind up the Company requires that the resolu-
tion is passed by not less than two thirds of the votes cast as
well as of the share capital represented at the General Meeting

. The Executive Management and a number of key employees in
the Group have been granted options to purchase 1,771,603
shares in the Company at a set price (strike price). The Group's
share option plan includes a ”change of control” clause giving
the holders the right to immediately exercise their options in
connection with an acquisition

+ In the event of dismissal, the Group Executive Management has
18 month's notice and shall receive up to 6 months" salary on
the actual termination of their employment

The statutory statement on corporate governance pursuant to Section
107b of the Danish Financial Statements Act is available on the
company's website: http://www. flsmidth.com/governance, statement

The most important changes in relation to management and
corporate governance in 2013 are briefly mentioned here.

Group Executive Management
A couple of management changes were planned and implemented
in 2013.

In December 2012, it was announced that Jørgen Huno Rasmussen,
Group CEO since 2003, had decided to retire mid 2013, 10 years
after agreeing to join FLSmidth as Group CEO. Thomas Schulz took
up the position as Group CEO of FLSmidth on 1 May 2013.

  

In 2013, it was decided to extend the Group Executive Manage-
ment by a strategic Human Resource position in an effort to effec-
tively strengthen the Group's competitiveness. As a consequence,
Virve Elisabeth Meesak was appointed Group Executive Vice Presi-
dent, Global Human Resources on 1 September 2013.

After the balance sheet date, in the beginning of January 2014,

it was decided to enlarge the Group Executive Management

by a Business Development position in an effort to strengthen

the Group's competitiveness by focusing more on effectiveness,
strategy development and integration. Consequently, Eric Thomas
Poupier was appointed Group Executive President, Business Devel-
opment on 9 January 2014.

Four out of eight members of the Group Executive Management
have been with FLSmidth for more than 10 years. The eight mem-
bers represent six different nationalities and are aged between 37
and 53. One out of eight is female.

Treasury shares

FLSmidth's treasury share capital amounted to 3,739,783 shares at the
end of 2013 (end of 2012: 1,359,884 shares) representing 7.0% of
the total share capital (end of 2012: 2.6%). The holding of treasury
shares is adjusted continuously to match FLSmidth's incentive plans.

The Board of Directors will propose to the Annual General Meeting
that 1,950,000 shares are cancelled as a consequence of the DKK
521m share buy-back programme that was executed in 2013.

At the end of 2013, the members of the Group Executive Manage-
ment held a total of 3,154 shares (end of 2012: 4,225 shares), and
the members of the FiSmidth & Co. A/S Board of Directors held a
total of 18,185 shares (end of 2012: 17,524 shares).

Incentive plan

At the end of 2013, there were a total of 1,771,603 unexercised
share options under FLSmidth's incentive plan and the fair value

of them was DKK 97m. The fair value is calculated by means of a
Black & Scholes model based on a current share price of 296.1, a
volatility of 29,76% and annual dividend of DKK 9 per share. The
effect of the plan on the income statement for 2013 was DKK 37m
(2012: DKK 29m). Please see note 40 to the consolidated financial
statements for further information.

Corporate social responsibility

FLSmidth has submitted a progress report to the UN Global Com-
pact on 13 February 2013. The progress report replaces a statutory
statement of corporate social responsibility pursuant to the exemp-
tion given in the Danish Financial Statements Act Section 99a. The
report can be accessed on http:/www.flsmidth.com/CSRreport2013.

 

 

 

Employees

FLSmidth is a learning organisation, and our people are our most
valuable resource. And to put action behind the words, it was
decided in 2013 to enlarge the Group Executive Management

by a strategic Human Resource position in an effort to effectively
strengthen the Group's competitiveness and to put even stronger
emphasis on selecting, attracting, developing and retaining the
right people to support value creation in the Group.

The global organisation was heavily impacted by the changed mar-
ket conditions in 2013 and by a need for efficiency improvements
and business right-sizing.

Thus, 2013 saw a need to intensify the integration of acquired
activities, to increasingly use shared services and to simplify the
organisation.

The number of employees amounted to 15,317 by the end of 2013,
representing a decrease of 4% compared to last year (end 2012:
15,900). The decline is primarily explained by execution of the ef-
ficiency programme and by business right-sizing. Included in the
numbers is an increase in permanent staff of several hundreds related
to operation and maintenance contracts, which is the fastest growing
business area in the Group. The full effect of the efficiency pro-
gramme and business right-sizing actions in 2013 will show in 2014.

The composition of the global workforce was relatively unchanged
in 2013. 55% of FLSmidth's employees were below the age of 40
at the end of 2013 (end of 2012: 56%). 72% of the employees
have more than 2 years” seniority (2012: 67%). 14% of FLSmidth's
permanently employed staff is female (end of 2012: 15%). The
relatively low proportion of females is explained by the fact that
males continue to be overrepresented in the engineering profession
and among engineering students. However, it is a specific focus
area for 2014 to look into how more female employees can be
attracted and retained. Female mangers accounted for 10.5% of
all managers at the end of 2013, and the target for 2014 has thus
been achieved one year ahead of time. A new target for female

Number of employees

18,000
15,000
12,000
9,000
6,000

3,000

2009 2010 2011 2012 2013

HI Number of employees

1404014RogSN67946

FLSmidth: Annual Report 2013 MM ME

Human resource data

 

Age distribution
6%
== 22% HH <30 years

ER 30-39 years
EJ 40-49 years
ER 50-59 years
>59 years

   

33%

 

Length of service

19%

  

28% HH < 2 years

Må 2-4 years

El 5-10 years
EJ >10 years
29%

24%

 

Job function

HH Technical and engineering
ill Non-technical
46%
54%

 

Geographical distribution

10%

EH Denmark
ME USA
EI India
Hi Germany
£1 Australia
HT Other

 

 

Gender

14%
d MH Men

Hk Women

86%

 

33

 

 

34

Management's review

managers will be evaluated and set by the Board of directors and
Group Executive Management in early 2014.

Risk management

Reference is made to pages 62-67 in this Annual Report for a more
detailed description of the company's commercial risks and risk
management, which is part of the Management's Review.

Long term financial targets

In connection with the health-check of the strategy over the summer
of 2013, the long-term financial targets for the FLSmidth Group were
reiterated:

 

 

 

 

 

 

 

Annual growth in revenue Above the market average

EBITA margin 10-13%

ROCE >20%

Tax rate 32-34%

Equity ratio >30%

Financial gearing (NIBD/EBITDA) <2

Pay-out ratio 30-50% of the profit for
the year

 

The long term target for ROCE will not be achieved in 2014, Itis a
clear target to reach the long term goal within the foreseeable future
by gradually improving profitability (EBITA margin) and capital
efficiency (Revenue/Capital Employed ”TOCE”).

Operational objectives

it remains FLSmidth's intention that investments (expensed and
capitalised) in research and development should account for
around 2% of revenue (2013: 1,.7%) and that ongoing strategic
initiatives to increase off-shoring of the Group's activities to india
should continue. The ambition is that 90% of all standard order
engineering should be handled out of India. The implementation
of an FLSmidth financial shared services center in Chennai, India

is progressing as planned and is expected to be completed by the
end of 2014. In 2013, the main focus has been to strengthen

the leadership capabilities and financial skills, and to improve on
standardization and transparency in relation to financial processes
and control environment. Certain finance activities for the Group's
largest entities have either been moved to Chennai in 2013 or are
currently under transition. At the end of 2013, the staff strength of
the financial shared service center had reached some 170 people.
Over the coming years, it is also the aim to increase the Group pro-
curement from cost competitive countries to 75% (2013: -42%).

Events occurring after the balance sheet date
As announced on 9 January 2014, Eric Thomas Poupier has been
appointed Group Executive Vice President, Business Development.

As announced on 16 January 2014, FLSmidth received an order worth
USD 38m (approximately DKK 205m) from Omani cement producer
Oman Cement Company (SAOG) for the supply of milling equipment.

 

 

 

 

 

FLSmidth: Annual Report 2013 MRNA

World-class
customer services
FLSmidth's service offerings
are customised to each
customer's level of need and
expectation, Our global net-
work of support personnel
coupled with our local cus-
tomer service teams means
that we are right there when
our customers need us.

 

 

1404014EogSN67947 35

 

36

Management's review

Cembrit

Cembrit has been part of the FLSmidth Group since 1927 and it
is the only remaining Building Materials company in the Group. It
has been clear for a number of years that Cembrit is not part of
FLSmidth's long-term strategy, and a sales process was initiated in
August 2012.

However, despite interest from various parties in the market, it was
not possible for FLSmidth to reach a satisfactory sales price. In ad-
dition, the process as such, did reveal a need for various efficiency
improvements and investments in Cembrit. As a consequence,

the sales process has stopped and a significant improvement
programme has been initialed. A potential sales process will start
again when the improvement program has generated substantial
and sustainable results and the market situation in the European
building materials industry has improved.

FLSmidth will develop Cembrit as a stand-alone business, including
optimising the production facilities, developing the product portfo-
lio and further optimising the cost structure in order for Cembrit to
retain its position as the leading distributor and producer of fiber
cement products in Europe.

Martin Jermiin has been appointed President and CEO of the
Cembrit Group and Kaspar R. Kristiansen has been appointed CFO.
Additionally, an independent Board of Directors with in-depth in-
dustry experience has been appointed in order to ensure dedicated
focus, knowledge and resources. The following external members
have been appointed to the Board of directors of Cembrit: Ingemar
Tårnskår (Chairman), EVP, Nobia Supply Chain Operations; Niels
Peter Møller, retired VD of Icopal Sweden; Jan Warrer, Group Direc-
tor Grundfos Holding A/S.

As a consequence of the decision to stop the sales process,
Cembrit is reported as continuing activities in FLSmidth, but is
kept operationally as a separate non-core business unit.

Cembrit is exposed to the developments in the European building
materials industry, which remains relatively subdued. Cembrit gen-
erated a revenue of DKK 1.441m in 2013 (2012: DKK 1.435m) and
an EBITA margin of -4.4% (2012: 4.0%). Please see note 2 page
99-100 for further information.

Forward-looking statements

FLSmidth & Co. A/S" financial reports, whether in the form of
annual reports or interim reports, filed with the Danish Business
Authority and/or announced via the company's website and/or
NASDAQ OMX Copenhagen, as well as any presentations based on
such financial reports, and any other written information released,
or oral statements made, to the public based on this annual report
or in the future on behalf of FLSmidth & Co. A/S, may contain
forward-looking statements.

Words such as believe”, 'expect”, "may", ”will', "plan', "strategy",

  

'prospect”, ”foresee", 'estimate', "project", "anticipate', 'can',

'intend", 'target' and other words and terms of similar meaning in

connection with any discussion of future operating or financial per-

formance identify forward-looking statements. Examples of such
forward-looking statements include, but are not limited to:

+ statements of plans, objectives or goals for future operations,
including those related to FLSmidth & Co. A/S markets, products,
product research and product development

+ statements containing projections of or targets for revenues,
profit (or 1055), capital expenditures, dividends, capital structure
or other net financial items

. statements regarding future economic performance, future ac-
tions and outcome of contingencies such as legal proceedings
and statements regarding the underlying assumptions or relating
to such statements

+ statements regarding potential merger & acquisition activities

These forward-looking statements are based on current plans,
estimates and projections. By their very nature, forward-looking
statements involve inherent risks and uncertainties, both general and
specific, which may be outside FLSmidth & Co. A/S's influence, and
which could materially affect such forward-looking statements.

FLSmidth & Co. A/S cautions that a number of important factors,
including those described in this report, could cause actual results
to differ materially from those contemplated in any forward-look-
ing statements.

Factors that may affect future results include, but are not limited
to, global as well as local political and economic conditions, includ-
ing interest rate and exchange rate fluctuations, delays or faults

in project execution, fluctuations in raw material prices, delays in
research and/ or development of new products or service concepts,
interruptions of supplies and production, unexpected breach or
termination of contracts, market-driven price reductions for
FLSmidth & Co. A/S' products and/or services, introduction of
competing products, reliance on information technology,

FLSmidth & Co. A/S" ability to successfully market current and new
products, exposure to product liability and legal proceedings and
investigations, Changes in legislation or regulation and interpreta-
tion thereof, intellectual property protection, perceived or actual
failure to adhere to ethical marketing practices, investments in

and divestitures of domestic and foreign enterprises, unexpected
growth in costs and expenses, failure to recruit and retain the right
employees and failure to maintain a culture of compliance.

Unless required by law FLSmidth & Co. A/S is under no duty and
undertakes no obligation to update or revise any forward-looking
statement after the distribution of this annual report.

 

FLSmidth: Annual Report 2013 HØNER

 

RR

 

Ar .
Ø ne
AT

ATA

 

 

1404014EogSN67948 37

 

 

 

Customer Services
Deliver performance

o FLSmidth's service activities consist Market developments

of the Customer Services division and Overall, the market for Customer Services has seen a high degree
of resilience throughout 2013.

service-related activities that are inte-

The need for cement spare and wear parts is highly correlated with

grated in product companies in the other

the rate of utilisation at cement producers' plants which remains

divisions. Customer Services has been relatively subdued from a global perspective. As such, the basis for

cement services was largely unchanged in 2013 versus the previous

separated from the projects business to

year. Still, the global base of installed cement capacity continues to

make growth of Customer Services a clear grow, expanding the potential aftermarket. In general, parts activity
is good. However, competition for the upgrade business is intense

priority within FLSmidth and to foster a

with many bidders on all projects. At the same time, FLSmidth is

strong service CU itu re and Mi ndset. opening new doors via its innovative and sustainable approach to
. . servicing the market, founded on a total cost of ownership approach
Additionally, a sepa rate and dedicated to address customers' ongoing need to improve operational efficiency

Customer Services organisation im proves and increase profits. The ultimate solution is FLSmidth's Operation &

Maintenance model that continues to gain traction with the largest

the potential for synergies across FLSmidth. ever order in Q4 2013 and a retained promising pipeline.

From a regional perspective, the most favourable development is
seen in the U.S. where business activity is driven by both increasing

 

 

 

 

 

 

 

 

 

 

 

 

Customer Services

DKKm 2013 2012 Change (%) Q4 2013 Q4 2012 Change (%)
Order intake 8,005 9,202 -13% 2,032 2,442 -17%
Order backlog 8,046 8,159 -1% 8,046 8,159 -1%
Revenue 7,565 7,073 7% 2,000 2,129 -6%
Gross profit 1,854 1,997 -7% 480 614 -22%
Gross margin 24.5% 28.2% 24.0% 28.8%

EBITDA 768 1,012 -24% 200 317 -37%
EBITDA margin 10.2% 14.3% 10.0% 14.9%

EBITA 691 930 -26% 195 293 -34%
EBITA margin 9.1% 13.1% 9.8% 13.8%

EBIT 41 787 -95% 151 259 -42%
EBIT margin 0.5% 11.1% 7.6% 12.2%

Number of employees 5,847 6,003 -3% 5,847 6,003 -3%

 

 

 

38

 

 

 

FLSmidth: Annual Report 2013 Må mM Må

Financial results for 2013
Bjarne Moltke Hansen
Group Executive Vice President

 

The purpose is to improve the Order intake decreased

performance of customers"
plants in a safe and sustain- j Q
able manner to the highest O

possible standard.

 

Revenue increased

1%

 

EBITA decreased

26%

EBITA margin adjusted for special
items was

13.3%

 

 

The order backlog decreased

1%

 

 

1404014EFogSN6794£9 39

 

40

Customer Services

utilisation rates and to some degree the NESHAP regulation. The
contrast is the sluggish Indian market with no signs of a short term
recovery. Latin America remains a good market. Activity is high in
North Africa and the Middle East. Also Russia and the CIS countries
offer interesting opportunities.

In minerals, the service business remains in good shape with coal
being the notable exception, which led to an impairment loss on
Ludowici related activities in Q3. Throughout the year, miners have
announced programmes and progress on reducing operational
expenditures, which may explain the appreciable destocking wit-
nessed among customers.

Still, tne key driver for mining services is production and mines are
running non-stop while new capacity ordered a few years back is
coming on stream. In addition, the tight market conditions experi-
enced in Mineral Processing are creating opportunities for increased
service offerings to help customers enhance the operational ef-
ficiency of their plants. The strong attention drawn to production
efficiency provides opportunities to help customers evaluate their
operations with plant and process audits and other services.

In recent years, Miners invested heavily in new equipment, but
following a year of declining commodity prices, their return on
investment has fallen. A short-lived way of re-establishing returns
is of course to cut expenditures, but a more sustainable path is
to increase productivity by improving the performance of existing
equipment. Miners realise this and accordingly, there has been an
increased level of requests for solutions to boost productivity.

The mix and nature of FLSmidth's Customer Services business
makes it — not immune — but less affected by pricing pressure.
Spare and wear parts represent the majority of the service business
and are often either difficult to substitute or insufficient in scale to
make it worthwhile for a peer to start up a production. Another

Order intake

DKKm
10,000

 
   
        

SR

nå

8,000

TREN
RAR

     

AAN

z3
æ
SEN

6,000

4,000

2,000

0

2009 2010 2011 2012

HH Order intake (un-announced orders)
ZA Order intake (announced O&M orders)

 

DKKm Book-to-bill ratio
10,000 1.4
1.2
8,000
1.0
6,000 - 08
4,000 0.6
— 0.4
2,000
0.2
0 l l L L 0.0
2013 2009 2010 2011 2012 2013
M Order backlog — — Book-to-bill ratio

   

part of the business is Operation & Maintenance with stable con-
tracts of typically a five-year duration. Standardised services and
consumables are most exposed to competition and price pressure,
but make up a relatively small part of the total Customer Services
business. The minor part of standard services, and the much higher
share of high-tech services, also explains why FLSmidth services
rarely are at risk of being insourced by customers.

Undeniably, both cement and minerals customers at present have a
strong focus on cost and cash flow, however, a strong value proposi-
tion and modernisation of existing equipment to increase production
efficiency is equally important to customers in a slower market.

There were no major market shifts in the market for Customer
Services in the fourth quarter.

Financial results for 2013

The order intake decreased 13% to DKK 8,005m in 2013 (2012:
DKK 9,202m). In Q4 2013, the order intake decreased 17% to DKK
2,032m (Q4 2012: DKK 2,442m). However, the numbers are not
like-for-like. From and including Q4 2013, the practice for recogni-
tion of operation and maintenance (0&M) contracts in the order
backlog was changed. In 2012, FLSmidth received new O&M con-
tracts totalling DKK 2.1bn which were fully recognised in the order
intake and order backlog, whereas the largest O&M contract ever,
received in Q4 2013, was included in the order intake and order
backlog on a 12 months" rolling basis only. As FLSmidth expects to
take over the five production lines gradually throughout 2014, the
12 months' expected revenue recognized in the order backlog does
not express the full run rate once the contract is fully operational.
Adjusted for this changed accounting principle, the order intake in
2013 would be significantly higher than in 2012. Accordingly, the
order intake reflects continued good market conditions and high
capacity utilisation throughout the Mineral Processing industries
and in certain regions of the cement business.

Order backlog and book-to-bill ratio

 

 

 

 

 

 

1

 

The order backlog decreased 1% to DKK 8,046m at the end of
2013 (end of 2012: DKK 8,159m). The order backlog related to
long-term operation and maintenance contracts amounted to DKK
5.1bn at the end of 2013 (end of 2012: DKK 5.1bn).

Revenue increased 7% to DKK 7,565m in 2013 (2012: DKK 7,073m)
as a consequence of a continued strong order intake and an increas-
ing contribution from O&M contracts. Overall, the translating of
foreign currency into DKK had a negative effect on revenue amount-
ing to 5% in 2013 compared to 2012, Going forward, the changed
principles for recognition of O&M contracts, as described above,
should result in a closer match between revenue and order backlog.
In Q4 2013, revenue decreased 6% to DKK 2,000m (Q4 2012: DKK
2,129m) due to lower basic order business in cement and lower
activity in businesses participating in the coal market.

The gross profit decreased 7% to DKK 1,854m in 2013 (2012:
DKK 1,997m), whilst the gross margin decreased 3.7% points to
24.5% (2012: 28.2%). The gross margin in 2013 was impacted
by the inventory write-down in Q3 (DKK -114m) and one-off costs
in relation to the efficiency programme in Q3-Q4. The gross profit
decreased 22% to DKK 480m in Q4 2013 (Q4 2012: DKK 614m),
equivalent to a gross margin of 24.0% (Q4 2012: 28.8%).

Earnings before amortisation and impairment of intangible assets
(EBITA) decreased 26% to DKK 691m in 2013 (2012: DKK 930m),
corresponding to an EBITA margin of 9.1% (2012: 13.1%). EBITA
decreased 34% to DKK 195m in Q4 2013 (Q4 2012: DKK 293m),
equivalent to an EBITA margin of 9.8% (Q4 2012: 13.8%).

Adjusted for special items, the EBITA margin was 13.3% in 2013
and 14.6% in Q4 2013. Underlying margin levels in Customer
Services" mining related business held up well despite a highly
competitive business environment with most major customers
asking for concessions.

Revenue
DKKm DKKM
10,000 1,000

8,000 800

6,000 600
4,000 400

2,000 200

 

0
2009 2010 2011 2012. 2013 2009

i Revenue I EBITA

404014EogSN67950

 

2010

 

FLSmidth: Annual Report 2013 ØRENE

Operational highlights 2013

In 2013, FLSmidth received the largest operation and maintenance
(O&M) order ever, comprising a number of cement production lines
with the Nigerian cement producer, Dangote Cement PLC. Dangote
is the largest cement producer in Nigeria with over 60 percent mar-
ket share and the fastest growing cement producer in Africa. The
five year contract is for the full scope operation and maintenance
of five production lines, two of which were supplied by FLSmidth.
The contract covers operation and maintenance of all production
from crusher to packaging a fully automated control system for the
plant mill. With a particular emphasis on the use of local man-
power, the workforce of around 1,000 people will be trained via
FLSmidth Institute.

Including this order, FLSmidth will be operating and maintaining a
total of 15 cement production lines. Mobilisation of the Dangote
O&M project is well in progress, and FLSmidth expects to take over
operation of the first two lines in the spring of 2014, and the last
three lines towards the end of 2014.

FLSmidth is progressing well on existing operation and mainte-
nance contracts and in the past year successfully established new
business units in Tunisia and Angola where some 500 new and
dedicated employees have been recruited. Both cement plants
are now in the final commissioning phase and entering normal
production.

Also in 2013, FLSmidth was awarded a 5-year maintenance
contract from SCM Minera Lumina Copper for supply of mainte-
nance services to their copper plant located in Chile. The contract
includes a mechanical maintenance organisation of some 110
persons which will provide the customer with a reduction in their
overall maintenance costs and at the same time increase the pro-
duction through higher reliability of the equipment, while keeping
a strong focus on health and safety. With this contract, FLSmidth

EBITA and EBITA margin

EBITA margin
20%

16%

12%

8%

4%

0%

2011 2012 2013
= EBITA margin

41

 

 

42

Customer Services

is undertaking two large maintenance contracts in Chile, together
providing a strong foothold in the Chilean mining industry.

Safety is deeply embedded in everything FLSmidth does, and in
2013, the bar has been raised even higher. It is very satisfactory

to report that FLSmidth's global Operation & Maintenance team in
2013 achieved the best ever LTIFR (Lost Time Injury Frequency Rate)
of 2.2 (Number of lost time injuries per million working hours).

Already in 2012, FLSmidth started expanding its global reach by
building its first three Supercenters, strategically located close to
both mining and cement operations, and undertaken in an effort
to create a true partnership with both customers and local commu-
nities. In 2013, an additional three Supercenters were opened, and
customers present at the opening events expressed a high degree
of satisfaction with the new facilities and the available capabili-
ties close to their operations. The inauguration of the Antofagasta
Supercenter in Chile was done by the Danish Crown Prince and
Princess in the presence of many other distinguished guests.

A total of six Supercenters are now in operation, located in Tucson,
Arizona, USA; Perth, Australia; Arequipa, Peru; Antofagasta and
Santiago, Chile; and Delmas, South Africa. The Supercenters are
geared not only to offer warehousing, rebuild and repair capabili-
ties, but also specifically to support plant efficiency and safety.

The successes of the Supercenters are already obvious in the
interactions with customers. For example, a customer had con-
cerns about a gear purchased from a competitor. The gear was
therefore brought to FLSmidth's Supercenter which had the space,
cranage and Customer Services staff to assess and report on

the faults in the manufacturing. This saved the customer from a
potential catastrophic failure had they installed the gear and then
found it defective.

In addition to the Supercenters, FLSmidth expanded its local foot-
print in 2013 by establishing Local Service Units in Vietnam, Turkey
and Colombia, and expanding or improving local service capabili-
ties in Russia, Indonesia, Egypt, UAE and Brazil.

Another strong focus in 2013 has been on integration of recent
acquisitions. Including Ludowici, MIE Enterprises, DeCanter and
Teutrine.

Outlook for 2014
It is expected that revenue in 2014 will be in the range of DKK 7.5bn
to 8.5bn (2013: DKK 7.6bn).

it is expected that the EBITA margin in 2014 will be in the range of
13% to 15% (2013: 9.1%) dependent on the business mix within
Customer Services.

 

 

msg

SELE
É…
i ”
i sg

 

 

 

1404014EogSN67951

 

 

rs,
se 45

 

 

 

FLSmidth: Annual Report 2013 ØRNEN

DON de

 

 

 

 

43

 

44

Material

Sustainable solutions

o FLSmidth is strongly placed in the
material handling market and offers a
complete range of products for trans-
porting raw and bulk materials from

the mine to their final destination. Bulk
materials such as coal, iron ore and ferti-
lizers are produced, conveyed and trans-
ported in large quantities.

Market developments

The market for Material Handling, especially larger projects, has
been impacted by the deterioration in mining capex throughout
2013. In general, the market has been weak, but even more so, the
order intake reflects a very prudent tender approach as a conse-
quence of the project execution challenges experienced in this divi-
sion. However, the market for bulk materials such as coal and iron

andling

 

ore is huge, and even a subdued market offers meaningful business
opportunities, as illustrated by the awarding of a large coal project

in Mozambique at the beginning of the year, and a large pipe con-

veyor order for transport of iron ore later in the year.

The outlook for coal deteriorated in 2013. Conditions in Australia
were strained by political issues. In the US, coal is increasingly
being replaced by shale gas. Hydropower growth and a strengthen-
ing of the convergence between natural gas and coal prices weigh
on the coal market. Altogether, coal prices have faced downward
pressure in 2013 and, despite a slight improvement in the second
half of the year, a sizeable part of the production is loss-making.
Nonetheless, while the US is shuttering coal plants they are not
closing coal mines and coal unwanted at home is finding its place
overseas. The export of US coal is creating an oversupply of coal
elsewhere, triggering a gas-to-coal switch in other markets.
Simultaneously, the increased shipping of coal fosters oppor-
tunities for FLSmidth's Material Handling division since new port
facilities are needed.

 

 

 

 

 

 

 

 

 

 

 

 

Material Handling

DKKm 2013 2012 Change (%) Q4 2013 Q4 2012 Change (%)
Order intake 4,937 4,565 8% 1,655 675 146%
Order backlog 4,465 4,773 -6% 4,465 4,773 -6%
Revenue 4,552 4,997 -9% 1,472 1,326 11%
Gross profit 335 604 -45% 216 29 645%
Gross margin 7.4% 12.1% 14,7% 2.2%

EBITDA -455 -140 -225% -15 -167 -91%
EBITDA margin -10.0% -2.8% -1.0% -12.6%

EBITA "511 -186 n/a -29 -177 n/a
EBITA margin -11.2% -3.7% -2.0% -13.3%

EBIT -598 -247 n/a -67 -203 r/a
EBIT margin -13.1% -4.9% -4.6% -15.3%

Number of employees 3,306 3,435 -4% 3,306 3,435 -4%

 

 

 

 

 

1404014EogSN67952

Dk

Carsten R. Lund
Group Executive Vice President

"The Material Handling division

brings to FLSmidth the complete

range of technologies allowing

our customers to convey raw

and bulk materials while mini- É
mising environmental impact and 5 sd
reducing operating costs.” gid 2

 

FLSmidth: Annual Report 2013 HEN E

Financial results for 2013

 

Order intake increased

8%

 

Revenue decreased

3%

 

EBITA totalled DKK

->11m

 

EBITA margin adjusted for
special items was

0.0%

The order backlog decreased

6%

 

 

 

46

Material Handling

Iron ore is first and foremost challenged by a supply-driven down-
cycle, but also the slowing Chinese economy put a pressure on iron
ore prices, especially in the first half of 2013. Most export of iron
ore goes to China where the quality of iron ore is poor, and the
plants therefore have to rely on imports of high quality ore. Prices
held up well in the second half of 2013 and ended the year at a
level seen in both 2010 and 2012.

The fertilizer market has been characterised by declining prices
throughout the year. Phosphate and potash prices are easing
primarily due to lower Indian and Chinese demand and changing
market dynamics, but cost of production is decreasing as well.

In particular potash prices have been under pressure since Uralkali,
the world's biggest potash supplier, decided to end production
restrictions that underpinned global prices. Subsequently, China's
sovereign wealth fund acquired a 12.5% stake in Uralkali and with
the anticipation of a push for a continuation of Uralkali's volume-
before-price strategy, potash prices declined sharply in Q4 2013.

Growth within material handling in the cement industry will be
directly proportional to FLSmidth's overall growth in this industry.

Despite a weakening short-term outlook, primary focus on im-
proved operational excellence and a prudent tender approach, the
list of potential projects contains promising opportunities.

The mid- to long-term outlook for Material Handling remains
encouraging and Material Handling is among FLSmidth's biggest
potential growth areas. There is a large structural demand for ma-
terial handling equipment. All production of minerals and cement
includes a material handling stage in any mine or plant in any part
of the world. As ore grades of mined materials continue to decline,
the quantities to be moved and processed increase rapidly. And

as ore deposits become less accessible, typically more overburden
material has to be removed to get down to the ore body — up to

Order intake

DKKm
6,000

5,000
4,000
3,000
2,000
1,000

0

2009 2010 2011

JE Order intake

2012

2013

10 times the tonnage of ore produced. Bulk materials are often
exported and imported in large quantities, requiring additional
material handling equipment at both ends.

The fertilizer business (potash and phosphates) is influenced by
four main market drivers. Firstly, population and income growth,
especially in developing countries such as China and India, drive
an increasing demand for food and fertilizer in the longer term.
Secondly, improved social conditions lead to a change in diet which
means an increase in the use of grain and fertilizer. Thirdly, bio fuel
especially in the USA is boosting the fertilizer business. Last but not
least, the available arable land pro capita continues to fall as the
population grows. To produce the same amount of food from fewer
square metres, production is boosted by the use of more fertilizer.

Financial results for 2013

The order intake increased 8% to DKK 4,937m in 2013 (2012:
DKK 4,565m), supported by a few large orders booked at the
beginning and the end of the year. Even so, the market was weak,
and Material Handling continued its prudent tender approach.
Following the large order in Qatar, the order intake in Q4 2013 in-
creased 146% to DKK 1,655m (Q4 2012: DKK 675m). The QPMC
contract entered in Q4 was a clear sign of the strength of the new
material handling organisation.

The order backlog decreased 6% to DKK 4,465m at the end of
2013 (end of 2012: DKK 4,773m) due to modest order intake in
Q1-Q3. Despite a strong order intake in Q4, the order backlog
was unchanged from Q3 due to high order execution and foreign
exchange adjustments of the order backlog in Q4.

Revenue decreased 9% in 2013 to DKK 4,552m (2012: DKK
4,997m) following a period of challenging market conditions.
Overall, the translating of foreign currency into DKK had a negative
effect on revenue amounting to 7% in 2013 compared to 2012.

Order backlog and book-to-bill ratio

 

 

 

 

DKKM Book-to-bill ratio
6,000 14
1.2
5,000 [
i” 1.0
4,000 |
0.8
3,000
06
2,000
0.4
1,000 0.2
0 1 IL z i L 0.0
2009 2010 2011 2012 2013
HE Order backlog  — Book-to-bill ratio

 

 

 

Revenue increased 11% to DKK 1,472m in Q4 2013 (Q4 2012:
DKK 1,326m). The high order execution in Q4 is explained by
increasing income recognition, mainly on the Material Handling
projects booked in South Africa at the beginning of 2013.

The gross profit decreased 45% to DKK 335m in 2013 (2012: DKK
604m), and the gross margin decreased 4.7% points to 7.4%
(2012: 12.1%). The decline is a result of Material Handling execut-
ing a problematic legacy order backlog, as well as the inventory
write-down in Q3 and one-off costs in relation to the efficiency
programme in Q3-Q4. The gross profit increased 645% to DKK
216m in Q4 2013 (Q4 2012: DKK 29m), equivalent to a gross
margin of 14.7% (Q4 2012: 2.2%), reflecting a reduced negative
impact from risky projects in the backlog.

Earnings before amortisation and impairment of intangible assets
(EBITA) totalled DKK -511m in 2013 (2012: DKK -186m), corre-
sponding to an EBITA margin of -11.2% (2012: -3.7%). The 2013
result was impacted by provisions and incurred costs in connection
with project execution challenges experienced by the Material Han-
dling division. As accounted for throughout the year, the execution
challenges are related to underestimated risks on orders received in
previous years combined with lack of timely handling and mitigation
hereof. The consegquence has been extended time schedules and
ligquidated damages, as well as cost overruns related to extended
stay on site, quality issues and correction of engineering errors on
site, as well as underestimated costs related to material and man-
power. 14 projects out of a total of 182 material handling projects
are currently regarded as risky (end of Q3 2013: 15 projects). These
projects accounted for DKK 481m or 11% of the backlog at the end
of Q4 2013. The majority of the risky projects are expected to be
finalised by end of 2014. The one-off costs of DKK 323m realised

in Material Handling in Q2 are still expected to sufficiently cover
future losses related to the risky projects. However, the projects will
contribute with a zero contribution margin until they are executed.

 

Revenue
DKKM DKKm
6,000 400
5,000 200
4,000
0
3,000
-200
2,000
1,000 400
0 -600
2009 2010 2011 2012 2013 2009
RE Revenue BE EBITA

1404014FogSN67953

FLSmidth: Annual Report 2013 HØRE

EBITA amounted to DKK -29m in Q4 2013 (Q4 2012: DKK -177m),
equivalent to an EBITA margin of -2.0% (Q4 2012: -13.3%).

Adjusted for special items, the EBITA margin was 0.0% in 2013
and 2.9% in Q4 2013.

Operational highlights 2013

Resolving execution of the problematic order backlog in Material
Handling has been of paramount importance in 2013, but just as
important is it to make sure that no new problematic projects appear
in the future. In recognition of insufficient integration of acquired
Material Handling companies in the past, a number of initiatives
were put in place already in 2012 to enhance operational excellence,
including transfer of project management know-how and best prac-
tices from other divisions as well as strengthening of the divisional
Management Group. A specific strategy has been developed to
globalise and align the business approach in the division. Implemen-
tation of this strategy has been a key focus in 2013. For example, a
Bid Assessment Process has been implemented to enhance focused
sales efforts and a global Project Review Board has been established.
Also tools and processes to ensure a unified approach to engineering
across the division were implemented in 2013.

In Q4 2013, FLSmidth was awarded a DKK 1 billion order for a
material handling stockyard system in Qatar. The order placed

by Qatar Primary Materials Co. covered supply of conveying and
stacking systems for a terminal expansion. The complete system
for building materials will have a capacity of 30 million tonnes per
year. The scope of supply includes a large high capacity conveying
system, a complete integrated instrumentation and control system,
complete stockyard equipment including six stackers and all electri-
cal equipment and an advanced stockyard and truck management
system as well as training of client staff. The installation of the
conveying systems will reduce the environmental impact caused by
the current transportation system, while the FLSmidth automated

EBITA and EBITA margin

EBITA margin
10%
ST 5%
' É

-5%
-10%
-15%

2011 2012 2013
= EBITA margin

47

 

48

Material Handling

stockyard management system will allow for an increased and
optimised throughput of the terminal.

Earlier in the year, a large order was received from a leading Indian
steel producer, Tata Steel to supply two pipe conveyors for trans-
port of iron ore over a distance of 9 km from the customer's mine
to the railway loading point.

At the beginning of the year, a DKK 658 million coal project in
Mozambique was awarded to FLSmidth by the long term Brazilian
customer, Vale. The order was for the supply of material handling
as well as mineral processing equipment. The process equipment
included FLSmidth Ludowici reflux classifiers and horizontal belt
filters and illustrated the benefit of Ludowici in the FLSmidth
minerals portfolio. The order also exemplified that the very sizeable
coal market continues to offer interesting opportunities despite a
generally soft market.

Also in 2013, FLSmidth cemented its green profile through a break-
through order in the highly specialised niche market for air pollution
control technology in China. The order from the Shenzhen Energy
Company entailed delivery of an advanced dust emission technology
for their two coal fired power plants in Southern China. More than
50% of the coal fired power plants in the world are located in
China and they are a major contributor to air pollution. As part

of its current 5-year plan, the Chinese Government has given

top priority to environmental protection and has introduced new
stricter emission legislation.

ELSmidth's supply of 36 units of its advanced COROMAXTM dust
emission technology to Shenzhen Energy Company will contribute
to achieving record low dust emissions and enable the customer to
fulfil the strict Chinese emission controls.

Another project for environmental control commissioned in the
past year enabled the customer to reduce emissions with zero
downtime. In just 10 months, dust emissions from the ACC Limited
(Holcim Group) Gagal Cement Plant in India have been success-
fully reduced. Utilising FLSmidth's unique long-bag technology and
efficient cleaning system ensures compliance with environmental
regulations now and in the future. The Engineering Procurement
and Construction (EPC) project was commissioned with emission
measurements at 1.75 mg/Nm3 which is well below the local envi-
ronmental regulations.

A milestone in the past year was the commissioning of a major
plant in Indonesia for processing overburden overlying a coal mine.
This plant combines Abon? sizers with Material Handling apron
feeders, discharge conveyors, overland conveyors, and an MSC
(Mobile Stacking Conveyor) with a mobile spreading conveyor. This
technology eliminates a large part of the truck fleet that would be

required otherwise. It also reduces the operating cost of the mine,
although requiring a somewhat higher initial investment.

A breakthrough product launched in 2013 was the BulkExpertT7M,

a new fully automated and highly sophisticated stockyard system
that increases throughput by up to 10-15% and delivers consistent
and precise data from the stockyard. The system is 100% auto-
mated and uses 3D laser scanning and GPS navigation, enabling
3D visualisation of the stockyard's interior. In addition, this leading
solution for stockyard management enables FLSmidth's customers
to increase safety and minimise the use of staff.

FLSmidth continuously develops its product portfolio to meet

the changing demands and has designed and manufactured the
world's largest traditional gearbox for vertical roller mills which
was shipped to a client in the Middle East in 2013. Back in 2012,
FLSmidth was requested to quote for a very large capacity vertical
cement mill. FLSmidth opted for their large OK54-6 requiring a
7.8 MW gearbox drive. A competitor solution for a new type of
non-traditional drive of such size was considered, but due to time
and price a traditional vertical mill gearbox had to be considered.
So far, none of the gearbox suppliers had ever designed or supplied
a traditional vertical mill gearbox above 6.5 MW. FLSmidth MAAG
Gear took up the challenge and designed and manufactured a
new 3-stage WPV-5000 7.8 MW 200 ton gearbox for this project
— being the world's largest traditional gearbox for vertical roller
mills. FLSmidth MAAG gear has just received a new challenge to
design and manufacture a similar gearbox — this time an even
larger 8.7 MW gearbox.

Outlook for 2014

It is expected that revenue in 2014 will be in the range of DKK
3.5bn to 4.5bn (2013: DKK 4.6bn) reflecting a weak short-term
market outlook and a continued prudent tender approach.

It is expected that the EBITA margin in 2014 will be 0-2% (2013:
-11.2%). Though provisions have been made in 2013 for antici-
pated losses in relation to challenging projects, these projects will
proceed with a zero-margin contribution until executed, which
means that the margin is expected to improve gradually as the
projects are finalised.

 

 

FLSmidth: Annual Report 2013 EMNE

 

Fig SE:
se st AN 20"
me

 

 

 

1404014EogSN67954 49

 

 

 

 

50

Mineral Processing
A global structure

o FLSMmidth's Mineral Processing divi-
sion encompasses all the technologies,
products, processes and systems used

to separate commercially viable minerals
from their ores. The division's solutions
range from process optimisation services
and the supply of single machines to the
design and delivery of complete plants
for concentrating and refining copper,
gold, coal, iron ore, fertilisers and other
minerals.

Mineral Processing

Market developments

The mining capital expenditures downturn has been a prevailing
theme in 2013 and the market for Mineral Processing has dete-
riorated throughout the year and remains soft. After a period of
acquisitions and strong expansion among Miners, mining compa-
nies turned their focus to cost and capital efficiency. In addition,
slowing growth in China and declining commodity prices have
contributed to a slow market for mining projects and equipment.

 

Accordingly, tendering activity has been at a lower level than 2012,
and large announced orders have been lacking. Development
continues for the higher return projects, and FLSmidth had some
expectations for announced orders in the second half of 2013, but
these orders lacked for several reasons. investment decisions take
longer than anticipated and industry delivery times have shortened
considerably post the mining boom, providing customers with

an extended time frame to decide on equipment purchase. Also,
customer financing takes time, making it more difficult to predict
when potential orders materialise.

 

 

 

 

 

 

 

 

 

 

 

 

DKKm 2013 2012 Change (%) Q4 2013 Q4 2012 Change (%)
Order intake 5,559 10,318 -46% 1,025 2,467 -58%
Order backlog 4,993 9,589 -48% 4,993 9,589 -48%
Revenue 9,256 9,512 -3% 2,376 3,358 -29%
Gross profit 1,999 2,196 -9% 513 829 -38%
Gross margin 21.6% 23.1% 21.6% 24.7%
EBITDA 850 1,079 -21% 174 483 -64%
EBITDA margin 9.2% 11.3% 7.3% 14.4%
EBITA 757 1,000 -24% 153 457 -67%
EBITA margin 8.2% 10.5% 6.4% 13.6%
EBIT 211 773 -73% 88 426 -79%
EBIT margin 2.3% 8.1% 3.7% 12.7%
Number of employees 2,840 2,833 0% 2,840 2,833 0%

 

 

 

 

FLSmidth: Annual Report 2013 ØM MEE

Financial results for 2013
Peter Flanagan
Group Executive Vice President

 

In Mineral Processing we i) . Order intake decreased

aim to be our customers' " M
One Source supplier for i OR | / O
unlocking their mineral . ? oe O

resources safely, efficiently
and sustainably.

 

Revenue decreased

3%

 

EBITA decreased

24%

 

EBITA margin adjusted for
special items was

3.1%

 

The order backlog decreased

4.8 %

 

 

1404014EogSN67955 51

 

52

Mineral Processing

The smaller unannounced orders declined at the beginning of the
year but stayed at a stable and healthy level in the subsequent
quarters, although softening somewhat in Q4. However, a sound
pipeline of mid-size projects and plant modifications aimed at
increasing capacity and, in particular, improving efficiency remains
in the tendering queue, while greenfield exploration is on hold for
most miners.

The weakness first seen in coal and iron ore showed signs of
spreading into gold and copper in 2013. Even so, the copper
spot price stayed above nearly all mines' cash cost of production
throughout the year, and unlike coal and iron ore, copper demand
tends to grow in line with GDP. Despite Chinese growth trending
away from double digits, the country's consumption of copper

is expected to double in the next decade, and going forward

new investments will likely be supported by China expanding its
international mining operations to become more self-sufficient in
copper — a development which is likely to take place regardless of
the copper price trend.

Copper is the largest mineral segment for FLSmidth. The Group has
a strong market share in copper concentration and sees growing
opportunities in hydrometallurgical and other downstream copper
production processes, as further competencies are developed.

The gold market remains rather active though gold miners find it
increasingly difficult to cover their all-in-costs in the lower gold
price environment. Like copper, gold is an important commodity to
FLSmidth who has the most complete flow sheet in the business
where customers are increasingly looking for one source suppliers
with extended scope capabilities. A special focus has been put on
developing gold to hedge the other minerals activities due to its
countercyclical tendencies and ability to absorb overhead in active
projects in lean economic times.

Order intake

DKKm
12,000

10,000
8,000
6,000
4,000
2,000

0
2009 2010 2011 2012

HE Order intake

FLSmidth has a complete coal preparation flow sheet and is well
positioned to take a significant share of new coal preparation plant
capex once the current excess coal production capacity is absorbed
by the market. Iron ore and fertilizers, primarily potash and phos-
phate, are currently less important commodities for the Mineral
Processing division but the intention is to grow in these industries
through further flow sheet development.

Longer term, the positive outlook for mining capex is unchanged.
The demand for minerals will continue to grow, reflecting societal
changes in the developing countries where the growing middle
class is boosting demand for infrastructure and consumer goods.
Decreasing ore grades are also creating additional demand for
more production capacity; especially for copper, gold and to a
lesser extent iron ore.

Financial results for 2013

The order intake decreased 46% to DKK 5,559m in 2013 (2012:
DKK 10,318m), reflecting the deteriorated mining capex market.
The order intake in Q4 2013 amounted to DKK 1,025m repre-
senting a decrease of 58% compared to Q4 2012 (Q4 2012:

DKK 2,467m) and a sequential decrease of 32% (Q3 2013: DKK
1,510m), implying a softening of the market for Mineral Processing
in Q4, following three quarters showing a stable level of unan-
nounced orders. The level of order intake in 2014 is expected to be
similar to 2013. Quarterly variations may occur.

The order backlog decreased 48% to DKK 4,993m at the end of
2013 (end of 2012: DKK 9,589m) reflecting the weaker order
intake in 2013.

Revenue decreased 3% to DKK 9,256m in 2013 (2012: DKK

9,512m), holding up well due to the strong order intake in 2011
to mid 2012, since lead times for products and projects are up to

Order backlog and book-to-bill ratio

DKKm Book-to-bill ratio
10,000 1.4
1.2
8,000
1.0
6,000 08
4,000 | 0,6
0.4
2,000
0.2
0 0.0
2013 2009 2010 2011 2012 2013

EH Order backlog  — Book-to-bill ratio

 

 

two years. Overall, the translating of foreign currency into DKK had
a negative effect on revenue amounting to 6% in 2013 compared
to 2012. Revenue decreased 29% to DKK 2,376mM in Q4 2013 (Q4
2012: DKK 3,358m) due to decreasing contribution from orders
received in the previous two years.

The gross profit decreased 9% to DKK 1,999m in 2013 (2012: DKK
2,196m), and the gross margin decreased 1.5% points to 21.6%
(2012: 23.1%), attributable to the inventory write-down in Q3 and
one-off costs in relation to the efficiency programme in Q3-Q4.
The gross profit decreased 38% to DKK 513m in Q4 2013

(Q4 2012: DKK 829m), equivalent to a gross margin of 21.6%

(Q4 2012: 24.7%).

Earnings before amortisation and impairment of intangible as-
sets (EBITA) decreased 24% to DKK 757m in 2013 (2012: DKK
1,000m), corresponding to an EBITA margin of 8.2% (2012:
10.5%). EBITA decreased 67% to DKK 153m in Q4 2013 (Q4
2012: DKK 457m), equivalent to an EBITA margin of 6.4%
(Q4 2012: 13.6%).

Adjusted for special items, the EBITA margin was 9.1% in 2013
and 7.1% in Q4 2013.

Operational highlights 2013

As a consequence of the prevailing mining capex downturn, no
Mineral Processing orders above the announcement threshold of
DKK 200m were booked in 2013. However, the division main-
tained a stable flow of smaller unannounced orders most of the
year, and the business activity in terms of project execution has
been historically high.

 

In 2013, FLSmidth completed engineering of its first mid capacity
40,000 metric tonnes per day copper concentrator located in the

Revenue
DKKm DKKM
10,000 1,200
8,000 1,000
800
6,000
600
4,000
400
2,000 | 200
0 0
2009 2010 2011 2012 2013 2009
HE Revenue HI EBITA

1404014EFogSN€7956

FLSmidth: Annual Report 2013 MERE

South Gobi Desert of Mongolia. This is a complete copper con-
centrator including a 60” gyratory crusher, a 36' diameter SAG
mill, two 22' diameter ball mills, 300 cu.m SuperCellTM flotation
machines, a 60m diameter tailings thickener, Pneumapress filters,
Krebs gMAX cyclones and millMAX pumps, a VXP regrind

mill and Ludowici screens.

A trend in the mining industry is to "go big" meaning that miners
request larger and larger equipment to obtain scale and process
more material to cope with declining ore grades. FLSmidth is
continuously developing its product portfolio to meet the changing
demands and designed and supplied the largest cone crusher in
the world for Osisko Mines in Canada which went into operation in
2013. The XL2000, delivering 2500 HP, jumped ahead of competi-
tion by stepping up nearly 100% in size over the previous largest
cone crushers that offered only 1300 HP. Not only will this change
flowsheet designs in the future, the XL2000 cone crusher was
taken from concept stage to delivery in less than two years. Previ-
ously using a competitor's product, Osisko's gold plant production
was less than half of nameplate design and required new concep-
tual changes in order to economically achieve nameplate produc-
tion. FLSmidth's XL2000 was the answer, and due to instalment of
this new large scale technology ahead of Osisko's existing SAG mill
installation, the plant exceeded rated production in 2013.

The year also encompassed shipment of the largest flotation cell

in the world. The 600 series SuperCell7M, with an active volume of
660 m, was designed by FLSmidth and is now under construction
for operations with both self-aspirated and forced air mechanisms.
To answer market demands, FLSmidth will install and test this
world's largest flotation cell at the Robinson Mine in Nevada.
The 600 Series SuperCellTM will be used as a rougher-scavenger

in the copper flotation circuit. The combination of validated CFD
modeling, empirical correlations, and years of operating experience

EBITA and EBITA margin

EBITA margin
14%

12%
10%
89%
6%
4%
2%

0%
2011 2012 2013

= EBITA margin

53 -

 

54

Mineral Processing

provides the confidence to initiate the largest ever step change in
flotation design by producing the upcoming 600 series.

Since the acquisition of Knelson in 2011, FLSmidth has taken

one of its lesser known product lines and grown the VXP mill
technology over 2.5 times in size, making it an excellent eco-
nomical alternate technology to existing competition regrind mill
applications for all commodities. Shipment of the first VXP 5000,
1500 KW regrind mills, for two copper concentrators in 2013 will
provide the foundation for significant growth of this market previ-
ously 100% controlled by our competition. When started, each of
the VXP 5000 vertical regrind mills will process between 25 to 55
tonnes per hour of copper concentrate, providing the concentra-
tor with additional copper output prior to concentrate shipment.
This milestone event positions the Group well for increased sales
opportunities and fills a previously vacant product in our copper
flow sheet.

At the end of 2013 FLSmidth successfully commissioned an ECS/
ProcessExpert advanced process control system in the grinding
circuit at cia. Minera Antapaccay (a Glencore company) in Peru.

A significant milestone for FLSmidth's Automation Business Unit

as this blue chip minerals processing reference on the largest
volumetric capacity SAG mill operational in the world today adds
to our growing global list of advanced minerals process control
references. The process control application is based on FLSmidth's
proprietary software for grinding circuit process control and is inte-
grated together with FLSmidth's Impactmeter which is a patented
proprietary software based instrument, specifically developed to
optimise energy efficiency and provide mill liner protection in semi-
autogenous grinding mills.

For more than 30 years, FLSmidth has been delivering robotic labo-
ratories to the cement and, more recently to the mining industries.
FLSmidth's expansion into supply of ore characterisation and pro-
cess mineralogy services means that FLSmidth can make good use
of the advantages of laboratory automation in its own facility in
Salt Lake City, Utah, USA. Therefore, the FLSmidth? QCX/RoboLab?
system has been installed at FLSmidth's own ore Characterization
& Process Mineralogy labs in Salt Lake City. The first samples were
processed by the system in July 2013 as part of the commission-
ing process, Full commissioning of the system was completed

in September 2013. The addition of ihe QCX/RobolLab facility
expands the capabilities of the newly established state-of-the-art
Ore Characterization and Process Mineralogy (OCPM) laboratory

in the FLSmidth Minerals Testing and Research Center. This lab
serves internal FLSmidth projects, and also directly supports mining
customers around the world. In the first 18 months of operation,
the OCPM lab has completed approximately 200 projects for more

  

than 30 clients. The lab decided to automate key processes, which
allowed it to greatly expand its capacities without the need for
significant staff increases. The QCX/ RoboLab system will allow the
OCPM lab to take on large-scale projects (hundreds to thousands
of samples) that are often part of exploration, feasibility and geo-
metaliurgical studies, and be able to complete these projects in a
short time period for its clients. All software and sample prepara-
tion equipment in the laboratory is manufactured by FLSmidth.

Also, in 2013 FLSmidth commissioned the first HPGR pilot test at
Cerro Prieto in Mexico. After successful operation in Q2, we
expect this to lead to our first commercial order for this emerging
technology in gold processing.

Outlook for 2014

Given the weaker order intake in 2013, it is expected that
revenue in 2014 will be in the range of DKK 5.5bn to 6.5bn
(2013: DKK 9.3bn).

It is expected that the EBITA margin in 2014 will be in the range
of 6-8% (2013: 8.2%) as the order backlog will be emptied of
the very profitable pre-crisis orders. Additionally, margins will

be impacted by one-off costs related to the ongoing efficiency
programme and the right-sizing of the division's resources to the
expected lower business volume in 2014. The level of order intake
in 2014 is expected to be similar to 2013.

 

FLSmidth: Annual Report 2013 MM EM

 

 

1404014EogSN67957. 55

Cement ||
Quality & reliability

 

c1 For more than 130 years, FLSmidth has

factor, especially for projects offered on an EP — Engineering and
Procurement — basis, where FLSmidth in recent years managed to

been the leading supplier of complete on . |
significantly reduce the price gap to emerging market competitors.
cement plants, production lines, single In many cases, customers value FLSmidth technology and expertise
. higher. That said, the current trend is towards larger scope and
machinery, spare parts, knowhow, : ”
orders being placed with fewer or only one supplier, and a large
number of projects today are being put out for tender on an EPC

services and Maintenance to the global

— Engineering, Procurement and Construction — basis.

cement industry.

In the course of 2013, the Chinese domestic market for new

56

Market developments

Global market for new cement capacity

The market for new cement kiln capacity has been on the bottom
of the cycle since 2009. A similar or slightly higher level of activity
is expected for 2014, whereas any real recovery is not expected
until 2015, depending on overall global economic growth and
business sentiment.

The market for cement capacity remains very competitive and price
sensitive with every project having multiple bidders. However, it
varies from project to project whether price is the most important

cement capacity almost completely vanished, leading emerging
market competitors to aggressively pursue EPC projects outside
of China, often on terms and conditions that are unacceptable to
FLSmidth. FLSmidth takes on EPC projects only when risks can be
mitigated to a reasonable extent and acceptable contract terms
can be obtained.

The global market for contracted new kiln capacity (exclusive of
China) amounted to an estimated 50m tonnes per year in 2013
(2012: 40m tonnes per year), which continues to be at a low level
following in the wake of the global financial crisis. The primary

 

 

 

 

 

 

 

 

 

 

 

 

Cement

DKKm 2013 2012 Change (%) Q4 2013 Q4 2012 Change (%)
Order intake 3,417 4,599 -26% 1,150 615 87%
Order backlog 5,389 7,585 -29% 5,389 7,585 -29%
Revenue 5,201 4,214 23% 1,496 1,498 0%
Gross Profit 701 1,269 -45% 102 409 -75%
Gross margin 13.5% 30.1% 6.8% 27.3%

EBITDA 161 788 -80% -35 317 -111%
EBITDA margin 3.1% 18.7% -2.3% 21.2%

EBITA 124 752 -84% -44 307 -114%
EBITA margin 2.4% 17.8% -2.9% 20.5%

EBIT 95 669 -86% -58 304 -119%
EBIT margin 1.8% 15.9% -3.9% 20.3%

Number of employees 2,251 2,554 -12% 2,251 2,554 -12%

 

 

 

FLSmidth: Annual Report 2013 MERE NR

Financial results for 2013
Per Mejnert Kristensen
Group Executive Vice President

 

Global responsibility for OG ; Order intake decreased

technology, innovation and É .
design of the Group's key PG ; O
machinery is centralised in a G ' O

global organisation to ensure
that all projects worldwide
maintain a consistent and
high technological standard.

 

Revenue increased

23%

 

EBITA decreased

4%

 

EBITA margin adjusted for
special items was

1.5%

 

The order backlog decreased

29%

 

 

" 1404014BogSN€7958 57

 

58

Cement

reasons are that decision making is dragging out and that India is at
a very low level with respect to investments in new cement capacity.

On a global level, significant overcapacity and consequently low
utilisation rates persist, resulting in delay of investments in new ca-
pacity in a number of countries. Nonetheless, a number of oil rich
countries with political stability continue to grow their economies
and invest, Proposal activity remains stable and relatively high in
many parts of the world, most notably in the Middle East, parts of
Africa, Russia, South America and parts of Asia.

In early 2013, the Indian market saw signs of inquiry levels and
tender activity picking up, but the market has softened again as a
result of a sluggish Indian economy. FLSmidth continues to have a
leading position in India and is ready to capture the market once
investments return.

In the US, FLSmidth remains in a market leading position. Cement
producers' utilisation rates are increasing, but the level is stili below
the typical threshold for investments in new plants. The NESHAP
regulatory requirements to be enforced from September 2015
continue to create opportunities, but until US cement producers"
utilisation rates increase further, many potential orders will likely be
smaller in size.

Global cement consumption

Global cement consumption amounted to around 4.0bn tonnes in
2013 (2012: 3.7bn tonnes) of which China accounted for approxi-
mately 2.4bn (2012: 2.2bn tonnes) and India approximately 0.2bn
tonnes (2012: 0.2bn tonnes). Annual growth in global cement
consumption ex-China is expected to be 3-5% in the coming years.

Cement consumption dropped dramatically after the global financial
crisis in 2008 in most parts of the world, however mostly in the

Estimated global contracted kiln capacity (excl. China)

Million tonnes per year

160

140

120

100

80

60

40

20

0
OS NANMINVOMÆOOSNSOSTSYAYMINIOENWSBSO RT WM
ÅATNSSNNSNNSNSSO0OSOSOS0O0OG0BSGSOS ere er
Adan ddS05050s5S5550505600e
ETERN ANANANANNANANANANNANNAN

HE Contracted kiln capacity

  

developed part of the world. North America is seeing a recovery,
while there are no signs of a bounce in European cement consump-
tion despite a slowly improving economy.

In Africa, many countries continue to see growing cement
consumption, but parts of North Africa are still impacted by the

” Arab Spring”, especially Egypt with a fragile political situation
and production restrictions due to gas supply shortages. Sub-
Saharan Africa as a whole is experiencing high economic growth
and increasing cement consumption due to income from natural
resources. The order for a greenfield plant in Equatorial Guinea and
the largest ever Operation & Maintenance contract in Nigeria prove
FLSmidth's strong presence in this region.

Parts of the Middle East are still booming and though it is a dif-
ficult environment, FLSmidth received a large order in Qatar just
before year end. Also, Russia offers opportunities, but potential
projects are dragging out.

The overall cement consumption growth slowed in South Asia,
partly driven by Indonesia. Despite a slower growth, the growth
drivers in Indonesia remain intact and FLSmidth was awarded a
large order for supply of equipment for a production line in Indo-
nesia just before year end.

In South America, Brazil is growing at a lower level but still offers
interesting opportunities.

In India, cement consumption growth is at a lower level than
recent years and insufficient to make up for the significant over-
capacity built up prior to 2012. The country's structural economic
problems do not point to any short-term recovery, but longer term
the potential for the world's second largest cement market is vast.
The population is almost comparable to China in size, but the

Order intake

DKKm

5,000
4,000
3,000
2,000

1,000

 

0

2009 2010 2011 2012 2013
M Order intake

 

cement consumption is roughly one eighth of the Chinese cement
consumption per capita and the lowest consumption per capita
among the world's 10 largest cement producing countries.

Financial results for 2013

The order intake decreased 26% to DKK 3,417m in 2013 (2012:
DKK 4,599m) reflecting challenging market conditions as described
above. The order intake increased 87% in Q4 2013 to DKK 1,150m
(Q4 2012: DKK 615m) following two large orders close to year end
in Qatar and Indonesia respectively.

The order backlog decreased 29% in 2013 to DKK 5,389m (end

of 2012: DKK 7,585m). The order backlog has suffered from a sig-
nificant reduction in the market for new cement capacity since the
2008 financial crisis. A gradual rebuilding of the order backlog is ex-
pected as the recovery of the global cement industry gathers speed.

Revenue increased 23% to DKK 5,201m in 2013 (2012: DKK
4,214m). Overall, the translating of foreign currency into DKK had
an impact of DKK 111m on revenue in 2013 compared to 2012.
Revenue was unchanged at DKK 1,496m in Q4 2013 (Q4 2012:
DKK 1,498m). The foreign exchange effect of translating into DKK
had a negative impact on revenue of 3% compared to 2012.

The gross profit decreased 45% to DKK 701m in 2013 (2012: DKK
1,269m), and the gross margin decreased 16.6% points to 13.5%
in 2013 (2012: 30.1%). The gross profit in Q4 decreased 73% to
DKK 102m (Q4 2012: DKK 409m), equivalent to a gross margin of
6.8% (Q4 2012: 27.3%). The gross margin in 2012 was exception-
ally high due to better than expected order execution and reversal
of contingencies and provisions in connection with finalisation of
projects taken in pre-crisis years. The gross margin in 2013 was
impacted by the inventory write-down in Q3 and one-off costs in
relation to the efficiency programme in Q3-Q4, however the main

 

Order backlog and book-to-bill ratio Revenue
DKKm Book-to-bill ratio DKKm
10,000 2.0 10,000
8,000 8,000
1.5
6,000 6,000
1.0
4,000 4,000
0,5
2,000 2,000
0 0.0 0
2009 2010 2011 2012 2013 2009
ER Order backlog — = Book-to-bill ratio El Revenue

1404014EogSN67959

 

2010

FLSmidth: Annual Report 2013 MERE NEN

impact was from the outcome of the arbitration case related to the
English cement plant Buxton in 2004, which impacted EBITA in Q4
with approximately DKK -160m.

Earnings before amortisation and impairment of intangible assets
(EBITA) decreased 84% to DKK 124m in 2013 (2012: DKK 752m),
corresponding to an EBITA margin of 2.4% (2012: 17.8%). EBITA
amounted to DKK -44m in Q4 2013 (Q4 2012: DKK 307m), equiva-
lent to an EBITA margin of -2.9% (Q4 2012: 20.5%). In 2013,
EBITA was impacted by costs related to the efficiency programme,
an inventory write-down as well as the Buxton arbitration award

as described above. The EBITA margin in 2012 was extraordinarily
high for the same reasons as stated above in relation to the gross
margin.

In 2012, the order book consisted partly of very attractive pre-crisis
orders. As highlighted in the 2012 Annual Report, the order backlog
was exhausted for the attractive pre-crisis orders entering 2013, and
orders taken in the midst of the financial crisis were executed in 2013.

Adjusted for special items, the EBITA margin was 7.5% in 2013
and 10.2% in Q4 2013.

Operational highlights 2013

In 2013, the importance of FLSmidth's presence on the African
continent was manifested with the booking of a large order for the
supply of a greenfield plant in Equatorial Guinea. The order placed
by Grupo Abayak AKOGA Cemento S.A. amounted to DKK 505m
and the plant will have a capacity of 3,000 tonnes per day.

In spite of a sluggish Indian cement market, the past year entailed
a large order for the supply of main equipment for a greenfield
cement plant in India. The plant was ordered by Orient Cement
Limited and will have a capacity of 6,000 tonnes per day.

EBITA and EBITA margin

DKKm

1,000

EBITA margin
20%

800
15%

600

10%
400

0
200 5%

 

 

0 0%
2011

2012 2013

2009
HH EBITA

2010 2011) 2012. 2013

& EBITA margin

59

 

60

Cement

The year ended with the receipt of two larger cement orders.
FLSmidth was awarded a DKK 515m order from Al! Khalij Cement
covering supply of a cement production line in Qatar. The produc-
tion line will be a duplicate of the existing line, which was supplied
by FLSmidth in 2007, and is being supplied in cooperation with
CNBM International Engineering, which is part of China National
Building Materials (CNBM) — the largest building materials group

in China and a global supplier of integrated EPC (Engineering,
Procurement and Construction) projects. FLSmidth's role in the
cooperation is to engineer the plant and supply the main equip-
ment. CNBM is the turnkey contractor and received the order from
Al Khalij Cement in cooperation with FLSmidth. The FLSmidth and
CNBM offering combines environmentally cutting-edge process
know-how, engineering and equipment supply from FLSmidth with
a cost efficient EPC contract.

Further, FLSmidth received a DKK 300m order in Indonesia from
PT Semen Padang for a cement production line with a capacity of
8,000 tonnes per day. This new line will be the sixth line at the
plant site and FLSmidth supplied four of the other five lines.

A significant achievement in 2013 was the completion of the
Djebel Ressas cement production line in Tunisia with a capacity of
5,800 tonnes per day. The plant has now been handed over io the
Operation & Maintenance staff at FLSmidth's Customer Services
division who will run the plant for at least the next 5 years. This
clearly illustrates FLSmMidth's unique ability to offer and successfully
execute complete projects and subsequently run plants on behalf
of customers.

Another milestone in 2013 was the sale of the first OK vertical raw
mill. This newly developed product is expected to gradually replace
the Atox mill as FLSmidth's leading raw mill design.

Outlook for 2014

It is expected that revenue in 2014 will be in the range of DKK
3.5bn to 4.5bn (2013: DKK 5.2bn) reflecting a relatively solid back-
log going into the year and a view that the market for new cement
capacity most likely will increase slightly in the coming year.

It is expected that the EBITA margin in 2014 will be in the range of
5% to 7% (2013: 2.4%).

HAr Ut

 

 

FLSmidth: Annual Report 2013 MM Må

 

 

 

 

UNDRE RERVALETN

 

 

61

 

1404014RogSN678260

 

wis« Management

co Risks and risk management play an
inherent role in most of FLSMidth's busi-
ness. The Group undertakes considerable
risks within areas in which it has estab-
lished the competencies to identify, as-
sess, manage and where relevant Mmitigate
the risks.

Risk taking is an intrinsic, necessary and accepted part of FLSmidth's
business and effectively managing risk has a high priority within the
Group's business model as it is considered a competitive parameter
as well as a fundamental part of creating value to its sharehold-

ers. Through good business practices designed to ensure that
FLSmidth achieves its strategic, business and governance objectives,
the Group continuously strives to protect its corporate reputation,
values and integrity.

FLSmidth's risk management framework
and process

ELSmidth's approach to risk management is based on a top-
down approach with the underlying assumption that all divisions,
business units and Group functions exist to provide value for the
Group's stakeholders.

The risk management framework is set out in the Group's risk
management policy, which describes the purpose, scope, principles,
expectations, roles and responsibilities, policy authority and the
monitoring and reviewing of risks — both potential and actual. The
Board of directors is ultimately responsible for this policy, which in-
cludes defining the Group's overall risk appetite and risk tolerance,
that and continuously assessed, managed and monitored by the
Group's Executive Management and the day-to-day management
of the business units and Group functions.

The business units and Group functions have the responsibility to
identify, assess, manage and mitigate both internal and external
risks as they are close to the source of the risk and are responsible
for or affected by the activity or area from which the risk emerges.
This is a fundamental principle in FLSmidth's risk management
philosophy that is executed at the following levels:

+ Group: covering all group level risks, including major external
risks that may impact the Group's ability to achieve its strategic
objectives on a sustainable basis;

« Divisions: covering general risks related to the respective focus
industries, as well as risks related to the interaction between the
business units and Group functions;

+ Business units: covering specific risks related to their specific
business activities, e.g. projects, products, services, own manu-
facturing, operation and maintenance, Supercenters, etc., and

+ Group functions: such as legal, tax, treasury, governance and

compliance, IP, strategic supply chain, research and development,

health and safety, travel security and IT covering all global risk
areas that function across the divisions and business units.

Risk reporting

FLSmidth's Global Risk Management Department is responsible for
preparing a report for the Board of Directors and Group Executive
Management. This report includes action plans for managing the
relevant risks.

Risk reporting

Formal reporting Informal reporting

« Finance, operations, risks VAN + Adhoc
+ Monthly uuneyd . Continuous
+ Quarterly le Bend] N
ar kede
" Yearly Å uemmmernner be
STN
BÆRNGIOUDIExecUtIVej
Management
DA
Bhvisia

 

urne umis

 

 

 

 

FLSmidth: Annual Report 2013 MERE EN

 

Everything needed
to maintain plants
FLSmidth's portfolio of sup-
port services is dedicated to
helping plants keep availabil-
ity to an absolute maximum
while meeting tough cost

and performance targets.

 

 

1404014EogSN67961

 

 

Risk Management

Operational
Excellence
FLSmidth is developing
and maintaining strategic
supplier relationships to

ensure consistent high-
quality, reliable delivery and
competitive pricing for all
products, while protecting
our intellectual properiy.

 

 

 

Insurance
Mitigating the financial impact of certain types of risk is an es-
sential risk management tool, which allows FLSmidth to transfer

whole or parts of the financial loss to an insurer, if an insured risk
materials,

FLSmidth's Global Insurance Department is an integrated part of
the Global Risk Management Department, and is responsible for
the Group's asset risk management and the placement and coor-
dination of its insurance programme, which consists of a combina-
tion of global and local insurance policies.

Generally, FLSmidth accepts to retain a certain level of risk. The
level of this retention is continuously evaluated and adjusted, tak-
ing into consideration the Group's financial strength, the magni-
tude of the insured risk and the cost-benefit evaluation based on
the options and prices available in the global insurance market.

Current risk assessment

Being a supplier of single machine units, complete complex produc-
tion plants and services to the global minerals and cement indus-
tries, FLSmidth is exposed to a vast array of strategic, operational,
financial and hazardous risks that must be identified, evaluated
and managed on an ongoing basis. These risks include, but are not

FLSmidth: Annual Report 2013 HÆRE

limited to the following: country, political, manufacturing, competi-
tors, supply chain, logistical, shortage of skilled labor, raw material
price fluctuations, currency, counterpart, design, technology/prod-
uct, theft of intellectual property rights, business integration, IT,
legal, compliance, tax, natural disasters and environmental.

While FLSmidth has a low risk appetite for certain types of risk such
as: safety, currency, theft of intellectual property rights, business
integration, IT, legal, compliance and tax, it is prepared to accept
considerable project-related risks within the areas where the Group
has the competencies to manage such risks, provided however,
that the risks can be managed or mitigated to a reasonable extent.

During the risk assessment process in 2013, FLSmidth - in addition
to project-related risk and litigation — identified the following key
risks in random order of priority:

«+ Supply chain

+ Market and competition

+ Business integration

+ Human resources

+ Research and development

The most significant risks have been identified through a risk
mapping of probability and consequence, as illustrated below:

 

 

100 ;- mu: ; —
| Detect and monitor Action — mitigate if possible
90 |
| Market
80 gt rr or EPC- O
70 ; ; ; 7 10 ET ” R&D Peers
| Safety e Supply chain
0 me (DD - (
t i æg Human Resources
å 50 - j
E Low control Monitor ;
— «Business, ;
40 E) integration ;
Global IT Political (3 , |
30 instability/unrest in ” ” i
Legal and OD |
20 regulatory shifts = ;
CSR ;
'. O 0 |
Financial |
0 emsues re mu mee kan erne meen kronen egnene men rem
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Probability

1404014EogSN67962

65

 

 

Risk Management

Risk assessment and mitigating actions

RISK

Projects

Supply chain

Market and
competition

Business
integration

66

 

CONTEXT

A large part of FLSmidth's business
consists of supplying equipment to
customer-built plants, or in some cases
to be responsible for the entire construc-
tion on an engineering procurement and
construction (EPC) basis of very large,
complex processing plants.

FLSmidth's projects are often located in
remote locations with poor infrastructure,
and often in countries with poor political,
administrative and judicial structures in
place. This can pose significant logistical
challenges as well as country-specific and
political risks. Diligent project execution
is vital to secure delivery on time and ac-
cording to the budget and specifications.
Lack of the same can cause significant
cost overruns.

Most of the manufacturing is delegated
to a global network of subcontractors
and suppliers. This has proved both a ro-
bust and sustainable business model that
is highly suitable for a cyclical industry.

In the short-term, the market is
characterised by a high-degree of
uncertainty and fierce competition in
all markets with regard to both product
development and price.

In 2013, FLSmidth continued the integra-
tion process of the businesses acquired
in 2012.

 

MITIGATION

FLSmidth focuses its proposal activities on projects that lie within
its core competencies and match the Group's strategic goals. By
doing so, FLSmidth ensures that it is only involved in projects with
an acceptable risk profile.

All large EPC projects must be reviewed and approved by the
Group's EPC Approval Board, which consists of members from the
divisions, the Group's General Councel and the Head of Group
EPC Support.

FLSmidth conducts monthly project reviews of all large projects
including a risk analysis of the relevant scenarios and the opportu-
nities/possibilities for the mitigation of these risks. Where relevant,
the Group has established project task forces with participants
from selected areas of expertise across FLSmidth including divi-
sional COOs/CFOs and relevant specialists to create a uniform
platform for sparring on projects that are complex due to size
and/or geographical location.

To mitigate supply chain risks, FLSmidth continues to broaden its
supply base by building relations with new equipment manufac-
turers, as well as entering into long-term master agreements with
important suppliers, or by acquiring suppliers/manufacturers of
important equipment.

Additionally, in terms of proprietary equipment and certain fast
turning parts that are important to its Customer Services business,
FLSmidth controls the entire value chain by being involved in the
engineering, production and assembly of such equipment in our
own workshops.

To provide security of supply and consistent and high quality

of the supplies, whether from external suppliers or from the
Group's own manufacturing units, FLSmidth applies standardised
procedures for health and safety and quality control. Quality is
controlled via the Group's comprehensive inspection programme
for the locations where manufacturing of key items takes place.

FLSmidth's flexible cost structure and the nature of its backlog
with a relatively long execution time means that the Group is able
to adjust cost levels to mitigate the impact of changed business
cycles and to cushion the effect of any market trends.

In order to mitigate the effect of such situations, FLSmidth moni-
tors macroeconomic indicators in key markets and develop contin-
gency plans in order to reduce costs if needed, thereby protecting
the Group's profitability.

FLSmidth is conscious of the fact that growth through acquisitions
is a faster and riskier way of growing our business.

FLSmidth continues to focus on harvesting sales and cost synergies
through clear dedication of responsibilities for every part of the
integration process — a thorough integration plan concept that
covers all areas of the acquired businesses.

 

 

 

 

1404014EogSN67963

RISK CONTEXT

Human
resources

In a knowledge-based company like
FLSmidth, the employees are our most
important resource,

It is an ongoing challenge to attract and
retain employees with the competencies
needed to continue to develop the Group's
technological and geographical platform.

Research and
development

Research and development is an inte-
grated part of FLSmidth's Group research
and product review where key activities
include science and engineering based
research and the continuous evaluation
of new technologies and concepts.

Litigation European Commission's investigation into
the alleged participation of the formerly
owned FLSmidth company, Silvallac S.A.
in an illegal cartel, see FLSmidth Company

Announcement 13-2012. (6 March, 2012).

FLSmidth is a defendant in a large
number of pending lawsuits in the
United States that seek to recover
damages for personal injury allegedly
caused by exposure to asbestos-con-
taining products manufactured and /or
distributed by FLSmidth in the past.

FLSmidth operates in a large number of
countries with very differing tax systems
both in terms of complexity, predictability
professionalism and objectivity. As a con-
sequence, FLSmidth is occasionally faced
with situations where local tax authori-
ties are seeking to enforce an increase in
corporate tax and taxable income without
the necessary statutory authority.

 

 

FLSmidth: Annual Report 2013 HEM

MITIGATION

The challenge is met by taking coordinated global, regional and
local initiatives to offer attractive employment conditions, as well
as comprehensive training and development initiatives.

FLSmidth is also focused on building long-term relationships

with future key-players in the industry by working closely with
universities and other educational institutions, for example our
sponsorship of PhD programs and joint-development projects with
scientific teams from relevant universities.

For O&M projects, FLSmidth secures the necessary manpower by
training and developing the local labour force.

The Group's efforts are focused on the research and development
of technical solutions with high reliability and availability with a
minimum environmental impact and the lowest possible lifecycle
costs.

The claims are exclusively related to the liability deriving from
FLSmidth's ownership of Silvallac during the period concerned.
The final decision is expected during the course of 2014.

The Group's strategy for managing this ongoing exposure includes
a combination of dedicated in-house resources focused on insur-
ing early settlement intervention and thereby keeping cost and
settlement amounts as low as possible, insurance coverage and
indemnification agreements.

To minimise this exposure, FLSmidth has a close collaboration with
internationally reputable accounting and legal firms via their local
representation in the respective countries.

67

 

68

MIN

OVATION

 

Engineering tomorrow's solutions

O It is FLSmidth's vision to be the cus-
tomers' preferred full-service provider of
sustainable minerals and cement technolo-
gies. This is reflected in focused research
and development (R&D) efforts aimed at
fulfilling customers' future needs in terms
of timely and competitive new offerings,
safety, innovative technical solutions, high
reliability and availability, minimum envi-
ronmental impact and the lowest possible
product lifecycle costs.

Going forward focus will be on increasing the return on R&D
investments, securing the right product portfolio aligned with cus-
tomer needs, and getting the product improvements and additions
quickly and more frequently to the market to meet FLSmidth's
ambition of product and technology leadership.

In its research and development investments, FLSmidth places
particular emphasis on the use of alternative fuels, reduced
emissions and waste, improved heat recovery, lower power
consumption, minimised water consumption, increased plant
capacity, availability and operating efficiency and minimum
safety risk.

2013 saw total research and development expenses at DKK 419m
(2012: DKK 347m), accounting for 1.6% of revenue (2012:1.4%).
The total investment includes a capitalised amount of DKK 117m
(2012: DKK 104m) and is supplemented by considerable project-
financed developments in partnership with customers.

In 2013, FLSmidth signed a loan agreement totalling EUR 125m with
the European Investment Bank (EIB) for an R&D earmarked loan.

The 5-year loan will finance parts of FLSmidth's global research
and development programme within the cement industry during
the period 2013-2016. This research and development programme
will focus primarily on development of increased capacity, general
design for more compact installation and lower demands on the
civil part of projects, new replacement parts for aftermarket sales,
developments within storage facility systems for raw materials,
optimisation of energy efficiency and use of materials and fuel in
the production process as well as reduction of harmful emissions.

Re-organisation of research and development
in 2013

As with all other segments of FLSmidth's business, research and
development is part of the global efficiency programme and
adjustments have been carried out during the autumn of 2013

in order to streamline and optimise the R&D deliverables. During
the coming quarters, a product pruning will be exercised whereby
technology and profitability will be scrutinised for all the Group's
product categories, and the R&D efforts will also — once the effi-
ciency programme has generated financial improvements — receive
increased funding from the programme in order to support the
long term ambition of FLSmidth to have leading technologies. The
coming quarters will also see a reorganisation of the R&D setup in
FLSmidth to reflect the ambitious R&D targets.

Product innovations 2013
Below are some of the most important product innovations and
research initiatives within FLSmidth in 2013.

FLSmidth's research and development related to the minerals
industries focuses on solutions to some of the challenges miners
face. These are safety, increasing volumes of raw materials and
energy costs, decreasing ore grades, complex mineralogy, water
scarcity, difficult environmental permitting and increasing project
capex requirements.

In 2013, FLSmidth continued to develop thickening and filtration
technologies that enable mining customers to increase their water
recovery, and to maximise the dryness of the waste material from

 

 

FLSmidth: Annual Report 2013 HE REE

Fast, reliable and
accurate analysis
The QCX/RoboLab?é is fully
automated, robotics based
laboratory concept. With
more than 50 systems
supplied globally, FLSmidth
is considered a leader in
this field.

 

 

 

1404014FRogSN67964 mm 69

 

 

70

Innovation

tailings in the mining process. FLSmidth's newly designed Colossal”Mm
filter press has been engineered to be twice as wide as previous
filter presses to efficiently capture more water for recirculation at
minerals plants. When combined, FLSmidth's thickened paste and
advanced filtered dry tailings stacking technologies, supplied by the
Material Handling Division, contribute to a far more environmentally
friendly Mining site.

Higher throughput and lower energy consumption in the flotation
cells used in the minerals industries have also been focus areas in
2013. In 2013, the revolutionary 600 Series SuperCellTM flotation
machine began installation at a site in Nevada, USA, this being the
new record-holder in competitive size. The new SuperCell provides
for a larger universal tank that is the largest and most efficient
flotation cell available. It also comes with optional mechanisms,
including FLSmidth's new design rotor that offers lower energy
consumption than smaller cells.

In addition to new, large-throughput plants, these cells are espe-
cially attractive in a situation where there is limited room for expan-
sion in existing large-capacity plants and will reduce installed costs
by up to 25%.

For the material handling industry, FLSmidth in 2013 launched a
new fully automated and highly sophisticated stockyard system
that increases troughput by up to 10-15% and provides consistent
and precise data from the stockyard. The system is 100% automat-
ed and based on 3D laser scanning and GPS navigation, enabling
3D visualisation of the stockyard's interior. The FLSmidth BulkExpert
system can be integrated with both existing and new FLSmidth or
3rd party stockyard equipment. Combined with stockyard equip-
ment from the Material Handling division this constitutes the lead-
ing solution in stockyard management.

A joint minerals and cement technology research project was start-
ed in May 2013 in collaboration with other Danish companies and
The Danish Technological University of Denmark (DTU). It is a DKK
63m research project supported by The Danish National Advanced
Technology Foundation. The research project will focus on process
technology for the cement, minerals and metal industries.

During 2013, a number of minor developments and new products for
the minerals industries were concluded and introduced to the world
market. Among these are a number of cone crushers, a gyratory
crusher and a new belt press. New sizes of screens were designed and
all in all 3 new product lines of screens were introduced to the market.

In response to the industry quest for improved performance, better
techniques and the reduction of subsequent CO, emissions during
the pyro metallurgical stages of lime processing, FLSmidth has
developed the Multiple Cassette Preheater (MC PTM).

The MCPIM preheater offers improved heat transfer with reduced
power consumption, reduced stone degradation and lower build-up
potential. Thanks to the unique geometry of the MCPIM Preheater,
hot gases leaving the burning kiln are drawn equally around the
full circumference of each cassette for solids and gas to efficiently
interact. Raw material is also delivered to the cassettes in a more
uniform distribution and in counter-current to the hot kiln gases,
increasing the efficiency of preheating and precalcining of the lime.

The MCPIM preheater features superior heat transfer and can
operate for longer periods of time without requiring maintenance.
The MCPIM preheater saves 55 kcal/kg of lime produced over
FLSmidth's previous preheater model. This equates to approxi-
mately 7,000 tons/year less CO, emitted for each plant where the
equipment is installed. It also saves 4 gigawatt-hours of electricity
annually per plant.

Priorities in cement research and development are driven by global
trends to reduce CO, and other harmful emissions as well as indus-
try demands for lower costs and higher energy efficiency.

The large research project ”New Cement Production Technology”
carried out in cooperation with the Technical University of Denmark
(DTU) and financially supported by the Danish National Advanced
Technology Foundation was concluded in 2013.

The project has provided fundamental new and science-based
knowledge which can be used to upgrade cement production
technology for the present market and to develop new concepts
that are more efficient to operate and may show the way to lower
emissions of harmful compounds and CO.

The main outcomes are models for improving and designing alter-
native fuel firing in cement kilns and a new concept for increased
efficiency of SO, reduction. Additionally, these achievements have
so far resulted in a number of patent applications.

The four year research project "Manufacturing of highly reactive
Supplementary Cementitious Materials for low-CO, cement” (SCM)
is being carried out in cooperation with Aarhus and Aalborg Uni-
versities and the cement producer Aalborg Portland in Denmark,
who is an industrial partner in this project. The project that has
made good progress in 2013, focuses on flash calcinations of clay
raw materials for SCM production and is receiving financial support
from the Danish National Advanced Technology Foundation.

In order to gain hands-on experience with the new SCM technolo-
gies and to start using it locally at cement plants around the globe,
FLSmidth has developed a mobile, 5 tonnes per day SCM plant that
can easily be fitted into a 40-foot container and shipped to cus-
tomer sites. The mobile plant is fully integrated and self-contained.

 

 

 

FLSmidth: Annual Report 2013 SENE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With its simple setup and operation, it is easy to integrate into FLSmidth-supplied 6,850 tonnes per day production line. STAR

customers” production. Cement's 4.8 MWe waste heat recovery project is currently under
commissioning. The project utilises excess clinker cooler air to make

Concerns regarding the strength of early blended cements are being the plant more energy-efficient.

addressed by another research project, which is beginning to show

promising results. Research shows that the performance of blended

cements with calcined clay is comparable to, and even better than,

that of other blended cements using, for example, fly ash.

The STAR cement plant in Ras Al Khaimah in the United Arab
Emirates is one of the front runners in sustainable cement pro-
duction, operating with exceptionally low costs. The plant is an

1404014EogSN67965 ”

 

Board of Directors and Executive Management

 

BOA
of Directors

 

Vagn Ove Sørensen (Chairman) Gåtaverken Energy AB (1988-1992), Burmeister & Wain
MSc (Econ. (Economics and Business Administration) and Scandinavian Contractor A/S (1981-1988).
Bus. Admin.), age 54, Danish, male and member of the Board of

 

 

Om

 

Directors elected at the Annual General Meeting since 2009, Executive positions in Denmark: Chairman of the Boards of

Chairman of the Board since 2011. Member of the Audit,
Remuneration and Nomination Committees.

Directors of Burmeister & Wain Scandinavian Contractor A/S, EUDP
(Energy Development and Demonstration programme), State of
Green Consortium. Member of the Boards of Directors of Mesco

Formerly CEO of Austrian Airlines (2001-2006) and Executive Danmark A/S and Siemens A/S Danmark.

Vice President, Scandinavian Airlines Systems (1984-2001). Executive positions outside Denmark: Senior Advisor to the

Executive positions in Denmark: Chairman of the Board of Board of Mitsui Engineering & Shipbuilding Lid. (Japan).

Directors of TDC A/S. Vice Chairman of the Board of Directors of
DFDS A/S.

Special competencies in relation to FLSmidth: former CEO,
experience in technology management, mergers and acquisitions,

Member of the Board of Directors of CP Dyvig & Co. A/S, Nordic and international contracts.

Aviation Capital A/S. CEO of CFKJUS 611 Aps. Senior Advisor to
EQT Partners.

Shareholding in FLSmidth & Co. A/S: 5,000 (2012: 5,000).

Executive positions outside Denmark: Chairman of the Boards

 

of Directors of Scandic Hotels AB (Sweden), Select Service Partner 63 Martin Ivert

Pic (UK), Automic Software GmbH (Austria). Member of the MSc (Metallurgy), age 66, Swedish, male, and member of
the Board of Directors elected at the Annual General Meeting

 

 

 

Boards of Directors of Lufthansa Cargo (Germany), Air Canada
(Canada), Royal Caribbean Cruises Ltd. (USA), Braganza AS
(Norway). Senior Advisor to Morgan Stanley.

since 2008. Member of the Technology Committee.

Formerly CEO of LKAB (2002-2008), Division Director, SKF (1998-
2001), CEO of Ovako Steel (1995-1998), and before that various
managerial posts in SKF (1974-1995).

Special competencies in relation to FLSmidth: former CEO,
experience in acquisitions and disposals, financing, stock markets,

 

international contracts and accounting.
Executive positions outside Denmark: Chairman of the Board

Shareholding in FLSmidth & Co. A/S: 2,466 (2012: 1,316). of Directors of Åkers (Sweden). Member of the Board of Directors
of Ovako (Sweden).

 

 

 

 

æ Torkil Bentzen (Vice Chairman) Special competencies in relation to FLSmidth: former CEO,
MSc (Engineering), age 67, Danish, male and member of experience from the minerals and process industry, experience
the Board of Directors elected at the Annual General Meeting in acquisitions and disposals, financing and stock markets,
since 2002. Vice Chairman of the Board since 2012. Chairman of international contracts, and accounting.

the Technology Committee and member of the Nomination and
Compensation Committees. Shareholding in FLSmidth & Co. A/S: 300 (2012: 300).

Former CEO of ENERGI E2 A/S (2000-2006), i/s Sjællandske
Kraftværker (1999-2000), Ludvigsen & Hermann A/S (1994-1999),

72

 

 

 

FLSmidth: Annual Report 2013 ØEHER

 

 

 

 

 

1404014ERogSN67966

 

  

 

 

Martin Ivert

 

   

 

 

 

Søren Quistgaard Larsen

   

Jens Peter Koch ”

 

 

74

Board of Directors and Executive Wanagement

 

Sten Jakobsson

 

Od

 

 

MSc (Mechanical Engineering), age 65, Swedish, male and
member of the Board of Directors elected at the Annual General
Meeting since 2011. Member of the Audit Committee.

Formerly Regional Manager, North Europe, ABB ASEA BROWN
BOVERI (2006-2011), CEO, ABB Sweden (2001-2011), various
managerial posts in ABB ASEA BROWN BOVERI (1973-2001).

Executive positions outside Denmark: Chairman of the Board of
Directors of Power Wind Partners AB (Sweden). Vice Chairman of
the Board of Directors of SAAB (Sweden). Member of the Boards of
Directors of LKAB (Sweden), Stena Metall (Sweden), Xylem Inc (USA).

Special competencies in relation to FLSmidth: former CEO,
experience in acquisitions and disposals, financing and stock
markets, international contracts, building contracting, and
accounting.

Shareholding in FLSmidth & Co. A/S: 2,000 (2012: 1,500).

 

… Å Tom Knutzen
&

 

 

MSc (Economics) in Finance and Strategic Planning, age

 

51, Danish, male and member of the Board of Directors elected
at the Annual General Meeting since 2012. Chairman of the
Audit Committee.

CEO of Jungbunzlauer Suisse AG, Switzerland since 2012.

Formerly CEO of Danisco A/S (2006-2011), and CEO
(2000-2006) and CFO (1996-2000) of NKT Holding A/S.

Executive positions outside Denmark: member of the Board
of Directors and the Board Risk Committee for Nordea Bank AB
(publ) (Sweden).

Special competencies in relation to FLSmidth: CEO, former
CFO, experience in global high technology manufacturing
companies, technology development, acquisitions and disposals,
financing and stock markets, international contracts, and
accounting.

Shareholding in FLSmidth & Co. A/S: 7,300 (2012: 7,300).

 

6 Caroline Grégoire Sainte Marie

 

 

BA Commercial Law, Institut d'Etudes Politiques de Paris,

 

age 56, French, female and member of the Board of Directors
elected at the Annual General Meeting since 2012. Member of the
Technology Committee.

Formerly President and CEO of Frans Bonhomme. Various
managerial positions at Groupe Lafarge (1997-2006) including
CEO of Lafarge Germany and Czech Republic, Senior Vice
President of Mergers & Acquisitions in Lafarge's Cement Division,
CFO of Lafarge Speciality Products.

Executive positions outside Denmark: member of the Boards
of Directors of Safran SA (France), Groupama SA (France), and
Eramet (France).

Special competencies in relation to FLSmidth: former CEO and
CFO, experience in acquisitions and disposals, financing and stock
markets, international contracts and accounting, and extensive
knowledge of the cement industry.

Shareholding in FLSmidth & Co. A/S: 150 (2012: 50).

 

Mette Dobel
BSc (Commercial Engineering) PgC in Management, Global

o7

 

 

 

Product Manager, age 46, Danish, female and employee-elected
member of the Board of Directors since 2009.

Shareholding in FLSmidth & Co. A/S: 864 (2012: 864).

 

Søren Quistgaard Larsen
& g

 

 

BSc (Electrical Engineering), Proposal Manager, age 35,

 

Danish, male and employee-elected member of the Board of
Directors since 2013.

Shareholding in FLSmidth & Co. A/S: 65 (2012: N/A).

 

Jens Peter Koch
MSc (Electrical Engineering) and Grad. Dipl. BA (HD
International Business), Business Developer, age 31, Danish, male

 

0

 

 

and employee-elected member of the Board of Directors since 2013.

Shareholding in FLSmidth & Co. A/S: 40 (2012: N/A).

 

 

FLSmidth:

 

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1404014EogSN67967

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75

 

Board of Directors and Executive Management

   
   

The Executive
Management

 

 

 

Thomas Schulz

MSc (Engineering), PhD Mining
Engineering (Dissertation in Mineral Mining
and Quarrying), Group Chief Executive
Officer, with FLSmidth since May 2013.
Age 48, German.

Gi

 

 

 

Formerly Chairman of SJL Shan Bao (2011-
2012) and various managerial positions

in Sandvik since 2001: President of the
Business Area Construction (2011-2012),
President, Construction, and SVP, Mining
and Construction (2005-2011), Managing
Director, Mining and Construction Southeast
Asia Ltd. (2009-2012), Regional President
Mining and Construction Central Europe
(2001-2002). With Svedala, Germany: Busi-
ness Area Manager (1999-2001), Product
Support Manager (1998-1999). With Techni-
cal University of Aachen: Assistance of Sci-
ence (1994-1998), International Consultant
for Mining (1994-1998).

 

Virve Elisabeth Meesak
BSc (Psychology and Behaviourism),

(02

 

 

 

Group Executive Vice President, Global
Human Resources, with FLSmidth since 2013.
Age 53, Swedish.

Formerly independent human resource
consultant, specialised since 2010, Human
Resource Director, Alstrom Power Services,
North East Europe (2008-2010), Vice Presi-
dent, Human Resources Sandvik Mining and
Construction AB (2005-2008). Before 2005
different positions within sales, marketing,
and HR with Ericsson, Nokia, Electrolux,
Philips, Perstorp. She has been based in
Singapore, USA, France, and Sweden before
relocating to Denmark for FLSmidth.

1404014EogsSsN67968

FLSmidth: Annual Report 2013 EM

 

j H
3 Bjarne Moltke Hansen

 

 

BSc (Engineering), Group Executive

 

Vice President, Customer Services Division
since March 2002, with FLSmidth since 1984.
Age 52, Danish.

Formerly CEO, Aalborg Portland Holding
A/S (2000-2002), CEO, Cembrit Holding A/S
(1992-2000), Various managerial posts in
Unicon A/S (1984-1995).

Executive posts in Denmark
Member of the Board of Directors of RMIG A/S.

 

oa Per Mejnert Kristensen

 

 

 

Msc (Mechanical Engineering),
Bachelor of Commerce degree, International
Trade, Graduate Diploma (Bus. Admin.),
International Trade, GMP, CEDEP (INSEAD),
Group Executive Vice President, Cement
Division since March 2012, with FLSmidth
since 1992. Age 46, Danish.

Formerly Vice President, Head of Project
Division EMEA/APAC, FLSmidth (2009-2012),
Vice President, Head of Project Division 1,
FLSmidth (2005-2008), General Manager,
FLSmidth China (2000-2005), Chief Repre-
sentative, Thailand, FLSmidth (1996-1999).

 

(& Peter Flanagan

 

 

 

B.S. (Mechanical Engineer), Group
Executive Vice President, Mineral Processing
Division since March 2012, with FLSmidth
over two periods: 1990-1998 and 2007-
present. Age 48, American.

Formerly Vice President, Americas Minerals
and Global Minerals Processing, FLSmidth
(2007-2012), Vice President, Global Chemi-
cal, Industrial and Hydromet Markets, Various
managerial positions in GL&V/DORR-OLIVER
EIMCO (1998-2007) including Director
(Technology), Director (Industrial Market-
ing), Global Market Manager (Pulp & Paper).
Country Manager (Canada) and District
Manager, Fuller-FLSmidth (1995-1998).

  

 

Ben Guren

Chartered Accountant and State-
authorised Accountant, Group Executive Vice
President and CFO, with FLSmidth since April
2012. Age 53, Norwegian.

.

 

 

 

Formerly Group Vice President Finance, IT &
Legal of Jotun Group (2007-2012), CFO of
Helly Hansen Group (2005-2007). Partner in
KPMG International (1989-2005).

 

Carsten R. Lund
Msc (Engineering) & e-MBA, Group
Executive Vice President, Material Handling

07

 

 

 

Division since July 2012, with FLSmidth since
1988. Age 51, Danish.

Formerly Global ERP Programme Director,
Vice President FLSmidth (2011-2012), CEO
FLSmidth Airtech, Vice President FLSmidth
(2007-2011), Business Unit Manager, Gas
Cleaning Systems, FLSmidth Airtech (2004-
2007), Vice President, Global Products and
Technology, FLSmidth Airtech (2002-2004).

Executive posts in Denmark
Member of the Board of Directors of Union
Engineering A/S and DINEX A/S.

 

Eric Thomas Poupier

 

08

 

 

MBA, Finance & Strategic Manage-
ment, Specialised Master, Supply Chain
Management, Mechanical Engineer, Group
Executive Vice President, Business Develop-
ment, with FLSmidth since January 2014. Age
37, French.

Formerly with Bain & Company: Strategy
Consulting Manager (2011-2014), Strategy
Consulting Consultant (2007-2011). With
Bosch Group: Purchasing Manager, Bosch
Rexroth, Changzhou, China (2005), Strategic
Purchaser, Corporate Purchasing, Bosch
Rexroth (2002-2005), Germany, Purchasing
Rotational Program, Robert Bosch GmbH,
Germany (2000-2002).

77

 

 

78

Corporate socia

mm

responsibillit

o FLSmidth has submitted a progress report to the UN Global Compact
on 13 February 2014. The progress report replaces a statutory statement
of corporate social responsibility pursuant to the exemption given in the
Danish Financial Statements Act Section 99a. The report is available on
www.,ELSmidth.com/CSRreport2013.

An overview

SOCIAL PERFORMANCE

2011 REPORT

2012 REPORT

2013 REPORT

EMPLOYEES 13,204 15,900 15,317
GENDER — % FEMALE MANAGERS 7.2% 9.2% 10.5%
EMPLOYEE ENGAGEMENT (satisfaction rate) 71 72 n/a
SAFETY — LTIFR 4.2 4.7 3.9
SAFETY TRAINING HOURS 2.5 5.7 7.6
FLSmidth SITES AUDITED Not reported 12 28

ENVIRONMENTAL PERFORMANCE

 

2011 REPORT

 

2012 REPORT

 

2013 REPORT

SCOPE 1 - CO, eg IN TONNES 23,000 27,550 24,050
SCOPE 2 — CO, eg IN TONNES 55,900 54,450 58,950
SCOPE 3 — CO, eg IN TONNES 34,000 39,800 37,400

 

 

 

FLSmidth: Annual Report 2013 HM MEE

 

 

 

Smarenolcder
information

o FLSmidth has a sustainable business and Templeton Global Advisors Limited (part of Franklin
. R , Inc.)

model and good growth opportunities. Ssources, INC.)

With two-thirds of revenue being gener- 2013 saw a slight decrease in shares held by foreign investors to

approximately 35% including Templeton Global Advisors Limited,

USA (2012: 38%), while Danish retail investors increased their

FLSmidth is an investment in the emerging share to 34% (2012: 33%). As a consequence of the share

buy-back programme executed in 2013, FLSmidth's holding of

treasury shares increased to 7% (2012: 2.6%)

ated in emerging markets, an investment in

markets' growth story.

Shareholder structure
Capital and share structure 5%
FLSmidth & Co. A/S is listed on NASDAQ OMX Copenhagen.
No special rights are attached to any share and there are no

HE Danish (retail)
F2 Danish (institutional)

31%

restrictions on the transferability of the shares. EC] Danish (non-registered)

EH FiSmidth & Co. A/S
ÉT Foreign
I Templeton Global Advisors

The share capital amounts to DKK 1,064,000,000 consisting of
53,200,000 issued shares at DKK 20 each. Each share entitles the
holder to 20 votes.

 

The Board of Directors will propose to the Annual General Meeting
that 1,950,000 shares acquired in connection with a share buy-

back programme of DKK 521m in 2013 be cancelled, which will Historical development in shareholder structure
reduce the share capital to DKK 1,025,000,000 and total number 100%

of issued shares to 51,250,000 after the Annual General Meeting. 90%
80%
70%

The FLSmidth & Co. A/S share is included in a number of share 60%

 

indices on NASDAQ OMX Copenhagen, including OMXC20, a 50%
leading share index. In total, the FLSmidth & Co. share is included 40%
in 87 Danish, Nordic, European and global share indices. 30%

20%

10%
According to the FLSmidth & Co. A/S share register, the company had 0%

approximately 56,600 shareholders at the end of 2013 (end of 2012: 2009 2010 2011 2012 2013
approximately 58,000). In addition, some 3,500 present and former
employees hold shares in the company (end of 2012: some 3,600).

 

El Templeton Global Advisors ml FLSmidth & Co. A/S

ET OppenheimerFunds Inc. [I Danish (non-registered)
FYR on
The FLSmidth & Co. share has a free float of 93%. Two shareholders [Jus [1 Danish (institutional)
have reported a shareholding exceeding 5%: Franklin Resources Inc. [arr HI Danish (private)
OQ] Foreign

80

 

 

 

Shares and share options held by the Board
and Management.

The Board of Directors holds a total of 18,185 FLSmidth shares
(2012: 17,524 shares). The holdings of the individual members
appear on the pages 72-74,

The Group Executive Management holds a total of 3,154 FLSmidth
shares (2012: 4,225 shares) and 169,519 share options (2012:
165,982 share options). Other key staff (249 persons) own a total
of 1,771,603 share options (2012: 1,178,698 share options).

Return on the FLSmidth share in 2013

The total return on the FLSmidth & Co. A/S share in 2013 was

-7% (2012: 0%). By comparison, the leading Danish stock index
"OMXC20 CAP” increased 34% and ”Dow Jones STOXX 600 Basic
Resource” index decreased 11% in 2013. The share price started the
year at 327,2 and ended the year at 296.1, having ranged between
249 and 397 during the year.

Capital structure and dividend for 2013
FLSmidth Management takes a conservative approach to capital
structure, with an emphasis on relatively low debt, gearing and
financial risk. The aim is to maintain an equity ratio of more than
30% and to have a net debt position with gearing up to maximum
2 times EBITDA. As a consequence of a number of special items
booked in 2013, the capital structure is temporarily outside the desired
range, which is expected to have normalised by the end of 2014.

The available capital resources consist of committed credit facilities

at a total of DKK 8.3bn (end of 2012: DKK 7.8bn) with a weighted
average maturity of 2.8 years (end of 2012: 3.3 years)

Share and dividend figures, the Group

 

FLSmidth: Annual Report 2013 MM REE

The Board of Directors will propose at the Annual General Meeting
that a dividend of DKK 2 per share (2012: DKK 9) corresponding to a
dividend yield of 0.7% (2012: 3%) be distributed for 2013

FLSmidth Investor Relations

Through the Investor Relations function, the Board of Directors
maintains an ongoing dialogue between the company and the stock
market and ensures that the positions and views of the shareholders
are reported back to the Board.

The purpose of the FLSmidth & Co. A/S Investor Relations function is

to contribute to ensuring and facilitating that:

+ all shareholders have equal and sufficient access to timely, relevant
and price-sensitive information

+ the share price reflects FLSmidth's underlying financial results and a
fair market value

+ the liquidity and the day-to-day trading turnover of the FLSmidth
share is sufficiently attractive for both short-term and long-term
investørs

+ the shareholder structure is appropriately diversified in terms of
geography, investment profile and time scale.

To achieve these goals, an open and active dialogue is maintained
with the stock market both through FLSmidth's website and
electronic communication service and via investor presentations,
investor meetings, webcasts, teleconferences, roadshows, the Annual
General Meeting and capital market days.

 

 

 

 

 

 

 

 

 

 

2009 2010 2011 2012 2013
CFPS (cash flow per share), DKK (diluted) 47.1 25,3 21.8 33.0 (7.9)
EPS (earnings per share), DKK (diluted) 31.9 24.4 27.1 25,0 (15.6)
Equity value per share, DKK (diluted) 126 154 169 181 139
DPS (dividend per share), DKK 7 9 9 9 2
Pay-out ratio (%) 22 37 33 36 n/a
eo to share price end of year) (%) 1.9 1.7 2.7 2.8 0.7
FLSmidth & Co. A/S share price, end of year, DKK 367 532 337.5 327.2 296.1
Number of shares (1,000), end of year 53,200 53,200 53,200 53,200 53,200
Average number of shares (1,000) (diluted) 52,429 52,693 52,550 52,136 49,891
Market capitalisation, DKKM 19,524 28,302 17,955 17,407 15,753

 

1404014FogSN67970 81

 

82

Shareholder information

Management and Investor Relations attended some 410 investor
meetings and presentations (2012: 325) held in cities including Am-
sterdam, Beijing, Boston, Brussels, Chennai, Chicago, Copenhagen,
Edinburgh, Frankfurt, Hong Kong, London, Moscow, New York, Paris,
Singapore and Stockholm.

FLSmidth & Co. A/S is generally categorised as a capital goods,
engineering or industrial company and is currently being covered by
19 stockbrokers including nine international. Coverage by foreign
analysts continued to increase in 2013, resulting in stronger focus on
FLSmidth & Co. A/S's position and relative strength in relation to
comparable global providers of equipment and services to the
mining industry.

For further details regarding analyst coverage, please see the
company website (http:/www.FLSmidth.com/analysts).

All investor relations material is available to investors at the company
website (http:/www.FLSmidth.com/investor).

Development in share price and trading in 2013

 

 

To contact the company's Investor Relations department, please see
the company website (http://www.FLSmidth.com/iR .contacis).

Financial calendar 2014

 

27 March 2014 Annual General Meeting

 

14 May 2014 Q1 interim report

 

13 August 2014 Q2 interim report

 

7 November 2014 Q3 interim report

 

The Annual General Meeting will take place on 27 March 2014 at
15.00 hours at Radisson BLU, Falconer Hotel and Conference Center,
Falkoner Allé 9, DK-2000 Frederiksberg.

 
 
  
  
  

 

 

Daily trading (number of shares) Share price
3,500,000 «mmm FLSmidth & Co. A/S share price 500
—— FiSmidth & Co. A/S daily trading
450
3,000,000
400
SY
2,500,000 350
ner My
lonse 300
2,000,000 Ar
250
1,500,
00,000 200
1,000,000 150
100
500,000
ad i im i nl | M ;
ei be ml han nano
02/01 30/01 27102 27103 24/04 22105 19/06 17107 14/08 11/09 09/10 06/11 04/12 30/12
2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013

 

 

 

 

FLSmidth: Annual Report 2013 HENNE

Statement by Management on the annual report

The Board of Directors and the Executive Management have today considered and approved
the annual report of FLSmidth & Co. A/S for the financial year 1 January - 31 December 2013.

The consolidated financial statements are presented in accordance with International
Financial Reporting Standards as adopted by the EU. The parent financial statements are
presented in accordance with the Danish Financial Statements Act. Further, the annual report
is prepared in accordance with Danish disclosure requirements for listed companies.

In our opinion, the consolidated financial statements and the parent financial statements
give a true and fair view of the Group's and the Parent's financial position at 31 December

Copenhagen, 13 February ta

   
   

  

Group Executive en Guren

Management Gråup ÅM Executive Officer
om

  

FED nm
(

Board of Directors Torkil "ne

 
 
 

Chairman

Toliffe Grégoire Saint Marie Martin Ivert

To the shareholders of FLSmidth & Co A/S

Report on the consolidated financial statements and parent

financial statements

We have audited the consotidated financial statements and parent financial state-
ments of FLSmidth & Co A/S for the financial year 1 January - 31 December 2013,
which comprise the income statement, balance sheet, statement of changes in
equity and notes, including the accounting policies, for the Group as well as the
Parent, and the statement of comprehensive income and the cash flow statement
of the Group. The consolidated financial statements are prepared in accordance
with International Financial Reporting Standards as adopted by the EU and Danish
disclosure requirements for listed companies, and the parent financial statements
are prepared in accordance with the Danish Financial Statements Act.

Management's responsibility for the consolidated financial statements and
parent financial statements

Management is responsible for the preparation of consolidated financial state-
ments that give a true and fair view in accordance with International Financial
Reporting Standards as adopted by the EU and Danish disclosure requirements
for listed companies as well as the preparation of parent financial statements that
give a true and fair view in accordance with the Danish Financial Statements Act,
and for such internal control as Management determines is necessary to enable
the preparation of consolidated financial statements and parent financial state-
ments that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Qur responsibility is to express an opinion on the consolidated financial state-
ments and parent financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing and additional
requirements under Danish audit regulation. This requires that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assur-
ance about whether the consolidated financial statements and parent financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements and parent
financial statements. The procedures selected depend on the auditor's judgement,

Copenhagen, 13 February 2014

Deloitte

Statsautoriseret Revisionspartnerselskab

 
  
 

 

—
' State Authorise!

  

1404014EogSN67971

roup Executive Vice Presflent and CFO Gro,

so eroug Executive Vi Vice fin

CR BG ra
Vice Chairmaj

Und We
vom ll Jens Pi 2 Æ

Independent auditor's reports

sen
Public Accountant

2013 as well as of their financial performance and their cash flow for the financial year
1 January - 31 December 2013.

We believe that the management's review contains a fair review of the development and
performance of the Group's and the Parent's business and of their position as well as the
Parent's financial position and the financial position as a whole of the entities included in
the consolidated financial statements, together with a description of the principal risks and
uncertainties that the Group and the Parent face. -

'

We recommend the annual report for adoption at the Annual General Meeting.

ole Or pole

Bjarfe Moltke Hansen Virve Elisabeth Meesak
Executiye Vice PresigÉnt Group Executive Vice President

lv (MU

Pet Mejnert Kristensen
Group Fxecutive Vice President

Eric Thomas Poupier
— Executive Vice President

 

 

hul <

Søren År tgåard Larsen

including the assessment of the risks of material misstatements of the consoli-
dated financial statements and parent financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation of consolidated financial statements and
parent financial statements that give a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose

of expressing an opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by Management, as well as the
overall presentation of the consaolidated financial statements and parent financial
statements.

We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.

Our audit has not resulted in any qualification.

Opinion

In our opinion, the consolidated financial statements give a true and fair view

of the Group's financial position at 31 December 2013, and of the results of its
operations and cash flows for the financial year 1 January - 31 December 2013 in
accordance with International Financial Reporting Standards as adopted by the EU
and Danish disclosure requirements for listed companies.

Further, in our opinion, the parent financial statements give a true and fair view
of the Parent's financial position at 31 December 2013, and of the results of its
operations for the financial year 1 January - 31 December 2013 in accordance
with the Danish Financial Statements Act.

Statement on the management commentary

Pursuant to the Danish Financial Statements Act, we have read the management
commentary. We have not per-formed any further procedures in addition to the
audit of the consolidated financial statements and parent finan-cial statements.

On this basis, it is our opinion that the information provided in the management

commentary is consistent with the consolidated financial statements and parent
financial statements.

Lars Siggaard Hansen
State Authorised Public Accountant

83

 

 

1404014EogSN 67872

 

FLSmidth: Annual Report 2013 ØRE EM

Statement by Management on the annual report

The Board of Directors and the Executive Management have today considered and approved
the annual report of FLSmidth & Co. A/S for the financial year 1 January - 31 December 2013.

The consolidated financial statements are presented in accordance with International
Financial Reporting Standards as adopted by the EU. The parent financial statements are
presented in accordance with the Danish Financial Statements Act. Further, the annual report
is prepared in accordance with Danish disclosure requirements for listed companies.

In our opinion, the consolidated financial statements and the parent financial statements
give a true and fair view of the Group's and the Parent's financial position at 31 December

Copenhagen, 13 February 2014

Group Executive
Management

Thomas Schulz
Group Chief Executive Officer

Ben Guren
Group Executive Vice President

Carsten R. Lund
Group Executive Vice President

Peter Flanagan
Group Executive Vice President

Board of Directors Torkil Bentzen

Vice Chairman

Vagn Ove Sørensen
Chairman

Caroline Grégoire Saint Marie Martin Ivert

Tom Knutzen Jens Peter Koch

Independent auditor's reports

To the shareholders of FLSmidth & Co A/S

Report on the consolidated financial statements and parent

financial statements

We have audited the consolidated financial statements and parent financial state-
ments of FLSmidth & Co A/S for the financial year 1 January - 31 December 2013,
which comprise the income statement, balance sheet, statement of changes in
equity and notes, including the accounting policies, for the Group as well as the
Parent, and the statement of comprehensive income and the cash flow statement
of the Group. The consolidated financial statements are prepared in accordance
with International Financial Reporting Standards as adopted by the EU and Danish
disclosure requirements for listed companies, and the parent financial statements
are prepared in accordance with the Danish Financial Statements Act.

Management's responsibility for the consolidated financial statements and
parent financial statements

Management is responsible for the preparation of consolidated financial state-
ments that give a true and fair view in accordance with International Financial
Reporting Standards as adopted by the EU and Danish disclosure requirements
for listed companies as well as the preparation of parent financial statements that
give a true and fair view in accordance with the Danish Financial Statements Act,
and for such internal control as Management determines is necessary to enable
the preparation of consolidated financial statements and parent financial state-
ments that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on the consolidated financial state-
ments and parent financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing and additional
requirements under Danish audit regulation. This requires that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assur-
ance about whether the consolidated financial statements and parent financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements and parent
financial statements. The procedures selected depend on the auditor's judgement,

Copenhagen, 13 February 2014

Deloitte

. Erik Kolst Jørgensen
Statsautoriseret Revisionspartnerselskab

 

State Authorised Public Accountant

2013 as well as of their financial performance and their cash flow for the financial year
1 January - 31 December 2013.

We believe that the management's review contains a fair review of the development and
performance of the Group's and the Parent's business and of their position as well as the
Parent's financial position and the financial position as a whole of the entities included in
the consolidated financial statements, together with a description of the principal risks and
uncertainties that the Group and the Parent face.

We recommend the annual report for adoption at the Annual General Meeting.

Virve Elisabeth Meesak
Group Executive Vice President

Bjarne Moltke Hansen

and CFO Group Executive Vice President

Per Mejnert Kristensen
Group Executive Vice President

Eric Thomas Poupier
Group Executive Vice President

Mette Dobel

Sten Jakobsson

Søren Quistgaard Larsen

including the assessment of the risks of material misstatements of the consoli-
dated financial statements and parent financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation of consolidated financial statements and
parent financial statements that give a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose

of expressing an opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting policies used and
ihe reasonableness of accounting estimates made by Management, as well as the
overall presentation of the consolidated financial statements and parent financial
statements.

We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.

Our audit has not resulted in any qualification.

Opinion

In our opinion, the consolidated financial statements give a true and fair view

of the Group's financial position at 31 December 2013, and of the results of its
operations and cash flows for the financial year 1 January - 31 December 2013 in
accordance with International Financial Reporting Standards as adopted by the EU
and Danish disclosure requirements for listed companies.

Further, in our opinion, the parent financial statements give a true and fair view
of the Parent's financial position at 31 December 2013, and of the results of its
operations for the financial year 1 January - 31 December 2013 in accordance
with the Danish Financial Statements Act.

Statement on the management commentary

Pursuant to the Danish Financial Statements Act, we have read the management
commentary. We have not per-formed any further procedures in addition to the
audit of the consolidated financial statements and parent finan-cia! statements.

On this basis, it is our opinion that ihe information provided in the management

commentary is consistent with the consolidated financial statements and parent
financial statements.

Lars Siggaard Hansen
State Authorised Public Accountant

83

 

Quarterly key figures

Quarterly key figures

Quarterly key figures (unaudited)

   

 

 

 

 

 

DKKm 2011 2012 2013

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
INCOME STATEMENT
Revenue 7,286 5,145 6,036 6,708 8,395 5,920 6,853 6,730 7,420
Gross profit 1,916 1,309 1,500 1,742 1,975 1,277 1,298 1,254 1,380
Earnings before special non-recurring items, depre- 995 469 670 757 971 288 406 324 286
ciation, amortisation and impairment (EBITDA)
Earnings before amortisation and impairment of 938 402 605 659 893 200 310 245 222
intangible assets (EBITA)
Earnings before interest and tax (EBIT) 870 334 349 561 797 111 217 (727) 60
Earnings before tax (EBT) 842 346 326 529 760 66 226 (802) (90)
Tax for the period (278) (105) (103) (162) (283) (31) (80) 19 (94)
Profit/loss on continuing activities for the 564 241 223 367 477 35 146 (783) (184)
period
Profit/loss on discontinued activities for the period 3 - - 10 (15) - (3) - 5
Profit/loss for the period 567 241 223 377 462 35 143 (783) (179)
Effect of purchase price allocation (48) (58) (58) (88) (88) (81) (81) (81) (79)
Gross margin 26.3%| 25.4%  24.9%  26.0%  23.5% 21.6% 18.9%  18,6% 18.6%
EBITDA margin 13.7% 9.1% 11.1% 11.3% 11.6% 4.9% 5.9% 4.8% 3.9%
EBITA margin 12.9% 7.8% 10.0% 9.8% 10.6% 3.4% 4.5% 3.6% 3.0%
EBIT margin 11.9% 6.5% 5.8% 8.4% 9.5% 1.9% 3.2%  -10.8% 0.8%
CASH FLOW
Cash flow from operating activities 260 (117) 333 (28) 1,532 (466) (51) 283 77
Cash flow from investing activities (397) (209) (386) (2,421) (382) (108) (166) (192) (101)
Order intake, continuing activities 5,856 6,421 7,246 7,956 6,104 5,027 5,626 4,642 5,616
Order backlog, continuing activities 27,136! 28,736 30,803 31,766 29,451 28,583 26,983. 24,595 22,312
SEGMENT REPORTING
Customer Services
Revenue 1,551 1,368 1,608 1,968 2,129 1,809 2,020 1,736 2,000
Gross profit 452 393 433 557 614 489 569 316 480
EBITDA 260 193 244 258 317 195 320 53 200
EBITA 256 180 231 226 293 169 298 29 195
EBIT 255 174 155 199 259 144 277 (531) 151
Effect of purchase price allocation - (4) (15) (18) (40) (25) (21) (28) (27)
Gross margin 29.1%| 28.7% 26.9% 28.3%  28.8% 27.0% … 28.2% 18.2% 24.0%
EBITDA margin 16.8%| 14,1% 15.2% 13.1%  14.9% 10.8% 15.8% 3.1% 10.0%
EBITA margin 16.5%| 13.2% 14.4% 11.5%  13.8% 9.3% 14.8% 1.7% 9.8%
EBIT margin 16.4%| 12.7% 9.6% 10.1%  12.2% 8.0% 13.7%  -30.6% 7.6%
Order intake 1,288 1,846 1,569 3,345 2,442 1,964 1,900 2,109 2,032
Order backlog 6,081 6,679 6,708 7,909 8,159 8,236 7,979 8,325 8,046
Material Handling
Revenue 1,772 1,060 1,271 1,340 1,326 1,055 944 1,081 1,472
Gross profit 326 193 199 183 29 125 (169) 163 216
EBITDA 165 28 28 (29) (167) (65) (356) (19) (15)
EBITA 139 16 17 (42) (177) (79) (369) (34) (29)
EBIT 115 4 12 (60) (203) (98) (387) (46) (67)
Effect of purchase price allocation (15) (11) (10) (10) (10) (12) (12) (12) (12)
Gross margin 18.4%| 18.2% 15.7% 13.7% 2,.2% 11.8%  -77,9%  15.1% 14.7%
EBITDA margin 9.3% 2.6% 2.2% -2.2% -12.6% -6.2%  -37.7% -1.8% -1.0%
EBITA margin 7.8% 1.5% 1.3% -3.1%  -13.3% -7.5%  -39.1% -3.1% -2.0%
EBIT margin 6.5% 0.4% 0.9% -4,5% … -15.3% -9.3%  -41.0% -4.3% -4.6%
Order intake 1,232 943 1,272 1,675 675 1,616 1,028 638 1,655
Order backlog 5,145 5,023 5,230 5,514 4,773 5,124 4,976 4,465 4,465

 

 

 

 

 

FLSmidth: Annual Report 2013 MR REE

Quarterly key figures (unaudited)

 

 

 

 

 

 

DKKm 2011 2012 ' 2013

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Mineral Processing
Revenue 2,503 1,722 2,057 2,375 3,358 2,010 2,477 2,393 2,376
Gross profit 521 376 433 558 829 432 544 510 513
EBITDA 362 147 209 240 483 151 292 233 174
EBITA 349 135 193 215 457 130 259 215 153
EBIT 316 94 89 164 426 88 212 (177) 88
Effect of purchase price allocation (31) (41) (30) (57) (35) (42) (46) (39) (38)
Gross margin 20.8% 21.8%  21.1% 23,5% 24.7% 21.5% 22.0% 21.3% 21.6%
EBITDA margin 14,5% 8.5% 10.2% 10,1% 14,4% 7.5% 11,8% 9.7% 7.3%
EBITA margin 13.9% 7.8% 9,4% 9,1% 13.,6% 6.5% 10.5% 9.0% 6.4%
EBIT margin 12.6% 5.5% 4,3% 6.9% 12,7% 4.4% 8.6% -7.4% 3.7%
Order intake 2,507 2,445 2,808 2,598 2,467 1,345 1,679 1,510 1,025
Order backlog 8,779 9,482 10,362 10,529 9,589 9,057 7,891 6,749 4,993
Cement
Revenue 1,333 859 952 905 1,498 1,016 1,304 1,385 1,496
Gross profit 394 230 300 330 409 201 237 161 102
EBITDA 232 102 155 214 317 48 101 47 (35)
EBITA 229 93 144 208 307 39 91 38 (44)
EBIT 221 85 74 206 304 37 85 31 (58)
Effect of purchase price allocation (2) (2) (3) (3) (3) (2) (2) (2) (2)
Gross margin 29.6% | 26.8%  31.5% 36.5%  27.3% 19.8%  18.2%  11.6% 6.8%
EBITDA margin 17,4% 11.9% 16.3% 23.6% 21.2% 4.,7% 7.7% 3.4% -2.3%
EBITA margin 17.2% 10.8% 15.1% 23.0% 20.5% 3,8% 7.0% 2.7% -2.9%
EBIT margin 16.6% 9.9% 7.8% 22.8% 20.3% 3.6% 6.5% 2.2% -3.9%
Order intake 1,113 1,415 1,902 667 615 308 1,335 624 1,150
Order backlog 7,749 8,208 9,240 8,579 7,585 6,808 6,847 5,706 5,389
Cembrit
Revenue 375 316 383 392 344 270 395 402 374
Gross profit 112 108 124 124 92 41 117 109 91
EBITDA 18 13 46 44 5 (39) 38 8 (10)
EBITA 8 (6) 33 27 3 (54) 23 Q) (26)
EBIT 6 (7) 32 27 2 (55) 22 (8) (27)
Gross margin 29.9%|  34.2% 32.4% 31.6% 26.7% 15.2% 29,6% 27.1% 24.3%
EBITDA margin 4.8% 4.1% 12.0% 11.,2% 1.5%|  -14.4% 9.6% 2.0% -2.7%
EBITA margin 2.1% -1.9% 8.6% 6.9% 0.9% | -20.0% 5,8% -1.7% -7.0%
EBIT margin 1.6% -2.2% 8.4% 6.9% 0.6%| -20.4% 5,6% -2.0% -7.2%

1404014EogSN67973

 

 

86

Company announcements

Company announcements 2013

 

 

 

Date No. Date No.
11-Jan FLSmidth wins large coal project in Mozambique 1/2013 23-Aug New member of Group Executive Management — Virve  21/2013
DKK 658m coal order in Mozambique Elisabeth Meesak, Group Executive Vice President
New Group Executive VP, Global Human Resources
16-Jan  FLSmidth's revised financial calendar 2013 2/2013
Revised financial calendar 2013 26-Aug Reports in media regarding new order 22/2013
Reports in Qatari media
12-Feb Annual report for FLSmidth & Co. A/S 3/2013
1 January — 31 December 2012 2-Sep New share option plan 23/2013
Annual Report 2012 New share options to the Executive Management
and key staff
11-Mar Notice of the Annual General Meeting of 4/2013
FLSmidth & Co. A/S 2-Oct — Reports in media regarding new order 24/2013
Notice of Annual General Meeting Reports in Oman media
03-Apr FLSmidth to supply large material handling system 5/2013 15-Oct Reports in media regarding new order 25/2013
DKK 200m iron ore order in India Reports in Qatari media
05-Apr Summary of FLSmidth & Co. A/S Annual 6/2013 23-Oct Large shareholder announcement — Templeton 26/2013
General Meeting Global Advisors Limited
Summary of Annual General Meeting Large shareholder announcement — Templeton Global
Advisors Limited
14-May FLSmidth receives order for cement plant in 712013
Equatorial Guinea 4-Nov FLSmidth wins large operation and maintenance 2712013
DKK 505m cement order in Equatorial Guinea contracts in Nigeria
Operations and maintenance contracts in Nigeria
17-May. interim report for FLSmidth & Co. A/S 8/2013
1 January — 31 March 2013 6-Nov Interim Report for FLSmidth & Co. A/S 28/2013
Q1 Interim Report 1 January — 30 September 2013
Q3 interim report
21-May FLSmidth initiates share buyback programme 9/2013
Share buyback programme of up to DKK 521 million 6-Nov — FLSmidth & Co. A/S financial calendar 2014 29/2013
Financial calendar 2014
30-May Transactions in connection with share buyback 10/2013
programme in FLSmidth & Co. A/S 6-Nov — Revised financial calendar FLSmidth & Co. A/S 30/2013
Accumulated purchase of shares Revised financial calendar 2014
31-May Reports in the media 11/2013 13-Nov FLSmidth receives order for material handling 31/2013
Report in World Cement magazine stockyard system in Qatar
1b. DKK order for material handling stockyard
5-June FLSmidth to supply cement plant in India 12/2013 at Doha, Qatar
DKK 200m cement order in India
13-Nov Reports in media regarding new order 32/2013
11-Jun  Transactions in connection with share buyback 13/2013 Reports in South Africa and Australian media
programme in FLSmidth & Co. A/S
Accumulated purchase of shares 22-Nov Granting of share options 33/2013
Allocation of shares to key employees
20-Jun Large shareholder announcement 14/2013
- OppenheimerFunds, Inc. 29-Nov Reports in Qatari Media 34/2013
Large shareholder announcement Reports in Qatari Media
— OppenheimerFunds, Inc.
4-Dec Arbitration award received 35/2013
20-Jun  Transactions in connection with share buyback 15/2013 Arbitration award received in case between
programme in FLSmidth & Co. A/S MT Højgaard A/S and FLSmidth A/S
Accumulated purchase of shares
16-Dec Reports in Oman media 36/2013
i-July … Transactions in connection with share buyback 16/2013 Reports in Oman media
programme in FiSmidth & Co. A/S
Accumulated purchase of shares 27-Dec FLSmidth to supply cement production line in Qatar 3712013
DKK 515m cement order in Qatar
8-July — Conclusion of share buyback programme in 17/2013
FLSmidth & Co. A/S 30-Dec FLSmidth receives large cement order in Indonesia 38/2013
Conclusion of share buyback programme DKK 300m cement order in Indonesia
6-Aug Large shareholder announcement 1872013
— Franklin Resources, Inc.
Large shareholder announcement — Franklin Resources, Inc
7-Aug  5-year maintenance contract at copper plant in Chile 19/2013
awarded to FLSmidth
Maintenance contract in Chile
23-Aug Interim Report for FLSmidth & Co. A/S 20/2013

1 January -— 30 June 2013
Q2 interim report

 

 

onsolIic
financial statements 2013

 

88

Consolidated financial statements

Contents

Consolidated income statement …..u..dssreereeerrrrrrrrrrrree
Consolidated statement of comprehensive income
Consolidated cash flow statement ….W...ssssssseeererrrrerner
Consolidated balance sheet ……..W.G..….ssseserereerserrrrrrrrere

Consolidated equity sGssssceneeesesersrerrrererrer rener reen
Notes to the consolidated financial statements .…....

List of notes

Consolidated financial statements

Estimates by Management
1. Significant estimates and assessments by Management .…..…. 96

Segment information

 
  

2. Breakdown of the Group by segments 1... 99
3. Geographical information .......sscssseeererenrererrerrerernrrnerr 101
Income statement

4. REVeNUE.G..ssssssseeereeeeeerr er ere renerne rer rr 102
5. Other operating income and Costs.…...sssseeererrrerssrnernrer 103
6. Staff costs …….….….…..ssssssssseesererere seere ennen serene ere renerne reen

7. Special non-recurring items

8, Minority interests …..….u.sssssseresesrnerererrserrnnsennner .

9. Earnings per share (EPS) ……...ssssscesererrerrerrerserrssnsr rer nnrnee

10. Income statement classified by function... 105
Cash flow statement

11. Change in provisions scener eres renerne 106
12. Change in working capital (….W.GW…...sssseerererserererrrrrertrrersernen 106
13. Financial items received and paid M….GW….…..ssssserskreerereerrennnnere 107
14. Change in net interest-bearing debt ……....W..ssscssssereree 107
Acquisition and disposal of enterprises and activities

15. Acquisition of enterprises and activities ….....sssscscserenee 108
16. Disposal of enterprises and activities……..dsssssssserrerrrrner 111
17. Discontinued activities ….…..ssseeeseserkerrrrer arrene 111

Non-current assets and investments
18. Intangible assets

  

19. Tangible assets……........sssseesesererreerersre renerne enrr renees

20. Impairment test ……...u.u.sssscsereerrrerereree renerne

21. Specification of assets and liabilities classified as held for sale... 118
Working capital

22. Specification of working capital.....dssssssseerrerrrrernnnnes 119
23. Work-in-progress for third parties…...…...sseseseerrereersseserenr 119
24. Inventories ….....ssseseeesessrrererersrks skr rr esserne 120
25. Trade and other receivables …….u.u.u.u.ds seernes erne 121
Tax

26. Tax for the year….u.u.u..vdcssseerereeeeseerrrrererererrrerrrrrrrrrenrrrrnnne 122
27. Deferred tax assets and liabilities 1... 123
Financial items

28. Financial income and COsts…..….Gu...ssseesserrersereer reen tern rrrrrrnee 125
29. Maturity structure of financial liabilities scene 125
30. Specification of net interest-bearing receivables/(debt) ….. 126
31. Financial risks …...….ssscessereeeseerereesereen ennen krek eneret rrnnne 127
32. Derivatives……....sssccesrrrereneereererererers serene sner renterne 129
33. Categories of financial instruments... 129
34. Fair value hierarchy of financial instruments... 130

 

 

 

 

List of Group companies ,…… ss ssssssrrreeesere nerne rerrrener 143-144
Parent company financial statements…....sseseeeeerrrer 145
Parent company income statement …M(.W.W…..ssssseserrrrrnnnnnree 146
Parent company balance sheet

 

Parent company equity sM..ssssssseseereerreseentee erne nnr erne
Notes to the parent company financial statements..149-153

 

Liabilities

35. Provisions M.….sssssesererrrreeeee

36. Long-term liabilities

37. Pension assets and liabilities ……......u.dsseeresrserersrssrerernnee 133
38. Contractual liabilities and contingent liabilities……........ 135
Equity

39. Treasury shares MM..ssssseeesssesseererrrrtekerr eres rr rn renen 136
40. Share-based payment, option plans ….....ssccscserrerernerrer 137

Other notes
41. Charged assets MGM.G.…G.sssssessseerereerereerr serene sneen 139
42. Fee to parent company auditors appointed at the

Annual General Meeting …….sssceeeeeeerrersererersrrrerte ternene

43. Related party transactions

 

44. Board of Directors and Executive Management 140
45. Events occurring after the balance sheet date... 141
46. Approval of the Annual Report for publication... 141
47. Shareholders …......sseneeerereeeserrrrrere renere rrs erne kreere 141
48. Accounting policies…….u.u.u.ssssesseesessrrrrrrr ternene reen rrnnsnnen 141
49. Standards and interpretations that have not yet come into force.. 143
50. List of Group companies MMGuGWG….GWG.«ssssssesseserseerrrrrerr ere n rr ererrennnen 143

FLSmidth Co. A/S company financial statements
Income statement

Dividend from Group enterprises …........sssrerrrersreserrernenner 149
Other operating income …….....sssssssesserrerenere renere enenner 149
Staff COSTS …....sssseseeeereeerse renerne serene 149

Fee to auditors appointed at the Annual General Meeting..149
Financial income
Financial COSTS ....….ssssevevereseresse reen ren reen r rr renerne
Tax for the year

 
 

am RkWwnb >

Balance sheet
8. Tangible assets……......sssssserrerseresserrererrr reen rrerrneres erne
9. Financial assets ,......ssssessseeererererre kernerne

10. Deferred tax assets and liabilities
11. Receivables, cash and cash equivalents …...ssscnerreernne 151
12. Provisions……Gu.dX.sssssssssssesesersererrrerss serene raser r ener sannrg
13. Maturity structure of liabilities
14. Other liabilities

 

 
  

 

Other

15. Charges sGws.sssveseeereereeerrerrerrser eres serene 152
16. Contractual liabilities and contingent liabilities … 152
17. Related party transactions …....u...ssssssrrsrerreernnnerrrrrrnernner 152
18. Shareholders ......scsserevereeerereer rener seernes rerrrernner 152
19. Other auditors for subsidiaries…….....sssscesreserrserrererernnnnnee 152
20. Accounting policies (parent company) ….….ssssssssneeseeerereeerrer 153

 

 

 

 

 

FLSmidth: Annual Report 2013 SR EM

Consolidated income statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DKKm 2013 2012
Notes
2+3+4 Revenue 26,923 26,284
Production costs (21,714) (19,758)
Gross profit 5,209 6,526
Sales and distribution costs (1,848) (1,797)
Administrative costs (2,193) (1,968)
5 Other operating income 207 145
5. Other operating costs (71) (39)
Earnings before special non-recurring items, depreciation, amortisation and
impairment (EBITDA) 1,304 2,867
7. Special non-recurring items 6 (9)
19 Depreciation and impairment of tangible assets (333) (299)
Earnings before amortisation and impairment of intangible assets (EBITA) 977 2,559
18 Amortisation and impairment of intangible assets (1,316) (518)
Earnings before interest and tax (EBIT) (339) 2,041
28. Financial income 1,423 1,007
28 Financial costs (1,684) (1,087)
Earnings before tax' (EBT) (600) 1,961
26 Tax for the year (186) (653)
Profit/loss for the year, continuing activities (786) 1,308
17. Profit/loss for the year, discontinued activities 2 (5)
Profit/loss for the year (784) 1,303
To be distributed as follows:
FLSmidth & Co. A/S shareholders' share of profit/loss for the year (776) 1,306
8 Minority shareholders' share of profit/loss for the year (8) (3)
(784) 1,303
9 Earnings per share (EPS):
Continuing and discontinued activities per share (15.6) 25.1
Continuing and discontinued activities, diluted, per share (15.6) 25.0
Continuing activities per share (15.6) 25.2
Continuing activities, diluted, per share (15.6) 25.1

1404014EogSN67975

89

 

90

Consolidated financial statements

 

 

 

 

 

Consolidated statement of comprehensive income
DKKm 2013
Notes
Profit/loss for the year (784)
Other comprehensive income for the year
Items that will not be reclassified to profit or loss
Actuarial gains/losses on defined benefit plans 114
Items that are or may be reclassified subsequently to profit or loss:
Foreign exchange adjustments regarding enterprises abroad (522)
Foreign exchange adjustments of loans classified as equity in enterprises abroad (208)
Foreign exchange adjustmentis regarding liquidation of company (3)
Value adjustmenis of hedging instruments:
Value adjustments for the year 20
Value adjustments transferred to revenue 0
Value adjustments transferred to production costs 0
Value adjustments transferred to financial income and costs (13)
Value adjustments transferred to other operating items (34)
26 Tax on other comprehensive income 22
Other comprehensive income for the year after tax (624)
Comprehensive income for the year (1,408)
Comprehensive income for the year attributable to:
FLSmidth & Co. A/S shareholders' share of comprehensive income for the period (1,392)
Minority shareholders' share of comprehensive income for the period (16)
(1,408)

 

 

 

 

 

 

FLSmidth: Annual Report 2013 MERNE

Consolidated cash flow statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DKKm 2013 2012
Notes
Earnings before special non-recurring items, depreciation, amortisation and impairment
(EBITDA), continuing activities 1,304 2,867
Earnings before special non-recurring items, depreciation, amortisation and impairment
(EBITDA), discontinued activities 2 (20)
Earnings before special non-recurring items, depreciation, amortisation and
impairment (EBITDA) 1,306 2,847
Adjustment for profits/losses on sale of tangible and intangible assets and special
non-recurring items etc. 32 (38)
Adjusted earnings beføre special non-recurring items, depreciation,
amortisation and impairment (EBITDA) 1,338 2,809
11. Change in provisions 203 (206)
12. Change in working capital (893) (226)
Cash flow from operating activities before financial items and tax 648 2,377
13. Financial payments received and made (123) 51
26 Taxes paid (682) (708)
Cash flow from operating activities (157) 1,720
15. Acquisition of enterprises and activities (50) (2,513)
18. Acquisition of intangible assets (173) (366)
19. Acquisition of tangible assets (524) (739)
Acquisition of financial assets (5) (22)
16 Disposal of enterprises and activities 77 5
Disposal of intangible assets 0 0
Disposal of tangible assets 90 165
Disposal of financial assets 18 72
Cash flow from investing activities (567) (3,398)
Dividend (467) (471)
Addition of minority shares 0 8
Acquisition of treasury shares (668) (175)
Disposal of treasury shares 8 22
14 Change in other interest-bearing debt 1,444 2,567
Cash flow from financing activities 317 1,951
Change in cash and cash equivalents (407) 273
30 Cash and cash equivalents at 1 January 1,638 1,402
Foreign exchange adjustment, cash and cash equivalents £ (154) (37)
30 Cash and cash equivalents at 31 December 1,077 1,638

 

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

= Foreign exchange adjustment, cash and cash equivalents in 2013 primarily consists of negative changes in the exchange

rate of ZAR (DKK 67m), AUD (DKK 30m) and INR (DKK 19m) in relation to Danish kroner.

1404014EogSN67976

91

 

92

Consolidated financial statements

Consolidated balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets
DKKm 2013 2012
Notes
Goodwill 4,094 4,852
Patents and rights 1,606 1,587
Customer relations 1,254 1,801
Other intangible assets 125
Completed development projects 115
Intangible assets under development 542
18 Intangible assets 7,736 9,187
Land and buildings 1,737 1,614
Plant and machinery 972
Operating equipment, fixtures and fittings 235
Tangible assets in course of construction 231
19 Tangible assets 3,175 2,767
Investments in associates 9
33 Other securities and investments 59
37 Pension assets 10
27 Deferred tax assets 1,131 970
Financial assets 1,209 1,050
Total non-current assets 12,120 13,004
24. Inventories 2,575 2,602
25 Trade receivables 5,099 5,915
23 Work-in-progress for third parties 4,491 5,276
Prepayments to subcontractors 414 487
25 Other receivables 1,511 1,408
Prepaid expenses and accrued income 34 73
Receivables 11,549 13,159
34 Bonds and listed shares 7 26
30 Cash and cash equivalents 1,077 1,540
21 Assets classified as held for sale 0 1,544
Total current assets 15,208 18,871
TOTAL ASSETS 27,328 31,875

 

 

 

 

FLSmidth: Annual Report 2013 MM ME

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

DKKm 2013 2012
Notes

Share capital 1,064 1,064
Foreign exchange adjustments (733) (8)

Value adjustments of hedging transactions (23) 4
Retained earnings 6,474 7,831
Proposed dividend 106 479
FLSmidth & Co. A/S' shareholders” share of equity 6,888 9,370
Minority shareholders” share of equity 34 49

Total equity 6,922 9,419

27 Deferred tax liabilities 541 882
36+37 Pension liabilities 159 289
35 Other provisions 688 515
36 Mortgage debt 352 352
36 Bank loans 5,023 3,465
36 Finance lease 4 15
36 Prepayments from customers 327 275
36 Other liabilities 190 385
Long-term liabilities 7,284 6,178

36+37 Pension liabilities 11 11
35 Other provisions 1,421 1,123
Bank loans 178 538
Finance lease 6 8
Prepayments from customers 2,632 2,714

23 Work-in-progress for third parties 3,138 6,138
Trade payables 3,283 3,092
Current tax liabilities 523 600

Other liabilities 1,890 1,471
Deferred revenue 40 89
Short-term liabilities 13,122 15,784

21 Liabilities directly associated with assets classified as held for sale 0 494
Total liabilities 20,406 22,456
TOTAL EQUITY AND LIABILITIES 27,328 31,875

1404014EogSN67977

 

 

93

 

 

Consolidated financial statements

Consolidated equity

    

 

 

 

 

 

DKKm Share Foreign Value Retained — Proposed — FiSmidth& — Minority
capital exchange adjustments earnings dividend Co. A/S' sharehol-
adjustments — of hedging shareholders' ders” share
transactions share of of equity
equity
Equity at 1 January 2013 1,064 (8) 4 7,831 479 9,370 49 9,419
Comprehensive income for the year
Profit/loss for the year (776) (776) (8) (784)
Other comprehensive income
Actuarial gains/losses on defined benefit plans 114 114 114
Foreign exchange adjustments regarding enterprises abroad (514) (514) (8) (522)
Foreign exchange adjustments of loans classified as equity in
enterprises abroad (208) (208) (208)
Foreign exchange adjustment regarding liquidation of company (3) (3) (3)
Value adjustments of hedging instruments:
Value adjustments for the year 20 20 20
Value adjustments transferred to production costs 0 0 0
Value adjustments transferred to financial income and costs (13) (13) (13)
Value adjustments transferred to other operating items (34) (34) (34)
Tax on other comprehensive income > 22 22 22
Other comprehensive income total 0 (725) (27) 136 0 (616) (8) (624)
Comprehensive income for the year 0 (725) (27) (640) 0 (1,392) (16) (1,408)
Dividend distributed (467) (467) (467)
Dividend treasury shares 12 (12) 0 0
Share-based payment, share options 37 37 37
Proposed dividend (106) 106 Q 0
Disposal treasury shares 8 8 8
Acaquisition treasury shares (668) (668) (668)
Acquisition minority interests 0 0 1 1
Equity at 31 December 2013 1,064 (733) (23) 6,474 106 6,888 34 6,922

 

=For specification of tax on other comprehensive income see note 26

Dividend distributed in 2013 consists of DKK 9 per share (2012: DKK 9).
Proposed dividend for 2013 amounts to DKK 2 per share (2012: DKK 9).

94

 

 

1404014EogSN67

 

 

FLSmidth: Annual Report 2013 HR E

 

DKKm Share Foreign Value — Retained — Proposed — FLSmidth & — Minority Total
capital exchange adjustments earhings dividend Co. A/S'  … sharehol-
adjustments of hedging shareholders' ders" share
transactions shareof — of equity
equity
Equity at 1 January 2012 1,064 142 (14) 7,189 479 8,860 47 8,907

Comprehensive income for the year
Profit/loss for the year 1,306 1,306 (3) 1,303

Other comprehensive income

 

 

 

 

Foreign exchange adjustments regarding enterprises abroad (108) (108) (3) (111)
Foreign exchange adjustments of loans classified as equity in
enterprises abroad (30) (30) (30)
Foreign exchange adjustment regarding liquidation
of company (12) (12) (12)
Value adjustments of hedging instruments:
Value adjustments for the year 5 5 5
Value adjustments transferred to revenue 15 15 15
Value adjustments transferred to production costs 4 4 4
Value adjustments transferred to financial income and costs (6) (6) (6)
Actuarial gains/(losses) on defined benefit plans (102) (102) (102)
Tax on other comprehensive income % 33 33 33
Other comprehensive income total 0 (150) 18 (69) 0 (201) (3) (204)
Comprehensive income for the year 0 (150) 18 1,237 0 1,105 (6) 1,099
Dividend distributed (471) (471) (471)
Dividend treasury shares 8 (8) 0 0
Share-based payment, share options 29 29 29
Proposed dividend (479) 479 0 0
Disposal treasury shares 22 22 22
Acquisition treasury shares (175) (175) (175)
Acquisition minority interests 0 8 8
Equity at 31 December 2012 1,064 (8) 4 7,831 479 9,370 49 9,419

 

978

 

 

Notes to the consolidated financial statements

Estimates by Management

1. Significant estimates and assessments by Management

   

The preparation of the Annual Report requires that Management makes estimates and assumptions that affect the recognised assets and
liabilities, including the disclosures made regarding contingent assets and liabilities, when applying the Group's accounting policies.

Management bases its estimates on historical experience and other assumptions considered relevant at the time. These estimates and
assumptions form the basis for the recognised carrying amounts of assets and liabilities and the derived effects on the income statement and
other comprehensive income. The actual results may deviate over time.

The estimates made and the underlying assumptions are reconsidered on an ongoing basis.

Management considers the following estimates and assessments and the relevant accounting policies essential for preparing the consolidated
financial statements. In the opinion of Management, the results of these estimates and uncertainties are reflected in the Annual Report based
on the information available and assumptions made.

Revenue and work-in-progress for third parties
Revenue is recognised in the income statement on delivery and passing of the risk to the buyer, and when the revenue can be measured reliably.
Consolidated revenue consists of the following products and services:

Project sales
Product sales
Services sales, spare parts sales, consumables, etc.

The majority of the Group's project and product sales plus service sales are recognised in revenue as sales from work-in-progress for third
parties.

Work-in-progress for third parties is recognised in revenue based on the value of the work completed at the balance sheet date, whereby

the revenue corresponds to the sales value of the year's completed work based on costs incurred in percentage of the total estimate costs
(percentage of completion). Total expected costs are partly based on an estimate, as they include provisions for unforeseen cost deviations in
future supplies of raw materials, subcontractor products and services plus construction and handing over. Provisions for warranties on work-in-
progress for third parties are based on Management estimates for each project, while taking underlying contracts into account.

The contract value of services in the form of Operation & Maintenance contracts is in some cases dependent upon the productivity of the plant
serviced. In such cases, revenue recognition of the contracts includes the Management estimate of the productivity of the plant concerned.

Major projects are often sold to politically unstable countries and therefore entail risks and uncertainties.

Impairment test

Goodwill and Other intangible assets of indefinite useful life are tested for impairment at least once a year and when there is indication of
impairment, the first time being before the end of the year of acquisition. Ongoing development projects are also tested at least once a year
for impairment. The carrying amounts of other Non-current assets are reviewed each year to determine whether there is any indication of
impairment. If any such indication exists, the recoverable value of the asset is calculated.

In performing the annual impairment test of assets, an assessment is made as to whether the individual units of the Group (cash generating
units) to which assets are allocated will be able to generate sufficient positive net cash flow in the future to support the value of the unit
concerned.

Management defines the cash-generating units based on the smallest group of identifiable assets which together generate incoming cash flow
from continued use of the assets and which are independent of cash flow from other assets or groups of assets. The definition of the cash
generating units is reconsidered once a year.

An estimate is made of the future free net cash flow based on budgets and the strategy for the coming seven years and projections for the
subsequent years (the terminal value). Significant parameters in this estimate are discount rate, revenue development, EBITA margin, expected
investments and growth expectations for the period after the seven years.

The recoverable amount is calculated by discounting expected future cash flow. The impairment test is disclosed in note 20.

Deferred tax liabilities and assets
Deferred tax assets are recognised if it is likely that there will be taxable income in the future against which timing differences or tax loss carry
forwards may be used. For this purpose, Management estimates the coming years' earnings based on budgets. Deferred tax is disclosed in note 27.

Trade receivables

Trade receivables are measured at amortised cost, and bad debt losses are recognised if there are indications thereof. Estimates are used in
determining the level of receivables that will not, in the opinion of Management, be collected. When evaluating the adequacy of the allowance
for doubtful receivables, Management analyses trade receivables and examines changes in customer creditworthiness, customer payment
patterns and current economic trends. Trade receivables are disclosed in note 25.

 

96

 

 

FLSmidth: Annual Report 2013 HRER

Inventories

The net realisable value of inventories is calculated as selling price less costs of completion and costs necessary to make the sale. The net
realisable value is determined, taking into account marketability, obsolescence and development in expected selling prices. Following the
economic downturn in the market, the individual entities in the Group and Management have given special attention to inventory turnover,
when determining net realisable value. Inventories are disclosed in note 24.

Warranties, restructuring and other provisions

Provisions are recognised in cases where, due to an event occurring before the balance sheet date, the Group has a legal or constructive
obligation which is probable and can be measured reliably.

Management assesses provisions and the likely outcome of pending and probable lawsuits ect. on an ongoing basis. The outcome depends on
future events, which are by nature uncertain. In assessing the likely outcome of lawsuits and tax disputes Management bases its assessment on
external legal assistance and established precedents. Tax provisions are made to cover expected additional future tax liabilities related to financial
year or previous years. Provisions are disclosed in note 35.

Warranties and other provisions are measured on the basis of empirical information covering several years as well as legal opinions which
together with estimates by Management of future trends form the basis for warranty provisions and other provisions. In the case of long-term

warranties and other provisions, discounting to net present value takes place based on the future cash flow and discount rate expected by
Management.

In connection with restructuring, Management reassesses useful life and residual values for non-current assets used in the business undergoing
restructuring. The extent and amount of onerous contracts as well as employee and other obligations arising in connection with the
restructuring are also estimated.

Defined benefit plans
In stating the value of the Group's defined benefit plans, the statement is based on external actuarial assessments and assumptions such as
discount rate, expected return on the plan assets, expected increases in salaries and pension, inflation and mortality.

Acquisition of enterprises and activities including statement of fair values

In connection with acquisition of enterprises and activities the fair value of identifiable assets, liabilities and contingent liabilities is measured.
Statement of fair value mainly applies to intangible assets, work-in-progress for third parties, inventories and deferred tax hereof. The statement
of fair value is related to Management estimates which are based on the expected future earnings of the assets. For a significant portion of

the assets and liabilities there is no active market that can be used for determining the fair value. This applies particularly to intangible assets
acquired such as rights and trademarks. The statement of fair value is based on an estimate and may therefore be subject to uncertainty and
may subsequently be adjusted up to one year after the acquisition.

Management also makes an estimate of the useful life, and the asset is then depreciated and amortised systematically over the expected future
useful life.

1404014FogSN67879

97

 

 

Notes to the consolidated financial statements

Segment information

   

Accounting policy
Segmentation of the Group is according to business, ie. Customer Services, Material Handling, Mineral Processing, Cement and Cembrit and
forms the basis of Management's day-to-day control. Customer Services, Material Handling, Mineral Processing and Cement together are
considered the main business of the Group, while Cembrit is the only remaining Building Material company in the Group.

Customer Services include service, parts supply and upgrades carried out before, while and after FLSmidth installs a plant and commissions it.
Additionally Customer Services includes operating and maintenance of cement and minerals plants.

Material Handling indludes a full range of material handling technologies for transporting raw and bulk materials and spare parts.
Mineral Processing encompasses all the technologies, products, processes and systems used to separate commercially viable minerals from their ores.

Cement includes complete cement plants, production lines, single machinery, spare parts, kaowhow, services and maintenance to the global cement
industry.

Cembrit provides fibre-cement products to the building materials industry.

Other companies etc. consist of companies with no activities, real estate companies, eliminations and the parent company, while discontinued
activities consist of run-off on activities sold in previous years.

Geographical information is presented for revenue and non current assets for the most important countries.

Segment income and costs consist of transactions between segments. Such transactions are determined on market terms. The transactions are
eliminated in connection with the consolidation.

 

98

 

 

 

1404014EogSN67980

 

FLSmidth: Annual Report 2013 BØR E

2. Breakdown of the Group by segments for 2013

DKKm Customer Material Mineral Cement Cembrit Other Continuing — Discon- FLSmidth
Services Handling Processing companies activities tinued Group
etc. activities

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

External revenue 7,464 3,770 9,063 5,185 1,441 - 26,923 4 26,927
Internal revenue 101 782 193 16 0 (1,092) 0 0 0
Revenue 7,565 4,552 9,256 5,201 1,441 (1,092) 26,923 4 26,927
Production costs (5,711) (4,217) (7,257) (4,500) (1,083) 1,054 (21,714) (4) (21,718)
Gross profit 1,854 335 1,999 701 358 (38) 5,209 0 5,209
Sales, distr. and admin. costs and other

operating items (1,086) (790) (1,149) (540) (361) 21 (3,905) 2 (3,903)
Earnings before special non-recurring

items, depreciation, amortisation and

impairment (EBITDA) 768 (455) 850 161 (3) (17) 1,304 2 1,306
Special non-recurring items 3 0 0 0 0 "3 6 0 6
Depreciation and impairment of tangible

assets (80) (56) (93) (37) (61) (6) (333) 0 (333)
Earnings before amortisation and

impairment of intangible assets

(EBITA) 691 (511) 757 124 (64) (20) 977 2 979
Amortisation and impairment of

intangible assets (650) (87) (546) (29) (4) Q (1,316) 0 (1,316)
Earnings before interest and tax

(EBIT) 41 (598) 211 95 (68) (20) (339) 2 (337)
ORDER INTAKE (GROSS) 8,005 4,937 5,559 3,417 n/a (1,007) 20,911 n/a 20,911
ORDER BACKLOG 8,046 4,465 4,993 5,389 n/a (581) 22,312 n/a 22,312
FINANCIAL RATIOS

Gross margin 24.5% 7.4% 21.6%  13.5%  24.8% nla 19.3% n/a 19.3%
EBITDA margin 10.2%  (10.0%) 9,2% 3.1%  (0.2%) n/a 4.8% n/a 4.9%
EBITA margin 9.1% (11.2%) 8.2% 2.4%  (4.4%) n/a 3.6% nla 3.6%
EBIT margin 0.5% (13.1%) 2.3% 1.8%  (4.7%) nla (1.3%) n/a (1.3%)
Number of employees at 31

December 5,847 3,306 2,840 2,251 1,069 4 15,317 0 15,317
Reconciliation of the year's profit/loss

Segment earnings before interest and tax (EBIT) of reportable segments (339) 2

Financial income 1,423 12

Financial costs (1,684) (12)

Earnings before tax (EBT) (600) 2

Tax for the year (186) 0
Profit/loss for the year (786) 2

As a consequence of the decision to stop the sale of Cembrit, Cembrit is reported as continuing business and profit and loss comparative figures for
2012 have been adjusted accordingly.

 

Notes to the consolidated financial statements

2. Breakdown of the Group by segments for 2012

      

DKKm Customer Material Mineral Cement Cembrit Other Continuing — Discon- FLSmidth
Services Handling Processing companies activities tinued Group
etc. activities

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

External revenue 6,984 4,323 9,345 4,197 1,435 - 26,284 (5) 26,279
Internal revenue 89 674 167 17 0 (947) 0 0 0
Revenue 7,073 4,997 9,512 4,214 1,435 (947) 26,284 (5) 26,279
Production costs (5,076) (4,393) (7,316) (2,945) (987) 959 (19,758) 5. (19,753)
Gross profit 1,997 604 2,196 1,269 448 12 6,526 0 6,526
Sales, distr. and admin. costs and other

operating items (985) (744) (1,117) (481) (340) 8 (3,659) (20) (3,679)
Earnings before special non-recurring

items, depreciation, amortisation and

impairment (EBITDA) 1,012 (140) 1,079 788 108 20 2,867 (20) 2,847
Special non-recurring items (15) 5 (7) 0 8 0 (9) 15 6
Depreciation and impairment of

tangible assets (67) (51) (72) (36) (59) (14) (299) (10) (309)
Earnings before amortisation and

impairment of intangible assets

(EBITA) 930 (186) 1,000 752 57 6 2,559 (15) 2,544
Amortisation and impairment of

intangible assets (143) (61) (227) (83) (4) 0 (518) (9) (518)
Earnings before interest and tax

(EBIT) 787 (247) 773 669 53 6 2,041 (15) 2,026
ORDER INTAKE (GROSS) 9,202 4,565 10,318 4,599 n/a (957) 27,727 n/a 27,727
ORDER BACKLOG 8,159 4,773 9,589 7,585 n/a (655) 29,451 n/a 29,451
FINANCIAL RATIOS

Gross margin 28.2% 12.1% 23.1%. 30.1% 31.2% n/a 24.8% n/a 24.8%
EBITDA margin 14.3% (2.8%) 11.3% 18.7% 7.5% nla 10.9% nia 10.8%
EBITA margin 13.1% (3.7%) 10.5%  17.8% 4.0% nla 9.7% n/a 9.7%
EBIT margin 11.1% (4.9%) 8.1%  15.9% 3.7% nia 7.8% n/a 7.7%
Number of employees at 31

December 6,003 3,435 2,833 2,554 1,073 2 15,900 0 15,900
Reconciliation of the year's profit/loss

Segment earnings before interest and tax (EBIT) of reportable segments 2,041 (15)

Financial income 1,007 13

Financial costs (1,087) (3)

Earnings before tax (EBT) 1,961 (5)

Tax for the year (653) 0
Profit/loss for the year 1,308 (5)

100

 

 

FLSmidth: Annual Report 2013 MERNE

3. Geographical information

The geographical breakdown of revenue is based on the location of the activity or the location where the equipment is delivered.

DKKm 2013 2012

 

Revenue (continuing activities)

 

 

Europe 4,410 3,951
Asia 6,638 6,187
North America 4,816 5,054
South America 5,394 4,896
Africa 3,727 3,883
Australia 1,938 2,313
26,923 26,284
Significant revenue in individual countries (more than 5% of total revenue):
- Denmark (the Group's domicile country) 574 509
- USA 3,034 2,661
- Chile 2,038 1,936
- Australia 1,929 2,293
- Brazil 1,752 1,454
- India 1,685 1,916
- Russia 1,508 1,347
- Canada 1,196 1,596

The geographical breakdown of assets is based on the location of the assets.
The location largely coincides with the domiciles of the Group companies.

Assets (Group)

 

 

Europe 10,063 10,130
Asia 2,685 3,152
North America 8,877 9,264
South America 2,909 ” 3,554
Africa 809 1,962
Australia 1,985 3,813
27,328 31,875
Significant non-current assets in individual countries:
- Denmark (the Group's domicile country) 2,371 1,920
- USA 3,276 3,570
- Australia 1,045 2,630
- Canada 733 908

 

 

Geographical location of the Group's employees: 2013 2012
Employees 31 December
Europe 4,114 4,197
Asia 4,375 4,473
North America 2,998 3,176
South America 1,303 1,310
Africa 1,832 1,836
Australia 695 908
15,317 15,900

 

1404014EogsSN67981 101

 

Notes to the consolidated financial statements

Income statement

   

Accounting policy
Revenue is recognised in the income statement on delivery and passing of the risk to the buyer and when the income can be measured reliably.

Work-in-progress for third parties is recognised in revenue based on the value of the work completed at the balance sheet date, whereby the
revenue corresponds to the sales value of the year's completed work based on costs incurred in percentage of the total estimate costs (percent-
age of completion).

Income from the supply of services is recognised as revenue in line with the services agreed being supplied, so that the revenue corresponds
to the sales value of the work completed in the financial year.

Production costs include raw materials, consumables, direct labour costs and production overheads such as Operation & Maintenance of
production plant as wel! as administration and factory management. Production costs for Work-in-progress for third parties are recognised in
step with the completion of the individual contract.

Research and development costs are charged to Production costs in the income statement for the financial year in which they are incurred.
Development costs related to certain products or processes are recognised as assets to the extent that such costs are likely to generate future
earnings. See note 18 for further specification.

Sales and distribution costs comprise direct distribution and marketing costs, salaries for the sales and marketing functions as well as other
indirect costs.

Administrative costs comprise the costs of administrative staff and management as well as other indirect administrative costs.

4. Revenue

 

 

 

DKKm 2013 2012
Project sales 12,467 12,173
Product sales 3,332 3,391
Sales of spare parts and services, consumables etc. 9,683 9,285
Building materials 1,441 1,435
26,923 26,284
Income recognition criteria
Income recognised when delivered 9,263 9,586
Income recognised in accordance with the percentage-of-completion method 17,660 16,698
26,923 26,284

 

Sales of spare parts and services consumables etc. include services and spare paris sales in product companies that are included in the segmental
reporting of Material Handling, Mineral Processing and Cement.

 

102

 

 

FLSmidth: Annual Report 2013 MERE

5. Other operating income and costs

Accounting policy. '

Other operating income and ,costs consist of income and costs of secondary nature to the Group's activities, including certain grants, rent
income, royalties, fees, etc. plus profit and loss on disposal of individual assets, land and buildings, which are not considered part of the dis-
posal of a complete operation. ; . Én . . ,

 

 

 

 

 

DKKm 2013 2012
Other operating income
Government subsidies and other grants 7 8
Rent income 6 11
Royalties, etc. 12 3
Profit on disposal of tangible assets 12 M
Other income 170 82
207 145
Other operating costs
Loss on disposal of tangible assets (10) (5)
Other costs (61) (34)
(71) (39)
Total other operating income and costs 136 106

 

In 2013, other income included income of non-recurring nature of DKK 37m related to the disposal of assets in the mineral processing division.

In 2012, the profit on disposal of tangible assets included the profit from sale of buildings in Denmark and Australia at DKK 32m and DKK 8m,
respectively.

6. Staff costs

Accounting policy
Staff costs consist of direct wages and salarles, remuneration pension, share-based.payments, training, etc, related to the continuing activities that
contribute to the Group's production, sales and administration.

 

 

 

 

DKKm 2013 2012
Wages, salaries and fees 4,675 4,324
Contribution plans and other social security costs, etc. 530 448
Defined benefit plans 11 17
Share-based payment, option plans 37 29
Other staff costs 580 355
5,833 5,173
The amounts are included in the items:
Production costs 3,458 2,976
Sales and distribution costs 1,206 1,144
Administrative costs 1,169 1,053
5,833 5,173

 

The average number of employees was 15,600 in 2013 (2012: 14,433).
For further details concerning the remuneration of the Executive Management and Board of Directors, see note 43 regarding related parties,

Redundancy costs incurred in 2013 amount to DKK 178m.

1404014EogSN67982 20 103

FEE

Notes to the consolidated financial statements

7. Special non-recurring items

   

Accounting policy
Special non-recurring items consist of costs and income of a special nature in relation to the main activities of the Group, including profit and
loss on disposal of enterprises and run-off on purchase price allocations to inventories in connection with acquisitions. These items are classi-
fied as special non-recurring items in order to give a more true and fair view of the Group's operational activities.

 

 

DKKm 2013 2012
Run-off on purchase price allocations to inventorles in connection with acquisition of enterprises 0 (21)
Profit/loss on disposa! of enterprises and activities 6 12

6 (9)

 

8. Minority interests

Accounting policy
On initial recognition minority interests are measured at fair value or at their proportionate share of the fair value of the identifiable assets,
liabilities and contingent liabilities of the enterprise acquired.

The minority shareholders' share of profit/loss for the year is based on the specific company's shareholder agreement.

Minority shareholders' share of profit/loss for the year concerns the following companies.

 

 

DKKm 2013 2012
Roymec (Proprietary) Limited (8) (5)
Phillips Kiln Service Ltd. 2 4
FLSmidth SEPEC (2) (2)

(8) (3)

 

9. Earnings per share (EPS)

Accounting policy

Earnings per share (EPS) and diluted earnings per share (EPS, diluted) are measured according to |AS 33. Non-diluted earnings per share are
calculated as the earnings for the year after tax from continuing and discontinued activities divided by the total average number of shares. In the
diluted earnings per share adjustment is made for options in-the-money.

 

 

 

DKKm 2013 2012
Earnings

FLSmidth & Co. A/S shareholders' share of profit/loss for the year (776) 1,306
FLSmidth & Co. Group profit/loss from discontinued activities 2 (5)
Number of shares, average

Number of shares issued 53,200,000 53,200,000
Adjustment for treasury shares (3,433,298) (1,170,096)
Potential increase of shares in circulation, options in-the-money 124,632 203,558
Average number of shares 49,891,334 52,233,462
Earnings per share

Continuing and discontinued activities per share (15.6) 25.1
Continuing and discontinued activities, diluted, per share (15.6) 25.0
Continuing activities per share (15.6) 25.2
Continuing activities, diluted, per share (15.6) 25.1

Non-diluted earnings per share in respect of discontinued activities amount to DKK 0.0 (2012: DKK -0.1) and diluted earning per share in respect of
discontinued activities amount to DKK 0.0 (2012: DKK -0.1).

The calculation of diluted earnings per share is inclusive of 124,632 share options (2012: 203,558), which are in-the-money that may potentially
dilute the earnings per share in the future.

 

104

 

 

FLSmidth: Annual Report 2013 MER

10. Income statement classified by function

The Group prepare the income statement based on an adapted dassification of the costs by function in order to show the earnings before special
non-recurring items, depreciation, amortisation and impairment (EBITDA). Depreciation, amortisation and impairment of tangible and intangible
assets are therefore separated from the individual functions and presented on separate lines.

 

 

 

 

 

 

 

 

DKKm 2013 2012
Revenue 26,923 26,284
Production costs, including depreciation, amortisation and impairment (22,209) (20,196)
Gross profit 4,714 6,088
Sales and distribution costs, including depreciation, amortisation and impairment (1,863) (1,809)
Administrative costs, including depreciation, amortisation and impairment (3,332) (2,335)
Other operating income and costs 136 106
Special non-recurring items 6 (9)
Earnings before interest and tax (EBIT) (339) 2,041
Depreciation, amortisation and impairment consist of:
Impairment of intangible assets 901 188
Amortisation of intangible assets 415 330
Depreciation of tangible assets 333 299
1,649 817
Depreciation, amortisation and impairment are divided into:
Production costs 495 438
Sales and distribution costs 15 12
Administrative costs 1,139 367
1,649 817

 

The impairment of goodwill is divided into sales and distribution costs by (DKK 2m) and administrative costs by (DKK 703m).

The impairment of customer relations is recognised among variable costs at DKK 196mM.

1404014EogSN67983

105

 

Notes to the consolidated financial statements

Cash flow statement

   

Accounting policy
The consolidated cash flow statement is presented according to the indirect method and shows the composition of cash flow divided into
operating, investing and financing activities, respectively, and the changes in cash and cash equivalents during the year.

The cash flow statement is based on earnings before special non-recurring items, depreciatijon, amortisation and impairment (EBITDA).

In working capital and net interest bearing debt a distinction is made between interest-bearing and non-interest-bearing items, and cash and
cash equivalents.

+ Cash and cash eqguivalents consist of cash and bank deposits.

+ Interest-bearing debt items are less interest-bearing receivables.

+ All other non-interest-bearing receivables and debt items are regarded as working capital.

Cash flow from operating activities consists of earnings before special non-recurring items, depreciation, amortisation and impairment
(EBITDA) adjusted for non-cash operating items, changes in working capital and payments in respect of provisions, Corporation tax and
financial items.

Cash flow from investing activities comprises payments made in connection with the acquisition and disposal of enterprises and activities, the
acquisition and disposal of assets and prepayments of assets.

Cash flow from financing activities comprises changes in the size of the share capital and related costs as well as acquisitions and disposal of

non-controlling interests, treasury shares and payment of dividends to shareholders. The Group's cash and cash equivalents mainly consist of
money deposited with banks.

11. Change in provisions

 

 

DKKm 2013 2012
Pensions and similar obligations (16) 35
Other provisions 219 (241)

203 (206)

 

12. Change in working capital

 

 

DKKm 2013 2012
Inventories 85 (210)
Trade receivables 388 (403)
Trade payables 488 224
Work-in-progress for third parties and prepayments from customers (2,137) 458
Other receivables and other liabilities 373 (295)
Foreign exchange adjustment (90) 0

(893) (226)

 

The change in working capital include, DKK 250m in foreign exchange adjustments of the opening balance of the working capital items.

 

106

 

FLSmidth: Annual Report 2013 MRNA

13. Financial items received and paid

The financial items received and paid consist of interest income and interest costs received or paid in the financial year.

 

 

 

 

 

DKKm 2013 2012
Interest received 36 545
Interest paid (159) (494)

(123) 51

14. Change in net interest-bearing debt

DKKm 2013 2012
Bank loans 1,491 2,508
Finance lease (9) 1
Other liabilities (62) (173)
Contingent consideration 24 231
Net changes 1,444 2,567

 

Før further details please refer to note 30.

1404014EogSN67984

107

 

Notes to the consolidated financial statements

   

Acquisition and disposal of enterprises and activities

Accounting policy

Business combinations

On acaquisition of enterprises, the purchase method is applied, and the assets, liabilities and contingent liabilities of the enterprises acquired are
measured at fair value on the date of acquisition. The date of acquisition is the date when the Group controls the enterprise acquired.

The tax effect of the revaluations made is taken into account. Enterprises acquired are included in the consolidated financial statements from
the date of acquisition.

Statement of cost

The cost of an enterprise consists of the fair value of the purchase price of the enterprise acquired. If the final determination of the acquisi-
tion price is subject to one or more future events or fulfilment of terms agreed, these are recognised at fair value hereof at the date of acquisi-
tion and classified as a financial liability. Contingent considerations that are classified as a financial liability are continuously remeasured at fair
value and adjusted directly in the income statement.

Costs that are related to the acquisition are recognised in the income statement as administration costs at the time of occurrence.

In the case of business combinations, positive variances between the cost of the enterprise and the fair value of the identifiable assets, liabilities and

contingent liabilities acquired are recognised as goodwill under the heading of intangible assets. Goodwill is not amortised, but is tested at least once a
year for impairment. At the time of acquisition or not later than 12 months afterwards, goodwill is allocated to the cash generating units which subse-
quently form the basis of the impairment test. Negative variances (negative goodwill) are recognised in the income statement at the date of acquisition.

If there is any uncertainty regarding the identification or measurement of acquired assets, liabilities and contingent liabilities or the determination
of the consideration at the date of acquisition, initial recognition is based on provisional values. The provisional values can be adjusted or addi-
tional assets or liabilities included until 12 months after the acquisition, if new information has appeared regarding circumstances that existed at
the time of acquisition, which would have affected the statement of value at the time of acquisition if the information had been known.

15. Acquisition of enterprises and activities in 2013

There has been no acquisitions of enterprises and activities in 2013. However, adjustments to fair value regarding acquisitions made in 2012 have
been necessary based on final purchase price allocation reports.

 

 

 

 

 

 

2012 2013

DKKm Fair value Adjustment  Reclassification Sum of Fair value
adjusted opening to fair value made in 2013 movements adjusted opening

balance sheet made in 2013 2013 balance sheet

made in 2012 2012-2013

Patents and rights 422 58 150 208 630
Customer relations 808 (31) (31) 7717
Other intangible assets 243 (7) (150) (157) 86
Tangible assets 454 11 11 465
Financial assets including deferred tax 76 (3) (3) 73
Inventories 487 (1) (1) 486
Receivables 399 (133) (133) 266
Work-in-progress for third parties 16 - - 16
Cash and cash egquivalents 114 - - 114
Provisions including deferred tax (164) (125) (125) (289)
Loans (551) 29 29 (522)
Other liabilities (455) 70 70 (385)
Net assets 1,849 (132) 0 (132) 1,717
Goodwill 830 125 955
Cost 2,679 (7) 2,672
Cash and cash equivalents acquired (114) (1) (115)
Contingent consideration (earn out) 97 17 114
Deferred payment (149) 41 (108)
Net cash effect, acquisitions 2,513 50 2,563

 

In 2013 direct transaction costs amount to DKK 2m.

Contingent consideration (earn out)

Cash flow from acquisitions in 2013 is affected by the last part of the earn out of Summit Valley that was acquired in 2009 at the amount of DKK 17m.
In addition, FLSmidth has paid part of the deferred payment related to the acquisition of MIE Enterprises Pty. Ltd of DKK 41m. FLSmidth still has to pay
additional DKK 88m related to MIE Enterprises Pty. Ltd., which amounts to DKK 30m in 2014 and DKK 58m in 2015. In addition, Ludowici Limited paid
DKK 3m of earn out regarding an acquisition which was done prior to the take over of Ludowici Limited by FLSmidth.

Cash and cash equivalents acquired
FLSmidth received a payment of DKK 1m from the sellers of TEUTRINE GmbH Industrie Technik in connection with the finalised assessment of acquisition
balance net working capital. This payment was already reflected in the acquisition price in the 2012 financial statements.

108

 

Enterprises acquired in 2012 and affected in 2013

FLSmidth: Annual Report 2013 Mål mM WM

Included in the consolidated
financial statements

 

 

 

 

 

 

 

 

 

 

 

 

Cost Non allocated cost price (goodwill)
Knelson Russia (acquisition of net assets) 7 ”
Process Engineering Resources Inc, - 4
Ludowici Limited - 120
TEUTRINE GmbH Industrie-Technik - -
MIE Enterprises Pty. Ltd. (2) 10
Mayer Bulk Pty. Ltd. - (4)
Decanter Machine Inc. (5) (5)
Total (7) 125
Ludowici Limited
In 2013, the fair value adjustments of the opening balance were completed, which mainly resulted in adjustments to deferred tax liability and goodwill.
In addition, DKK 150m in other intangible assets were reclassified to Patents and rights.
Other completion of opening balances
In 2013, the fair value adjustments of the opening balances of Process Engineering Resources Inc., MIE Enterprises Pty Ltd., Mayer Bulk Pty Ltd. and
Decanter Machine, Inc. were completed, resulting in minor opening balance adjustments.
15. Acquisition of enterprises and activities in 2012
Enterprise acquired Primary Date of Ownership Voting
activity acquisition/ interest share
consolidated from
Knelson Russia (acquisition of net assets) Mineral Processing 24 January 2012 - -
Process Engineering Resources Inc. Mineral Processing 6 June 2012 100% 100%
Ludowici Limited Mineral Processing/Customer Services 3 July 2012 100% 100%
TEUTRINE GmbH Industrie-Technik Customer Services — 3 September 2012 100% 100%
MIE Enterprises Pty. Ltd. Customer Services — 4 September 2012 100% 100%
Mayer Bulk Pty. Ltd. Customer Services — 4 September 2012 100% 100%
Decanter Machine Inc. Mineral Processing == 18 September 2012 100% 100%
DKKm Carrying amount Adjustments Fair value
before adjustment at fair value  adjusted opening
balance sheet
Patents and rights 1 421 422
Customer relations - 808 808
Other intangible assets 9 234 243
Tangible assets 431 23 454
Financial assets including deferred tax 76 - 76
Inventories 408 79 487
Receivables 399 - 399
Work-in-progress for third parties 16 - 16
Cash and cash equivalents 114 - 114
Provisions including deferred tax (96) (68) (164)
Loans (551) - (551)
Other liabilities (455) - (455)
Net assets 352 1,497 1,849
Goodwill 830
Cost 2,679
Cash and cash equivalents acquired (114)
Contingent consideration (earn out) 97
Deferred payment (149)
Net cash effect, acquisitions 2,513
Other specifications regarding transactions:
Direct transaction costs 45

 

funk

404014EogSN67985

109

 

HEE

Alotes to the consolidated financial statemments

15. Acquisition of enterprises and activities in 2012 (continued)

 

Included in the consolidated
financial statements 2012

 

    

 

Enterprise acquired Revenue Earnings Revenue Earnings Number of Non allocated
after for 2012 after tax — employees cost price

tax for 2012 (goodwill)

Knelson Russia (acquisition of net assets) 21 1 21 1 12 0
Process Engineering Resources Inc. 7 0 17 2 7 17
Ludowici Limited 701 (22) 1,351 (100) 958 594
TEUTRINE GmbH Industrie Technik 13 (2) 60 4 51 20
MIE Enterprises Pty. Ltd. 52 (5) 153 7 85 41
Mayer Bulk Pty. Ltd. 5 (2) 24 (1) 17 0
Decanter Machine Inc. 60 0 246 18 127 94

 

Knelson Russia

In September 2011, the Canadian activities of Knelson Group based in Vancouver, Canada, were acquired, An agreement to acquire Knelson's Russian
activities, based in Irkutsk, Russia, was also signed at that time. Not until 24 January 2012 did FLSmidth receive regulatory approval from the Russian
authorities to acquire the Russian activities of Knelson Group.

Process Engineering Resources Inc.
Process Engineering Resources Inc. based in Salt Lake City, USA, is a company specialising in the development, manufacturing, and installation of on-line
slurry analysis systems in the mining and minerals industries. The non-allocated purchase consideration reflects expected synergies.

Ludowici Limited
Australia-based Ludowici Limited is the world's leading provider of coal centrifuges, vibrating screens and complementary wear resistant products and
services for the minerals industries. The non-allocated purchase consideration reflects expected synergies.

TEUTRINE GmbH Industrie-Technik

German-based Teutrine GmbH Industrie-Technik is a company specialising in on-site maintenance and repair, and replacement and upgrade services to
cement and minerals customers in Europe and the Middle East. The non-allocated purchase consideration reflecting expected synergies.

MIE Enterprises Pty. Ltd,

Australian-based MIE Enterprises Pty Ltd. is a company specialising in maintenance and repair services to mining customers in Australia and South-East
Asia. The activities were consolidated at 4 September 2012. The non-allocated purchase consideration reflecting expected synergies.

Mayer Bulk Pty. Ltd.

Australian-based Mayer Bulk Pty Ltd. is a company specialising in the design of mobile machines, cranes and material handling structures to mining cus-
tomers in Australia and South-East Asia.

Decanter Machine Inc.

US-based Decanter Machine Inc. is a manufacturer and supplier of centrifugal technology to the global minerals industries. The non-allocated purchase
consideration reflects expected synergies.

110

 

 

16. Disposal of enterprises and activities

Accounting policy

FLSmidth: Annual Report 2013 MERE

When selling enterprises and activities the difference between the selling price and the carrying amount of the net assets at the date of
disposal including remaining goodwill less expected costs of disposals is recognised in the income statement among special non-recurring
items. If the final consideration is dependent on future events (contingent consideration), it is stated at fair value at the time of sale, and

classified as financial assets,

Enterprises and activities sold are induded i in the consolidated financial statements until the date of disposal.

 

 

 

 

 

DKKm 2013 2012
Intangible assets 25 0
Tangible assets 21 0
Inventories 36 0
Liabilities (10) 0
Carrying amount of net assets disposed 72 0
Profit/loss on disposal of enterprises and activities 5 5
Cash sales value 77 5
Contingent consideraton 0 0
Total selling price 77 5
Cash and cash equivalents disposed of, see above 0 0
Net cash effect including contingent consideration in a business combination 77 5

 

Profit/loss on disposal of enterprises and activities recognised in the income statement is stated at an average exchange rate and cannot therefore

be reconciled directly with the above figures.

Disposal of enterprises and activities in 2013 consists of disposal of non-core activities gained through the acquisition of Lucowidi.

Disposal of enterprises and activities in 2012 consists of disposal of non-core activities in Denmark.

17. Discontinued activities

Accounting policy.

Discontinuing activities are stated as a separate item in the i income statement and consist of the operating income after tax from the
» activity concerned and any profits or losses from fair value adjustment or disposal of the assets related to'the activities. .

. In the consolidated cash flow statement cash flow from discontinued activities is included-in cash flow from operating, investing and

financing activities together with cash flow from continuing activities.

The financial highlights and key ratios of discontinued activities are as follows:

 

 

 

 

DKKm 2013 2012
Revenue 4 (5)
Costs (2) 0
Earnings before tax 2 (5)
Tax for the year (EBT) 0 0
Profit/loss for the year, discontinued activities 2 (5)
Cash flow statement:

Cash flow from operating activities (4) (3)
Cash flow from investing activities 0 0
Cash flow from financing activities (13) 1
Earnings per share (EPS), discontinued activities 0.0 (0.1)
Diluted earnings per share (EPS, diluted), discontinued activities 0.0 (0.1)

As a consequence of the decision to stop the sale of Cembrit, Cembrit is reported as continuing business and profit and loss comparative figures for

2012 have been adjusted accordingly.

1404014RogSN67986

111

 

Rotes to the consolidated financial statements

Non-current assets and investments

18. Intangible assets

Accounting policy

Goodwill

Goodwill is measured in the balance sheet at cost in connection with initial recognition. Subsequently, goodwill is measured at cost less
accumulated impairment losses. When recognising goodwill, it is allocated to the cash flow generating units as defined by the Management. The
determination of cash generating units complies with the managerial structure and the internal financial control and reporting in the Group.

   

Other intangible assets
Other intangible assets with a finite useful life are measured at cost less accumulated amortisation and impairment losses. Other intangible
assets with indefinite useful life are not amortised, but are tested for impairment at least once a year.

Development costs consist of salaries, amortisation and other costs that are directly attributable to development activities.

Clearly defined and identifiable development projects, for which the technical rate of utilisation, sufficient resources and a potential future
market or application in the Group can be demonstrated and which are intended to be manufactured, marketed or used, are recognised as
Completed development projects. This requires that the cost can be determined and it is sufficiently certain that the future earnings or the
net selling price will cover production, sales and administrative costs plus the development costs, Other development costs are recognised in
the income statement as the costs are incurred.

Amortisation of completed development projects except from software is charged on a straight line basis during their estimated useful life.
Development projects are written down for impairment to recoverable amount if lower. Development projects in progress are tested for
impairment at least once a year.

Amortisation of patents, rights, customer relations and other intangible assets is Ccharged over the remaining patent or agreement period or
useful life if shorter.

Amortisation of software is based on consumption (units of production methods) of users over the estimated useful life of the assets, and
the timing of implementation.

The amortisation profile is systematically based on the expected useful life of the assets. The basis of amortisation is reduced by impairment,
if any.

Amortisation takes place systematically over the estimated useful life of the assets which is as follows:
+ Development costs, up to 5 years

+ Software applications, up to 5 years

+ Patents, rights and other intangible assets, up to 20 years

+ Customer relations, up to 30 years

 

 

 

 

 

DKKm Goodwill Patents — Customer Other  Completed Intangible Total
and rights relations  intangible development  assets under
assets projects development

Cost at 1 January 2013 4,852 1,975 2,227 879 97 740 10,770
Reclassification from assets held for sale 51 18 5 10 0 1 85
Foreign exchange adjustments (343) (8) (229) (45) 0 (1) (626)
Acquisition of Group enterprises 125 208 (31) (157) 0 0 145
Additions 0 2 0 3 5 163 173
Disposals (4) (7) (13) (39) (6) (3) (72)
Transferred between categories 57 (70) 4 99 103 (193) 0
Transfer to tangible assets 0 0 0 Q 0 (20) (20)
Other adjustments 0 0 Q 0 0 0 Q
Cost at 31 December 2013 4,738 2,118 1,963 750 199 687 10,455
Amortisation and impairment at 1 January 2013 0 (388) (426) (565) (57) (147) (1,583)
Reclassification from assets held for sale (1) (13) (3) (9) 0 (1) (27)
Foreign exchange adjustments 60 15 65 21 0 4 165
Disposals 0 6 13 17 6 0 42
Amortisation and impairment (705) (135) (341) (101) (33) (1) (1,316)
Transferred between categories 0 3 (15) 12 0 0 0
Other adjustments 2 0 (2) 0 0 0 0
Amortisation and impairment

at 31 December 2013 (644) (512) (709) (625) (84) (145) (2,719)
Carrying amount at 31 December 2013 4,094 1,606 1,254 125 115 542 7,736

112

 

 

DKKm

 

FLSmidth: Annual Report 2013 MM ME

 

 

 

 

Goodwill Patents Customer Other  Completed Intangible Total
and rights relations  intangible development  assets under
assets projects development

Cost at 1 January 2012 4,129 1,442 1,452 693 89 514 8,319
Reclassification to assets held for sale (50) (15) (4) (10) 0 0 (79)
Foreign exchange adjustments (56) (7) (29) (14) 0 0 (106)
Acquisition of Group enterprises 830 422 808 243 0 0 2,303
Additions 0 104 0 4 1 257 366
Disposals 0 0 0 (35) 0 0 (35)
Transferred between categories 0 22 0 0 6 (28) 0
Other adjustments (1) 7 0 (2) 1 (3) 2
Cost at 31 December 2012 4,852 1,975 2,227 879 97 740 10,770
Amortisation and impairment at 1 January 2012 (10) (283) (322) (508) (42) (3) (1,168)
Reclassification to assets held for sale 2 11 3 11 0 0 27
Foreign exchange adjustments 0 1 6 4 0 0 11
Disposals 0 0 0 13 0 0 13
Amortisation and impairment 0 (114) (111) (83) (18) (188) (514)
Other adjustments 8 (3) (2) (2) 3 44 48
Amortisation and impairment
at 31 December 2012 0 (388) (426) (565) (57) (147) (1,583)
Carrying amount at 31 December 2012 4,852 1,587 1,801 314 40 593 9,187

 

For allocation of amortisation and impairment to production costs, sales and distribution costs and administrative costs, see note 10.

For 70% of patents and rights acquired the estimated useful life is between 10-20 years and for 70% of Customer Relations the estimated useful

life is between 0-10 years.

Much of the knowledge generated in the Group originates from work performed for customers. In 2013, the Group's research and development
costs totalled DKK 419m (2012: DKK 363m). Research and development costs not capitalised are included in production costs. As these costs
mainly relate to improvements of already existing products, capitalised development costs merely account for a total of DKK 117m (2012: DKK
104m) in respect of R&D development projects and other intangible assets. The total addition of intangible assets includes internal capitalisation

at DKK 67m (2012: DKK 128m).

Completed development projects and intangible assets under development consists of software projects of DKK 392m (2012: DKK 393m) and R&D
projects of DKK 265m (2012: DKK 240m), hereof capitalised in 2013 DKK 42m (2012: DKK 149m).

Goodwill and trademarks acquired through acquisitions are considered to have indefinite useful life. The carrying amounts of goodwill and trademarks are

shown in the following divided into segments.

Intangible assets of indefinite useful life

 

 

 

 

 

DKKm Customer Material Mineral Cement Cembrit 2013
Services Handling Processing
Goodwill 1,964 211 1,810 62 47 4,094
Trademarks 188 151 442 36 0 817
Carrying amount at 31 December 2013 2,152 362 2,252 98 47 4,911
Addition of goodwill comprises:
DKKm Customer Material! Mineral Cement 2013
Services Handling Processing
Conveyer Engineering Inc. (contingent
consideration adjustment)
Knelson Canada
Process Engineering Resources Inc. 4 4
Ludowici Limited 60 60 120
TEUTRINE GmbH Industrie-Technik
MIE Enterprises Pty. Ltd. 10 10
Mayer Bulk Pty. Ltd. (4) (4)
Decanter Machine Inc. (5) (5)
Darimec S.r.L.
66 59 125

1404014EogSN67987

 

113

 

114

Notes to the consolidated financial statements

19. Tangible assets

  

Accounting policy
Land and buildings, production facilities and machinery and other facilities, operating equipment and tools and equipment are measured at cost
less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials and direct labour costs.

Depreciation is charged on a straight line basis over the estimated useful life of the assets until they reach the estimated residual value. Estimated
useful life is as follows:

+ Buildings, 20 — 40 years

Plant and machinery, 3 — 10 years

Operating equipment and other tools and equipment, 3 — 10 years

Lease hold improvements, up to 5 years

Land is not depreciated

Assets of low acquisition value or short life are expensed in the income statement in the year of acquisition.
Newly acquired assets and assets of own construction are depreciated from the time they are available for use.

Where acquisition or use of the asset places the Group under an obligation to incur the costs of pulling down or re-establishing the asset, the
estimated costs for this purpose are recognised as part of the cost of the asset concerned, and are depreciated during the asset's useful life.

Assets held under a finance lease are measured in the balance sheet at fair value or the present value of future lease payments at the time of
acquisition, if lower. In calculating the present value, the internal interest rate of the lease agreement is used as a discounting factor or as the
Group's alternative borrowing rate. Assets held under a finance lease are depreciated like other tangible assets of the Group.

The capitalised residual lease commitment is recognised in the balance sheet as debt whilst the interest component of the lease payment is
recognised in the income statement as a financial item.

For operating leases, the lease payments are recognised in the income statement on a straight line basis over the lease period.

DKKm Land and Plant and Operating Tangible Total
buildings machinery equipment, assets
fixtures and in course of

fittings construction

 

 

 

 

 

Cost at 1 January 2013 2,185 1,388 764 185 4,522
Reclassification from assets held for sale 291 1,027 58 17 1,393
Foreign exchange adjustments (176) (137) (50) (9) (372)
Acquisition of Group enterprises 11 0 0 0 11
Additions 124 172 75 153 524
Disposals (72) (47) (67) (30) (216)
Transferred between categories 78 (29) 44 (93) 0
Transfer from intangible assets 20 20
Other adjustments 0 Q 0 0
Cost at 31 December 2013 2,441 2,374 824 243 5,882
Depreciation and impairment at 1 January 2013 (571) (631) (543) (10) (1,755)
Reclassification from assets held for sale (119) (691) (46) (4) (860)
Foreign exchange adjustments 22 54 31 2 109
Disposals 29 40 63 0 132
Depreciation (65) (176) (91) (1) (333)
Transferred between categories 0 2 (3) 1 0
Other adjustments 0 0 0 0 (9)
Depreciation and impairment at 31 December 2013 (704) (1,402) (589) (12) (2,707)
Carrying amount at 31 December 2013 1,737 972 235 231 3,175

 

 

FLSmidth: Annual Report 2013 MR ERE

 

 

 

 

 

DKKm Land and Plant and Operating Tangible Total

buildings machinery equipment, assets

fixtures and in course of

fittings construction
Cost at 1 January 2012 2,030 1,864 756 287 4,937
Reclassification to assets held for sale (274) (993) (55) (51) (1,373)
Foreign exchange adjustments (35) (14) (10) (1) (60)
Acquisition of Group enterprises 257 182 15 0 454
Additions 141 282 68 232 723
Disposals (93) (12) (29) (29) (163)
Transferred between categories 159 61 1 (221) 0
Other adjustments 0 18 18 (32) 4
Cost at 31 December 2012 2,185 1,388 764 185 4,522
Depreciation and impairment at 1 January 2012 (665) (1,165) (543) (3) (2,376)
Reclassification to assets held for sale 106 645 42 3 796
Foreign exchange adjustments 3 3 6 12
Disposals 24 3 26 53
Depreciation (51) (107) (82) (240)
Transferred between categories (1) (5) 6 0
Other adjustments 13 (5) 2 (10) 0
Depreciation and impairment at 31 December 2012 (571) (631) (543) (10) (1,755)
Carrying amount at 31 December 2012 1,614 757 221 175 2,767

 

For plant and machinery 60% of the assets are depreciated based on estimated useful life between 7-10 years. For operating equipment, fixtures and

 

20.

1404014EogSN67988

fittings 90% are depreciated based on estimated useful life between 3-6 years.

Depreciation and impairment in the income statement are stated at the average rates of exchange and cannot therefore be directly reconciled with
the fixed asset note above in which depreciation and impairment are stated at the year-end exchange rates. For allocation of depreciation and
impairment to production costs, sales and distribution costs and administrative costs, see note 10.

For acquisition of Group enterprises, see note 15.

Impairment test

. Accounting policy

" Goodwill 'and Other intangible assets of indefinite useful life åre tested for impairment nat least once a year and when there is indication of
. impairment, the first time being before the end of the year of acquisition. Ongoing development projects are also tested for impairment at

" least once per year. The carrying amounts of other Non-current assets are reviewed each year to determine whether there is any indication

, of impairment. If any such indication exists, the recoverable value of the asset is calculated. The recoverable amount is.the higher of the fair
" value of the asset less expected disposal costs or value in use.

Loss on impairment is recognised if the carrying amount of an asset or a cash generating unit it exceeds the recoverable amount of the asset or
… the cash generating unit. Impairment losses are recognised in the income statement under the same heading as the related amortisation and
depreciation. Impairment of goodwill is not reversed. Recognition of impairment of other assets is reversed to the extent that changes have
- taken place in-the assumptions and estimates that'led to the recognition of impairment: ”

= Loss on impairment is only reversed-to the extent that the new carrying amount of the'asset does not exceed the carrying amount the asset
would have had after depreciation or amortisation if the asset had not been written down for impairment.

Procedure for impairment test
Intangible assets are primarily related to acquisition of enterprises and activities, software and R&D projecis.

Management defines the cash-generating units (CGU) based on the smallest group of identifiable assets which together generate incoming cash
flow from continued use of the assets and which are independent of cash flow from other assets or groups of assets. The definition of the cash
generating units is reconsidered once a year.

The recoverable amount of a CGU is based on value in use calculations and is calculated by discounting expected future cash flow.

An estimate is made of the future free net cash flow based on budgets for the coming seven years and projections for the subsequent years (the ter-
minal value). Significant parameters in this estimate are discount rate, revenue development for the next seven years, EBITA margins, expected invest-

ments and growth expectations for the period after the seven years.

115

 

Notes to the consolidated financial statements

20.Impairment test (continued)

   

Impairment test Q3 2013 based on indications
Since the acquisition of ihe Ludowici Group in July 2012, Management has experienced a deteriorating outlook for mining investments in general
and for the Australian coal industry in particular. Coal mining capex has come under significant downward pressure and coal production has

declined. This will affect both future project and services sales. Besides, pricing pressure from major miners in Australia has become imminent.

As a consequence of the continuously deteriorating outlook in 2013, Management has considered indications of impairment of assets belonging to
the Ludowici Group and carried out an impairment test in Q3 2013 of the intangible assets acquired in Australia and the entire goodwill relating to
the Ludowici acquisition before the final allocation of goodwill.

The impairment tests resulted in an impairment loss of DKK 901m in total on the following assets of the Ludowici Group:
«+ Goodwill: DKK 705m
+ Customer relations in Australia: DKK 196m

The recoverable amount of the Ludowici cash generating unit (CGU) as well as separate intangible assets have been determined based on value
in use calculations which include cash flow forecasts approved by Management covering a 7 year period (2013-2019).

The key assumptions used in the calculation of value in use of Ludowici Group are the following:
+ Discount rate: 12% (17% before tax)

«+ Growth rate in the terminal period: 2.5%

+ Growth rate for revenue in the budget period: 2.4% (average of the next seven years)

The discount rate used in determining the value in use is based on the weighted average cost of capital (WACC) formula and reflects the risk specific
related to the Ludowici Group. The WACC is determined based on an equity ratio of 82% and a risk free rate of 3.8% based on a 10 year Australia
government bond.

The terminal growth rate is based on the expected growth in the world economy as indicated by the WTO and global banks.

The growth rate in revenue during the budget period is based on Management's assessment of the coal mining industry's capex for the next 7 years
and includes the impact of the expected pricing pressure from major miners in Australia.

The EBITA margins in the budget period and the terminal period are estimated based on historical levels for the Ludowici Group, expected effects of
efficiency initiatives implemented after the acquisition and pricing pressure from miners.

The impairment loss is recognised in the income statement as ”Amortisation and impairment of intangible assets” and is presented based on the
initial allocation within the following segments:

« Customer Services: DKK 541m

+ Mineral Processing: DKK 360m

If the WACC was estimated 0.5% higher, the impairment loss would be DKK 942m. If the growth rate in the terminal period was estimated 0.5%
lower, the impairment loss would be DKK 920m.

Annual impairment test
As at 31 December 2013, the carrying amount of goodwill and other intangible assets of indefinite useful life were tested for impairment.

At the annual test, impairment was based on Customer Services, Material Handling, Mineral Processing, Cement and Cembrit, these being the
lowest level of cash-generating unit as defined by Management. The definition of CGUs is based on the certainty by which the carrying amount
of the intangible assets can reasonably be allocated and monitored. The leve! of allocating and monitoring the Group's intangible assets among
cash-generating units should also be seen in conjunction with the Group strategy.

Carrying amounts of goodwill and other intangible assets included in the cash-generating units for impairment test of those assets are specified

 

 

below:
Carrying amount

DKKm Goodwill Patents and Customer Development Other