WE DISCOVER POTENTIAL
ANNUAL
REPORT
2020
1 January –
31 December 2020
Annual Report 2020
FLSmidth & Co. A/S
Vigerslev Allé 77
DK-2500 Valby
CVR No. 58180912
FLSmidth
Annual report 2020 2
Management review Highlights
Management review
Highlights
Business
Financial performance
Governance
Financial statements
Integrated reports
CONTENTS
Towards zero emissions
in mining and cement
Read more on page 18
FLSmidth
Annual report 2020 3
Management review Highlights
Highlights 2020
2020 was impacted operationally and fi-
nancially by the pandemic, which has pre-
sented both challenges and opportunities
for FLSmidth. Our financial results were
negatively impacted by the rapidly deteri-
orating business environment which af-
fected order intake, revenue and EBITA.
Still, we secured four large orders and a
book-to-bill of 113% for the year, represent-
ing an organic order intake on par with
2019. As a result of our strong cash focus,
the net working capital ratio decreased
from 13.3% to 10.7% and free cash flow
more than doubled to DKK 1bn in 2020.
The Board of Directors proposes a divi-
dend of DKK 2 per share for the year.
Our Group business improvement pro-
gramme was completed by the end of the
third quarter with an EBITA improvement
run-rate of DKK 150m annually, and we
are taking additional steps to improve Ce-
ment profitability.
We entered into several strategic partner-
ships and received a range of orders di-
rectly related to sustainability improve-
ments and digital optimisation for our
customers. To support our ambition to de-
carbonise the cement and mining indus-
tries and put FLSmidth on the path to car-
bon neutrality, we have also committed to
set science-based targets (see page 20).
Highlights Q4 2020
Group order intake grew 15% organically
with growth in both Mining and Cement.
Cement order intake included the book-
ing of a large project. Group revenue de-
clined 24% organically related to both
Mining and Cement.
Gross margin improved due to a higher
share from service during the quarter but
earnings were impacted by the sharp de-
cline in revenue. The EBITA margin de-
creased to 5.5% from 8.1% in Q4 last year.
This decrease was entirely related to Ce-
ment, while Mining EBITA margin was up
slightly year on year. Net working capital
decreased for the third consecutive quar-
ter. Free cash flow was DKK 232m, on par
with Q4 last year. Net debt to EBITDA in-
creased to 1.6x
trailing EBITDA.
In Q4, we acquired KnowledgeScape, a
global leader in digital optimisation solu-
tions for the mineral processing industry,
and we announced two divestments in
Cement as part of the ongoing process to
simplify and prune Cement
business. In January 2021, we announced
that we are in negotiations with
ThyssenKrupp concerning an acquisition
of their mining business. There can be no
assurances as to whether and when a
transaction will transpire.
Guidance 2021
FLSmidth guides for group revenue of
DKK 15.5-17.0bn and a group EBITA mar-
gin of 5-6%. The guidance is based on ex-
pected different developments in the two
individual businesses, Mining and Ce-
ment, and continued impact from the pan-
demic in the first half of 2021.
Mid- and long-term financial
targets
The structural changes in the cement in-
dustry and the pandemic have increased
uncertainty around our mid- and long-term
target levels and the timing for achieving
these targets. Consequently, it has been
decided to withdraw the mid- and long-
term financial targets. Targets for capital
structure, including financial gearing, eq-
uity ratio and dividend policy remain un-
changed.
We will resume communication on the
longer-term prospects for our Mining and
Cement businesses when we have suffi-
cient visibility.
Please refer to page 11.
FLSmidth
Annual report 2020
Highlights
HIGHLIGHTS
Guidance 2021
Capital structure
targets, through-the-
cycle
FLSmidth
Annual report 2020 4
Management review Highlights
FINANCIAL PERFORMANCE HIGHLIGHTS
Order intake
DKKbn
Revenue
DKKbn
EBITA & EBITA margin
DKKm - %
Revenue split
by Mining and Cement
Revenue split
by Service and Capital business
18.5
5%
16.4
20%
771 4.7%
54%
Organic order intake was on par with last year, comprising
growth in Mining and a decrease in Cement. Book-to-bill
was 112.7%
Revenue declined 16% organically due to a severe pan-
demic impact and a low Cement backlog entering the
year
Earnings were impacted by the pandemic and the sharp
decline in revenue. Profitability in Mining was quite resili-
ent, whereas Cement was loss-making
CFFO
DKKm
Earnings per share
DKK
Net working capital ratio
%
1,421
50%
4.2
73%
10.7%
2.6%-point
Despite the pandemic causing a reduction in adjusted
EBITDA, cash flow from operating activities increased with
the cash inflow from net working capital as the key con-
tributor
Profit for the year decreased as a result of the lower oper-
ating income and, in particular, a challenging cement mar-
ket
A strong cash focus led to a significant reduction in net
working capital and net debt in 2020 not least due to a
32% (DKK 1.6bn) decline in trade receivables
Mining 65%
Cement 35%
EBITA margin -2.0%
EBITA margin 8.4%
Capital 40%
Service 60%
19.6
18.5
2019
2020
20.6
16.4
2019
2020
1,663 8.1%
771 4.7%
2019
2020
948
1,421
2019
2020
15.5
4.2
2019
2020
13.3%
10.7%
2019
2020
FLSmidth
Annual report 2020 5
Management review Highlights
SUSTAINABILITY PERFORMANCE HIGHLIGHTS
Safety (TRIR)
Total Recordable Incident Rate/million working
hours
Quality (DIFOT)
%
Relative carbon footprint
Tonnes CO
2
per DKKm revenue
Scope 1 & 2 location based emissions
Safety
Total Recordable Incident Rate
Carbon Intensity
Tonnes CO
2
per DKKm revenue
1.0
0.6 improvement
88.3
0.3% point improvement
2.2
13% improvement
Safety has top priority at FLSmidth and in 2020 our safety
KPI improved for the 7th consecutive year in a row to a
record low
Despite the pandemic making planning and logistics ex-
traordinarily challenging, we improved our quality KPI,
DIFOT (Delivery in Full on Time) marginally in 2020
The reduction in our carbon intensity was a reflection
of our strong focus on minimising emissions combined
with the global lockdown of facilities and offices due
to COVID-19
Water withdrawal
m
3
Suppliers assessed for sustainability
Women managers
%
197,346
11% improvement
390
43% deterioration
13.1
1.9%-point improvement
We continually strive to reduce our in-house water con-
sumption, however we have the biggest impact with our
customers. In 2020, we successfully installed a tailing
management system which re-circulates over 86% of the
process water at a Zinc mine in India
Travel restrictions and lockdowns related to the pandemic
unfortunately reduced our ability to visit suppliers and
conduct sustainability screenings since March 2020
At the end of the year, we set a new long-term target for
gender equality in our workforce. By 2030, we want 30%
of our entire white-collar workforce and 25% of our peo-
ple managers to be women.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2016 2017 2018 2019 2020
Safety
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2016 2017 2018 2019 2020
Relative carbon footprint
1.6
1.0
2019
2020
88.0
88.3
2019
2020
2.6
2.2
2019
2020
221,613
197,346
2019
2020
689
390
2019
2020
11.2
13.1
2019
2020
FLSmidth
Annual report 2020 6
Management review Highlights
KEY FIGURES
DKKm
2016
2017
2018
2019
2020
INCOME STATEMENT
ORDERS
EARNING RATIOS
CASH FLOW
BALANCE SHEET
Use of alternative performance measures
DKKm
2016
2017
2018
2019
2020
FINANCIAL RATIOS
SHARE RATIOS
SUSTAINABILITY KEY FIGURES
LETTER TO OUR SHAREHOLDERS
We help our customers to increase their
production, lower their operating costs and
reduce their environmental footprint. Our
business model is anchored around a unique
combination of projects, products and services.
However, we have a strategic focus to expand
the share of services and standardised products
relative to the share of large projects which
represent our process competence. This focus
mix and a less cyclical business with a lower
level of risk.
we established crisis management teams in the
company headquarters as well as in our regions
with the main priority to secure the health and
safety of our employees through a reorganised
secure credit lines, ensure our global supply
chain and help our customers sustain production.
Our employees have done a tremendous job
adapting to the changed situation.
The year began with good market outlook
for mining and stable for cement. We proved
our increased customer focus by booking
three large orders in Mining. Faced with
high uncertainty from the pandemic and low
visibility in global conditions, we suspended
dividend. During April and May, a growing
share of customers temporarily shut down
or restricted access to their sites following
guidelines from local authorities or through
their own safety precautions. Global and local
chain, access to customer sites as well our own
operations. During the summer, the situation
improved in some regions but deteriorated
elsewhere. Despite ongoing uncertainty, we
made the working assumption that business
sentiment would improve gradually throughout
the remainder of the year. As business
sentiment failed to improve, we unfortunately
had to let go of more than 1,700 colleagues
during the year to adjust for a weaker outlook in
Cement and a changed way of doing business
due to the pandemic. We ended the year within
our reinstated 2020 guidance.
FLSmidth strives to be the leading
supplier of sustainable productivity
to the global mining and cement
industries, and we are already
well-positioned in this endeavour
The pandemic presented a number of
opportunities for FLSmidth. The demand for
increasing commodity prices. Especially copper
and gold, which are traditional FLSmidth
strongholds, enjoy favourable market conditions.
Faced with a low activity level in cement, our
on sustainability and digitalisation to be well
Vagn Ove Sørensen
Chairman
Thomas Schulz
CEO
Another outcome of the pandemic has
been the increased global awareness
of health, safety and the environment.
With around 96% of our overall
emissions derived from customers’
use of our sold products (scope 3),
MissionZero is where we can have
the greatest positive impact on
emissions reduction.
by the pandemic, which has presented both
challenges and opportunities for FLSmidth.
Our company has operated globally for around
140 years and has a vast experience with crisis
management which was proven in the year 2020.
In January, we assembled teams to cope with the
supply chain situation in China, and subsequently
Management review Highlights
FLSmidth
■
Annual report 2020
7
positioned for multiple future infrastructure
projects, resulting from government’s stimulus
programmes. Another outcome of the pandemic
has been the increased global awareness of
health, safety and the environment. Some of
the world’s largest, most densely populated and
most polluted cities have experienced weeks
or months with closed factories, car-free streets
blue skies. This has sparked fresh momentum
in the battle against climate change. It has
accelerated the green energy transition and
industrial decarbonisation, both of which favour
FLSmidth as a premium supplier to the mining
and cement industries with huge potential to
reduce their environmental footprint. Combined,
cement and minerals production currently
account for approximately 10% of all global CO
2
emissions. With growing populations, a larger
middle class, and a transition to greener energy,
the demand for cement and minerals – and thus
the environmental impact - will only increase
in the next decade. A more sustainable future
requires action from the industries. We will lead
this action towards zero emissions in mining and
cement, without compromising quality or our
customers' commercial competitiveness.
The pandemic has also underscored the
importance of our agile supply chain, and it has
proven the strengths of our regional business
structure that was implemented in 2018. Today,
LETTER TO OUR SHAREHOLDERS
we have a higher share of local sales and
has served us well through the lockdowns.
Another cornerstone in our 2018 reorganisation
was an improved focus on digitalisation. Over
the past year we have seen a step-change in
customers’ willingness to adopt our remote
support solutions and digitalised optimisation of
operations.
Strong in-house sustainability performance
Emissions from FLSmidth’s own operations
(scope 1 and scope 2 emissions) account for
less than 1% of our overall emissions, while
scope 3 emissions from our supply chain and
customers’ use of our equipment represent
the vast majority. Therefore, our approach to
sustainability is to take responsibility for our
own environmental footprint while helping
our customers reduce theirs through our
MissionZero programme (covered in the next
section).
In 2020, we delivered a strong in-house
sustainability performance. The carbon intensity
of FLSmidth’s operations declined from 2.6
to 2.2 tonnes/DKKm revenue. Our water
withdrawal declined from 222 to 197 thousand
m
3
. Our share of women in management
positions increased from 11% to 13%, and our
safety KPI improved for the 7th consecutive year
in a row.
December, 2020
FLSmidth announces the sale
technology and its Möller
pneumatic conveying systems
business.
November, 2020
New Strategic Partnership
Agreement with TITAN
Cement Group.
November, 2020
FLSmidth receives a EUR
5.4m grant from the European
Institute of Innovation and
Technology to help accelerate
innovation.
November, 2020
Order to deliver two FLSmidth
HOTDISC’s to replace coal at
Sungshin Cement in Korea.
December, 2020
New HOTDISC® solution for
a cement production line in
Turkey which will achieve 86%
substitution of fossil fuels.
October, 2020
Order for the BulkExpert™
digital solution for two export
terminals in Brazil.
October, 2020
Acquisition of the
KnowledgeScape.
February, 2020
FLSmidth secures large
equipment order in Belarus.
February, 2020
FLSmidth and VICEM
announces cooperation
to jointly work towards
sustainable cement
production in Vietnam.
February, 2020
FLSmidth receives two major
Russian orders, at a combined
value of DKK 1.9 billion.
December, 2020
Order for a tailing
management system which
recirculates over 86% of the
process water to a lead-zinc
mine in Rajasthan.
Key events
Management review Highlights
FLSmidth
■
Annual report 2020
8
Towards zero emissions in mining and
cement
In November 2019, we announced our
sustainability programme, MissionZero, to
enable our customers in cement and mining to
move towards zero emissions by 2030. With
around 96% of our overall emissions derived
from customers’ use of our sold products (scope
3), MissionZero is where we can have the
greatest positive impact on emissions reduction.
MissionZero. Amongst others, we launched an
innovative clay calciner system which reduces
CO
2
emissions in cement production by up to
40% compared to traditional clinker production.
We signed a contract to substitute coal with
our alternative fuels solution, the FLSmidth
HOTDISC®, for two cement production lines
in Korea, and in Turkey we are building a
HOTDISC® solution for a new cement production
line which will achieve 86% substitution of fossil
fuels. Additionally, we started a cooperation
with the Vietnam National Cement Corporation
with the goal of implementing technologies that
radically reduce greenhouse gas emissions,
and developing pioneering solutions for the use
of alternative fuels and the improvement of air
quality.
In support of our ambition to reduce energy
mining industry, FLSmidth is driving a number
of research and development partnerships
with customers, third parties and academic
institutions around the world. One of the most
promising joint projects led by FLSmidth recently
received a EUR 5.4m grant from the European
LETTER TO OUR SHAREHOLDERS
Institute of Innovation and Technology to help
accelerate innovation. On a separate track, we
have seen increasing demand for our water
recycling solutions from the global mining
industry. Following FLSmidth’s successful
installation of a tailing management system
which recirculates over 86% of the process water
at Hindustan Zinc Limited’s mine in Rajasthan,
India, we were awarded an additional contract to
deliver an integrated dry stack tailings solution to
recover the process water at one of their other
mines in Rajasthan.
To further our ambition to decarbonise the
cement and mining industries and put FLSmidth
on the path to carbon neutrality, in early January
2021 we committed to set science-based targets
according to the Science Based Targets initiative.
We are also aligning our practices and reporting
recommendations. As part of this, we conducted
a climate risk and opportunities analysis in late
2020 facilitated by an external advisor.
Step change in digitalisation
Digitalisation is an important lever to accelerate
the journey towards zero emissions in cement
and mining and the pandemic has accelerated
customer adoption of digitalised operations and
remote support. A good example of this is our
new partnership with TITAN Cement Group to
increase digitalisation and sustainability across
Earlier in 2020, we received an order for our
BulkExpert™ digital solution from a customer
in Brazil. The solution will fully automate the
stockyard operation of two large iron ore
shipping export terminals in the south of the
country, improving the throughput, quality and
safety of the customer’s operations. On the
innovation front, we launched the world’s most
gyratory crusher, and we took a major step in
of our latest ProcessExpert system applicable
for both mining and cement. Furthermore, we
supplemented our in-house innovation through
the acquisition of KnowledgeScape, a global
leader in digital optimisation solutions for the
mineral processing industry.
Market developments in 2020
Although demand for more digitalised and
sustainable mine sites and cement plants is
rising, the pandemic severely impacted our
end markets in 2020. In particular, the cement
industry was marked by travel restrictions and
restricted site access. Customers deferred non-
critical investments due to uncertainty and lower
production rates which also caused reduced
demand for spare and wear parts. Following the
shutdown of about 20% of the world’s cement
plants outside of China in April, the share of
cement plants in operation has since climbed
back up above 95%. However, many plants
continue to run at reduced capacity and cement
customers will need to see improved cash
generation before they ramp up investments.
The mining industry has been more resilient
– albeit not immune – to the pandemic. After
approximately 10% of the world’s mine sites
were shut down in April, nearly all sites have
since restarted production and most are
Throughout the year we have been
executing our Group business
improvement programme, including
site consolidation, an improved
logistical setup and headcount
reductions. The programme was
completed by the end of the third
quarter with an EBITA improvement
run-rate of DKK 150m annually.
running at high production rates. Under normal
circumstances this would mean good conditions
for our service business but travel restrictions
and limited site access have continued to
impact on-site technical services, resulting
in reduced demand. On the positive side,
commodity prices have rebounded strongly
following their sharp decline earlier in the year.
despite the healthy industry fundamentals,
they have continued to defer large capital
investments due to pandemic-induced
uncertainty and delays related to prolonged
environmental and other regulatory approval
processes.
Financial performance
impacted by the pandemic and the rapidly
deteriorating business environment which
Still, we achieved an organic order intake on
par with 2019, comprising growth in Mining
Management review Highlights
FLSmidth
■
Annual report 2020
9
LETTER TO OUR SHAREHOLDERS
including site consolidation, improved
logistical setup and headcount reductions. The
programme was completed by the end of the
third quarter with an EBITA improvement run-
rate of DKK 150m annually. To further address
the challenging cement market, we have taken
additional steps to increase outsourcing, simplify
the Cement business and adjust the cost
pneumatic conveying systems businesses as a
step towards simplifying our Cement business.
regions, Sub-Saharan Africa and Middle East
(SSAME) and Sub-Continental India (SCIndia),
have been merged to further reduce costs and
complexity.
Looking ahead
With continued high COVID-19 infection rates
and lockdowns in many parts of the world,
market uncertainty remains high. The ongoing
vaccination programmes provide a likely path
when and how fast this will support our business.
At present, our working assumption is that market
that of the second half of 2020. From the summer
of 2021, we expect a gradual improvement in
business sentiment and increasing access to
customer sites, returning to a more normalised
situation by the end of the year. The market
markets, mining and cement.
We are positive on the outlook for mining. Most
commodities have seen a strong rebound in
prices, surpassing pre-pandemic levels. Mine
sites, overall, are running at high production
rates and industry fundamentals are healthy.
In the longer term, the switch to green energy
and electric-powered transportation will create
increasing demand for copper and battery
metals for which the mining industry will need to
scale up investments in order to meet.
The cement market, on the other hand, is faced
with ongoing overcapacity and we see no short-
to medium-term recovery. Thus we continue
activities to reshape our Cement business. Large
economic stimulus programmes, combined with
an increasing focus on lower-carbon cement,
will create good opportunities in the medium- to
long-term but the timing and extent of an overall
rebound in the cement market remain uncertain.
It is, however, clear that the cement industry
will need substantial investments to meet the
emissions reduction targets set by a growing
number of cement producers as well as the
recent commitments to carbon neutrality made
by the Global Cement and Concrete Association
and the European Cement Association. Based
on the need to decarbonise, we foresee
a multi-commodity cement industry in the
future, utilising a range of cement production
processes and a variety of raw materials. As the
industry’s leading and most innovative premium
supplier with strong process know-how, we
development.
In the short- to medium-term, we are
nevertheless faced with the challenge of
managing two industries, Mining and Cement,
Every crisis presents challenges as
well as opportunities. The current
health (and economic) crisis is no
dierent and we will seek to capture
those opportunities, whether they
entail organic or acquisitive growth.
with diverging end markets. Consequently, we
are further strengthening our two industries
setup, while keeping focus on leveraging
synergies and ensuring clear capital allocation
to capture growth opportunities and maximise
value creation within both businesses. In
parallel, we are considering acquisitions to
and within the areas of sustainability and
digitalisation. It is highly uncertain as to whether
and when acquisitions will materialise.
Every crisis presents challenges as well as
opportunities. The current health (and economic)
those opportunities, whether they entail organic
or acquisitive growth.
Vagn Ove Sørensen, Chairman
Thomas Schulz, CEO
and a decline in Cement. The contraction in
Cement revenue was both a consequence of
the pandemic and the low backlog entering the
year. We have carried out activities to adjust the
cost base accordingly but in some countries we
were constrained from doing so by local labour
restrictions related to COVID-19. Also, mobility
the utilisation of our global service technicians
and resulted in more complex and costly
logistics. Though not immune to the pandemic,
our Mining business was relatively resilient
whereas the sharp decline in revenue had a
business.
secured four large orders and a book-to-bill of
113% for the year. As a result of our strong cash
focus, the net working capital ratio decreased
than doubled to DKK 1bn in 2020.
Business improvements
Throughout the year we have been executing
our Group business improvement programme,
Management review Highlights
FLSmidth
■
Annual report 2020
10
FLSmidth
Annual report 2020 11
Management review Highlights
FLSmidth guides for group reve-
nue of DKK 15.5-17.0bn and a
group EBITA-margin of 5-6%. The
guidance is based on expected
different developments in the two
individual businesses, Mining and
Cement, and continued impact
from the pandemic in the first half
of 2021.
Guidance 2021
The guidance for 2021 is subject to uncertainty
due to the COVID-19 pandemic. Lockdowns and
mobility restrictions continue to impact suppliers,
customers and our workforce. Restricted access
to customer sites, in particular, is creating uncer-
tainty around the timing of our order backlog
conversion and the activity level for our service
business. A gradual improvement in business
sentiment and access to customer sites is, how-
ever, expected in the second half of the year.
The outlook for the mining industry remains posi-
tive. For 2021, the Mining business revenue and
EBITA are expected to grow in the second half of
the year as COVID-19 restrictions are expected
to ease. EBITA-margin for Mining is expected to
be high-single digit.
The outlook for the cement industry remains im-
pacted by overcapacity and slow recovery. The
Cement business revenue is expected to decline
further in 2021, and as a consequence, initiatives
to reshape the Cement business will continue
during the year. The Cement business is not ex-
pected to be EBITA positive in 2021 due to con-
tinued Cement reshaping costs and low capacity
utilisation in the service business until the pan-
demic eases.
Cash flow from investments (excluding acquisi-
tions and divestments) is expected to be largely
in line with 2020.
Mid- and long-term financial
targets
In recent years, cement industry dynamics have
diverged from those of the mining industry.
Whereas fundamentals for the mining industry re-
main positive, overcapacity in the cement indus-
try has put pressure on the returns of the cement
producers, a development which has been fur-
ther accelerated by the ongoing pandemic.
The structural changes in the cement industry
and the pandemic have increased uncertainty
around our mid- and long-term target levels and
the timing for achieving these targets. Conse-
quently, it has been decided to withdraw the mid-
and long- term financial targets. Targets for capi-
tal structure, including financial gearing, equity
ratio and dividend policy remain unchanged.
We will resume communication on the longer-
term prospects for our Mining and Cement busi-
nesses when we have sufficient visibility.
FINANCIAL OUTLOOK
2021 guidance
2020 guidance
Realised
Reinstated
Initial
Capital structure
targets, through-the-
cycle
FLSmidth
Annual report 2020 12
Management review Highlights
WHY INVEST
An investment in the
green transition
Technology leader
Unique business
model with high
service share
An investment in the green transition
With economic growth and urbanisation comes
the demand for infrastructure and modern con-
veniences, such as consumer electronics. Re-
newable energy, electric cars, wind and solar en-
ergy all require cement and minerals.
The transitions of the mining and cement indus-
tries to sustainable forms of production are criti-
cal to solving the challenges of climate change.
Energy-intensive industries, such as mining and
cement, are indispensable to the global econ-
omy and essential to making the green transition
a reality. That is why it is critical to de-carbonise
and modernise these sectors. The transition to-
wards sustainable production requires innovative
solutions and both regulators as well as custom-
ers are increasingly setting new or stricter emis-
sions-reduction targets. As a technology leader
in the mining and cement industries, we already
have a strong portfolio of sustainable solutions
and we recognise our role to lead these indus-
tries into a sustainable future.
Unique business model with high
service share
Through our unique combination of engineering,
products and services, we can outgrow the mar-
ket by helping our customers increase their pro-
duction output, lower their operating costs and
reduce their environmental impact. Our decen-
tralised organisation and global service footprint
ensure that all FLSmidth offerings are available to
every one of our customers and allows for a 50-
60% share of relatively resilient service business.
This, in combination with our asset-light business
model, outsourced manufacturing and a flexible
cost structure, allows us to manoeuvre safely
through the cycles and periods of extreme uncer-
tainty, such as the current pandemic. Our life cy-
cle approach combined with a strong focus on
sustainability and digitalisation is what makes us
stand out from competitors and differentiates us
from mid-market and single-equipment suppliers.
Technology leader
The growing focus on sustainability is increas-
ingly important for our customers and we are
strongly positioned to address challenges such
as tighter regulations, societal expectations and
increasing costs. By minimising environmental
impacts, we can help resolve challenges with
community relations, while at the same time con-
tributing to more sustainable production. With
MissionZero, we are leveraging our digital and
innovative solutions to offer our customers the
required technology to operate zero-emissions
processing plants for minerals and cement by
2030.
Please see the Innovation section on page
26-29 if you would like to learn more about our
solutions that are driving sustainable produc-
tivity.
FLSmidth
Annual report 2020 13
Management review Business
Global provider of sustainability
productivity
We are a leading provider of
engineering, equipment and
service solutions to the global
mining and cement industries. We
enable our customers to improve
performance, drive down costs
and reduce environmental impact.
Our business model is based on
three strong strategic pillars: Life
cycle approach, full service
provider, and full flow-sheet. With
our sustainability ambition,
MissionZero, we enable our
customers to move towards zero
emissions by 2030. Our focus is
clear by using innovative
technology, digital solutions and
strong partnerships, we are
committed to build a sustainable
future for all of us.
Business
FLSmidth
Annual report 2020
BUSINESS
We are
A supplier of solutions from
single machinery to complete
cement and minerals processing
plants, including services before,
during and after the construction.
MissionZero
We enable our customers
in cement and mining
to move towards zero emissions
by 2030.
60+
Countries
A truly global company with local
presence in more than 60
countries and customers in more
than 150 countries.
10,639
Employees
Our employees use their unique process
knowledge about products, projects and
technical innovations, digitalisation and
sustainable life cycle management.
Our vision
We drive success through sustainable
productivity enhancement
Our brand promise
We discover potential
2
1
4
3
7
5
6
Australia
Share of revenue:
9%
(2019: 7%)
Share of employees:
5%
(2019: 5%)
Europe, North
Africa & Russia
Share of revenue:
19%
(2019: 19%)
Share of employees:
25%
(2019: 26%)
Sub-Saharan Africa
& Middle East
Share of revenue:
11%
(2019: 10%)
Share of employees:
8%
(2019: 7%)
Asia
Share of revenue:
9%
(2019: 7%)
Share of employees:
5%
(2019: 5%)
Subcontinental
India
Share of revenue:
8%
(2019: 13%)
Share of employees:
23%
(2019: 25%)
1
FLSMIDTH IN THE WORLD
2 43 5 6 7
North America
Share of revenue:
21%
(2019: 20%)
Share of employees:
16%
(2019: 16%)
South America
Share of revenue:
23%
(2019: 24%)
Share of employees:
18%
(2019: 16%)
we have six regions, as
two of the smaller regions,
Sub-Saharan Africa and
Middle East (SSAME) and
Sub-Continental India
(SCIndia), have been merged.
FLSmidth
■
Annual report 2020
14
Business
Management review
FLSmidth
Annual report 2020 15
Management review Business
The COVID-19 pandemic had a
significant impact on our industries,
customers, company and
employees. We continue to
monitor the situation and take swift
action where necessary to ensure
the safety of our employees,
protect the interests of our
customers and secure our supply
chain.
Customer impact
Most of our customers have maintained business
continuity during the pandemic. However, in or-
der to reduce the risk of COVID-19 transmission
within their workforces, many of them have cho-
sen to run their operations with minimal staff on-
site, and several have closed site access to sup-
pliers. Roughly 97% of mine sites and 95% of ce-
ment plants are currently back in operation, but
many cement plants run at reduced capacity utili-
sation and access to sites remains difficult for
suppliers.
The pandemic has accelerated customer de-
mand for digital optimisation, with the number of
hours spent on digital troubleshooting for cus-
tomers doubling since the beginning of the year.
A growing number of customers are now enjoy-
ing the benefits of our remote condition monitor-
ing tools and services and are in regular contact
with our 24/7 remote technical support staff. Our
on-site solutions have also proved their value to
customers during the pandemic. For example,
with our SiteConnect mobile app, customers are
able to monitor asset performance and health
data without having to be on site or in the control
room. Though restricted site access has made it
challenging to install new digital solutions on-site,
we have successfully implemented remote soft-
ware upgrades and plant improvements.
Supply chain impact
As a global business, the timing and extent of the
across our locations. In response, we have en-
deavoured to maintain resilience and flexibility
within our global supply chain and the ability to
source from suppliers across all regions. As a re-
sult, while we have incurred some additional
costs, there has been very little disruption within
our global supply chain during the pandemic.
Where sub-suppliers have struggled to deliver,
we have been able to successfully switch to sup-
pliers in other parts of the world.
To simplify and focus the supply base, we have
been steadily reducing the number of suppliers
we work with. In total, we have halved our num-
ber of suppliers over the past few years to 7,500.
Of these, fewer than 1,500 suppliers now collec-
tively account for 90% of our global supplies.
These suppliers are evenly split among geogra-
phies to reduce transportation, lead-time and im-
prove agility with stronger delivery capability.
Two thirds of the suppliers are based in low-mid-
dle income countries. Along with the partnership
approach, this allows for better screening of sup-
pliers and improved customer experience.
Internal operational impact
Ensuring the safety of our employees has always
been our most important priority. Following the
outbreak and spread of the pandemic, we estab-
lished crisis management teams at group and re-
gional levels and undertook continuous risk as-
sessments in order to ensure that actions taken
were proving effective in minimising infection
rates. These measures included providing per-
sonal protective equipment, ensuring safe em-
ployee transportation and implementing travel
bans, contact tracing programmes, temperature
screenings and entrance testing, depending on
location.
As of end-2020, almost 100% of our blue-collar
employees where on-site at our manufacturing,
assembly and warehouse sites, while around
50% of our global office employees were work-
ing from home. We have unfortunately had to re-
duce our workforce significantly during the year.
In light of the pandemic, the increased degree of
flexible working arrangements and an expected
slow recovery within cement, we have decided
to revisit our plans for building a new campus in
Copenhagen, Valby.
Travel restrictions continue to impact the capac-
ity utilisation for our global service technicians,
and the lockdowns and travel restrictions put in
place as a result of the latest wave of COVID-19
cases will continue to impact our business during
the first half of 2021. Our regional offices, which
are responsible for compliance to local regula-
tions, are monitoring the situation and reporting
weekly to Group Management on changes to lo-
cal restrictions.
PANDEMIC IMPACT AND ACTIONS
COVID-19
Customers
Travel restrictions
and limited site access
Deferred capital
investments
Operation at reduced
capacity
Operational impact
Reduced operational
activity
Travel restrictions
Working from home
Reduced capacity
Supply chain impact
Largely undisrupted
Reduction in number
of suppliers
Resilient and flexible
supply chain
FLSmidth
Annual report 2020 16
Management review Business
While the global economy was impacted by the
COVID-19 pandemic, the mining industry has re-
mained relatively resilient during the course of
2020 with the majority of mines operational
across regions.
sites were shut down in April, but nearly all sites
have since restarted production and most are
running with high production rates. Under normal
circumstances this would stimulate investments
and deliver good conditions for our service busi-
ness, but travel restrictions and limited site ac-
cess have continued to impact on-site technical
services, resulting in reduced demand. Mines are
often remotely located and many customers are
still enforcing safety protocols and restricting site
access to external service providers in order to
protect employees and safeguard production,
which impacts their equipment and service
spend.
On the positive side, commodity prices have re-
bounded strongly from the spring when the first
pandemic wave hit, and the industry is expected
to recover to pre-pandemic activity levels within
a relatively short time. In December, copper
prices reached a seven-year high of USD 8,000
per tonne, which represents a 70% increase
compared to the low point in March 2020. Min-
ers are generating good cash flows, but despite
the healthy industry fundamentals, they have
continued to defer large capital investments due
to pandemic-induced uncertainty and delays re-
lated to prolonged environmental and other reg-
ulatory approval processes. In many of our re-
gions, refurbishment and maintenance has been
postponed, which is expected to translate into
new opportunities when the market comes back.
However, the timing of converting opportunities
to orders remains unpredictable and with infec-
tion cases currently surging in many parts of the
world, it is still difficult to predict the shape of the
recovery curve. It is, however, expected that the
pandemic will continue to impact the industry in
the first half of 2021.
The second wave that is currently sweeping
across the globe is impacting regions at different
times and to varying extent. National lockdowns
continue to reduce activity in many South Ameri-
can countries, where quarantines have halted or
slowed numerous mines and development pro-
jects. In North America, the pandemic led to a
sharp drop in business activity in the spring, and
while the situation improved over the summer, it
deteriorated again towards the end of the year
as infection rates increased and caused renewed
uncertainty. Despite high infection rates, the ac-
tivity level in Eastern Europe has held up well,
whereas the second wave has triggered new site
closures and very restricted access to mines in
Sub-Saharan Africa and the Middle East. In India,
market activity has improved compared to the
low levels in previous quarters and we are see-
ing an increase in demand for solutions within
tailings management and water recovery. Iron
ore and gold production remain strong in Aus-
tralia, supported by record-high production vol-
umes.
All things considered, the pandemic has dis-
rupted the mining industry to a lesser degree
than many other industries. The outlook for in-
vestments in mining remains positive, and we
have a healthy pipeline of both small and large
opportunities. Further, the switch to green en-
ergy and electric-powered transportation will re-
quire a massive increase in infrastructure and the
mining industry will need to scale up investments
in copper, battery metals and other minerals to
meet this growing demand.
MINING MARKET TRENDS
Capex trend in mining
USDbn
Source: Bloomberg
Global copper consumption
Million tonnes
Source: Bloomberg, FLSmidth estimates
0
20
40
60
80
100
120
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0
4
8
12
16
20
24
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
FLSmidth
Annual report 2020 17
Management review Business
The cement market entered 2020 with substan-
tial overcapacity and has been severely im-
pacted by the pandemic and we do not antici-
pate a recovery in the short- to medium-term.
Large economic stimulus programmes, com-
bined with an increasing focus on lower-carbon
cement, are expected to create good opportuni-
ties in the medium- to long-term but the timing
and extent of an overall rebound in the cement
market remain uncertain.
Following the shutdown of about 20% of the
the share of cement plants in operation has since
climbed back up above 95% at year-end. How-
ever, many plants continue to run at reduced ca-
pacity and sites remain difficult to access due to
restrictions and preventative measurements
taken by authorities and plant operators. This has
affected service activity and curbed investments.
As economic growth is one of the most important
drivers for cement demand, our customers are
sensitive to market fluctuations and typically re-
spond through cash preservation. Cement con-
sumption continues to be impacted by reduced
construction activity, and across regions most
large investments have been suspended pend-
ing an improvement in the business outlook. Op-
erating expenditures have also declined as ce-
ment companies endeavour to stay profitable
during a period of reduced demand and high un-
certainty.
In North America, the outcome of the US presi-
dential election should help remove the uncer-
tainty that has held back investments, allowing
the industry to begin planning ahead again. The
bill, which earmarks more than USD 1 trillion to
upgrade national infrastructure, could be passed
in the first half of 2021 which would help to boost
optimism among cement producers and increase
confidence in the market. In India, market activity
has improved compared to the low levels seen in
previous quarters and the Indian government is
pushing for infrastructure investments and hous-
ing. The Chinese economy is nearly back to nor-
mal but most other Asian countries continue to
be severely impacted by COVID-19 from either a
health or economic perspective. Market activity
in Africa and the Middle East remains significantly
lower and lockdowns continue to reduce activity
at cement plants across South America. Most of
our cement customers in Europe, North-Africa
and Russia will need to see improved cash gen-
eration before they ramp up investments. Any
capital investments in the foreseeable future are
anticipated to be allocated towards more sustain-
able cement production.
During the last weeks of 2020, the EU Commis-
sion agreed on a 55% reduction target for green-
house gas emissions by 2030, and a budget that
allows for a green recovery following COVID-19
restrictions. The green recovery will fuel demand
for emissions-reducing technologies and the ce-
ment industry will need to undertake substantial
investments to meet recent commitments to car-
bon neutrality by the Global Cement and Con-
crete Association and the European Cement As-
sociation. The US re-joining the Paris climate
accord and the coming implementation of phase
IV of the EU Emissions Trading System (ETS) are
other factors likely to encourage cement produc-
ers to invest in emissions-reducing technologies
nated clay system.
CEMENT MARKET TRENDS
Capex trend in cement
USDbn
Source: Bloomberg
Global Cement consumption
Billion tonnes
Source: Bloomberg
0
3
6
9
12
15
18
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0
1
2
3
4
5
6
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
THE ROAD TO
ZERO EMISSIONS
Combined, cement and minerals production
currently account for approximately 10% of all
global CO emissions. With growing populations,
a larger middle class, and a transition to greener
energy, the demand for cement and minerals
- and thus the environmental impact - will only
increase in the next decade.
A more sustainable future requires action
from the industries. We will lead this action
towards zero emissions in mining and cement,
without compromising quality or our customers'
commercial competitiveness. FLSmidth
environmental footprint but more work, often in
partnership is needed to ensure the right pathway
for decarbonisation. Our MissionZero programme
is aimed to deliver and implement these solutions.
The goals that underpin the MissionZero
programme are inspired by and contribute directly
to some of the UN Sustainable Development
Goals (SDGs), including those related to water,
innovation, responsible consumption and climate
to our own operations and for our suppliers
including targets on gender equality that are in
to decarbonise the cement and mining industries
and put FLSmidth on the path to carbon neutrality,
in early 2021 we committed to set science-based
targets according to the Science Based Targets
initiative. In addition to targets for our suppliers
and our own operations, we have committed
to a 7% year-on-year reduction in downstream
(customer) emissions relative to revenue from
2019 to 2030. This is pivotal as around 96% of our
overall emissions are derived from customers’ use
of our sold products (scope 3).
We are also aligning our practices and reporting
for Climate Related Financial Disclosure (TCFD)
recommendations. As part of this, we conducted
a climate risk and opportunities analysis in late
2020 facilitated by an external advisor.
With MissionZero, we aim to deliver solutions that make
it possible to operate zero-emissions cement plants and
manage zero-emissions mining processes by 2030.
Cement
The three main levers to reduce a cement
plant’s environmental footprint are calcination,
fuel for heating, and electric power
consumption. With existing solutions and our
current technology roadmap, we are already
capable of reducing emissions by 70 percent.
Mining
Challenges such as water use, emissions,
and energy waste are at the top of the
mining agenda. If these issues are not
addressed, access to investment, regulatory
compliance, license to operate and the
industry's own reputation are all at risk.
ZERO EMISSIONS
Reduce emissions from fuel
burning and reduce process
emissions from calcination.
100% FUEL SUBSTITUTIONS
Eliminate the need for fossil fuels
and deliver solutions for 100
percent alternative fuel.
ZERO WASTE
No waste heat, use of waste
streams as raw material and
circular processes.
ZERO WATER WASTE
Enable zero discharge
and 100% re-use.
ZERO EMISSIONS
Eliminate emissions from use of
fossil fuels in transportation and
minerals processing.
ZERO ENERGY WASTE
Reduce energy costs and energy
waste, especially from energy
intensive mills.
KEY GOALS IN MISSIONZERO
FLSmidth
■
Annual report 2020
18
Business
Management review
of total
emissions
~1%
Suppliers
Purchased goods
and services
OF TOTAL
EMISSIONS
Customers
Suppliers
SCOPE 3
UPSTREAM
SCOPE 3
DOWNSTREAM
SCOPE 1
OUR OPERATIONS
SCOPE 2
HEATING AND POWER
< 0.1%
WASTE
< 0.1%
BUSINESS
TRAVEL
< 0.1%
TRANSPORT AND
DISTRIBUTION
Downstream
of total
emissions
of total
emissions
~96%
OF TOTAL
EMISSIONS
Use
of sold
products
~3%
OF TOTAL
EMISSIONS
End-of-life
treatment
of sold products
< 0.1%
TRANSPORT
Upstream
< 0.1%
EMPLOYEE COMMUTING
of total
emissions
of total
emissions
<
0.1 %
OF TOTAL
EMISSIONS
Our operations
(direct own emissions)
and heating and power
assumptions. Examples include the expected utilisation and lifetime of sold products, and as such
Greenhouse Gas Protocol, we intend to validate our data as an iterative process ongoingly.
We calculate our GHG emissions based on the
standards of the Greenhouse Gas Protocol, which
provides a standardised framework to measure
greenhouse gas (GHG) emissions, both for direct
emissions from our own company and from our entire
value chain.
The GHG Protocol includes impacts for a number of
GHGs, expressed as CO
2
-equivalents (CO
2
e). This
means they are expressed as the amount of CO
2
that
would give the same GHG impact.
In short, the GHG Protocol divides a company’s value
chain GHG emissions into three scopes:
1. Direct GHG emissions from own facilities and
vehicles
2. Indirect GHG emissions from purchased electricity,
steam, heating and cooling
3. Indirect GHG emissions from the value chain,
including both upstream emissions (e.g. purchased
goods and services, upstream transportation and
distribution, and business travel) and downstream
emissions (e.g. downstream transportation and
distribution, use of sold products and end-of-life
treatment of sold products)
Customers use of our products make up around
96% of our total scope 1-3 emissions.
OUR IMPACT ACROSS
THE VALUE CHAIN
As a leading supplier of equipment and
service solutions to the mining and cement
industries, we have a substantial inuence
on our value chain.
FLSmidth
■
Annual report 2020
19
Business
Management review
n early 2021, we committed to and
submitted science-based global
carbon reduction targets which are
now pending validation by the Science Based
Targets initiative. Having an independent body
validate our targets reinforces our long-term
commitment and our determination to reach our
targets. The systematic approach helps us break
the main target into tangible, yet ambitious
steps.
Targets across the value chain
Downstream is where we have our largest
impact. That is why with MissionZero, our target
is to enable our customers to produce cement
and minerals with zero emissions.
However, we are including science-based
targets for the entire value chain.
I
What are science-based targets
reduce greenhouse gas emissions. Targets are considered science-based if
they are in line with what the latest climate science deems necessary to meet
the goals of the 2015 Paris Agreement. The Science Based Targets initiative is a
partnership between CDP Disclosure Insight Action, the United Nations Global
Compact, the World Resources Institute and World Wildlife Fund (WWF).
Upstream
We work with our suppliers to move towards
greenhouse gas emission reductions by
2030. By 2025, 30% of our suppliers, based
on spend, need to have set their own targets
for reducing greenhouse gas emissions.
Downstream
Our downstream target is a 7% year-on-year
reduction in carbon emissions per unit of
revenue from a 2019 baseline until 2030. It
is calculated as tonnes of CO
2
-equivalents
divided by revenue in DKK.
By far our largest environmental impact stems
from the use of our products by our customers.
At the time of reporting, our targets have been submitted for validation and are
pending approval from the Science Based Targets initiative.
Own operations
From our own direct emissions,
we have set a target to reduce our
Scope 1 and Scope 2 emissions
to 0 and be carbon-neutral by 2030. Those
emissions stem from our manufacturing
and transportation, and the energy we
SCIENCE-BASED TARGETS
AND HOW THEY WILL LEAD
US TOWARDS ZERO
With MissionZero, we have a clear ambition to do our part
in limiting global warming to 1.5°C. Fullling this ambition
requires a systematic approach to reducing greenhouse
gases. We are now setting science-based targets.
FLSmidth
■
Annual report 2020
20
Business
Management review
FLSmidth
Annual report 2020 21
Management review Business
FLSmidth strives to be the leading supplier
of sustainable productivity to the global
mining and cement industries, and we are
already well-positioned in this endeavour. We
help our customers to increase their production,
lower their operating costs and reduce their envi-
ronmental footprint.
With a local presence in more than 60 countries
and customers in more than 150 countries,
FLSmidth is truly a global company. The geo-
graphical footprint reflects our diverse customer
base, composed primarily of global and regional
mining and cement companies which invest in
new capacity or in expanding, upgrading, main-
taining and servicing existing production facili-
ties.
Our business model is anchored around a
unique combination of projects, products and
services. However, we have a strategic focus to
expand the share of services and standardised
products relative to the share of large projects.
This focus will help us obtain a more profitable
business mix and a less cyclical business with a
lower level of risk. While the process expertise
we gain from projects is key to delivering produc-
tivity improvements to our customers, we remain
selective in taking on large projects to ensure
that terms and conditions support our profitability
targets.
To further strengthen our position as Sustaina-
ble Productivity Provider #1, we have iden-
tified five key strategic focus areas (illustrated on
next page).
Customers
FLSmidth has vast experience in working with a
broad range of customers around the world. Our
customers consist of both global majors and mid-
sized regional players. The latter account for a
relatively large amount of our project sales,
whereas the global majors account for a consid-
erable share of our service business.
Being close to our customers is key. Combining
local presence with global support and expertise
makes it possible to deliver premium solutions
where our customers need them. Our large num-
ber of local sales and service offices ensures fre-
quent customer interaction and high speed of
delivery, and we continue to open sales and ser-
vice offices around the world to cover new geo-
graphical regions and overcome the increasing
challenge of trade barriers. While expanding and
localising our service footprint, we have pursued
a strategy of consolidating our supply chain and
STRATEGY
FLSmidth
Annual report 2020 22
Management review Business
project centres to ensure the leanest possible or-
ganisation.
Despite cyclical end markets, we consistently pri-
oritise maintaining and developing a strong and
competent sales force, ever aware that the
strength of our customer relationships during the
downturn will help to define our success in the
industry upturn. We constantly seek to minimise
administrative functions and allocate resources
to sales and service.
As a result, a large proportion of our employees
has direct contact with customers. Our customers
recognise us for our high quality and reliability,
which is also reflected in our quality KPI, DIFOT
(Delivery in full on time). DIFOT has risen from
84% in 2016 to 88% in 2020.
Sustainability
FLSmidth's relatively asset-light business model
means that the environmental footprint from our
own operations is very modest compared to that
of our customers. A large cement producer has a
carbon footprint about 4,000 times that of FL-
Smidth, and our annual water consumption
equals roughly two weeks of water consumed by
a copper mine (100,000 tpy). Therefore, our ap-
proach to sustainability is to take responsibility
for our own environmental footprint while helping
our customers reduce theirs, where we can have
a much greater positive impact on emissions re-
duction. For this reason, we launched Mission-
Zero in 2019, which is an integral part of our busi-
ness strategy and explained in more detail on
page 18-20.
Innovation & digitalisation
Our efforts in innovation and digitalisation are an
important sustainability enabler. Greater scarcity
of resources such as energy, water and raw ma-
terials leads to more complex and costly opera-
tions that challenges the performance of mining
and cement companies. This calls for innovation,
digitalisation and high-end technical solutions,
which is where FLSmidth has a leading position
and a competitive edge. Our strong digital capa-
bilities are founded on our extensive experience
in automating plants, which positions us as a
market leader in analysing and understanding
performance data. An increasing share of our
products and solutions offered to the cement
and mining industries is becoming intelligent and
self-learning. Mining and cement have historically
been conservative industries but the needs of
our customers are changing more rapidly today.
Their constant hunt for productivity, reduced en-
vironmental footprint and higher returns makes
them more receptive to innovation and new ways
of working, which is fuelling a growing interest in
digitalisation.
Digitalisation offers huge potential but first and
foremost we see it as an enabler. It has become
a natural and integral part of our product portfolio
and the benefits to our customers are clear: in-
creased productivity through optimisation, more
reliable operations, increased uptime as well as
proactive, predictive and increasingly prescrip-
tive maintenance. Our ability to deliver productiv-
ity improvements is anchored in a full flowsheet
of premium sustainable technologies (see page
24-25), combined with strong process knowhow
and a broad range of services.
Read more about innovation and digitalisation at
FLSmidth on page 26-29.
Strategic focus areas
Customers
Sustainability
Innovation &
digitalisation
Life cycle approach
Standardisation
Values
Competences,
Co-operation and Responsibility
FLSmidth
Annual report 2020 23
Management review Business
Life cycle approach
To achieve a sustainable productivity improve-
ment, companies need to adopt an end-to-end
process and integrate the whole value chain.
Forces must be activated simultaneously from
multiple directions and across the organisation to
create the kind of momentum that leads to sus-
tainable change. Through a life cycle approach,
we enable our customers to lower their total cost
of ownership.
Our digitalisation efforts will help pave the way
for growing our spare and wear parts business in
the years to come, as customers increasingly buy
solutions rather than single parts and equipment.
Over the years, we have successfully built a large
service business focusing on spare parts, up-
grades and maintenance. Our customers benefit
from the most comprehensive product portfolio
in the industry, allowing them to increase the
productivity of their complete value chain. A full
flowsheet facilitates digital access to all key pro-
cesses and equipment. To be able to address is-
sues before equipment breaks down, we create
powerful connections between physical and digi-
tal systems which lay the foundation for analytics-
driven predictive maintenance. We can then digi-
talise the entire supply chain to provide proactive
condition monitoring and data collection, identify-
ing damage or wear ahead of any failure.
Standardisation
Through value engineering and modularisation,
we re-think the designs of our products to in-
crease reliability and reduce cost and complexity
without compromising on quality and functional-
ity.
Our standardisation programme has yielded sub-
stantial results. We have, in recent years, stand-
ardised products such as our vertical roller mills,
coolers, burners, feeders and concentrators al-
lowing for a higher degree of configuration and
less customisation. We will continue standardis-
ing more products.
Reducing our procurement costs through stand-
ardisation represents a huge potential. Produc-
tion costs account for about 75% of our overall
revenue, of which 70-80% relates to procure-
ment from sub-contractors. Smarter product de-
sign enables us to significantly reduce our pro-
curement costs, and we achieve other benefits
such as reduced engineering hours, enhanced
product reliability and simpler maintenance pro-
cedures to the benefit of our customers and
ourselves.
Our values
Based on our values competence, co-op-
eration and responsibility we earn the
trust and respect of our customers, business
partners, suppliers, employees and shareholders
in the communities in which we live and operate.
FLSmidth
Annual report 2020 24
Management review Business
Mining
We are one of the market leaders
in mining with one of the strongest
brands and broadest offerings.
FLSmidth is a supplier of premium technology to
the global mining industry. We offer a complete
array of products, systems and services, ranging
from single engineered or standardised equip-
ment, such as crushers, ball mills, pumps, gravity
concentrators, thickeners, flotation cells and au-
tomated laboratories to bundled equipment, full
production plants and maintenance solutions.
We increase the product
complete "pit to plant" operation by integrating
upstream mining with downstream processing.
Our broad offering ranges all the way from 'in-pit-
crushing-and-conveying' (IPCC) to recovery and
refining of minerals and tailings management. In
Salt Lake City, USA, we have a laboratory with
state-of-the-art materials testing capabilities to
This ensures an early dialogue with the customer
and, not least, an in-depth knowledge of their
material, including material hardness and the
minerals concentration which is used to deter-
mine the optimal grinding and separation pro-
cess.
The current mining cycle is a productivity cycle
which clearly favours premium suppliers that
have the flowsheet, process knowledge and ser-
vice skills to help customers optimise existing
production facilities and minimise their environ-
mental footprint.
1. Extraction and size control
Ore is defined as materials that con-
tain minerals financially viable to ex-
tract. Ore is extracted through meth-
ods such as drilling and blasting and
transported to a crusher or crushed
in-pit and conveyed out, a method
usually more energy efficient.
The ore is crushed to reduce the par-
ticle size.
2. Comminution
Crushed ore is fed into a mill and
ground to a powder. Most often a wet
process that facilitates transportation
as a slurry. Once milled, the material
goes through screens and cyclones
that separate the coarse and fine ma-
terial. Coarse material is sent back to
the mill. Mills are highly energy-inten-
sive, representing about half of the
energy consumed by an entire mine
and estimated to account for 3% of all
global electricity use.
Novel comminution such as FLS-
midth's HPGRs can reduce water and
energy consumption.
3. Beneficiation and recovery
The valuable minerals are then sepa-
rated and concentrated. This involves
flotation, concentration, clarification,
and thickening. A flotation cell re-
moves impurities, producing a more
concentrated product. Chemicals and
oils coat the mineral content so it
sticks to air bubbles. The bubbles
form froth containing the concentrate,
which is skimmed off the top. The
concentrate is sent for further upgra-
ding.
4. Thickening and filtration
The left-over materials called tailings
accumulate at the bottom, and it is
separated to recover the water. Tail-
ings are moved to clarifiers and thick-
eners, where the particles settle at
the bottom and the water can be re-
covered and re-used. Filter presses
remove additional water, leaving filter
cake. Recycled water is re-used mini-
mising fresh water intake.
5. Tailings management
In the most environmentally sound
method of managing tailings, the filter
cake is mixed with waste rock and
stored a
This solution with filtered tailings
removes the risk of dam failures.
FLSmidth
Annual report 2020 25
Management review Business
Cement
We are the market leader in the
premium segment of the cement
industry with the most complete
offering and the strongest brand.
We supply the widest array of products, systems
and services, ranging from single engineered
and customised equipment, such as mills, kiln
systems and clinker coolers, to more standard-
ised products such as feeding and packaging
machines as well as complete cement plants,
maintenance and remote online support.
Years ago, the cement market divided into a pre-
mium market and a mid-market. The premium
market consists of customers valuing lower total
cost of ownership, more flexible and environ-
mentally friendly cement plants and local con-
struction. FLSmidth caters to the premium market
with equipment, services and complete plants
and is the clear market leader in this segment.
The mid-market is dominated by Asian suppliers
and is characterised by customers preferring the
lowest initial investment. However, customers of-
ten require a combination of low cost (mid-mar-
ket) construction combined with premium engi-
neering and procurement. FLSmidth has part-
nered with Asian suppliers to accommodate such
customer requests and most Asian suppliers are,
in reality, partners as well as good customers of
FLSmidth. Therefore, we are working to offer not
only the best complete cement plants but to be-
come the preferred brand for all key equipment
in a cement plant.
1. Quarrying and Crushing
The main raw materials needed to
make cement are limestone and clay.
Limestone is calcium carbonate,
CaCO3, and is 44% CO2 by weight.
Deposits are drilled, blasted or ripped
using heavy machinery, and the mate-
rials are then transported to the
crusher to reduce the size of the
rocks. This is the first step where
FLSmidth equipment is involved.
2. Drying and raw grinding
The materials are fed to the raw mill,
ground to the right particle size and
dried to the right moisture content.
The outcome, raw meal, is stored in a
silo and further mixed to ensure a
consistent chemical composition. This
is a main driver for better perfor-
mance of the kiln system and final
clinker quality. The process requires a
lot of power.
3. Pyro-processing
When the raw meal reaches the cal-
ciner at the bottom of the pre-heater
tower, it has a temperature of 1000°C.
Heating the materials releases the
CO2 contained in the limestone.
These are inevitable calcination emis-
sions. The material then enters the
rotary kiln and is heated to 1450°C.
The heating melts the rocks to form
clinker, the main component of
cement.
4. Clinker and cement grinding
The clinker is ground in a mill to re-
duce its particle size. Clinker has a
high carbon footprint, and a focus
area is to reduce the amount of
clinker in the final product. This can
be achieved by mixing it with addi-
tives. Different cements are used for
different applications, so clinker and
additives are mixed in the right quan-
tities to get the right type and quality.
5. Dispatching
The cement is then ready to be dis-
patched. It can be packed in 50 kg
bags and loaded onto trucks, or it
can be shipped by 25t bulk tankers.
It is shipped by rail or ship. Ultimately
it is mixed with water, sand and
gravel to form concrete, which is
used to build the infrastructure
around us.
Digitalisation is a major driver for change that is
accelerating the pace of sustainable productivity
improvements. Our strong focus on sustainable
innovations enables our customers to improve
their operations and helps us to expand the gap
to mid-market and single equipment suppliers. At
FLSmidth, we leverage digital technologies to
empower our business strategy, and our digital
premium oering will enable us to capture a larger
share of the market for services.
INNOVATION &
DIGITALISATION
Digital and innovative solutions are the levers
to deliver on our MissionZero commitment to
to operate zero-emissions cement plants and
mining processes by 2030. By utilising the
power of digitalisation we can increase our
customers’ productivity and at the same time
lead these industries into a sustainable future.
Achieving this goal requires a paradigm shift
in collaboration, innovation and adoption
of new technology. Innovation at FLSmidth
takes place at three levels: in-house in our
technology centres, on-site with customers and
through partnerships with third parties. Looking
programme, we have received strong interest
from several parties to co-create solutions and
we will continue to co-develop technology with
customers, universities and other partners.
An example of partnership innovation is our
cooperation with VICEM, the leading cement
producer in Vietnam. In February 2020, we
jointly announced a partnership with the goal of
developing breakthrough innovations that will
Vietnamese cement industry. A key focus will be
on the utilisation of municipal and other waste
streams as alternative fuel sources, thereby
reducing air pollution by replacing the burning
of fossil fuels. While management of waste is
a growing concern in Vietnam, FLSmidth is
FLSmidth
■
Annual report 2020
Business
Management review
26
INNOVATION & DIGITALISATION
developing solutions that enable a 100% switch
to alternative fuels, which can reduce about
one-third of carbon emissions. Other areas of
the partnership will focus on solutions related to
partnership is an important step for the sector
and the people of Vietnam.
In addition to innovation and partnerships,
we consider acquisitions to supplement
FLSmidth announced the acquisition of
KnowledgeScape, a global leader in digital
optimisation solutions for the mineral processing
industry. The addition of KnowledgeScape’s
advanced solutions will deliver an expanded
expert control solutions and advanced sensor
technologies for automating, optimising and
increasing the reliability of minerals processing
circuits. These solutions are leading-edge
technologies that serve as an important
in line with our focus on creating sustainable
and environmentally friendly solutions to
our customers in Mining and Cement. Seen
combination of our two digital portfolios means
that FLSmidth is now one of the few suppliers
optimisation solution that enables our customers
to reduce costs and environmental impact.
has become even more apparent during the
COVID-19 pandemic. Given current priorities, the
advantages of remotely controlled operations
and predictive maintenance have been highly
appreciated by customers. We have hundreds
of sites connected to an online network and the
number of measurements received per day has
around 105 million data measurements per day
cost savings, sustainability and increased
uptime. The data is analysed to provide detailed
information on our customers’ equipment,
allowing us to suggest optimisations and
the full spectrum from running an analysis
weakness and is about to break. This allows it
to be replaced before it causes more problems,
extending downtime and potentially impacting
machinery downstream.
In addition to the productivity improvements,
strengthened by digitalised solutions. Remote
operating centres mean fewer employees on
site that are exposed to potentially hazardous
situations. When logistics are severely
impossible to be on site, suddenly all the value
of digitalisation becomes crystal clear. During
COVID-19, digital sceptics have been forced
to work through online platforms and software
solutions have gained more acceptance. 2020
has clearly seen a digital breakthrough and
the ongoing growth of digitalised solutions will
unquestionably outlast the global pandemic.
310m (DKK)
In 2020, we increased
our spend on innovation
and digitalisation by
3% to DKK 310m
105m
We have hundreds of sites
connected to an online
network and receive around
105 million data
measurements per day
100%
While management of
waste is a growing concern,
FLSmidth is developing
solutions that enable a 100%
switch to alternative fuels
FLSmidth
■
Annual report 2020
27
Business
Management review
Related to
MissionZero goals
Zero
emissions
Zero energy
waste
Zero
emissions
Related to
MissionZero goals
DIGITAL SOLUTIONS
TO POWER YOUR PRODUCTIVITY
Digital solutions to
power your productivity
ENABL
INNOVATIONS IN MINING AND CEMENT
THE CHALLENGE
Reduce the environmental
impact by optimising the plant to
consumption of energy and fuels
THE BENEFITS
Increased production and
Reduced downtime, equipment
wear and maintenance costs
ECS/PROCESSEXPERT® V8.5
SELF-LEARNING
CONTROL
SOLUTIONS BASED
ON ARTIFICIAL
INTELLIGENCE
New cognitive technologies empowers
productivity and sustainability
■
Intelligent process control solutions
stabilise and optimise processes,
enabling increased use of alternative
fuels, 5% lower energy consumption and
increased production of up to 6% –
whilst maintaining product quality
THE SOLUTION
State-of-the-art process
intelligence enables the site to
raise production, reduce costs
and extend equipment life
AUGMENTED FIELD ENGINEER
DIGITAL SOLUTIONS
TO POWER
PRODUCTIVITY
Customers are increasingly using
FLSmidth’s digital solutions to support
day-to-day operations, optimise
production, reduce CO
2
emissions and
prevent breakdowns
■
The advantages of remotely controlled
operations and predictive maintenance
have been highly appreciated by customers
during the COVID-19 pandemic, with
Remote Services increasing over 100%
during the crisis
THE CHALLENGE
Connecting the customer
with the full knowledge base
of FLSmidth when logistics
are severely challenged and it
THE BENEFITS
Real time data providing a range
cost savings, sustainability and
increased uptime
THE SOLUTION
Predictive maintenance and
remotely controlled operations,
allowing to guide critical actions
and share information in real time
FLSmidth
■
Annual report 2020
28
Business
Management review
Related to
MissionZero goals
Zero
emissions
INNOVATIONS IN MINING AND CEMENT
THE CHALLENGE
Producing clinker is energy and
emissions intensive, and therefore,
the less clinker used, the less
impact on the environment
THE BENEFITS
Complete testing by our
laboratory and pilot plant
Excellent color control
Lower capital and operating costs
CEMENT: CLAY CALCINER SYSTEM –
A MISSIONZERO FLAGSHIP INNOVATION
REDUCE CO
2
EMISSIONS BY
UP TO 40% COMPARED TO
CLINKER PRODUCTION
■
Increasing the percentage of calcined clay in cement reduces the need for
clinker produced from limestone
■
potential, maintaining the high strength and quality standards of cement
The FLSmidth clay calciner system is currently patent pending
THE SOLUTION
cementitious potential, replacing
clinker and reducing CO
2
emissions
MINING: TSUV GYRATORY CRUSHER
DIGITAL, OPTIMISED
CRUSHING
Next-generation primary crusher –
completely re-engineered to get more from
lower grade ores
■
The unique top-service design prioritises
safety, ease of maintenance and increased
availability
■
Delivers 7% greater speed and 10% increased
capacity, while reducing planned downtime by
up to 74%
■
reduced environmental impact
THE CHALLENGE
Lower grade ore requires higher
power crushing and higher
throughputs than ever before
THE BENEFITS
Higher power, greater
capacity and speed
Safer, simpler maintenance
Lowest total cost of ownership
THE SOLUTION
With more power and greater
capacity, the digitally-enabled
TSUV is the world’s most OPEX and
FLSmidth
■
Annual report 2020
29
Business
Management review
FLSmidth
Annual report 2020 30
Management review Financial Performance
Financial performance Q4 2020
Group order intake grew 15%
organically with growth in both
Mining and Cement. Cement order
intake included the booking of a
large project. Group revenue
declined 24% organically.
Gross margin improved due to a
higher share from service during
the quarter but earnings were
impacted by the sharp decline in
revenue. The EBITA margin de-
creased to 5.5% from 8.1% in Q4
last year, entirely related to
Cement. Mining EBITA margin was
up slightly year on year. Group
EBITA increased by 33%
compared to Q3 2020.
Net working capital decreased for
the third consecutive quarter. Free
cash flow was DKK 232m, on par
with Q4 last year. Net debt to
EBITDA increased to 1.6 due to
Q4 included the acquisition of
KnowledgeScape and two
announced divestments in
Cement.
FINANCIAL
PERFORMANCE
Financial Performance
FLSmidth
Annual report 2020 31
Management review Financial Performance
GROWTH
Group order intake grew 15% or-
ganically with growth in both Min-
ing and Cement. Cement order in-
take included the booking of a
large project. Group revenue de-
clined 24% organically related to
both Mining and Cement and both
capital and service business.
Order intake
Order intake in Q4 increased 7% to DKK 4,695m
(Q4 2019: DKK 4,389m) and grew 15%
organically. Foreign exchange translation effects
had an 8% negative impact on order intake.
Service orders accounted for 49% of the total
order intake.
Mining order intake increased 2% organically
thanks to higher capital order intake, whereas
service order intake continued to be negatively
impacted by restricted access to mine sites. Ser-
vice orders accounted for 59% of the Mining or-
ders and acquisitions had a 1% positive impact.
Order intake in Cement increased 39% organi-
cally and included a large contract for engineer-
ing, procurement and supervision on a greenfield
cement plant in Ethiopia valued at around DKK
750m. Excluding this contract, Cement order in-
take declined on Q4 last year, due to the contin-
ued impact of the pandemic and a generally sub-
dued market which resulted in lower activity
levels for service and equipment.
Order backlog and maturity
Despite a book-to-bill of 111% in Q4, the order
backlog was largely unchanged from the previ-
ous quarter at DKK 14,874m (Q3 2020: DKK
14,839m, as foreign exchange and divestments
led to a reduction of the backlog. 64% of the
backlog is expected to be converted to revenue
in 2021, 29% in 2022, and 7% in 2023 and be-
yond. The large Cement project booked in Q4
2020 is scheduled for delivery mainly in 2022-
2023.
Revenue
Revenue declined 30% to DKK 4,236m in Q4
2020 (Q4 2019: DKK 6,022m) and declined 24%
organically, comprising a 15% decrease in Mining
and a 37% decline in Cement. The decline in rev-
enue was explained by an exceptionally strong
comparison quarter, a low Cement backlog en-
tering the year and restricted access to customer
sites because of the pandemic. Consequently,
we did not see the usual seasonality during
which Q4 is typically the strongest quarter by far
in the year, although revenue did pick up 10%
quarter on quarter thanks to slightly higher year-
end activity.
QUARTERLY FINANCIAL PERFORMANCE
Order intake
DKKm
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Mining Cement
Growth in order intake in Q4 2020
(vs. Q4 2019)
Mining
Cement
FLSmidth
Group
Total growth
-8%
34%
7%
Growth in revenue in Q4 2020
(vs. Q4 2019)
Mining
Cement
FLSmidth
Group
Total growth
-22%
-40%
-30%
Group – continued activities
(DKKm)
Q4 2020
Q4 2019
Change
2020
2019
Change
Order intake (gross)
4,695
4,389
7%
18,524
19,554
-5%
Order backlog
14,874
14,192
5%
14,874
14,192
5%
Revenue
4,236
6,022
-30%
16,441
20,646
-20%
Gross profit
1,022
1,327
-23%
3,865
4,849
-20%
SG&A cost
(685)
(747)
-8%
(2,731)
(2,841)
-4%
EBITA
235
487
-52%
771
1,663
-54%
EBIT
145
393
-63%
428
1,286
-67%
FLSmidth
Annual report 2020 32
Management review Financial Performance
PROFIT
Gross margin improved due to a
higher share from service during
the quarter but earnings were im-
pacted by the sharp decline in rev-
enue. The EBITA margin de-
creased to 5.5% from 8.1% in Q4
last year, entirely related to Ce-
ment, whereas Mining EBITA mar-
gin was up slightly year on year.
Group EBITA increased by 33%
compared to Q3 2020.
Gross profit and margin
Gross profit declined 23% to DKK 1,022m (Q4
2019: DKK 1,327m), explained entirely by the 30%
decline in revenue. Gross margin improved to
24.1% (Q4 2019: 22.0%) due to a higher share
from service in both Mining and Cement.
In Q4 2020, total research and development
costs (R&D) amounted to DKK 115m (Q4 2019:
DKK 93m), representing 2.7% of revenue (Q4
2019: 1.6%), of which DKK 67m was capitalised
(Q4 2019: DKK 59m) and the balance of DKK
48m expensed as production costs (Q4 2019:
DKK 34m). R&D costs in Q4 related to several
projects, including new sustainable cement tech-
nologies and mining equipment within various
parts of the value chain. In addition, project-fi-
nanced developments are taking place in coop-
eration with customers.
SG&A costs
Sales, general and administrative costs (SG&A)
and other operating items decreased 8% to DKK
685m (Q4 2019: DKK 747m), explained by busi-
ness improvement savings and foreign ex-
change. Despite the reduction in SG&A, costs in-
creased to 16.2% of revenue (Q4 2019: 12.4%),
due to the sharp decline in revenue.
We manage and adjust the cost base against the
level of business we see ahead of us, and our
practice is not to make significant cost reductions
in areas where we expect activity to return in the
very short term. Since there is no recovery in
sight for the cement market, we continue to right-
size our Cement business (please refer to page
37).
EBITA and margin
EBITA decreased by 52% to DKK 235m com-
pared to the same quarter last year (Q4 2019:
DKK 487m), but increased by 33% compared to
Q3 2020. The year-on-year decrease was a re-
sult of the sharp decline in revenue which could
not be offset by the higher gross margin and
lower SG&A costs. The year-on-year decrease in
Q4 EBITA margin to 5.5% (Q4 2019: 8.1%), was
due entirely to Cement and included DKK 19m
costs related to Cement reshaping. There was a
slight increase in Mining EBITA margin year-on-
year.
Amortisation of intangible assets amounted to
DKK 90m (Q4 2019: DKK 94m). The effect of pur-
chase price allocations amounted to DKK 24m
(Q4 2019: DKK 36m) and other amortisation to
DKK 66m (Q4 2019: DKK 58m).
Earnings before interest and tax (EBIT) de-
creased 63% to DKK 145m (Q4 2019: 393m).
Financial items
Net financial items amounted to DKK 6m (Q4
2019: DKK -71m), of which foreign exchange and
fair value adjustments amounted to DKK 18m (Q4
2019: DKK -43m) and net interest amounted to
DKK -12m (Q4 2019: DKK -28m).
Tax
Tax for Q4 2020 totalled DKK -65m (Q4 2019:
DKK -94m), corresponding to an effective tax rate
of 43.6% (Q4 2019: 29%). Impairment of deferred
tax assets has caused the increase in the effec-
tive tax rate in Q4.
Profit for the period
Because of the lower EBIT, profit for the period
decreased to DKK 78m (Q4 2019: DKK 227m),
equivalent to DKK 1.7 per share (diluted) (Q4
2019: DKK 4.5). Discontinued activities had a DKK
-6m impact on profit and loss in Q4 2020 (Q4
2019: DKK -2m).
Employees
The number of employees decreased by 307 to
10,639 at the end of 2020 (end of Q3 2020:
10,946). The decrease mainly related to right-siz-
ing activities in Cement and divestment of the
Möller business (60 people).
Backlog
DKKm
Revenue & EBITA margin
DKKm EBITA%
EBITA
DKKm
0
3,000
6,000
9,000
12,000
15,000
18,000
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Mining Cement
0%
2%
4%
6%
8%
10%
12%
0
1,500
3,000
4,500
6,000
7,500
9,000
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Service Capital EBITA margin
(100)
0
100
200
300
400
500
600
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Mining Cement
FLSmidth
Annual report 2020 33
Management review Financial Performance
CAPITAL
Net working capital decreased for
the third consecutive quarter. Free
cash flow was DKK 232m, on par
with Q4 last year. Net debt to
EBITDA increased to 1.6 due to
trailing EBITDA.
Q4 included the acquisition of
KnowledgeScape and two an-
nounced divestments in Cement.
Net working capital
Net working capital decreased for the third con-
secutive quarter and amounted to DKK 1,752m at
the end of Q4 2020 (end of Q3 2020: DKK
1,981m). The reduction related mainly to invento-
ries and a DKK 71m reduction from divestments.
The net working capital ratio was 10.7% of reve-
nue (Q3 2020: 10.9% of revenue).
In line with previous quarters, utilisation of supply
chain financing decreased in Q4, driven by a
lower activity level and a lower share of Cement
business relative to Mining (see note 3.6).
Cash flow from operations
Despite a reduction in adjusted EBITDA of more
than 40%, cash flow from operating activities
(CFFO) was on par with Q4 last year and
amounted to DKK 329m (Q4 2019: DKK 327m). In
addition to EBITDA, the main positive contributor
to CFFO was the net working capital inflow of
DKK 161m as compared to a net working capital
outflow of DKK 138m in Q4 2019.
Discontinued activities amounted to DKK -32m in
Q4 2020 (Q4 2019: DKK -42m) due to timing dif-
ference between cash paid and cash received
related to the net working capital and provision
balances (see note 2.11).
Cash effect from provisions was DKK 66m inflow
in Q4 2020 (Q4 2019: DKK 55m inflow). The
change related to recognition of additional un-
certainties in the execution of the project portfo-
lio and provisions for reshaping Cement. The im-
pact on provisions from discontinued activities
was negative DKK 5m in Q4.
Cash flow from investments
Cash flow from investing activities amounted to
DKK -97m (Q4 2019: DKK -92m), of which acquisi-
tions and disposals amounted to DKK 12m (Q4
2019: DKK 18m).
Free cash flow
Free cash flow (cash flow from operating and in-
vesting activities) amounted to DKK 232m in Q4
(Q4 2019: DKK 235m).
Net interest-bearing debt
Due to a positive free cash flow, net interest-
bearing debt (NIBD) decreased to DKK 1,808m
(end of Q3 2020: DKK 1,936m). Financial gearing,
however, increased to 1.6 (end of Q3 2020: 1.4)
due to lower trailing 12 months EBITDA. Gearing
remains below our internal long term maximum
threshold of two times NIBD to EBITDA.
Financial position
By the end of 2020, FLSmidth had DKK 7.0bn of
available committed credit facilities of which DKK
4.8bn was undrawn. The committed credit facili-
ties have a weighted average time to maturity of
4.2 years.
DKK 1.7bn of credit facilities will mature in 2022
and the majority, DKK 5.0bn, will mature in 2026.
The remaining DKK 0.3bn matures in later years.
Equity ratio
Equity at the end of Q4 2020 decreased slightly
to DKK 8,130m (end of Q3 2020: DKK 8,237m),
due to currency adjustments regarding transla-
tion of entities that more than offset the profit for
Q4 2020. The equity ratio was 39.7% (end of Q3
2020: 40.0%), well above the long-term target of
minimum 30%.
Acquisitions and divestments
On 2 October 2020, FLSmidth signed the acqui-
sition of KnowledgeScape, a global leader in dig-
ital optimisation solutions for the mineral pro-
cessing industry.
On 23 December 2020, FLSmidth announced
the sale of its fabric filter technology, a non-core
ogy (AFT).
On 30 December 2020, FLSmidth announced
the sale of its Möller pneumatic conveying sys-
tems business, which has been serving mainly
adjacent industries. Both divestments were part
of the ongoing process to simplify and prune
business.
On 15 January 2021, FLSmidth announced that it
is in negotiations with ThyssenKrupp concerning
an acquisition of ThyssenKrupp's mining busi-
ness. The negotiations are at a non-binding
stage. Accordingly, there can be no assurances
as to whether and when a transaction will tran-
spire.
Cash flow
DKKm
Net interest-bearing debt
DKKm
Net working capital
DKKm NWC%
(100)
0
100
200
300
400
500
600
700
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Cash flow from operating activities
0
500
1,000
1,500
2,000
2,500
3,000
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Net interest bearing debt (NIBD)
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
0
1,000
2,000
3,000
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Net working capital
Net working capital ratio, end
FLSmidth
Annual report 2020 34
Management review Financial Performance
QUARTERLY KEY FIGURES
DKKm
2018
2019
2020
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
INCOME STATEMENT
Gross profit
1,074
1,181
1,126
1,312
1,081
1,315
1,126
1,327
1,047
912
884
1,022
EBITDA before special non-recurring items
396
440
408
582
395
574
459
580
319
223
255
337
EBITA
343
381
350
511
312
487
377
487
228
131
177
235
EBIT
248
299
254
419
218
381
294
393
146
46
91
145
EBT
213
283
237
326
215
349
284
323
150
(7)
89
149
Profit/loss on continuing activities for the period
147
188
171
305
145
234
190
229
106
(12)
48
84
Profit/loss for the period
136
168
162
169
136
223
190
227
101
(17)
43
78
Gross margin
25.4%
25.0%
26.0%
24.1%
24.5%
24.0%
23.8%
22.0%
23.1%
23.7%
23.1%
24.1%
EBITDA margin before special non-recurring items
9.4%
9.3%
9.4%
10.7%
8.9%
10.5%
9.7%
9.6%
7.0%
5.8%
6.7%
8.0%
EBITA margin
8.1%
8.1%
8.1%
9.4%
7.1%
8.9%
8.0%
8.1%
5.0%
3.4%
4.6%
5.5%
EBIT margin
5.9%
6.3%
5.9%
7.7%
4.9%
6.9%
6.2%
6.5%
3.2%
1.2%
2.4%
3.4%
Unaudited figures
FLSmidth
Annual report 2020 35
Management review Financial Performance
DKKm
2018
2019
2020
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
SEGMENT REPORTING
Mining
Gross margin before allocation of shared costs
27.0%
26.6%
31.7%
27.4%
26.7%
26.1%
25.2%
23.4%
24.9%
26.4%
25.0%
25.1%
EBITA margin before allocation of shared costs
18.0%
17.8%
20.3%
18.9%
17.1%
16.8%
16.3%
14.9%
15.1%
16.0%
16.8%
16.4%
EBITA margin
9.4%
9.9%
13.3%
12.4%
9.5%
10.4%
9.2%
9.1%
7.3%
7.8%
9.0%
9.3%
EBIT margin
6.8%
7.9%
10.2%
10.4%
7.0%
8.5%
6.9%
7.2%
5.2%
5.4%
6.8%
7.2%
Cement
Gross margin before allocation of shared costs
23.5%
22.9%
21.2%
20.4%
22.2%
22.0%
22.8%
21.9%
21.8%
21.0%
19.5%
23.3%
EBITA margin before allocation of shared costs
16.5%
14.8%
7.4%
13.7%
12.8%
14.1%
13.8%
13.3%
11.0%
6.9%
6.7%
9.7%
EBITA margin
6.3%
4.9%
2.0%
5.4%
3.7%
6.3%
5.8%
6.6%
1.8%
-4.9%
-4.8%
-1.9%
EBIT margin
4.5%
3.6%
0.8%
4.2%
2.2%
4.4%
4.9%
5.5%
0.4%
-6.7%
-7.1%
-4.1%
Unaudited figures
FLSmidth
Annual report 2020 36
Management review Financial Performance
GROWTH
Organic order intake was on par
with last year, comprising growth in
Mining and a decrease in Cement.
Book-to-bill was 113%. Revenue de-
clined 16% organically due to a se-
vere impact from the pandemic
and a low Cement backlog enter-
ing the year.
Order intake
Organically, the order intake in 2020 was on par
with last year, comprising a 13% growth in Mining
and a 22% decline in Cement. Including currency
effects and acquisitions, order intake decreased
by 5% to DKK 18,524m (2019: DKK 19,554m).
Capital order intake increased by 5%, whereas
service orders decreased by 13%. Service ac-
counted for 53% of the order intake.
Mining order intake increased by 13% organically
and by 6% including currency effects and acqui-
sitions. Mining capital orders increased by 31%
due to the booking of three large mining con-
tracts in the first quarter of the year. The three or-
ders had a combined value of around DKK 2.4bn
and were awarded in Russia and Belarus, a re-
gion where we have successfully expanded our
presence in recent years. Following a double
digit growth in the first quarter of the year, Mining
service orders decreased 9% for the full year, ex-
plained by currency headwind and restricted ac-
cess to customers sites due to the pandemic.
Cement order intake declined 22% organically
and by 24% including currency effects. Service
accounted for 51% of Cement order intake. Capi-
tal orders contracted by 26%. The cement indus-
try has seen a prolonged period of subdued pro-
ject activity and along with the severe impact
from the pandemic, there are no signs of a recov-
ery for new cement capacity in the short- to me-
dium-term. Cement service orders declined 21%
as the pandemic led to the shutdown of up to
earlier in the year. Many cement plants continue
to operate at reduced production rates, which re-
duces the need for technical services and parts.
Growth in order
intake in
2020 vs. 2019
Mining
Cement
FLSmidth
Group
Total growth
6%
-24%
-5%
Order backlog
In 2020, the order backlog increased by 5% to
DKK 14,874m (2019: DKK 14,192m), comprising an
18% increase in Mining and an 11% contraction in
Cement. The book-to-bill was 113% but currency
effects had a DKK 1bn negative impact on the
backlog.
Revenue
Organic revenue declined 16% in 2020, compris-
ing a 7% decrease in Mining and a 30% fall in
Cement. Including currency effects, revenue de-
creased by 20% to DKK 16,441m (2019: DKK
20,646m). Service revenue accounted for 60% of
total revenue (2019: 52%).
The sharp decline in Cement revenue related
mainly to the capital business and was due to a
low backlog entering the year and the severe im-
pact of the pandemic on the cement industry.
The decline in Mining revenue related to both
the capital and service businesses. Despite
healthy industry fundamentals, project and ser-
vice activity were both impacted by restricted ac-
cess to mine sites due to pandemic related pre-
cautions.
Growth in revenue in
2020 vs. 2019
Mining
Cement
FLSmidth
Group
Total growth
-13%
-31%
-20%
ANNUAL FINANCIAL PERFORMANCE
Mining and Cement Revenue
DKKm
Order intake and book-to-bill
DKKm %
Order intake by commodity
%
Backlog maturity
DKKm
0
5,000
10,000
15,000
20,000
25,000
2016 2017 2018 2019 2020
Mining Cement
0%
20%
40%
60%
80%
100%
120%
0
4,000
8,000
12,000
16,000
20,000
24,000
2016 2017 2018 2019 2020
Order intake Book-to-bill
31%
27%
12%
6%
7%
3%
14%
Cement
Copper
Gold
Coal
Iron ore
Fertilizer
Other
10,316
9,519
2,585
4,313
1,291
1,042
0
3,000
6,000
9,000
12,000
15,000
18,000
2019 2020
Within next year Within next year +1
Later than next year +1
FLSmidth
Annual report 2020 37
Management review Financial Performance
PROFIT
Earnings were impacted by the
pandemic and the sharp decline in
revenue. The EBITA margin de-
creased to 4.7% from 8.1% last
year. Cement was loss-making,
whereas profitability in Mining was
quite resilient. The Group business
improvement programme was
completed and additional activities
to improve profitability in Cement
are ongoing.
Business improvement programme
At the end of 2019, we announced business im-
provement initiatives that include site consolida-
tion, an improved logistical setup, and headcount
reductions. In April 2020, we extended these ac-
tivities to accommodate a more challenging mar-
ket environment due to the pandemic.
The Group business improvement programme
was completed at the end of Q3 2020 with an
annual EBITA improvement run-rate of DKK
150m. The realised EBITA improvement in 2020
was DKK 110m and an incremental improvement
of around DKK 40m is expected to be realised in
2021. The implementation costs amounted to
DKK 192m, of which DKK 40m were incurred in
2019 and DKK 152m were incurred in 2020.
The programme included improvements that are
expected to be sustained. It did not include any
temporary COVID-19 related savings, such as
employees on furlough and reduced travel ex-
penses.
Financial impact 2020
DKKm
Group
Mining
Cement
150
Cement reshaping
In addition to the Group business improvement
programme, we took additional steps during the
year to simplify our Cement business and adjust
its cost structure. These activities included re-
duced in-house manufacturing and increased
sourcing from local suppliers and reducing the
size of the project organisation. As part of this
ongoing process to simplify our Cement busi-
ness, two businesses were sold in December
2020 (see page 33).
The implementation cost related to the additional
activities in Cement amounted to DKK 40m in
2020 (previously estimated around DKK 70m).
The activities will mitigate underabsorption due
to the lower level of Cement business which we
see ahead, and consequently, we will not report
an EBITA improvement from these measures.
Further activities to right-size and simplify our Ce-
ment business are expected during 2021. Timing
and costs related to this is under evaluation.
Taking both the completed Group business im-
provement programme and the additional
measures in Cement into account, total imple-
mentation costs in 2020 were DKK 192m (previ-
ously estimated around DKK 220m). In total, the
Group workforce was reduced by 1,707 employ-
ees in 2020, of which the majority related to Ce-
ment.
The workforce adjustment has not impaired our
ability to capture future growth.
Gross profit and margin
Gross profit decreased 20% in 2020 to DKK
3,865m (2019: DKK 4,849m), in line with the 20%
decline in revenue. Gross margin remained at
23.5% (2019: 23.5%). The positive impact on
gross margin from a higher service share of 60%
(2019: 52%) was offset by business improvement
costs, low capacity utilisation and the higher
costs of doing business during the pandemic.
Mobility restrictions continue to affect the utilisa-
tion of our global service technicians, resulting in
more complex and costly logistics and increased
costs related to quality control.
In 2020, research and development costs were
DKK 310m (2019: DKK 302m), of which DKK 150m
were capitalised (2019: DKK 142m) and the bal-
ance of DKK 160m reported as production costs.
The R&D costs related to several innovations, in-
cluding new sustainable cement technologies,
tailings management, digital solutions, and vari-
ous equipment across the mining value chain.
SG&A costs
Sales, general and administrative costs and other
operating items declined by 4% in 2020, repre-
senting a cost percentage (SG&A ratio) of 16.6%
of revenue (2019: 13.8%). SG&A was negatively
impacted by business improvement implementa-
tion costs of DKK 89m and additional cost relat-
ing to reshaping in Cement.
Gross profit and Gross margin
DKKm %
SG&A cost and SG&A ratio
DKKm %
EBITA by Mining and Cement
DKKm
20%
22%
24%
26%
28%
3,000
3,500
4,000
4,500
5,000
2016 2017 2018 2019 2020
Gross profit Gross margin
12%
14%
16%
18%
20%
1,500
2,000
2,500
3,000
3,500
2016 2017 2018 2019 2020
SG&A cost SG&A ratio
(500)
0
500
1,000
1,500
2,000
2016 2017 2018 2019 2020
Mining Cement
FLSmidth
Annual report 2020 38
Management review Financial Performance
EBITA and margin
Despite the stable gross margin and lower SG&A
costs, EBITA decreased by 54% to DKK 771m in
2020 (2019: DKK 1,663m), as a result of the sharp
decline in revenue. The EBITA margin declined
to 4.7% (2019: 8.1%). Cement was loss-making,
whereas profitability in Mining was quite resilient.
EBITA included implementation costs related to
the Group business improvement programme of
DKK 152m and costs related to additional Ce-
ment reshaping of DKK 40m.
Financial items
Net financial items amounted to DKK -47m (2019:
DKK -118m), of which net interest cost including
interest from leasing amounted to DKK -59m
(2019: DKK -65m) and foreign exchange and fair
value adjustments accounted for the remaining
balance.
Tax
Tax for the year amounted to DKK -155m (2019:
DKK -373m), corresponding to an effective tax
rate of 40.7% (2019: 31.9%). The higher effective
tax-rate was due to Impairment of deferred tax
assets, in particular related to the weaker outlook
for the cement market.
Profit for the year
Profit for the year decreased to DKK 205m (2019:
776m) as a result of the lower earnings and
higher effective tax rate.
Profit from continuing activities decreased to
DKK 226m (2019: DKK 798m).
Loss from discontinued activities amounted to
DKK -21m (2019: DKK -22m), related to adminis-
tering legacy projects in our non-mining bulk ma-
terial handling business. The projects were from
a revenue perspective completed at year end
2018. Subsequent handling of claims and collec-
tion of receivables is ongoing (refer to note 2.11).
Return on capital employed
ROCE decreased to 5.1% (2019: 10.9%) as a result
of the lower EBITA for the year. Average capital
Profit for the year
DKKm
Earnings per share
DKK
Profit distribution
DKKm DKK
0
200
400
600
800
1,000
2016 2017 2018 2019 2020
Group Continuing activities
-10
-5
0
5
10
15
20
2016 2017 2018 2019 2020
Earnings per share, continued activities
Earnings per share, discontinued activities
0
2
4
6
8
10
0
100
200
300
400
500
2016 2017 2018 2019 2020
Dividend paid, shareholders of FLSmidth
Proposed dividend per share
FLSmidth
Annual report 2020 39
Management review Financial Performance
CAPITAL
A strong cash focus led to a signifi-
cant reduction in net working capi-
tal and net debt.
Financial gearing increased to 1.6
from 1.2 in 2019 due to lower
EBITDA for the year. Free cash
flow more than doubled to DKK
1bn.
Balance sheet
Total assets decreased to DKK 20,456m at the
end of 2020 (2019: DKK 23,532m), mainly due to
currency effects and a reduction in activity and
net working capital.
Assets and liabilities held for sale at the end of
2020 amounted to DKK 33m.
Capital employed
Average capital employed decreased slightly to
DKK 15,195m (2019: DKK 15,251m) as a result of
the decrease in working capital.
At the end of 2020, capital employed amounted
to DKK 14,520m, consisting primarily of intangible
assets of DKK 10,447m, which is mostly historical
goodwill as well as patents and rights and cus-
tomer relations. Property, plant and equipment
amounted to DKK 2,009m, lease assets were
DKK 312m and net working capital was DKK
1,752m at the end of 2020.
Net working capital
Net working capital decreased to DKK 1,752m at
the end of 2020 (2019: DKK 2,739m), represent-
ing 10.7% of revenue (2019: 13.3% of revenue).
The decrease related mainly to a lower activity
level and strong cash collection from accounts
receivables, which declined by DKK 1.6bn. The
strong underlying improvement was partly coun-
terbalanced by a DKK 0.5bn reduction in prepay-
ments from customers due to the low level of
large capital orders, as well as reduced utilisation
of supply chain finance. DKK 158m of the de-
crease in net working capital related to currency.
Supply chain financing
As communicated in previous quarters, utilisation
of supply chain financing has decreased during
2020, driven by a lower level of activity and, in
particular, by a lower share of Cement business
relative to Mining. Consequently, the trade paya-
bles covered by the supply chain financing pro-
gramme amounted to DKK 273m at the end of
2020 (2019: DKK 1,083m).
Net interest-bearing debt
Net interest-bearing debt decreased to DKK
1,808m at the end of 2020 (2019: DKK 2,492m)
as a consequence of a strong positive free cash
flow.
Despite the reduction in net debt, the financial
gearing (NIBD/ EBITDA) increased to 1.6 (2019:
1.2), due to lower EBITDA for the year. The gear-
ing remains below our internal long-term maxi-
mum target of two times NIBD to EBITDA.
Equity
Despite the positive profit for the year, equity at
the end of 2020 decreased to DKK 8,130m
(2019: DKK 8,793m) as a result of currency ad-
justments regarding translation of foreign enti-
ties. The equity ratio was 39.7% (2019: 37.4%),
well above the long-term target of minimum 30%.
Treasury shares
The holding of treasury shares was 1,097,718
shares at the end of 2020 (2019: 1,193,538
shares), representing 2.1% of the total share capi-
tal (2019: 2.3%). Treasury shares are used to
hedge our share-based incentive programmes.
Dividend
Given the global uncertainty caused by the
COVID-19 pandemic, the Board of Directors of
FLSmidth & Co. A/S decided to withdraw the pro-
posal to pay a dividend of DKK 8 per share in
2020 to ensure resilience in a period of market
financial position.
Based on the financial results for 2020, the
current financial situation and ongoing negotia-
tions regarding potential acquisitions, the Board
of Directors will propose at the upcoming Annual
General Meeting that a dividend of DKK 2 per
share corresponding to a dividend yield of 0.9%
and a pay-out ratio of 50%, in line with our tar-
geted pay-out ratio, will be distributed for 2020.
The total dividend proposed amounts to DKK
103m.
Return on capital employed
DKKm %
Net working capital
DKKm %
Net interest-bearing debt
DKKm
Equity ratio and target
%
0%
4%
8%
12%
16%
0
5,000
10,000
15,000
20,000
2016 2017 2018 2019 2020
Capital employed, average ROCE
0%
3%
6%
9%
12%
15%
18%
0
500
1,000
1,500
2,000
2,500
3,000
2016 2017 2018 2019 2020
Net working capital NWC as % of revenue
0
1,000
2,000
3,000
4,000
5,000
2016 2017 2018 2019 2020
Net interest-bearing debt
0%
8%
16%
24%
32%
40%
2016 2017 2018 2019 2020
Equity ratio Target
FLSmidth
Annual report 2020 40
Management review Financial Performance
Cash flow from operating activities
Despite significantly lower EBITDA for the year,
cash flow from operating activities (CFFO) in-
creased to DKK 1,421m (2019: DKK 948m), mainly
as a result of CFFO from continuing activities of
DKK 1,473m (2019: DKK 1,139m). The cash inflow
from net working capital of DKK 706m (2019:
Cash outflow of DKK 448m) was the key contrib-
utor to the positive development. 2020 also had
a positive impact from change in provisions of
DKK 63m (2019: DKK -230m).
Cash flow from investing activities
Cash flow from investing activities (CFFI)
amounted to DKK -376m in 2020 (2019: DKK
-661m). CFFI in 2019 was impacted by the acqui-
sition of IMP Automation Group, whereas CFFI in
2020 included the acquisition of Knowledge-
Scape as well as divestments in the Cement
business. Excluding acquisitions and disposals,
CFFI was DKK -339m in 2020 (2019: DKK -374m).
Free cash flow
Free cash flow increased to DKK 1,045m (2019:
DKK 287m) as a result of the higher cash flow
from operating activities and the lower level of in-
vestments. Free cash flow adjusted for business
acquisitions and disposals was DKK 1,082m com-
pared to DKK 574m in 2019.
Cash flow from financing activities
Cash flow from financing activities was DKK
-956m (2019: DKK -156m), primarily related to re-
payment of debt and to a lesser extent due to re-
payment of lease liabilities.
Cash position
Cash and cash equivalents amounted to DKK
976m, a small decrease from DKK 1,001m in
2019.
Restricted cash
Cash and cash equivalents included cash with
currency restrictions amounting to DKK 781m
(2019: DKK 824m). The reduction in restricted
cash compared to 2019 related mainly to Brazil.
The cash and cash equivalents with currency re-
strictions were primarily related to bank deposits
located in countries with currency restrictions.
The deposits are part of local daily cash manage-
ment in countries where we have operating activ-
ities.
Acquisitions
On 31 January 2020, FLSmidth acquired the
business Mill-Ore Group, an Eastern Canadian
provider of equipment and services to the mining
industry. The acquisition was part of our long-
term commitment to increase the level of local
service and support for our customers.
In the fourth quarter of 2020, FLSmidth acquired
an additional company, KnowledgeScape, and
announced the sale of two Cement businesses
(please refer to page 33).
On 15 January 2021, FLSmidth announced that it
is in negotiations with ThyssenKrupp concerning
an acquisition of ThyssenKrupp's mining busi-
ness. The negotiations are at a non-binding
stage. Accordingly, there can be no assurances
as to whether and when a transaction will tran-
spire. 2020 included costs related to the ongo-
ing due diligence process, and additional costs
are expected in 2021.
CFFO
DKKm
CFFI
DKKm
Free cash flow
DKKm
Net cash flow from
business acquisitions and disposals
DKKm
0
200
400
600
800
1,000
1,200
1,400
1,600
2016 2017 2018 2019 2020
Cash flow from operating activities
-700
-600
-500
-400
-300
-200
-100
0
2016 2017 2018 2019 2020
Cash flow from investing activities
-100
100
300
500
700
900
1,100
1,300
2016 2017 2018 2019 2020
Free cash flow
Free cash flow adjusted for business acquisitons and disposals
-400
-300
-200
-100
0
100
200
2016 2017 2018 2019 2020
Net cash flow from acquisition and disposal of activities
FLSmidth
Annual report 2020 41
Management review Financial Performance
Financial performance
in Q4 2020
Organic mining order intake increased 2% com-
pared to Q4 2019. Including effects from cur-
rency and acquisitions the order intake in Q4
2020 decreased by 8% to DKK 2,608m (Q4
2019: DKK 2,833m), comprising 5% growth in
capital orders and a 15% decrease in service or-
ders. Travel restrictions and limited site access
have continued to impact on-site technical ser-
vices, resulting in reduced service demand. The
5% increase in capital order intake is a result of a
number of medium-sized capital orders that are
proceeding based on the healthy industry funda-
mentals. During the quarter, currency had an 11%
negative impact on order intake and acquisitions
had a 1% positive impact on order intake.
Revenue decreased 15% organically and by 22%
including the effects of currency and acquisitions,
to DKK 2,749m in Q4 2019 (Q4 2019: DKK
3,537m). Capital revenue decreased by 37% as a
result of the lumpiness of the capital business
with fluctuating revenue recognition, and due to
restricted site access which impacts progress on
projects. Service revenue decreased by 10%, ex-
plained by restricted access to mine sites and
currency effects. Currency effects had a 7% neg-
ative impact on revenue in the quarter.
Gross profit, before allocation of shared cost de-
creased by 17% to DKK 689m (Q4 2019: DKK
829m), largely in line with the decline in revenue.
The corresponding gross margin increased to
25.1% (Q4 2019: 23.4%) due to a higher service
share as well as a positive effect from the busi-
ness improvement programme.
EBITA decreased by 21% to DKK 256m (Q4 2019:
DKK 323m) due to the lower revenue in the quar-
ter, while the EBITA margin increased to 9.3%
(Q4 2019: 9.1%).
Financial performance in 2020
In 2020, Mining order intake increased 13% or-
ganically, mainly due to the exceptionally strong
capital order intake in the first quarter of 2020
which was related to the three large orders re-
ceived in Russia and Belarus, with a combined
value of around DKK 2.4bn. During the year, cur-
rency had an 8% negative impact on order intake
and acquisitions had a 1% positive impact on or-
der intake. Accordingly, order intake increased
by 6% to DKK 12,811m (2019: DKK 12,064m)
The organic decrease in revenue was 7% in
2020. Revenue decreased by 13% to DKK
10,620m (2019: DKK 12,169m), mainly due to capi-
tal revenue which decreased by 18%. EBITA de-
creased by 24% to DKK 888m (2019: DKK
1,166m), and the corresponding EBITA margin de-
creased to 8.4% (2019: 9.6%). EBITA included im-
plementation costs of DKK 91m related to the
Group business improvement programme.
MINING
Growth in order intake in Q4 2020
(vs. Q4 2019)
Order intake
Revenue
Total growth
-8%
-22%
Service and capital
order intake 2020
%
Revenue and EBITA margin
DKKm EBITA %
59%
41%
Service
Capital
0%
2%
4%
6%
8%
10%
12%
14%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Service revenue Capital revenue
EBITA margin
Mining
(DKKm)
Q4 2020
Q4 2019
Change
2020
2019
Change
Order intake (gross)
2,608
2,833
-8%
12,811
12,064
6%
Order backlog
9,085
7,683
18%
9,085
7,683
18%
Revenue
2,749
3,537
-22%
10,620
12,169
-13%
Gross profit before allocation of shared cost
689
829
-17%
2,688
3,071
-12%
EBITA before allocation of shared cost
452
528
-14%
1,710
1,974
-13%
EBITA
256
323
-21%
888
1,166
-24%
EBIT
199
256
-22%
655
905
-28%
FLSmidth
Annual report 2020 42
Management review Financial Performance
Financial performance
in Q4 2020
The order intake in Q4 2020 increased by 34%
to DKK 2,087m (Q4 2019: DKK 1,556m), driven by
the large Ethiopian order, valued at around DKK
750 million, that became effective in the quarter.
Service order intake decreased by 28% to DKK
780m compared to the same quarter last year
(Q4 2019: DKK 1,083m), but increased by 13%
compared to the previous quarter (Q3 2020:
DKK 688m). Service order intake is still impacted
by restricted site access and reduced demand
for spare parts as a result of plant shutdowns and
cement plants operating at reduced capacity.
Currency effects had a 5% negative impact on
the order intake compared to the same quarter
last year. Accordingly, the organic increase in the
order intake was 39%.
Revenue decreased by 40% to DKK 1,487m in Q4
2020 (Q4 2019: DKK 2,485m), due to the contin-
ued impact of the pandemic and a low backlog
entering the year. Service revenue decreased by
13% while capital revenue declined by 57%. Cur-
rency effects had a 3% negative impact on reve-
nue, which meant the organic decrease in reve-
nue was 37%.
Gross profit, before allocation of shared cost, de-
creased by 36% to DKK 347m (Q4 2019: DKK
543m), largely in line with the decline in revenue,
but increased by 46% compared to the previous
quarter (Q3 2020: DKK 238m). The correspond-
ing gross margin increased to 23.3% (Q4 2019:
21.9%) due to a higher share from service. Ce-
ment profitability is, however, still affected by the
large decline in revenue, and increased costs re-
lated to the pandemic and ongoing reshaping.
Consequently, EBITA amounted to DKK -28m
(Q4 2019: DKK 163m) and the corresponding
EBITA margin was -1.9% (Q4 2019: 6.6%).
Financial performance in 2020
The order intake decreased 24% to DKK 5,713m
in 2020 (2019: DKK 7,490m), due to a continua-
tion in the subdued market conditions for new
cement capacity and customers postponing in-
vestments, but also due to lower service activity
as a result of the pandemic. Currency had a 2%
negative impact on order intake.
Revenue in 2020 decreased by 31% to DKK
5,821m (2019: DKK 8,477m), mainly due to the
lower capital revenue during the year. Currency
effects had a 1% negative impact on revenue.
Earnings were severely impacted by the pan-
demic and the sharp decline in revenue as well
as costs of DKK 61m related to the Group busi-
ness improvement programme and additional
costs of DKK 40m specifically related to reshap-
ing the Cement business. EBITA came in at DKK -
118m (2019: DKK 486m). The corresponding
EBITA margin was -2.0% (2019: 5.7%). Activities
to restore profitability in Cement have been in-
tensified during 2020 and are ongoing.
CEMENT
Growth in order intake in Q4 2020
(vs. Q4 2019)
Order intake
Revenue
Total growth
34%
-40%
Service and capital
order intake 2020
%
Revenue and EBITA margin
DKKm EBITA %
64%
36%
Service
Capital
-6%
-4%
-2%
0%
2%
4%
6%
8%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Q4 Q1
2019
Q2 Q3 Q4 Q1
2020
Q2 Q3 Q4
Service revenue Capital revenue
EBITA margin
Cement
(DKKm)
Q4 2020
Q4 2019
Change
2020
2019
Change
Order intake (gross)
2,087
1,556
34%
5,713
7,490
-24%
Order backlog
5,789
6,509
-11%
5,789
6,509
-11%
Revenue
1,487
2,485
-40%
5,821
8,477
-31%
Gross profit before allocation of shared cost
347
543
-36%
1,255
1,881
-33%
EBITA before allocation of shared cost
144
331
-56%
515
1,148
-55%
EBITA
(28)
163
-117%
(118)
486
-124%
EBIT
(61)
136
-145%
(228)
370
-162%
FLSmidth
Annual report 2020 43
Management review Governance
GOVERNANCE
Governance
FLSmidth
Annual report 2020
FLSmidth
Annual report 2020 44
Management review Governance
Risk is an inherent part of our busi-
ness and managing risks is a top prior-
ity at FLSmidth. Our approach to risk
is aligned with our strategy and finan-
cial targets and managing potential
impacts has high priority across the
organisation.
Risk management framework
Our risk management framework consists of a
simple Enterprise Risk Management Practice with
annual top-down and bottom-up risk mapping to
identify the Group's key risks across the organi-
sation. We assess the risks based on the poten-
tial impact on our reputation, values, integrity,
and our short- and long-term strategic goals.
Our Enterprise Risk Management Practice aims
to identify, monitor, assess and mitigate risks as
early as possible to manage the likelihood and
potential impact. The most significant risks are
reviewed by the Risk Committee, Group Execu-
tive Management and the Board of Directors.
The Industries and Regions own their respective
risk management process and are responsible
for the identification and mitigation of the key
risks that pose potential threats to their opera-
tions.
Risk assessment
The annual assessment was primarily dominated
by discussion surrounding the COVID-19 pan-
demic. However, as operations continued in var-
ying degrees for the Industries and each Region,
tion of the following key risks and/or opportuni-
ties:
Safety mitigate severe impact on health and
safety of our employees, further complicated
by the pandemic.
Compliance importance of compliance with a
wide-range of trade and anti-corruption laws
and regulations.
Workplace Engagement ability to keep the
workforce engaged to adapt to constant
change.
Cement Market Conditions lack of global
growth and decreasing general consumption.
Sustainability leverage the opportunity for
development and adoption of sustainable solu-
tions. For more information, please refer to our
sustainability report.
Projects ability to deliver on time and as
promised to our customers.
Digitalisation create value and optimise pro-
cesses that drive productivity.
Geopolitical tensions between key nations
and volatile risk environments could lead to in-
creased costs or disruptions in operations.
Cyber Threats as technology advances, com-
puter crime is becoming increasingly sophisti-
cated.
Supply Chain pandemic lockdown and result-
ing decline in on-site activities has increased
concerns regarding supply chain reliability
when demand to deliver increases.
Financial Risk liquidity, credit and fluctuation
in foreign exchange rates. For more infor-
mation on the financial risks and mitigation ac-
tivities, please refer to note 5.3.
RISK MANAGEMENT
HIGH IMPACT
LOW IMPACT
HIGH
LIKELIHOOD
LOW
LIKELIHOOD
2019
Digitalisation
Projects
2020
Compliance
Safety
Cement
Market
Conditions
Cyber
Threats
Workplace Engagement
Financial Risk
Supply Chain
Geopolitical Risks
Sustainability
FLSmidth
Annual report 2020 45
Management review Governance
RISK MITIGATION
Risk
Potential impact
Mitigation
Digitalisation
Digital transformation is necessary to ensure customer expec-
tations for innovative and value added services are met. Keep-
ing up with the speed of change presents both challenges in
maintaining cutting edge solutions as well as opportunities for
optimising growth through innovative digital offerings and ser-
vices.
The Group has invested heavily in mitigation efforts, leading to a positive impact on the Company's internal
productivity as well as with customers. The Company has continued to improve sustainable productivity
through the launch of digitally-enabled products and digital offerings aimed at increasing productivity at cus-
tomer sites, the appointment of Regional Product Line Managers and the implementation of AI in parts of Pro-
curement, Finance and other Group Functions.
Sustainability
The success of our business depends on our ability to develop
sustainable products and solutions. Failure to take advantage
of the opportunity to help drive this change in the Cement and
Mining Industries will have a detrimental effect on our organisa-
tion.
Sustainability is an inte, and we see the need for sustainable so-
lutions in the cement and mining industries as a significant business opportunity for FLSmidth. For more infor-
mation on our MissionZero sustainability programme and product innovation, please refer to pages 18-20 and
26-29 in this report and our sustainability report at www.flsmidth.com/SustainabilityReport2020.
Geopolitical Risks
Increasing instability and polarisation in many countries as well
as tensions between major world economies pose a threat to
the Company's ability to carry out projects in some jurisdictions,
increasing risk of delays and disruptions.
The Company's local footprint continues to expand with strategic investments placing FLSmidth closer to cus-
tomers around the world. Group Procurement optimisation continues to focus on strategic, global sourcing
and building relationships with multiple suppliers to protect supply chain and logistics operations.
Safety
The risk of serious injury or death due to failure to ensure
healthy and safe working conditions for employees and con-
tractors at a customer site is a serious issue that could result in
a loss of trust with customers and long-term impact on the well-
being of our employees. The domino effect that such an event
would have on the organisation's reputation as a premium sup-
plier and trustworthy employer would be catastrophic. This risk
has been further complicated by the current pandemic which
has created significant turbulence for our employees all over
the world.
The Group has zero tolerance for safety risks, whether at third party sites or in its own. Safety is a high priority
for everyone. Our focus remains on improving LTIFR/TRIFR, and the last seven years in a row, we have im-
proved our safety performance. Safety audits are conducted by top management, all employees are required
to participate in safety training annually, safety shares and recording of near-misses are mandatory and the
President's Safety Award is granted annually to those demonstrating great safety practices. A COVID-19 Se-
curity Team meets regularly to review the latest developments and each Region is following the guidance as
defined by the local health and government authorities. Internal communication has top priority as we contin-
ual evaluate and navigate around the pandemic as it evolves.
Projects
The Company continuously execute a multitude of projects
across the world, and in some cases face challenges in the ex-
ecution.
With ownership anchored in the Industries, project management is now managed from Hubs where expertise
and experience has been consolidated to make the most of our capabilities.
FLSmidth
Annual report 2020 46
Management review Governance
Risk
Potential impact
Mitigation
Cement Market
Conditions
Lack of global growth, decreasing consumption and overca-
pacity in the Cement Industry has the potential to drastically
change our Cement business.
During 2020, we have executed our Group business improvement initiatives that include site consolidation,
an improved logistical setup, and headcount reductions. In addition to the Group business improvement pro-
gramme, we took additional steps during the year to simplify our Cement business and adjust its cost struc-
ture. These activities included reduced in-house manufacturing and increased sourcing from local suppliers
and reducing the size of the project organisation.
Cyber Threats
The constantly evolving threat of cyber security, data leakage
and data security is a key area of focus. A sophisticated cyber-
attack could result in an extended period of down-time result-
ing in delays to customers and additional costs for the organi-
sation.
The Group is focused on IT Security and awareness; conducting regular audits, analysis of current controls
and security updates. Migration to cloud-based solutions, cyber awareness training across the organisation
and an IT Security Committee all help to mitigate the potential impact of this risk. We are also taking steps to
increase cybersecurity of the delivered equipment.
Supply Chain
High demands on internal and external trusted supply chains
could result in delays in deliveries to customers which could
lead to penalties and disruptions in executing projects this
threat has been further complicated by the impact of the pan-
demic.
Group Procurement is on a strong path towards increased operational efficiencies through new tools and
more uniform processes. The Group's global sourcing strategy allows for more flexibility and agility in working
with external supply chains to help alleviate potential disruptions.
Compliance
Compliance is a top-priority in FLSmidth with zero tolerance for
violation that could impact the FLSmidth brand and reputation
with customers. As the Company continues to expand through
acquisitions and the establishment of local offices in challeng-
ing environments, the focus on mitigating compliance risks re-
mains high.
The Group has a dedicated Compliance Department that has established rules and procedures to ensure a
common understanding of ethical behaviour. There are policies in place to support the Organisation with
day-to-day compliance issues such as the Code of Business Conduct and Anti-Bribery policy, as well as tools
and procedures to identify individual issues that may pose a threat including the Whistleblower Hotline,
screening of third party agents and sign-off protocols. New online training was added to the current cata-
logue of compliance training this year and is compulsory for all employees.
Workplace
Engagement
The demands of a fast-changing world put pressure on our
workforce to stay agile and adapt to new challenges faster than
ever. The collective ability to keep our employees motivated
and engaged has been further complicated by the global pan-
demic which has forced many of our employees to work re-
motely and virtually.
In response to the pandemic, the Company has established flexible work arrangement guidelines and is in
the process of conducting engagement surveys to ensure our employees have a platform to voice their con-
cerns and ideas. Initiatives and processes are also in place to promote productivity at work.
FLSmidth
Annual report 2020 47
Management review Governance
https://www.flsmidth.com/en-gb/company/inves-
tors/governance.
CORPORATE GOVERNANCE
FLSmidth
Annual report 2020 48
Management review Governance
FLSmidth
Annual report 2020 49
Management review Governance
FLSmidth
Annual report 2020 50
Management review Governance
https://www.flsmidth.com/en-
gb/company/investors/governance.
Corporate Governance in November 2017 based
https://corpo-
rategovernance.dk/english).
https://www.flsmidth.com/en-gb/company/inves-
tors/governance/governance-reports.
Employees
Geographical distribution
Employees
Length of service
Employees
Age distribution
16%
18%
25%
8%
5%
23%
5%
North America
South America
Europe, North
Africa, Russia
Sub-Saharan Africa
and Middle East
Asia
Subcontinental
India
Australia
22%
21%
27%
30%
<2 years
2-4 years
5-10 years
>10 years
13%
37%
28%
16%
6%
<30 years
30-39 years
40-49 years
50-59 years
>59 years
FLSmidth
Annual report 2020 51
Management review Governance
GROUP EXECUTIVE MANAGEMENT
* Registered with Erhvervsstyrelsen (The Danish Business Authority)
FLSmidth
Annual report 2020 52
Management review Governance
GROUP EXECUTIVE MANAGEMENT
- CONTINUED
FLSmidth
Annual report 2020 53
Management review Governance
BOARD OF DIRECTORS
FLSmidth
Annual report 2020 54
Management review Governance
BOARD OF DIRECTORS
- CONTINUED
FLSmidth
Annual report 2020 55
Management review Governance
The pandemic severely impacted
our financial performance and
target fulfilment in 2020. As a
result, total management
remuneration decreased
significantly compared to 2019.
www.flsmidth.com/RemunerationReport2020
REMUNERATION
Remuneration facts
A detailed description of the
remuneration of individual
members of the Board of
Directors and Executive
Management is disclosed in
the remuneration report which
is considered an integrated
part of this report.
Total remuneration of the Board of Di-
rectors, DKKm
Total remuneration of Executive Man-
agement registered with The Danish
Business Authority, DKKm
6.5
6.4
6.4
2018
2019
2020
23.1
25.2
18.6
2018
2019
2020
FLSmidth
Annual report 2020 56
Management review Governance
Total shareholder return was
negative 12% in 2020, impacted by
the pandemic which has presented
both challenges and opportunities
for FLSmidth.
Capital and share structure
FLSmidth & Co. A/S is listed on Nasdaq Copen-
hagen. The share capital is DKK 1,025,000,000
(end of 2019: DKK 1,025,000,000) and the total
number of issued shares is 51,250,000 (end of
2019: 51,250,000). Each share entitles the holder
to 20 votes. The FLSmidth & Co. A/S share is in-
cluded in roughly 150 Danish, Nordic, European
and global share indices, including the leading
Danish stock index C25.
The company had approximately 46,000 share-
holders at the end of 2020 (end of 2019: approxi-
mately 38,000). In addition, roughly 1,750 pre-
sent and former employees hold shares in the
company (end of 2019: approximately 2,000).
The FLSmidth & Co. A/S share has a free float of
around 90%. Lundbeckfond Invest A/S' invest-
ment exceeded 10% in FLSmidth & Co. A/S at the
end of 2020. As of end-2019, the investments of
Novo Holding A/S and Bestinver Gestión S.A
SGIIC both exceeded 5%, but in 2020 both of
these investors reduced their positions to below
5%.
2020 saw an increase in the share of Danish pri-
vate investors to approximately 28% (2019: 21%).
The share of Danish institutional investors, in-
cluding Lundbeckfond Invest A/S, decreased to
shares declined to 2.1% (2019: 2.3%).
Return on the FLSmidth share in
2020
The total return on the FLSmidth & Co. A/S share
in 2020 was -12% (2019: -6%), calculated as share
price appreciation and dividend paid. Given the
global uncertainty caused by the COVID-19 pan-
demic, the Board of Directors of FLSmidth & Co.
A/S decided on 23 March 2020 to withdraw the
previous proposal to pay a dividend of DKK 8 per
share to ensure resilience in a period of market
financial position.
The share price ended 2020 at 232.8 compared
to 265.4 at the end of 2019, having ranged be-
tween 134.3 and 274.8 during the year. Total
shareholder return will be one of the financial
KPIs for the planned 2021 long-term incentive
plan.
SHAREHOLDER INFORMATION
Development
in shareholder structure
%
Shareholder structure 2020
%
Share price developments in 2020
Volume, 1,000 Share price DKK
Finance calendar 2021
0
10
20
30
40
50
60
70
80
90
100
2016 2017 2018 2019 2020
Bestinver Gestión S.A SGIIC Franklin Mutual Advisors
Novo A/S Lundbeckfond Invest A/S
Foreign FLSmidth & Co. A/S
Non-registered Danish (institutional)
Danish (private)
28%
7%
10%
2%
43%
10%
Danish (private)
Danish (institutional)
Non-registered
FLSmidth & Co. A/S
Foreign
Lundbeckfond Invest
A/S
100
120
140
160
180
200
220
240
260
280
300
0
200
400
600
800
1,000
1,200
1,400
1,600
Daily volume Share price
FLSmidth
Annual report 2020 57
Management review Governance
Capital structure and dividend
for 2020
FLSmidth takes a conservative approach to capi-
tal structure, with the emphasis on relatively low
debt, gearing and financial risk. The Board of Di-
structure and capital al-
location is as follows:
Well-capitalised (NIBD/EBITDA < 2)
Stable dividends (30-50% of net profit)
Invest in organic growth
Value adding M&As
Share buyback or special dividend
As announced on 15 January 2021, FLSmidth is
currently in negotiations concerning an acquisi-
gotiations are at a non-binding stage. Accord-
ingly, there can be no assurances as to whether
and when a transaction will transpire.
The Board of Directors will propose at the Annual
General Meeting that a dividend of DKK 2 per
share (2019: No dividend), corresponding to a
dividend yield of 0.9% and a pay-out ratio of
50%, in line with our targeted pay-out ratio, to be
distributed in 2021.
Given the global uncertainty caused by the
COVID-19 pandemic, the Board of Directors of
FLSmidth & Co. A/S decided to withdraw the pro-
posal to pay a dividend of DKK 8 per share in
2020 to ensure resilience in a period of market
financial position.
FLSmidth Investor Relations
Through the Investor Relations function, the
Board of Directors maintains an ongoing dia-
logue between the company and the stock mar-
ket and ensures that the positions and views of
the shareholders are reported back to the Board.
The purpose of FLSmidth's Investor Relations
function is to contribute to ensuring and facilitat-
ing that:
All shareholders have equal and sufficient ac-
cess to timely, relevant and price-sensitive in-
formation
The share price reflects FLSmidth’s underlying
financial results and a fair market value
The liquidity and the day-to-day trading turno-
ver of the FLSmidth share is sufficiently attrac-
tive for both short- and long-term investors
The shareholder structure is appropriately di-
versified in terms of geography, investment
profile and time horizon.
To achieve these goals, an open and active dia-
logue is maintained with the stock market both
website and electronic com-
munication services and via investor presenta-
tions, investor meetings, webcasts, teleconfer-
ences, roadshows, the Annual General Meeting
and Capital Markets Days.
In 2020, the COVID-19 pandemic changed the
way Investor Relations and Management inter-
acted with the financial markets, as restrictions
and travel bans limited the usual travel activity.
Since March, nearly all investor and analyst meet-
ings have been conducted virtually. We have re-
mained connected and engaged with investors
through high-definition video and audio. We plan
to resume travel activity when the pandemic al-
lows for it but virtual meetings will remain an inte-
grated part of how we will engage with the finan-
cial markets in future.
FLSmidth & Co. A/S is generally categorised as a
capital goods or industrial company and is cur-
rently being covered by 17 equity analysts, 10 of
which are based outside Denmark.
For further details regarding analyst coverage,
please see the company website
(http://www.FLSmidth.com/analysts).
All investor relations materials and investor rela-
tions contact information are available to inves-
tors at the company website
(http://www.FLSmidth.com/investor).
Share and dividend key figures
Share and dividend figures
2016
2017
2018
2019
2020
FLSmidth
Annual report 2020 58
Consolidated financial statements Consolidated financial statements
Primary statements
Notes
Key accounting estimates and
judgements 63
1. Operating profit & segments 65
2. Capital employed and other balance
sheet items 73
3. Working capital 88
4. Tax 93
5. Financial risks & capital structure 97
6. Other notes 106
7. Basis of reporting 112
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statements
FLSmidth
Annual report 2020 59
Consolidated financial statements Consolidated financial statements
Notes
DKKm
2020
2019
1.4
(12,576 )
(15,797 )
Gross profit
(1,367 )
(1,479 )
(1,400 )
(1,414 )
EBITDA before special non-recurring items
1.7
(24 )
2.4, 2.5
(339 )
(345 )
EBITA
2.2
(343 )
(377 )
EBIT
2.6
5.4
5.4
(999 )
(939 )
EBT
4.1
(155 )
(373 )
Profit for the year, continuing activities
1.2, 2.11
(21 )
(22 )
Profit for the year
(5 )
5.2
Notes
DKKm
2020
2019
Profit for the year
Items that will not be reclassified to profit or loss:
(19 )
(44 )
4.3, 4.4
Items that are or may be reclassified subsequently
to profit or loss:
(832 )
(11 )
4.3, 4.4
(7 )
(3 )
Other comprehensive income for the year after tax
(833 )
Comprehensive income for the year
(628 )
(622 )
(6 )
(628 )
INCOME STATEMENT
STATEMENT OF COMPREHENSIVE INCOME
FLSmidth
Annual report 2020 60
Consolidated financial statements Consolidated financial statements
Accounting policy
The cash flow statement is presented using the
indirect method and shows the composition of
cash flow divided into operating, investing and fi-
nancing activities for both continued and discon-
tinued activity and the changes in cash and cash
equivalents during the year.
Cash flow from operating activities consists of
earnings before special non-recurring items, de-
preciation, amortisation and impairment (EBITDA)
adjusted for non-cash operating items, changes
in provisions and net working capital, financial
items as interests paid from the lease liabilities
and taxes paid.
Cash flow from investing activities comprises
payments made in connection with the acquisi-
tion and disposal of businesses and non-current
assets.
Cash flow from financing activities comprises
changes in the size or composition of equity and
loans, repayment of interest-bearing debt includ-
ing lease liabilities, acquisitions and disposal of
non-controlling interests, movements in shares
and payment of dividend to shareholders.
Cash and cash equivalents mainly consist of
bank deposits.
CASH FLOW STATEMENT
Notes
DKKm
2020
2019
(15 )
(19 )
EBITDA
(48 )
Adjusted EBITDA
2.7
(230 )
3.1
(448 )
Cash flow from operating activities before financial items and tax
5.4
(51 )
(59 )
4.2
(368 )
(311 )
Cash flow from operating activities
2.10
(99 )
(287 )
2.2
(178 )
(242 )
2.4
(171 )
(177 )
(7 )
(2 )
2.12
2.6
Cash flow from investing activities
(376 )
(661 )
(14 )
(450 )
5.7
(120 )
(106 )
5.7
(822 )
(1,968 )
5.7
Cash flow from financing activities
(956 )
(156 )
Change in cash and cash equivalents
(114 )
(5 )
Cash and cash equivalents at 31 December
The cash flow statement cannot be inferred from the published financial information only
Notes
DKKm
2020
2019
2.12
30
0
946
1,001
Cash and cash equivalents at 31 December
976
1,001
DKKm
2020
2019
1,045
287
1,082
574
FLSmidth
Annual report 2020 61
Consolidated financial statements Consolidated financial statements
Notes
DKKm
31/12/2020
31/12/2019
ASSETS
2.2
Intangible assets
2.4
Property, plant and equipment
2.5
Lease assets
4.3
2.6
Other non-current assets
Non-current assets
3.2
3.3
3.4
3.5
Current assets
2.12
Total assets
Notes
DKKm
31/12/2020
31/12/2019
EQUITY AND LIABILITIES
5.1
(1,131 )
(300 )
(4 )
(28 )
Shareholders in FLSmidth & Co. A/S
(6 )
Equity
4.3
2.8
2.7
5.7
5.7
3.7
Non-current liabilities
2.8
2.7
5.7
5.7
3.4
3.6
3.7
Current liabilities
2.12
Total liabilities
Total equity and liabilities
BALANCE SHEET
FLSmidth
Annual report 2020 62
Consolidated financial statements Consolidated financial statements
EQUITY STATEMENT
2020
2019
DKKm
Share
capital
Currency
adjust-
ments
Cash
flow
hedging
Retained
earnings
Shareholders
in FLSmidth
& Co A/S
Minority
interests
Total
Share
capital
Currency
adjust-
ments
Cash
flow
hedging
Retained
earnings
Shareholders
in FLSmidth
& Co A/S
Minority
interests
Total
Equity at 1 January
(300 )
(28 )
(454 )
(53 )
Comprehensive income for the year
(5 )
Other comprehensive income
(19 )
(19 )
(19 )
(44 )
(44 )
(44 )
(831 )
(831 )
(1 )
(832 )
(11 )
(11 )
(11 )
(6 )
(6 )
(6 )
Other comprehensive income for the year
(831 )
(25 )
(832 )
(1 )
(833 )
(15 )
Comprehensive income for the year
(831 )
(622 )
(6 )
(628 )
(14 )
(14 )
(450 )
(450 )
(450 )
(21 )
(21 )
(21 )
(4 )
(4 )
Equity at 31 December
(1,131 )
(4 )
(6 )
(300 )
(28 )
FLSmidth
Annual report 2020 63
Consolidated financial statements Consolidated financial statements
When preparing the financial statements we are
required to make several estimates and judge-
ments. This note includes the areas that involve a
higher degree of judgement or complexity and
where changes in assumptions and estimates will
likely have a significant impact on the financial
statements. These areas are categorised as key
accounting estimates and judgements. The sig-
nificance of these material implications is catego-
rised into three levels:
Key accounting estimate
Key accounting estimates are expectations of the
future based on assumptions, that we to the ex-
tent possible support by historical trends or rea-
sonable expectations. Our assumptions may
change to adapt to the market conditions and
changes in political and economic factors. We
believe that our estimates are the most likely out-
come of future events.
Key accounting judgements
Key accounting judgements are made when
applying accounting policies. Key accounting
judgements are the judgements made, that can
have a significant impact on the amounts recog-
nised in the financial statements.
The COVID-19 pandemic has imposed significant
uncertainty to the financial statements.
The pandemic has changed our reality and we
have continuously adapted to new ways of doing
business. Navigating in a market environment
that has continuously changed to adapt to gov-
ernment imposed restrictions, new customary
business practices etc., has had an impact not
only on us but on our entire value chain.
One of the uncertainties in the early phase of the
pandemic was related to the liquidity position.
Looking ahead was with poor visibility and the
length and magnitude of the impact was hard to
predict. To mitigate the potential liquidity risk we
decided early in the pandemic to bolster our li-
quidity position by adding an additional DKK
500m credit facility.
During the year we have monitored our activity
closely and the uncertainties have impacted our
key accounting estimates and judgements as fol-
lows:
Valuation of inventories
The unstable market conditions and complex lo-
gistics have made it more difficult to get orders
shipped in to and out from our warehouses, with
a risk of increase in slow-moving items. Other
than the risk of slow-moving items, uncertainties
have related to the building up for an increased
service activity and customers not being able to
receive the goods as agreed.
As part of managing the more complex setup we
took the following actions during the year:
Ensuring a sound inventory turn with a strict fo-
cus on inventory ageing
Clear split between inventory specifically dedi-
cated for orders and inventory available for
sale
The active measures taken during 2020 have re-
duced the inventory level by the end of the year
and the levels of impairments have also been re-
duced.
For additional description of the estimates,
please refer to note 3.2 Inventories.
Valuation of receivables
The increased market uncertainty has increased
the counterparty risk, and deterioration in credit
quality of receivables has led to a risk adjustment
of our expected credit loss (ECL) measurement.
For additional description of the estimates,
please refer to note 3.3 Trade receivables.
As part of managing the increased credit risk we
took the following actions during the year:
Reassessment of customer payment terms
Renegotiation of payment terms with our large
project customers and suppliers where the
cash flows were imbalanced
Increased focus on cash collection
The active measures taken throughout 2020
have reduced the trade receivables balance by
the end of 2020 and contributed to strong cash
collection.
Estimate total cost to complete
Our cost forecasts on projects have been more
uncertain due to the unpredictable development
in logistics and execution. The project planning
has been more difficult, due to especially the im-
posed restrictions and the adaption to global and
local changes in the restrictions.
Further the cost forecasts have also been im-
pacted by increased costs to cover a challenged
supply chain. This has led to more frequent reas-
sessments of cost to complete our projects, as
our execution of projects has been impacted by
the disruptions.
The prolonging of project completion and
changes in the project plans have had a negative
effect on the total project costs. The lack of visi-
bility and unpredictable project planning has im-
posed increased uncertainty to the cost fore-
casts.
Estimate variable transaction price
Site restrictions and operations running at re-
duced capacity has imposed uncertainty to the
estimate on operation and maintenance con-
tracts where the transaction price varies partly
with the production.
KEY ACCOUNTING ESTIMATES AND JUDGEMENTS
FLSmidth
Annual report 2020 64
Consolidated financial statements Consolidated financial statements
Additionally, the site and travel restrictions com-
bined with a more difficult supply chain has im-
posed uncertainty to meeting of our contractual
obligations in a timely manner which has caused
a risk of penalties.
For additional description of the estimates,
please refer to note 3.4 Work in progress.
Deferred tax assets
The uncertain market situation and development
has made it more difficult to predict the level of
business activity and earnings in the future.
The recoverability of the deferred tax assets is
dependent on the generation of sufficient future
taxable income to utilise tax losses. COVID-19
has increased the uncertainty. The changing lo-
cal and regional restrictions has made it difficult
to predict the levels for the jurisdictions and the
expected utilisation of deferred tax assets
against future taxable income.
For additional description of the estimates,
please refer to note 4.3 Deferred tax.
The financial impact of COVID-19 requires signifi-
cant judgement and is included in the estimates
of the activity of the group.
The financial impact of COVID-19 is embedded
into the valuation of our entire balance sheet and
in the aforementioned we have described the
uncertainties that can have the most significant
impact on the financial statements also going for-
ward.
Additional information about the nature of the
key accounting estimates and judgements can
be found in the notes.
Note
Key accounting estimates
and judgements
Nature of
accounting impact
Impact of estimates
and judgements
FLSmidth
Annual report 2020 65
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 1
OPERATING
PROFIT & SEGMENTS
BACKLOG
5%
MINING SHARE REVENUE
65%
FLSmidth
Annual report 2020 66
Consolidated financial statements Consolidated financial statements
1.1 INCOME STATEMENT
BY FUNCTION
It is our policy to prepare the income statement
based on an adjusted classification of the cost by
function in order to show the earnings before
special non-recurring items, depreciation, amorti-
sation and impairment (EBITDA). Depreciation,
amortisation, and impairment are therefore sepa-
rated from the individual functions and presented
in separated lines.
Amortisation of patent and rights is presented as
production costs and the comparative figures
have been adjusted as the amortisation was in-
cluded in administrative costs in previous years.
1.2 SEGMENT INFORMATION
Mining and Cement Industries are our operating
and reporting segments. Our Industries have
technology ownership and develop and drive the
life cycle offering and product portfolio. This is
supported by a seven region structure driving
customer relations, sales and service for both In-
dustries.
The organisational structure helps create a
productivity-driven organisation with a strong,
unified digital approach and fewer touchpoints
strengthening our local presence, customer ori-
entation, and life cycle offering in order to cap-
ture growth.
The Mining and Cement Industries front our cus-
tomers in the global industries with all the
knowhow technologies, products, processes and
systems used to separate commercially viable
minerals from their ores and to cement produc-
tion.
With the responsibility of our total life cycle offer-
ings firmly anchored in the Mining and Cement
Industries, we are capable of improving our cus-
tomer specific offerings. Offerings range from
first time sale of single products to turn-key pro-
jects, subsequent services, operation & mainte-
nance, upgrades and rebuilds of existing equip-
ment, plants and sale of spare parts and wear
parts.
The segmentation reflects the internal reporting
and management structure applied. The seg-
ments are primarily managed on EBITA before al-
location of shared costs.
Accounting policy
Segment income and costs include transactions
between divisions. Such transactions are carried
out on market terms. The transactions are elimi-
nated upon consolidation.
Administrative functions such as finance, HR, IT
and legal are shared by the divisions.
Additionally, the divisions are supported by
Group Functions related to procurement, logis-
tics and marketing.
Shared costs are allocated to business segments
based on assessment of usage.
Other companies consist of eliminations, compa-
nies with no activities, real estate and the parent
company, while discontinued activities consist of
bulk material handling activities and run-off on
activities sold in previous years.
Geographical information is based on the seven
Regions that support the Industries. Revenue is
presented in the Region in which delivery takes
place. Non-current assets and employees are
presented in the Region in which they belong.
DKKm
2020
2019
Gross profit
3,521
4,496
EBIT
428
1,286
Depreciation, amortisation and impairment consist of:
(682)
(722)
Depreciation, amortisation and impairment are divided into:
(682)
(722)
FLSmidth
Annual report 2020 67
Consolidated financial statements Consolidated financial statements
1.2 SEGMENT INFORMATION
continued
2020
2019
DKKm
Mining
Cement
Shared
costs
Other
compa-
nies
Continuing
activities
Discon-
tinued
activities
FLSmidth
Group
Mining
Cement
Shared
costs
Other
compa-
nies
Continuing
activities
Discon-
tinued
activities
FLSmidth
Group
Revenue
10,620
5,821
0
0
16,441
0
16,441
12,169
8,477
0
0
20,646
0
20,646
Gross profit
2,688
1,255
(78)
0
3,865
0
3,865
3,071
1,881
(103)
0
4,849
(4)
4,845
EBITDA before special non-recurring items
1,860
607
(1,335)
2
1,134
(15)
1,119
2,141
1,219
(1,364)
12
2,008
(19)
1,989
EBITA before allocation of shared costs
1,710
515
(1,456)
2
771
(16)
755
1,974
1,148
(1,471)
12
1,663
(19)
1,644
EBITA
888
(118)
0
1
771
(16)
755
1,166
486
0
11
1,663
(19)
1,644
EBIT
655
(228)
0
1
428
(16)
412
905
370
0
11
1,286
(19)
1,267
Gross margin
25.3%
21.6%
23.5%
23.5%
25.2%
22.2%
23.5%
23.5%
EBITDA margin before special non-recurring items
17.5%
10.4%
6.9%
6.8%
17.6%
14.4%
9.7%
9.6%
EBITA margin before allocation of shared costs
16.1%
8.8%
4.7%
4.6%
16.2%
13.5%
8.1%
8.0%
EBITA margin
8.4%
-2.0%
4.7%
4.6%
9.6%
5.7%
8.1%
8.0%
EBIT margin
6.2%
-3.9%
2.6%
2.5%
7.4%
4.4%
6.2%
6.1%
Number of employees at 31 December
5,176
4,118
1,345
10,639
0
10,639
5,658
5,123
1,562
12,343
3
12,346
Reconciliation of profit/(loss) for the year
EBT
381
(18)
363
1,171
(26)
1,145
Profit/(loss) for the year
226
(21)
205
798
(22)
776
FLSmidth
Annual report 2020 68
Consolidated financial statements Consolidated financial statements
1.3 GEOGRAPHICAL INFORMATION
Revenue, non-current assets and number of employees are
disclosed for all Regions, home country of our Headquarter
and countries that account for more than 5% of Group revenue.
NORTH AMERICA
Revenue: DKK 3,440m (2019: DKK 4,199m)
Non-current assets: DKK 3,435m (2019: DKK 3,696m)
Employees: 1,672 (2019: 1,934)
USA
Revenue: DKK 2,258m (2019: DKK 2,732m)
Non-current assets: DKK 2,840m (2019: DKK 3,069m)
1
EUROPE, NORTH AFRICA & RUSSIA
Revenue: DKK 3,067m (2019: DKK 3,830m)
Non-current assets: DKK 3,540m (2019: DKK 3,623m)
Employees: 2,628 (2019: 3,017)
Denmark
Revenue: DKK 35m (2019: DKK 108m)
Non-current assets: DKK 1,275m (2019: DKK 1,394m)
3
SOUTH AMERICA
Revenue: DKK 3,875m (2019: DKK 4,978m)
Non-current assets: DKK 265m (2019: DKK 323m)
Employees: 1,905 (2019: 1,911)
Chile
Revenue: DKK 1,780m (2019: DKK 1,872m)
Non-current assets: DKK 132m (2019: DKK 279m)
2
SUB-SAHARAN AFRICA & MIDDLE EAST
Revenue: DKK 1,783m (2019: DKK 2,043m)
Non-current assets: DKK 159m (2019: DKK 217m)
Employees: 896 (2019: 767)
4
AUSTRALIA
Revenue: DKK 1,558m (2019: DKK 1,432m)
Non-current assets: DKK 818m (2019: DKK 862m)
Employees: 582 (2019: 593)
7
SUBCONTINENTAL INDIA
Revenue: DKK 1,280m (2019: DKK 2,650m)
Non-current assets: DKK 247m (2019: DKK 289m)
Employees: 2,449 (2019: 2,926)
India
Revenue: DKK 1,136m (2019: DKK 2,273m)
Non-current assets: DKK 247m (2019: DKK 289m)
6
ASIA
Revenue: DKK 1,438,m (2019: DKK 1,514m)
Non-current assets: DKK 99m (2019: DKK 113m)
Employees: 507 (2019: 617)
5
FLSmidth
Annual report 2020 69
Consolidated financial statements Consolidated financial statements
1.4 REVENUE
Revenue arises from sale of life cycle offerings to
our customers. We sell a broad range of goods
and services within the Mining and Cement In-
dustries split into the main categories projects,
products and services.
Products
The sale of products comprise sale of standard-
ised and customised equipment, such as pre-
heaters, cyclones, mills and kilns. Products will
usually have a lead time of less than one year.
Each product is considered as one performance
obligation. Most of the products are sold at a
fixed price and revenue is usually recognised
over time, applying the cost-to-cost method.
Products that are standardised or customised to
a low degree are recognised at the point in time
when control of the products transfers to the cus-
tomers, usually upon delivery.
A highly customised product sale will often enti-
tle us to receive a down payment from the cus-
tomer, followed by several progress payments
linked to our performance progress. Upon com-
pletion or delivery we will usually be entitled to
the final payment. To the extent possible we ob-
tain payment guarantees to minimise our risk
during execution.
For standardised products we will usually be en-
titled to payment upon delivery.
Projects
The sale of projects comprise sale of plants, plant
extensions, process systems and process system
extensions.
Projects are usually significant in amount, have a
long lead time affecting the financial statements
of more than one financial year, have a high de-
gree of project management and involve more
than one FLSmidth entity in the delivery to the
customer.
A project is usually considered one performance
obligation as a project typically includes highly in-
terrelated and interdependent physical assets
and services, like engineering, installation and
supervision. Dependent on the contract structure
one performance obligation can consist of more
than one contract.
Most of the projects are sold as fixed price con-
tracts and revenue from projects is usually recog-
nised over time; applying the percentage of com-
pletion cost-to-cost method.
A project contract will often entitle us to receive a
down payment from the customer, followed by
several progress payments linked to our perfor-
mance progress. Upon completion and customer
acceptance we will usually be entitled to the final
payment. To the extent possible we obtain pay-
ment guarantees to minimise our risk during exe-
cution.
Services
Services comprise various service elements to
support the life cycle offerings portfolio. The sale
can consist of spare parts, wear parts, service
hours, long-term maintenance contracts, opera-
tion & maintenance contracts and sale of up-
grades and retrofits.
The sale of service hours includes amongst oth-
ers sale of supervision, electronic or mechanical
service of equipment or plants.
Each spare part and wear part is considered one
performance obligation. The sale is usually
agreed at a fixed price and revenue is usually
recognised at the point of delivery. We are nor-
mally entitled to payment once we have deliv-
ered the parts.
The performance obligation for service sales and
maintenance contracts is either each service
hour or the full contract, depending on the con-
tract wording. Most service contracts are fixed
price contracts, if not for the full service, then for
the hourly rate. Service sales are recognised
over time as the services are provided to the cus-
tomer based on the cost-to-cost method. We are
normally entitled to payment once the service
has been provided or on a monthly basis.
Revenue split
by Regions
Revenue
by Revenue stream
Revenue
by Mining and Cement
21%
23%
19%
11%
9%
8%
9%
North America
South America
Europe, North Africa,
Russia
Sub-Saharan Africa
and Middle East
Asia
Subcontinental India
Australia
16%
24%
60%
Products
Projects
Service
65%
35%
Mining
Cement
Revenue split on industry and category
2020
2019
DKKm
Mining
Cement
Group
Mining
Cement
Group
Capital business
3,944
2,613
6,557
4,799
5,070
9,869
Service business
6,676
3,208
9,884
7,370
3,407
10,777
Total revenue
10,620
5,821
16,441
12,169
8,477
20,646
FLSmidth
Annual report 2020 70
Consolidated financial statements Consolidated financial statements
1.4 REVENUE - continued
Each operation & maintenance contract is deter-
mined as one performance obligation. The trans-
action price is usually variable, depending on the
produced output, and revenue is recognised
over time, using the cost-to-cost method. In
cases of significant uncertainties with measuring
the revenue reliably we recognise revenue upon
cash receipt. We are usually entitled to payment
on a monthly basis.
Service projects, such as upgrades and retrofits
are defined as one performance obligation. The
transaction price is usually fixed and revenue is
typically recognised over time using the cost-to-
cost method. The payment pattern for upgrades
and retrofits are very similar to the pattern for
projects and products.
Backlog
The order backlog at 31 December 2020
amounts to DKK 14,874m (2019: DKK 14,192m)
and represents the value of outstanding perfor-
mance obligations on current contracts, com-
bined of contracts where we will transfer control
at a future point in time and the remaining perfor-
mance obligations on contracts where we trans-
fer control over time.
Based on the order backlog maturity profile, the
majority, 64% (2019: 73%) of the order backlog is
expected to be converted into revenue in 2021,
while 36% (2019: 27%) is expected to be con-
verted to revenue in subsequent years.
Accounting policy
Revenue comprises sale of projects, products
and service within the Mining and Cement Indus-
tries.
Revenue from contracts with customers is recog-
nised when control of the goods or services are
transferred to our customers at an amount that
reflects the transaction price to which we expect
to be entitled in exchange for these goods or
services.
Revenue from projects, products, and services
(with the exception of sale of service hours) is
recognised over time, using the cost-to-cost
method, when we have no alternative use for the
goods or services to be delivered and we have
an enforceable right to payment for work com-
pleted.
If we do have an alternative use for the goods or
services to be delivered, e.g. products with a low
degree of customisation, such sales will be rec-
ognised at the point in time when control trans-
fers to the customer, usually upon delivery.
Revenue declined 20%
due to a severe pandemic
impact and a low Cement
backlog entering the year
Backlog
DKKm
Backlog maturity
DKKm
0
3,000
6,000
9,000
12,000
15,000
18,000
2016 2017 2018 2019 2020
Backlog
10,316
9,519
2,585
4,313
1,291
1,042
0
3,000
6,000
9,000
12,000
15,000
18,000
2019 2020
Within next year Within next year +1
Later than next year +1
Revenue split on timing of revenue
recognition principle
2020
2019
DKKm
Mining
Cement
Group
Mining
Cement
Group
Total revenue
10,620
5,821
16,441
12,169
8,477
20,646
Key accounting judgements
Judgement regarding performance obli-
gations
Judgement is performed when determin-
ing if a contract for sale of projects, prod-
ucts or services, or a combination hereof,
involves one or more performance obliga-
tions.
The complexity arises when selling bun-
dled goods and services, and the conse-
quence of the key accounting judgement
is related to the timing of revenue recog-
nition, especially for point in time sales.
Judgement regarding recognition
method
Judgements are made when determining
if a project, product or service is recog-
nised as revenue over time or at a point in
time.
The judgements relate to if we have an al-
ternative use of the assets sold and if we
have an enforceable right to payment
throughout the contractual term.
When assessing if an asset has no alter-
native use we estimate the alternative use
cost amount. We have limited historical
data as we rarely redirect our assets. The
estimate is based on the specifics of each
contract.
When assessing if we are entitled to pay-
ment throughout the contract term, a
judgement is made based on the contract
wording, legal entitlement and profit esti-
mates.
FLSmidth
Annual report 2020 71
Consolidated financial statements Consolidated financial statements
1.4 REVENUE - continued
Additionally, if we do not have an enforceable
right to payment for work completed through-out
the contract term, such sales will also be recog-
nised at the point in time when the control trans-
fers to the customer, usually upon customer ac-
ceptance. In the case of significant uncertainties
with the collectability of contract consideration,
revenue is recognised upon cash receipt.
Service sales (sale of service hours) are recog-
nised over time, using the cost-to-cost method,
as the customer receives and consumes the ben-
efits as we perform the services.
In determining the transaction price revenue is
reduced by probable penalties, payment of liqui-
dated damages and any other claims that are
payments to our customers. The transaction
price is also adjusted for any variable elements,
where we estimate the amount of the variable
transaction price.
The variable amount is estimated at contract in-
ception and re-estimated periodically throughout
the contract term. The variable amount is recog-
nised as revenue when it is highly probable that
reversal will not occur.
Warranties are granted in connection with the
sale of equipment and systems and are classified
as assurance-type warranties that are not ac-
counted for as separate performance obligations.
Please refer to section 2.7, Provisions, for ac-
counting policy on warranties provisions.
Revenue is recognised less rebates, cash dis-
counts, value added tax and duties and gross of
foreign withholding taxes.
1.5 STAFF COSTS
The average number of employees in 2020 in
the continuing activities was 11,567 (2019: 11,669).
Staff costs consist of direct wages and salaries,
remuneration, pension cost, share-based pay-
ments, training, etc., related to the continuing ac-
tivities.
The decrease in staff costs are positively af-
fected by decrease in currencies of approxi-
mately DKK 200m.
DKKm
2020
2019
4,541
4,878
4,541
4,878
During 2020 the remuneration of the Board of
Directors and Group Executive Management was
as follows:
DKKm
2020
2019
Total remuneration of
Board of Directors
6
6
DKKm
2020
2019
Total remuneration of
Group Executive Management
51
43
The number of members in Group Executive Management has in-
creased from 2019 to 2020
Two members of the Group Executive Manage-
ment are registered with The Danish Business
Authority. During 2020, the registered members
of the Group Executive Management have re-
ceived remuneration as follows:
DKKm
2020
2019
Total remuneration of
registered executives
19
25
Number of employees per region
%
Staff cost per region
%
Remuneration of Group Executive
Management
DKKm
16%
18%
25%
8%
5%
23%
5%
North America
South America
Europe, North
Africa, Russia
Sub-Saharan Africa
and Middle East
Asia
Subcontinental
India
Australia
25%
14%
37%
5%
4%
7%
8%
North America
South America
Europe, North Africa,
Russia
Sub-Saharan Africa
and Middle East
Asia
Subcontinental India
Australia
0%
20%
40%
60%
80%
100%
2019 2020
Wages and salaries Bonus
Benefits Severance package
Incentive programmes
FLSmidth
Annual report 2020 72
Consolidated financial statements Consolidated financial statements
1.5 STAFF COST - continued
Each member of the Group Executive Manage-
ment is, other than the base salary, entitled to
customary benefits. Additionally, the members of
Group Executive Management are eligible to par-
ticipate in a short-term- and a long-term incentive
programme. The short- and the long-term incen-
tive programmes are capped at 75% and 100% of
the annual base salary, respectively. In addition
tion, receive an additional incentive of up to
150% of the annual base salary, which can be
cash and/or share based. The individual maxi-
mum and target levels are fixed as part of the on-
going remuneration adjustment cycle.
The members of the Group Executive Manage-
termination of employment and severance pay-
ment may correspond to a maximum of 6
For details related to the remuneration of the
Board of Directors and Group Executive Manage-
ment, please refer to the Remuneration Report
2020:
www.flsmidth.com/RemunerationReport2020.
1.6 GOVERNMENT GRANTS
Governments in many countries have introduced
measures to support entities during the pan-
demic. During 2020 we have been entitled to the
following government grants and fulfilled the
conditions attached to receiving the grants. The
grants have primarily been received to compen-
sate for salary expenses and the majority of the
grants have been received in Switzerland, Den-
mark, Germany and Italy.
The COVID-19 related government grants have
been included in the following line items in the
income statements:
DKKm
2020
2019
21
0
We have during 2020 received other govern-
ment grants, which are not COVID-19 related.
The grants are included in other operating in-
come by DKK 24m (2019: DKK 26m).
Accounting policy
Government grants are recognised when there is
reasonable assurance that the grant will be re-
ceived and all attaching conditions will be com-
plied with. The government grants will be recog-
nised according to their purpose.
Government grants intended to compensate for
costs are recognised in the income statement
over the periods in which the entity recognises
the related costs. The government grant is de-
ducted in the related expense.
1.7 SPECIAL NON-RECURRING
ITEMS
DKKm
2020
2019
Total special
non-recurring items
(24)
0
Costs for 2020 relate to closedown of produc-
tion facilities in the US.
Accounting policy
Special non-recurring items consist of costs and
income of a special nature in relation to the main
activities of the continued activities, including
closedown of facilities, gains and losses from ac-
quisition and disposal of enterprises and activi-
ties.
FLSmidth
Annual report 2020 73
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 2
CAPITAL EMPLOYED
AND OTHER BALANCE
SHEET ITEMS
During 2020, we have acquired the businesses of Mill-Ore Group and Knowl-
edgeScape
Our Fabric Filter business and Möller Pneumativ Conveying Systems business
are held for sale in accordance with the announcement on 30 December 2020
ROCE
5.1%
CAPITAL EMPLOYED
14,520 DKKM
FLSmidth
Annual report 2020 74
Consolidated financial statements Consolidated financial statements
2.1 RETURN ON CAPITAL
EMPLOYED
DKKm
2020
2019
Capital employed
14,520
15,870
Capital employed, average
15,195
15,251
Capital employed has decreased from last year,
and the average capital employed has followed.
The decrease was related to lower net working
capital as well as investments in intangible as-
sets, including goodwill, research and develop-
ment projects and software. Assets classified as
held for sale had an effect of DKK 71m decrease
in net working capital and from that a DKK 35m
on average capital employed.
DKKm
2020
2019
ROCE, average
5.1%
10.9%
Our return on capital employed is calculated
based on average capital employed to reflect the
annual development. ROCE has decreased dur-
ing the year, driven by the decreased EBITA.
2.2 INTANGIBLE ASSETS
Goodwill arising from business acquisitions is
recognised in the financial statements. Carrying
amount of goodwill decreased during 2020, de-
spite the acquisitions of Mill-Ore Group and
KnowledgeScape LLP. The decline is due to
translation effects of foreign currencies.
Patents and rights acquired through business ac-
quisitions is recognised in the financial state-
ments. The patents and rights include patents,
trademarks, technology and other rights.
Our intangible assets under development consist
of research and development (R&D) projects and
software. The transfer from intangible assets un-
der development to completed development
projects primarily relates to R&D projects final-
ised in 2020.
Much of the knowhow we generate originates
from work performed for customers. In 2020,
R&D costs totalled DKK 310m (2019: DKK 302m).
The addition of intangible assets under develop-
ment amounts to DKK 177m (2019: DKK 242m),
where capitalised development cost accounts for
DKK 150m (2019: DKK 142m). R&D costs not capi-
talised are included in production costs. The re-
maining capitalisation relates to IT related pro-
jects. Internally generated cost capitalised
amounts to DKK 115m (2019: DKK 98m).
Other intangible assets consist of software and
completed software implementation projects,
whereas completed development projects pri-
marily consist of R&D.
Goodwill is considered to have an indefinite use-
ful life. The carrying amount of goodwill per seg-
ment is shown in note 2.3.
Accounting policy
Goodwill
Goodwill is measured in the balance sheet at
cost in connection with initial recognition. Subse-
quently, goodwill is measured at cost less accu-
mulated impairment losses. Goodwill is allocated
to the cash generating units as defined by the
Management. The determination of cash gener-
ating units complies with the managerial struc-
ture and the internal financial reporting in the
Group. Goodwill is not amortised but is tested for
impairment at least once a year or sooner if im-
pairment indication arises.
Intangible assets other than goodwill
Patents and rights including trademarks, cus-
tomer relations, and other intangible assets with
a finite useful life are measured at cost less accu-
mulated amortisation and impairment losses.
Development projects, for which the technical
rate of utilisation, sufficient resources and a po-
tential future market or application in the Group,
can be demonstrated and which are intended to
be manufactured, marketed or used, are recog-
nised 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 development costs.
Other development costs are recognised in the
income statement when costs are incurred. De-
velopment costs consist of salaries and other
costs that are directly attributable to develop-
ment activities.
Amortisation of completed development projects
is charged on a straight line basis during their es-
timated useful life. Development projects are
written down for impairment to recoverable
amount if lower. Development projects in pro-
gress are not amortised but are tested for impair-
ment at least once a year.
Goodwill is considered to have indefinite useful
life and is not amortised.
For other intangible assets amortisation takes
place systematically over the estimated useful
life of the assets which is as follows:
Patents and rights, including trademarks, up to
30 years
Customer relations up to 30 years
Other intangible assets up to 20 years
Software applications up to 5 years
Development costs up to 8 years
Change in accounting estimate
In prior years trademarks, which are part of pa-
tents and rights, were considered to have indefi-
nite useful life. As part of our periodic reassess-
ment of useful lives we have in 2020 estimated
that the useful life for trademarks is not indefinite,
but up to 30 years, as this better reflects the pe-
riod in which we expect to gain benefits from the
assets when considering all relevant factors. The
change in accounting estimate has increased the
amortisation in 2020 by 26m, which is largely the
level expected going forward.
Trademarks are tested for impairment as part of
the CGUs to which they belong, refer to note 2.3.
FLSmidth
Annual report 2020 75
Consolidated financial statements Consolidated financial statements
2.2 INTANGIBLE ASSETS
continued
DKKm
Goodwill
Patents and
rights
Customer
relations
Other
intangible
assets
Completed
development
projects
Intangible
assets under
development
Total
Cost at 31 December 2020
4,194
2,108
1,832
850
1,164
299
10,447
Amortisation and impairment at 31 December 2020
0
(1,233)
(1,366)
(678)
(930)
0
(4,207)
Carrying amount at 31 December 2020
4,194
875
466
172
234
299
6,240
DKKm
Goodwill
Patents
and rights
Customer
relations
Other
intangible
assets
Completed
development
projects
Intangible
assets under
development
Total
Cost at 31 December 2019
4,376
2,118
1,963
765
1,035
362
10,619
Amortisation and impairment at 31 December 2019
0
(1,151)
(1,354)
(671)
(832)
0
(4,008)
Carrying amount at 31 December 2019
4,376
967
609
94
203
362
6,611
FLSmidth
Annual report 2020 76
Consolidated financial statements Consolidated financial statements
2.3 IMPAIRMENT OF ASSETS
Result of annual impairment test
We perform an annual impairment test of our in-
tangible assets with indefinite useful life. In 2020
the test showed no impairment need (2019: DKK
0m). Intangible assets are primarily related to ac-
quisition of enterprises and activities, software
and research and development projects. When
performing the annual impairment test of assets,
an assessment is made as to whether the 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
assets.
Management believes that no changes in the key
assumptions are likely to reduce the headroom
in any of the cash generating units to zero or
less.
Carrying amounts of intangible assets included in
the impairment test are specified below:
2020
DKKm
Mining
Cement
Group
Total
5,374
866
6,240
Cash generating units
The cash generating units equal our operating
and reportable segments, Mining and Cement,
these being the smallest group of assets which
together generate incoming cash flow from con-
tinued use of the assets and which are independ-
ent of cash flow from other assets or groups of
assets. The definition of the cash generating
units is reconsidered once a year, and the defini-
tion is unchanged compared to last year.
Key assumptions
An estimate is made of the present value of the
future free net cash flow based on budgets and
strategy for the coming eight years as well as
projections for the terminal period. The eight
year period is used to better reflect the business
cycle. Significant parameters in these estimates
are discount rate, revenue growth, EBITA margin,
expected investments and growth expectations
for the terminal period.
The discount rate applied reflects the latest mar-
ket assumptions for the risk-free rate based on a
10-year Danish government bond, the equity risk
premium and the cost of debt.
The expected annual growth rate and the ex-
pected margins in the budget period are based
on historical experience and the assumptions
about expected market developments as de-
tailed above. From 2028 and onwards, the long-
term growth rate for the terminal period is based
on the expected growth in the world economy,
specifically for the industries.
Due to the current negative interest rate environ-
ment, a conservative approach regarding the
long-term growth rate for the terminal period has
been applied. This methodology has been ap-
plied to ensure consistency with the level of the
risk-free rate applied as a basis for the estimation
of discount rate (WACC) and the long-term
growth rate. Based on these factors, a long term
annual growth rate for the terminal period of 1.5%
has been applied.
Investments reflect both maintenance and ex-
pectations of organic growth.
Key assumptions
Mining
Cement
FLSmidth
Annual report 2020 77
Consolidated financial statements Consolidated financial statements
2.3 IMPAIRMENT OF ASSETS -
continued
Mining
The COVID-19 pandemic has impacted the global
economy across industries, but the mining indus-
try has remained relatively resilient during the
course of 2020 with the majority of mines opera-
mine sites were shut down in April, but nearly all
sites have restarted production and most sites
run with high production rates. Mines are, how-
ever, often remotely located and to protect em-
ployees and safeguard production, many cus-
tomers are still enforcing safety protocols and do
not permit site access to external service provid-
ers, which impacts their equipment and service
spend. With infection cases currently surging in
many parts of the world, it is still difficult to pre-
dict the shape of the recovery curve. It is, how-
ever, expected that the pandemic will continue to
impact the industry in the first half of 2021.
On the positive side, commodity prices have re-
bounded strongly from the spring when the first
pandemic wave hit, and the industry is expected
to recover to pre-pandemic activity levels within
a relatively short time horizon. All things consid-
ered, the pandemic has disrupted the mining in-
dustry to a lesser degree than many other indus-
tries. For 2021, the Mining business revenue and
EBITA are expected to grow in the second half of
the year as COVID-19 restrictions are expected
to ease.
The outlook for investments in mining remains
positive, and we have a healthy pipeline of both
larger and smaller opportunities. Further, the
switch to green energy and electric powered
transportation will require a massive increase in
infrastructure and the mining industry will need to
scale up investments in copper, battery metals
and other minerals to meet this growing demand.
Cement
The cement market was subdued already enter-
ing 2020 and has been severely impacted by the
pandemic in 2020. Following shutdown of about
China in April, the share of cement plants in
operation has climbed back up above 95% at the
end of the year. However, many plants continue
to run at reduced capacity and sites are often dif-
ficult to access due to restrictions and preventa-
tive measurements taken by authorities and plant
operators. The Cement business revenue is ex-
pected to decline further in 2021, and as a con-
sequence, initiatives to reshape the Cement
business will continue during the year. The Ce-
ment business is not expected to be EBITA posi-
tive in 2021 due to continued Cement reshaping
costs and low capacity utilisation in the service
business until the pandemic eases.
We do not anticipate a recovery in the short- to
medium-term but the large economic stimulus
programmes that have been announced in parts
of the world, combined with an increasing focus
on lower-carbon cement production, is expected
to create good opportunities in the mid- to long-
term. The timing and extent of such rebound re-
main uncertain but during the last weeks of
2020, the EU Commission agreed on a 55% re-
duction target of greenhouse gas emissions by
2030, and a budget that allows for a green re-
covery following COVID-19 restrictions. The
green recovery will fuel demand for emission-re-
ducing technologies and the cement industry will
need to undertake substantial investments to
meet recent commitments to carbon neutrality by
the Global Cement and Concrete Association
and the European Cement Association.
Sensitivity analysis
Based on current assumptions we see no impair-
ment indications, and our key assumptions are
not sensitive to reasonable changes to an extent
that will result in an impairment loss neither indi-
vidually nor in combination.
Accounting policy
Goodwill and intangible assets not yet available
for use are tested for impairment at least once a
year, irrespective of whether there is any indica-
tion that they may be impaired.
Assets that are subject to amortisation, such as
intangible assets in u
and other non-current assets are reviewed for
impairment whenever events or changes in cir-
cumstances indicate that the carrying amount
may not be recoverable.
Factors that could trigger an impairment test in-
clude the following:
Changes of R&D project expectations
Lower than predicted sales related to particular
technologies
Changes in the economic lives of similar assets
Relationship with other intangible assets or
property, plant and equipment
For impairment testing, assets are grouped into
the smallest group of assets that generates
largely independent cash inflows (cash generat-
ing unit) as determined based on the manage-
ment structure and the internal financial report-
ing.
If the carrying amount of intangible assets ex-
ceeds the recoverable amount based on the ex-
istence of one or more of the above indicators of
impairment, any impairment is measured based
are reviewed at each reporting date for possible
reversal.
Impairment of goodwill is not reversed. Recogni-
tion of impairment of other assets is reversed to
the extent that changes have taken place in the
assumptions and estimates that led to the recog-
nition of impairment.
FLSmidth
Annual report 2020 78
Consolidated financial statements Consolidated financial statements
2.4 PROPERTY, PLANT AND
EQUIPMENT
Land and buildings with a carrying amount of
DKK 48m (2019: DKK 48m) are pledged against
mortgage debt of DKK 256m (2019: DKK 273m).
Accounting policy
Property, plant and equipment are measured at
cost less accumulated depreciation and impair-
ment losses. The cost of self-constructed assets
includes the cost of materials and direct labour
costs.
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, 3-15 years
Operating equipment and fixtures and fittings,
3-15 years
Leasehold improvements, mainly related to
land and buildings, up to 5 years or following
the corresponding lease agreement
Land is not depreciated.
Newly acquired assets and assets of own con-
struction are depreciated from the time they are
available for use.
Where acquisition or use of the asset places the
Group under an obligation to incur the costs of
re-establishing the asset, the estimated costs for
this purpose are recognised as part of the cost of
useful life.
2020
2019
DKKm
Land and
buildings
Plant and
machinery
Operating
equipment,
fixtures and
fittings
Property,
plant and
equipment
under
construction
Total
Land and
buildings
Plant and
machinery
Operating
equipment,
fixtures and
fittings
Property,
plant and
equipment
under
construction
Total
Cost at 31 December
2,306
1,543
892
137
4,878
2,498
1,620
1,000
80
5,198
Depreciation and impairment at 31 December
(892)
(1,174)
(803)
0
(2,869)
(923)
(1,181)
(894)
0
(2,998)
Carrying amount at 31 December
1,414
369
89
137
2,009
1,575
439
106
80
2,200
FLSmidth
Annual report 2020 79
Consolidated financial statements Consolidated financial statements
2.5 LEASES
We are party to several lease contracts as les-
see, by which we lease offices, warehouses,
manufacturing facilities and vehicles. We enter
into lease contracts due to the flexibility it pro-
vides as it may ease the scalability to always
adapt the asset base to the operational activity.
The majority of the lease assets relate to land
and buildings and the lease contracts are typi-
cally made for fixed periods of 1 to 10 years, with
a weighted average lease term of 5 years. The
average discount rate applied for land and build-
ings is 3.13% at the end of 2020 (2019: 3.66%).
In some property lease contracts extension and
termination options are included. These are used
to maximise operational flexibility in terms of
tions.
The amounts included in the income statement
related to expensed leases are presented at the
bottom of the page.
Depreciation on lease assets amounted to DKK
124m (2019: DKK 112m) and write downs on as-
sets held for sale DKK 4m (2019: DKK 0m). Inter-
est on lease debt was DKK 11m (2019: DKK 12m),
see note 5.4.
During 2020 we have had total cash outflow for
leases of DKK 131m (2019: DKK 118m), of which
DKK 11m (2019: DKK 12m) was interest related to
leases (included in CFFO) and DKK 120m (2019:
DKK 106m) repayment of lease debt (included in
CFFF). Please refer to note 5.8 Financial assets
and liabilities for maturity analysis of lease liabili-
ties.
Further to the above cash outflow DKK 11m (2019:
DKK 15m) was included in CFFO for costs relating
to short term, low-value and variable lease pay-
ments not recorded on the balance sheet.
During 2019, we entered into a contingent sale
and leaseback transaction of the headquarters in
Valby, Denmark. In light of the COVID-19 pan-
demic, plans are being revisited, please refer to
note 2.9 Contractual obligation for further infor-
mation.
We are not party to any significant lease con-
tracts as lessor.
2020
2019
DKKm
Land and
buildings
Plant and
machinery
Operating
equipment
Total
Land and
buildings
Plant and
machinery
Operating
equipment
Total
Carrying amount at 31 December
260
9
43
312
260
8
44
312
DKKm
2020
2019
Expensed lease costs in the income statement
11
15
Expensed lease costs in the income statement
11
15
FLSmidth
Annual report 2020 80
Consolidated financial statements Consolidated financial statements
2.5 LEASES - continued
Accounting policy
Assets and liabilities arising from a lease are ini-
tially measured on a present value basis. Lease
liabilities include the net present value of the
payments, which are fixed or variable dependent
on an index or a rate. When adjustments to lease
payments based on an index or rate take effect,
the lease liability is reassessed and adjusted
against the lease asset. Service components are
excluded from the lease liability.
The lease payments are discounted using an in-
cremental country specific borrowing rate, based
margin.
The lease payments have been split into an inter-
est cost and a repayment of the lease liability.
Lease assets are measured at cost comprising
the following:
the amount of the initial measurement of lease
liability
any lease payments made at or before the
commencement date less any lease incentives
received
any initial direct costs, and
restoration costs
The lease assets are depreciated over the term
of the lease contract on a straight-line basis.
Extension options (or periods after termination
options) are only included in the lease term if the
lease is reasonably certain to be extended (or
not terminated).
The following factors are normally the most rele-
vant:
How the asset supports the direction of the
group, from a strategic standpoint, location of
the asset, timing of the option being exercisa-
ble
If there are significant penalties to terminate (or
not extend), the group is typically reasonably
certain to extend (or not terminate)
If any leasehold improvements are expected to
have a significant remaining value, the group is
typically reasonably certain to extend (or not
terminate)
Payments associated with short-term and low
value leases are recognised on a straight-line ba-
sis as an expense in profit or loss. Short-term
leases are leases with a lease term of 12 months
or less. Low-value assets comprise IT equipment
and small items of office furniture at a low value.
2.6 INVESTMENTS IN
ASSOCIATES
Investments in associates includes investment in
Intertek Robotic Laboratories Pty Ltd, Australia,
with a 50% share.
The investment is accounted for in accordance
with the equity method. Although we hold 50% of
the shares and voting rights, we do not share the
control, hence the investment is not treated as a
joint venture. As we do have significant influence
the investment is treated as an investment in as-
sociates.
Name of activity
acquired
Country
Date of
acqui-
sition
Owner-
ship
interest
Voting
share
The primary activity of the company is to provide
automated and robotic sample preparation, fu-
sion and analytical testing services, including the
procurement, construction and commissioning of
laboratories.
DKKm
2020
2019
Carrying value at 31 December
159
165
Financial information of 100% of Intertek Robotic
Laboratories Pty Ltd, prepared in accordance
with FLSmidth accounting policies, is as follows
:
DKKm
2020
2019
Equity
176
188
DKKm
2020
2019
Carrying value at 31 December
159
165
FLSmidth
Annual report 2020 81
Consolidated financial statements Consolidated financial statements
2.7 PROVISIONS
Provisions are liabilities of uncertain timing or
amount. Our provisions consist of:
Provision for warranty claims in respect of
goods or services already delivered
Provisions for cost related to restructuring
Provisions for loss-making contracts (included
in other provisions)
Provisions for losses resulting from disputes
and lawsuits (included in other provisions)
Provisions for indirect tax risks (included in
other provisions)
Total provisions are at the same level as last
year.
Warranty provisions have decreased to DKK
496m at 31 December 2020. The decrease is
mainly a result of the lower activity and products
running out of the warranty period, resulting in a
reversal of the unused warranty provision.
Restructuring provisions have increased slightly
to DKK 60m due to the continued restructuring
measures in right-sizing the organisation.
Other provisions have increased to DKK 459m
due to additional uncertainties in the execution
of the project portfolio. The uncertainties have in-
creased the expected cost level, hence an in-
creased level of loss-making contracts. Addition-
ally, the provisions relate to ongoing legal
disputes, including provisions related to discon-
tinued activities. The level of used and reversed
provision is largely unchanged from last year.
shown below. The provisions from continued and
discontinued activities add up to our total provi-
sions.
In cash flow the changes in provisions are com-
bined with the changes in pensions and em-
ployee benefits. The changes in provisions, pen-
sions and employee benefits have the following
cash flow effect as an adjustment-amount to re-
ported profit in the income statement:
DKKm
2020
2019
Cash flow effect
63
(230)
2020
2019
DKKm
Warranties
Restructuring
Other
Total
Warranties
Restructuring
Other
Total
Provisions at 31 December
496
60
459
1,015
578
40
400
1,018
Key accounting estimates
Estimated warranty provision
When estimating the warranty provision
we take into consideration several years
of warranty cost information, any spe-
cific project related risks, knowledge
about defects and functional errors in
the product portfolio, risks associated
with newly launched products as well as
customer losses in connection with sus-
pension of operation. We include all of
these factors as relevant, to estimate a
warranty provision that to the best of
our knowledge reflects our responsibil-
ity towards our customers in the future.
DKKm
2020
2019
Continued activities share of Group provisions
833
807
FLSmidth
Annual report 2020 82
Consolidated financial statements Consolidated financial statements
2.7 PROVISIONS
continued
Accounting policy
Provisions are recognised when we, due to an
event occurring before or at the balance sheet
date, have a legal or constructive obligation and
outflow of resources is expected to settle the ob-
ligation.
Provisions for warranty claims are estimated on a
project-by-project basis based on historical real-
ised cost related costs of completion, subse-
quent warranty supplies and unsettled claims
from customers or subcontractors.
Provisions for restructuring costs are made only if
the restructuring has been decided at the bal-
ance sheet date in accordance with a specific
plan, and only provided that the parties involved
have been informed about the overall plan.
The cost of loss-making projects covering pro-
jects expected to result in a loss, is recognised
immediately in the income statement. Losses not
yet incurred are provided for as other provisions.
Provisions regarding disputes and lawsuits are
outcome settling the cases based on the infor-
mation at hand at the balance sheet date.
2.8 PENSION OBLIGATIONS
Defined contribution plans
The majority of our pension plans are defined
contribution plans and we have no further pay-
ment obligations once the contributions are paid.
Under these pension plans, we recognise regular
payments, e.g. a fixed amount or a fixed percent-
age of the salary. Pension costs related to de-
fined contribution plans are recognised in staff
costs (note 1.5) and amounted to DKK 439m
(2019: DKK 596m).
Defined benefit plans
We also have defined benefit plans where the re-
sponsibility for the pension obligation towards
the employees rests with us. Under a defined
benefit plan, we have an obligation to pay a spe-
cific benefit, e.g. retirement pension in the form
of a fixed proportion of the exit salary. Under
these plans, we carry the risk in relation to future
developments in interest rates, inflation, mortal-
ity, etc. A change in the assumptions upon which
the calculation is based results in a change in the
actuarial present value. In the event of changes
in the assumptions used in the calculation of de-
fined benefit plans for existing and former em-
ployees, actuarial gains and losses are recog-
nised in other comprehensive income.
The majority of the total pension obligations are
partially funded with assets placed in pension
funds and through insurance. In 2021 we expect
to make a contribution to the defined benefit
plans of DKK 8.5m (2020: 4.6m). The weighted
average duration of the obligations is 13 years
(2019: 13 years).
2020
2019
DKKm
Present value
of pension
obligations
Fair
value of plan
assets
Net
obligations
Present value
of pension
obligations
Fair
value of plan
assets
Net
obligations
Recognised in the income statement
(51)
20
(31)
(87)
26
(61)
Recognised in other comprehensive income
(66)
47
(19)
(126)
82
(44)
Other changes
139
(105)
34
61
(39)
22
Value at 31 December
(1,127)
749
(378)
(1,152)
787
(365)
FLSmidth
Annual report 2020 83
Consolidated financial statements Consolidated financial statements
2.8 PENSION OBLIGATIONS
continued
Actuarial assumptions applied (weighted):
2020
2019
Sensitivity analysis
Below shows a sensitivity analysis based on
changes in the discount rate, all other things be-
ing equal.
A change in the discount rate will result in the fol-
lowing changes in the net pension obligation:
DKKm
2020
2019
Accounting policy
Contributions to defined contribution plans are
recognised in staff costs when the related ser-
vice is provided. Any contributions outstanding
are recognised in the balance sheet as other lia-
bilities.
For defined benefit plans, annual actuarial calcu-
lations are made of the present value of future
benefits payable under the pension plan using
the projected unit credit method.
The present value is calculated based on as-
sumptions about future developments in varia-
bles such as salary levels, interest, inflation and
mortality rates. The present value is only calcu-
lated for benefits earned by the employees
through their employment with the Group to
date. The actuarial calculation of present value
less the fair value of any plan assets is recog-
nised in the balance sheet as pension obliga-
tions.
The pension costs for the year, based on actuar-
ial estimates and financial forecasts at the begin-
ning of the year, are recognised in the income
statement. The difference between the forecast
development in pension assets and liabilities and
the realised values is called actuarial gains or
losses and is recognised in the statement of
comprehensive income through other compre-
hensive income.
If a pension plan constitutes a net asset, the as-
set is recognised only to the extent that it equals
the value of future repayments under the plan or
it leads to a reduction of future contributions to
the plan.
Pension contributions by plan types
%
Pension obligations by country
%
Fair value of plan assets
by Instruments
0%
20%
40%
60%
80%
100%
2019 2020
Defined contribution plans Defined benefit plans
0%
20%
40%
60%
80%
100%
2019 2020
USA Switzerland Germany India Other
0%
20%
40%
60%
80%
100%
2019 2020
Equity instruments Debt instruments Other assets
FLSmidth
Annual report 2020 84
Consolidated financial statements Consolidated financial statements
2.9 CONTRACTUAL
OBLIGATIONS AND
CONTINGENT ASSETS AND
LIABILITIES
Sale and leaseback of
headquarters
FLSmidth has entered into a conditional agree-
ment to sell all and lease back part of its head-
quarters in Valby, Denmark. In light of the
COVID-19 pandemic, the 2020 business adjust-
ments, the increased degree of flexible working
arrangements and an expected slow recovery
within cement, it has been decided to revisit the
plans for the headquarter in Valby. All possibili-
ties will be revisited, including amongst others
whether to sell part of the property and renovate
the existing buildings or look to find a headquar-
ter somewhere else in the Copenhagen area.
The parties involved in the conditional agree-
ment are currently exploring the possibilities, and
the timing and outcome of the agreement is
therefore uncertain.
Contractual commitments
As part of our digital strategy, FLSmidth has
made a fund investment in Chrysalix, a venture
capital firm that specialises in transformational in-
dustrial innovation.
Our participation provides priority access, builds
capabilities and shares risk when working with
early stage start-ups across the globe. Our objec-
tive of engaging with disruptive and deep tech-
nology start-ups is to create differentiated value
propositions and accelerate being Productivity
Provider #1, while delivering strategic and finan-
cial returns.
We have made a capital commitment of USD
10m. The capital can be called up until 2029, in-
vestment period being the first 5 years. The tim-
ing and amounts of each capital call are uncer-
tain. The undrawn part of the capital commitment
at 31 December 2020 amounted to DKK 52m
(2019: DKK: 62m).
Contingent assets
In a customer contract, our customer failed to
meet its obligations to an extent that has caused
material breach of the contract. An arbitration
case has been settled in our favour in 2020 and
during 2020 we have received payments ac-
cording to the settlement agreement and have
recognised DKK 34m in the income statement.
Guarantees
To cover project-related risks, such as perfor-
mance, payment, quality and delay, we issue
usual security in the form of performance and
payment guarantees for projects and supplies to-
wards our customers. At 31 December 2020, the
value of issued guarantees amounted to DKK
2,376m (2019: DKK: 2,474m). In the event a guar-
antee is expected to materialise, a provision is
recognised to cover the risk.
Other contingent liabilities
We are involved in legal disputes, certain of
which are already pending with courts or other
authorities and others of which some may or may
not lead to formal legal proceedings being insti-
gated against us, including by public authorities.
The outcome of such proceedings and disputes
is by nature unknown, but is not expected to
have significant impact on our financial position.
Other contingent liabilities amount to DKK 284m
(2019: DKK 333m).
2.10 BUSINESS
ACQUISITIONS
On 31 January 2020, FLSmidth acquired the
business Mill-Ore Group, an Eastern Canadian
provider of equipment and aftermarket services
to the mining industry. The acquisition is part of
our long-term commitment to increase the level
of service and support to our customers in East-
ern Canada.
On 30 October 2020, FLSmidth acquired the
business KnowledgeScape LLC, a US-based de-
veloper of software, smart sensors and real time
image analysis. KnowledgeScape develops digi-
tal solutions aimed at increasing the efficiency of
mining processing plants. This transaction allows
FLSmidth to deliver a wider range of benefits to
its mining customers. These benefits include in-
creased productivity in processing plants and re-
duced consumption of power, water and rea-
gents.
Following the acquisitions of the Mill-Ore and
KnowledgeScape businesses we are working on
realising the synergies between the aftermarket
and digital initiatives of FLSmidth and the Mill-
Ore aftermarket footprint and the Knowledge-
Scape digital solutions to further enhance mining
processing efficiency. All enabling a greater
value to our customers.
2020
Name of
activity
acquired
Primary
activity
Date of
consoli-
dated
from
Owner-
ship
interest
Voting
share
2019
Name of
activity
acquired
Primary
activity
Date of
consoli-
dated
from
Owner-
ship
interest
Voting
share
Both acquisitions are integrated into the Mining
segment. Mill-Ore has been included in the con-
solidated financial statement from 1 February and
KnowledgeScape since 30 October 2020.
In 2019 the IMP business was integrated into the
Mining segment and was included in the consoli-
dated financial statement from 1 June 31 De-
cember 2019.
The acquisitions have in the acquisition year im-
pacted the financials as follows:
DKKm
2020
2019
FLSmidth
Annual report 2020 85
Consolidated financial statements Consolidated financial statements
2.10 BUSINESS
ACQUISITIONS continued
Acquisition related costs amounted to DKK 1m
(2019: DKK 5m) and are recognised in the in-
come statement as administrative cost.
Had the acquired activities been included in the
consolidated financial statements from 1 January
2020, the revenue and net profit would have
been positively impacted by DKK 75m (2019:
DKK 182m) and 25m (2019: DKK 13m), respec-
tively, for the full year.
The assets and liabilities in the opening balance
are measured using the information available at
the date for issuing the annual report. The pur-
chase price allocations have not been finalised
due to possible reassessment within 12 months
of the acquisition. If new information becomes
available this could affect the calculated values.
We expect the total amount of goodwill to be de-
ductible for tax purposes.
Accounting policy
Newly acquired or newly established businesses
are included in the consolidated financial state-
ments from the acquisition date or formation. The
acquisition date is the date when control of the
business is transferred to the Group.
Upon acquisition of the business of which we ob-
tain control, the acquisition method is applied,
according to which the identified assets, liabilities
and contingent liabilities are measured at their
fair values.
The acquisition cost/income of an enterprise con-
sists of the fair value of the consideration paya-
ble/receivable. This includes the fair value of the
consideration already paid/received, the de-
ferred consideration and the contingent consid-
eration.
Any subsequent adjustment of contingent con-
sideration is recognised directly in the income
statement, unless the adjustment is the result of
new information about conditions prevailing at
the acquisition date, and this information be-
comes available up to 12 months after the acqui-
sition date.
Transaction costs are recognised directly in the
income statement when incurred as administra-
tive costs.
When acquisition costs differ from the fair values
of the assets, liabilities and contingent liabilities
identified on acquisition, any positive differences
(goodwill) are recognised in the balance sheet
under intangible assets and any negative differ-
ences (negative goodwill) are recognised in the
income statement as a special non-recurring
item.
If, on the acquisition date, there are any uncer-
tainties with respect to identifying or measuring
acquired assets, liabilities or contingent liabilities
or uncertainty with respect to determining their
cost, initial recognition will be made on the basis
of estimated values. Such estimated values may
be adjusted, or additional assets or liabilities may
be recognised up to 12 months after the acquisi-
tion date, if new information becomes available
about conditions prevailing on the acquisition
date, which would have affected the calculation
of values on that day, had such information been
known.
DKKm
IMP
Automation Group*
Mill-Ore Group
Knowledge-
Scape L.L.C.
Net assets
acquired 2020
Net assets
acquired 2019
Carrying amount of net assets acquired
0
27
12
39
311
Transaction price
0
41
56
97
378
Net cash effect
8
41
50
99
287
FLSmidth
Annual report 2020 86
Consolidated financial statements Consolidated financial statements
2.11 DISCONTINUED
ACTIVITIES
On 9 January 2019, we announced an agree-
ment to sell the non-mining bulk material han-
dling business to Rainbow Heavy Machineries.
The agreement closed and became effective
31 January 2019.
The transaction included transfer of employees,
brand, Intellectual Property Rights and order
pipeline.
Under the sales agreement we retain the respon-
sibility to finalise legacy projects. The projects
were from a revenue perspective completed at
year end 2018. Subsequent handling of claims
and collection activities are expected to be final-
ised during 2021.
Accordingly, the discontinued activities reported
include the ceased non-mining bulk material han-
dling business.
Discontinued activities effect on cash flow from
operating activities is presented below.
Please refer to segment note 1.2 for full disclo-
sure of income statement including loss for the
year for discontinued activities.
Discontinued activities are not expected to gen-
erate any significant net cash flow in 2021. The
expectations are based on a net working capital
balance of DKK 220m (2019: DKK 227m), provi-
sions of DKK 182m (2019: DKK 211m) and moder-
ate SG&A cost. There can, however, be a timing
difference between cash paid and cash received
related to the outstanding net working capital
and provision balances.
Cash flow from discontinued operating activities
totalled DKK -52m (2019: DKK -191m).
Cash flow from net working capital from discon-
tinued activities amounted to DKK -18m (2019: -
58m), as net working capital related to discontin-
ued business decreased from DKK 227m end of
2019 to DKK 220m end of 2020.
Loss for the period from discontinued activities
total DKK -21m (2019: DKK -22m), primarily con-
sisting of SG&A cost.
Discontinued act
sions:
DKKm
2020
2019
Provisions
182
211
Accounting policy
Discontinued activities comprise disposal groups,
which have been disposed of, ceased or are
classified as held for sale and represents a sepa-
rate major line of business or geographical area.
Discontinued activities are presented in the in-
come statement as follows: profit/loss for the
year, discontinued activities. The item consists of
operating income after tax from discontinued ac-
tivities. Disposal of the assets related to the dis-
continued activities and adjustments hereto are
likewise presented as discontinued 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.
DKKm
2020
2019
Adjusted EBITDA
(15)
(16)
Cash flow from operating activities before financial items and tax
(48)
(182)
Cash flow from operating activities
(52)
(191)
FLSmidth
Annual report 2020 87
Consolidated financial statements Consolidated financial statements
2.12 ASSETS AND LIABILITIES
CLASSIFIED AS HELD FOR
SALE
During December 2020, we entered into agree-
ments to sell our fabric filter business and our
Möller pneumatic conveying systems business.
Consequently, the assets and liabilities related to
the activities are reclassified as held for sale. All
impacted activities will continue to be included in
our continued activities, until the transactions
close. The sale of Möller pneumatic conveying
systems business will close 1 January 2021,
whereas the fabric filters business is expected to
close during the first half of 2021.
Upon reclassifying the assets and liabilities to
held for sale we have revalued the net assets
held for sale at fair value less cost to sell.
The impairment loss amounts to DKK 4m and is
recognised in continued business as an impair-
ment of lease assets.
We have in 2020 received prepayment related
to the disposal of the Möller pneumatic convey-
ing systems business of DKK 62m.
DKKm
2020
2019
Carrying amount of assets
classified as held for sale
124
0
Liabilities directly associated
with assets classified as
held for sale
91
0
Net assets classified as
held for sale
33
0
Accounting policy
Non-current assets as well as assets and liabili-
ties expected to be sold as a group in a single
transaction are classified as held for sale, if their
carrying value is likely to be recovered by sale
within 12 months in accordance with a formal
plan.
Assets held for sale are measured at the lower of
the carrying value and the fair value less costs to
sell. Assets are not depreciated from the time
they are reclassified as held for sale.
FLSmidth
Annual report 2020 88
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 3
WORKING CAPITAL
NET WORKING CAPITAL
1,752 DKKM
NET WORKING CAPITAL
36%
FLSmidth
Annual report 2020 89
Consolidated financial statements Consolidated financial statements
3.1 NET WORKING CAPITAL
DKKm
2020
2019
Net working capital
1,752
2,739
DKKm
2020
2019
Cash flow effect
706
(448)
Net working capital at 31 December 2020 de-
creased due to decreasing activity in 2020, sig-
nificant reduction in trade receivables and lower
level of net work in progress. The reductions
were partially offset by a lower level of trade pay-
ables including supply chain finance (refer to
note 3.6) and prepayments from customers.
As part of managing the challenges during 2020
we took the following actions during the year re-
lated to the managing of inventories:
Ensuring a sound inventory turn with a strict fo-
cus on inventory ageing
Clear split between inventory specifically dedi-
cated for orders and inventory available for
sale
The active measures taken during 2020 reduced
the inventory level by the end of the year.
On the trade receivables we managed the in-
creased credit risk by taking the following actions
during the year, which all contributed to a strong
cash collection during 2020 and a reduced trade
receivables balance by the end of 2020:
Reassessment of customer payment terms
Renegotiation of payment terms with our large
project customers and suppliers where the
cash flows were imbalanced
Increased focus on cash collection
Currency impacts reduced the net working capi-
tal balance at 31 December 2020 by DKK 158m.
The reclassification of assets and liabilities to
held for sale has reduced the net working capital
by DKK 71m (2019: DKK 0m).
3.2 INVENTORIES
Inventory net of impairment is specified as fol-
lows:
DKKm
2020
2019
Inventories
2,368
2,714
Impairment of inventories:
DKKm
2020
2019
Impairment at 31 December
272
315
Inventory level has decreased 14% in 2020 due
to high focus on cash management and less pro-
duction to orders at year-end compared to last
year.
Accounting policy
Inventories are measured at cost based on
weighted average cost prices.
In the event that cost of inventories exceeds the
expected selling price less cost of completion
and selling costs, the inventories are impaired to
the lower net realisable value. The net realisable
value of inventories is measured as the expected
sales price less costs of completion and costs to
finalise the sale.
Key accounting estimates
Estimated valuation of inventories
When assessing the net realisable value of inventories we take marketability, obsolescence
and development in expected selling prices into account. Also inventory turnover, quantities
and the nature and condition of the inventory items including the classification as strategic in-
ventory are considered in the assessment. We include all of these factors as relevant, to en-
sure that our inventory is reflected at the value to which we expect to realise it to in the future,
if lower than cost.
During 2020 we have applied a consistent methodology to assess the need for any inventory
impairments. The COVID-19 disruptions to the value chain have been considered in the valua-
tion of inventories.
FLSmidth
Annual report 2020 90
Consolidated financial statements Consolidated financial statements
3.2 INVENTORIES continued
Impairment assessment of the inventory is per-
formed item by item including:
Test for slow moving stock
Test for aging of inventory
Assessment of expected market (pricing and
market potential)
Assessment of strategic inventory items
Obsolete items are impaired to the value of zero.
Management considers part of the inventories as
strategic. Strategic items are held in inventory,
even if slow moving, because they are consid-
ered key equipment to the customers, that we
need to be able to deliver with very short notice.
Raw materials and consumables include pur-
chase costs of materials and consumables, du-
ties and freight. Work in progress, finished goods
and goods for resale include cost of manufactur-
ing including materials consumed and labour
costs plus an allowance for production over-
heads. Production overheads include operating
costs, maintenance of production facilities as well
as administration and factory management di-
rectly related to manufacturing.
3.3 TRADE RECEIVABLES
Our trade receivables relate to the sale of both
service and capital business.
Trade receivables net of impairment are speci-
fied according to ageing as follows:
DKKm
2020
2019
Trade receivables
3,453
5,068
Impairment of trade receivables specified ac-
cording to aging is shown below:
The impairment in 2020 is based on historical
observed default rates adjusted for estimates of
uncertainties in project related activities and mar-
ket conditions.
Impairment of trade receivables:
DKKm
2020
2019
Impairment at 31 December
317
339
Accounting policy
Trade receivables are initially measured at fair
value and subsequently measured at amortised
cost.
A credit loss allowance is made upon initial
recognition based on historical observed default
rates adjusted for forward looking estimates. The
cost of the credit loss allowances is included in
administration costs. A loss is considered real-
ised when it is certain that we will not recover the
receivable, e.g. in case of bankruptcy or similar.
Key accounting estimates
Estimated level of expected losses
When estimating the level of receivables
that in the future is expected not to be
collected we take the following infor-
mation into account; historical losses on
receivables, ageing of the receivables,
access to payment securities and possi-
bilities to off-set assets against claims.
When doing the assessment we also
evaluate the expected development in
macro-economic and political environ-
ments that could impact the recoverabil-
ity.
With the uncertainties in 2020 we have
made estimates of our expectation to the
future losses on receivables by applying
a consistent methodology. The calcula-
tion of expected credit losses (ECL) incor-
porate forward-looking estimates. These
estimates are mainly based on historical
input, but due to the current unprecedent
situation the forward-looking estimate in-
cludes more uncertainty as no objective
data exists.
The forward-looking estimate has in-
creased compared to the end of 2019.
The increase is based on an assessment
of a deterioration in credit risk in an un-
certain global market due to the length
and magnitude of the pandemic.
2020
2019
DKKm
Expected
default rate
Gross
carrying
amount
Impairment
Expected
default rate
Gross
carrying
amount
Impairment
Total
3,770
317
5,407
339
FLSmidth
Annual report 2020 91
Consolidated financial statements Consolidated financial statements
3.4 WORK IN PROGRESS
DKKm
2020
2019
Work in progress
30,179
32,145
Net work in progress
341
1,034
Net work in progress
341
1,034
The work in progress balance can change from
being presented as an asset in one period to be-
ing presented as a liability in the next period de-
pending on the project execution plan and in-
voicing structure for each transaction.
In addition to the invoicing on account to custom-
ers we have received prepayments from custom-
ers of DKK 1,266m (2019: DKK 1,768m), which are
recognised separately in the balance sheet as
current and non-current liabilities.
When assessing impairment on the work in pro-
gress net balances we evaluate on a project by
project basis. If an impairment on a project is
probable we recognise the expected loss and a
related provision.
Accounting policy
Work in progress consists of contract assets and
contract liabilities for contracts with customers
where revenue is recognised over time.
The contracts recognised as work in progress
are recognised as revenue when the outcome of
the contracts can be estimated reliably.
The percentage of completion is calculated
based on a cost-to-cost basis (input method) and
is the ratio between the cost incurred and the to-
tal estimated cost.
The contracts are measured at the selling price
of the work performed less progress billings and
expected losses.
The selling price is the total expected income
from the individual contracts. If variability is in-
cluded in the selling price we use the most likely
amount method.
An expected loss is recognised when it is
deemed probable that the total contract costs
will exceed the total revenue from individual con-
tracts. The expected loss is recognised immedi-
ately as a cost and a provision.
When the selling price of the work performed ex-
ceeds progress billings and expected losses,
work in progress is presented as an asset.
When progress billings and expected losses ex-
ceed the selling price of the work performed,
work in progress is presented as a liability.
Prepayments from customers are recognised as
a liability.
Key accounting estimates
Estimated total cost to complete
We estimate the total expected costs for our contracts. The estimates primarily relate to the
level of contingencies to cover unforeseen costs, such as cost changes due to changes in fu-
ture supplies of raw materials, subcontractor products and services as well as unforeseen
costs related to execution and hand-over.
The estimates are based on the specifics for each contract while taking historical data into ac-
count. For contracts sold to customers in politically and economically unstable countries, the
estimates include additional risk coverage due to a higher level of uncertainty.
With the added complexity to project management and project execution during 2020, the un-
predictable development in the imposed restrictions and the challenges throughout the value
data to the same extent as usual. We have based on a project by project review assessed in-
creases in expected cost as well as additional risk contingencies to cover the higher uncer-
tainty.
Estimated variable transaction price
The selling price in operation & maintenance contracts is usually dependent on the productiv-
ity of the plant. We estimate the productivity of the plant and the estimates are based on the
specific conditions of the individual contract as well as historical levels of productivity.
During 2020 the site restrictions and operations running at reduced capacity has imposed un-
certainty to the estimate of the variable transaction price and the historical levels of productiv-
ity has been used as basis to a lower extent than usual. Instead estimates have been based on
most likely scenarios for site accessibility and productivity levels, while ensuring safety precau-
tions are met.
The site and travel restrictions combined with a more difficult supply chain has also imposed
uncertainty to meeting contractual obligations in a timely manner which has caused a risk of
penalties. We have based on a project by project review assessed the risk of penalties and
means to reduce the risk.
FLSmidth
Annual report 2020 92
Consolidated financial statements Consolidated financial statements
3.5 OTHER RECEIVABLES
DKKm
2020
2019
Other receivables
868
804
3.6 TRADE PAYABLES
To improve the relationship with our suppliers
and minimise the finance cost in the value chain,
we facilitate a supply chain financing programme
hosted by a credit institute. When participating in
this programme, the supplier has the option to
receive early payment from the credit institution
based on the invoices approved by us through a
factoring arrangement between the supplier and
the credit institution, where the invoices are
transferred to the credit institution without re-
course.
The amounts payable to suppliers included in the
supply chain financing programme are classified
as trade payables in the balance sheet as well as
in the cash flow statement (working capital within
cash flow from operations). The trade payables
covered by the supply chain financing pro-
gramme arise in the ordinary course of business
from supply of goods and services and
amounted to DKK 273m at 31 December 2020
(2019: DKK 1,083m). Utilisation of supply chain fi-
nancing decreased during 2020, driven by a
combination of the lower level of activity and by
a lower share of Cement business relative to
Mining.
3.7 OTHER LIABILITIES
DKKm
2020
2019
Other liabilities
1,431
1,499
FLSmidth
Annual report 2020 93
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 4
TAX
EFFECTIVE TAX RATE
40.7%
TAX FOR THE YEAR
155 DKKM
FLSmidth
Annual report 2020 94
Consolidated financial statements Consolidated financial statements
4.1 INCOME TAX
The income tax expense for the year amounted
to DKK 155m (2019: DKK 373m), corresponding
to an effective tax rate of 40.7% (2019: 31.9%).
The increase in the effective tax rate was related
to additional BEAT tax in the US, reduced credit
relief for paid withholding taxes and impairment
of deferred tax assets.
Uncertain tax positions reflect the annual assess-
ment by management of the risk of a position
taken by the Group being disputed by a tax au-
thority. The assessment considers the inherent
risk and uncertainty of undertaking complex pro-
jects and operating in a variety of developed and
developing countries. The assessment includes
the most likely outcome of both ongoing and po-
tential future tax audits.
Accounting policy
Tax for the year comprises current tax and
changes in deferred tax including valuation of
deferred tax assets, adjustments to previous
years, foreign paid withholding taxes including
available credit relief and changes in provisions
for uncertain tax positions.
Tax is recognised in the Consolidated Income
Statement with the share attributable to the
profit/loss of the year, and in other comprehen-
sive income with the share attributable to items
recognised in other comprehensive income.
Exchange rate adjustments of deferred tax are
included as part of the year's adjustments to
deferred tax.
Current tax comprises tax calculated on the basis
of the expected taxable income for the year, us-
ing the applicable tax rates for the financial year.
Uncertain tax positions are measured at the
amount estimated to be required to settle such
potential future obligations. We measure these
uncertain tax positions on a yearly basis through
interviews with key stakeholders in the main
Group entities.
The measurement addresses the accounting for
income taxes when tax treatments involve uncer-
tainty that affects the application of IAS 12 and
IFRIC 23.
We will determine whether to consider each un-
certain tax treatment separately or together with
one or more other uncertain tax treatments. The
approach that better predicts the resolution of
the uncertainty will be followed. Uncertain tax po-
sitions are measured at the most likely outcome
method.
The liability is recognised under income tax liabil-
ities or deferred tax liabilities, depending in how
the realisation of the tax position will affect the fi-
nancial statements.
Tax receivables and tax liabilities comprise tax on
expected taxable income less tax paid on ac-
count in the year and previous years taxes. Cur-
rent tax is recognised in the balance sheet as ei-
ther a receivable or a liability.
4.2 PAID INCOME TAX
Income tax paid in 2020 amounted to DKK 368m
(2019: DKK 311m). Most of these payments are at-
tributable to Group enterprises in the countries
shown in the graph on page 95.
Besides income tax, Group activities generate
sales taxes, customs duties, personal income
taxes paid by the employees, etc. which are ex-
cluded from income tax.
2020
2019
DKKm
Tax
Effective
tax rate
Tax
Effective
tax rate
Total tax for the year and effective tax rate
(155)
40.7%
(373)
31.9%
DKKm
2020
2019
Tax for the year, continuing activities
(155)
(373)
Total earnings before tax
363
1,145
FLSmidth
Annual report 2020 95
Consolidated financial statements Consolidated financial statements
4.3 DEFERRED TAX
Deferred tax assets end of 2020 amount to DKK
1,248m (2019: DKK 1,246m) and deferred tax lia-
bilities amount to DKK 200m (2019: DKK 352m).
The net deferred tax assets amount to DKK
1,048m (2019: DKK 894m).
Deferred tax assets valued at nil amounting to
DKK 189m (2019: DKK 165m) relate to tax losses
and tax assets mainly in discontinued and
dormant entities.
Temporary differences regarding future repatria-
tion of profit from entities in foreign countries are
estimated at DKK 300-350m in 2020 (2019: DKK
300-350m).
These liabilities are not recognised because the
Group is able to control when the liability is re-
leased and it is considered probable that the lia-
bility will not be triggered in the foreseeable fu-
ture.
DKKm
2020
2019
1,048
894
DKK 72m (2019: DKK 61m) of foreign paid with-
holding taxes in USA is not recognised as a fu-
ture benefit due to uncertainties relating to the
effect of the Base Erosion Anti-Abuse Tax (BEAT)
in USA.
Income tax paid
DKKm
Significant deferred tax assets
DKKm
-20
0
20
40
60
80
100
120
140
Denmark
USA
India
South Africa
Chile
Italy
Australia
Peru
Austria
Kasakhstan
China
Egypt
2019 2020
-
100
200
300
400
500
600
Share of assets and tax losses valued at nil
Deferred tax assets
2019 20
USA
2019 20
Chile
2019 20
Germany
2019 20
Denmark
2019 20
India
2020
DKKm
Balance sheet
1 January
Currency
adjustment
Adjustment
to previous
years
Changed
tax rate
Acquisition
of group
enterprises
Included in
other
comprehen-
sive income
Included in
income
statement
Transfer from
assets held
for sale
Balance sheet
31 December
Net deferred tax
assets/(liabilities)
894
(26)
22
54
0
(6)
103
7
1,048
DKKm
2019
Balance sheet
1 January
Currency
adjustment
Adjustment
to previous
years
Changed
tax rate
Acquisition
of group
enterprises
Included in
other
comprehen-
sive income
Included in
income
statement
Transfer
from assets
held for sale
Balance sheet
31 December
Net deferred tax
assets/(liabilities)
861
(4)
(7)
1
(38)
29
52
0
894
FLSmidth
Annual report 2020 96
Consolidated financial statements Consolidated financial statements
4.3 DEFERRED TAX
continued
The maturity profile of tax assets valued at nil is
as follows:
DKKm
2020
2019
Base value of tax assets
valued at nil
962
598
Tax value
189
165
962
598
The deferred tax assets in Germany and Den-
mark are not fully recognized as, based on man-
, the tax assets are
not likely to be fully utilized within the next five
years.
The impairment of tax asset in Germany amounts
to DKK 105m (2019: DKK 99m) and relates to dis-
continued activities and dormant entities. The im-
pairment of tax asset in Denmark amounts to
DKK 25m (2019: DKK 3m) and relates to the ex-
pected slow recovery in Cement from the pan-
demic. The impairment of tax assets is a key ac-
counting estimate and is based on manage-
rporating cost sav-
ings and the recovery of the market.
Accounting policy
Deferred tax is calculated using the balance
sheet liability method on all temporary differ-
ences between the carrying amounts for financial
reporting purposes and the amounts used for
taxation purposes, except differences relating to
initial recognition of goodwill. Deferred tax is cal-
culated based on the applicable tax rates for the
individual financial years.
The effect of changes in the tax rates is stated in
the income statement unless they are items pre-
viously entered in the statement of other com-
prehensive income.
The tax value of losses that are more likely than
not to be available for utilisation against future
taxable income in the same legal tax unit and ju-
risdiction is included in the measurement of de-
ferred tax.
If companies in the Group have deferred tax lia-
bilities, they are valued independently of the time
when the tax, if any, becomes payable.
A deferred tax liability is recognised to cover re-
taxation of losses in foreign enterprises if shares
in the enterprises concerned are likely to be sold
and to cover expected additional future tax liabili-
ties related to the financial year or previous
years. No deferred tax liabilities regarding invest-
ments in subsidiaries are recognised if the
shares are unlikely to be sold in the short-term.
Deferred tax assets/liabilities and tax receiva-
bles/payables are offset if the Group: has a legal
right to offset these, intends to settle these on a
net basis or to realise the assets and settle the li-
abilities simultaneously.
4.4 TAX ON OTHER
COMPREHENSIVE INCOME
Deferred tax of other comprehensive income
DKK -6m (2019: DKK 29m) includes assets held
for sale of DKK 0m (2019:DKK 0m).
4.5 OUR APPROACH TO TAX
AND TAX RISK
Being a responsible taxpayer is important to us,
and this means that we will pay the correct
amount of taxes at the right time in all countries
where we do business. We strive to accomplish
this by having a strong focus on compliance with
applicable tax laws as well as generally agreed
principles of international taxation. We are a
global company undertaking complex projects
and operating in a variety of developed and de-
veloping economies. Inherent risk and uncer-
tainty in regards to compliance requirements and
double taxation are common issues faced by our
business. We actively work to identify and miti-
gate tax risk and uncertainties.
Our Group Tax Policy, which has been approved
by the Board of Directors of FLSmidth, is availa-
ble on:
https://www.flsmidth.com/en-gb/company/sus-
tainability/policies-and-priorities
Key accounting estimates
Estimated value of deferred tax assets
The value of deferred tax assets is recognised to the extent that it is deemed likely that taxable
income in the future can utilise the tax losses. For this purpose the income from the coming
five years is estimated, based on budgets.
In assessing the probability of the future realisation of deferred tax assets, we have considered
the deterioration of the economic outlook in our budgets of taxable profits and reversals of
taxable temporary differences. With the changing regional restrictions it has been more diffi-
cult to predict the level of business activity and earnings in the jurisdictions and the expected
utilization of deferred tax assets against future taxable income.
2020
2019
DKKm
Deferred
tax
Current
tax
Tax
income/
cost
Deferred
tax
Current
tax
Tax
income/
cost
Tax on other comprehensive income
(6)
0
(6)
29
0
29
FLSmidth
Annual report 2020 97
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 5
FINANCIAL RISKS
& CAPITAL STRUCTURE
NIBD
1,808 DKKM
NIBD/EBITDA
1.6
FLSmidth
Annual report 2020 98
Consolidated financial statements Consolidated financial statements
5.1 SHARES AND CAPITAL
STRUCTURE
Shares
Share capital is DKK 1,025m and the total num-
ber of authorised and issued shares is
51,250,000, which is unchanged from last year.
Each share entitles the holder to 20 votes and no
shares have special rights attached to it.
Shareholders at the end of 2020
One shareholder has reported a participating in-
terest above 10%:
Lundbeckfond Invest A/S, Denmark.
No shareholders have reported a participating in-
terest above 5%.
Capital structure
We take a conservative approach to capital struc-
ture, with the emphasis on relatively low debt,
gearing and financial risk.
ture and capital allocation is as follows:
Well-capitalised (NIBD/EBITDA < two)
Stable dividends (30-50% of net profit)
Invest in organic growth
Value adding mergers and acquisitions
Share buyback or special dividend
For further information please refer to Share-
holder information section page 56.
Treasury shares
Our holding of treasury shares at the end of
2020 accounted for 2.1% of the share capital
(2019: 2.3%).
The Board of Directors is authorised until the
next Annual General Meeting to let the Company
acquire treasury shares up to a total nominal
accordance with Section 12 of the Danish Com-
panies Act.
The treasury shares are used to hedge employ-
-based incentive pro-
grammes, and are recognised directly in equity in
retained earnings (zero value in the balance
sheet).
Dividend per share
The Board of Directors will propose at the Annual
General Meeting that a dividend of DKK 2 per
share (2019: DKK 0) corresponding to a dividend
yield of 0.9% (2019: 0%) and a pay-out ratio of
50% (2019: 0%) be distributed for 2020.
Due to the uncertain market and financial condi-
posed dividend of DKK 8 per share was with-
drawn before the Annual General Meeting held
on 26 June 2020. No dividend was paid in 2020.
2020
2019
The year's movements in holding of shares
Number
of
shares
(1,000)
Value
(DKKm)
Number
of
shares
(1,000)
Value
(DKKm)
Share capital at 31 December
51,250
1,025
51,250
1,025
The year's movements in holding of treasury shares (1,000):
2020
2019
Treasury shares at 31 December
1,098
1,194
Outstanding shares at 31 December
50,152
50,056
FLSmidth
Annual report 2020 99
Consolidated financial statements Consolidated financial statements
5.2 EARNINGS PER SHARE
Earnings per share from continuing activities de-
creased to DKK 5.1 in 2020 (2019: DKK 15.9) pri-
marily driven by reduced profit for the year. Earn-
ings per share from discontinued activities
remained at DKK -0.4 in 2020 (2019: DKK -0.4).
There is no dilutive effect of share options in the
money in 2020 (2019: 0.2%).
As of 31 December 2020 number of share op-
tions in-the money totalled zero (2019: 98,545).
5.3 FINANCIAL RISKS
Due to the international activities and the indus-
try characteristics, risks are an embedded part of
doing business. We are exposed to financial
risks, that can have a material impact to the finan-
cial statements of the Group.
The financial risks are to the extent possible
managed centrally for the Group and are gov-
erned by the Treasury Policy, which is approved
by the Board of Directors. The Treasury Policy is
updated on an annual basis to address
any changes in the risk picture.
The main financial risks that we are exposed to
include currency, credit, interest and liquidity
risks.
Financial markets risks increased for a few
months in the beginning of 2020. However,
when considering currency and interest rate risks
we are back to normal levels, and our hedging
models have been resilient throughout COVID-
19.
Interest rate risk
Interest rate risks arise from interest-bearing as-
sets and liabilities. Interest-bearing items consist
primarily of cash and cash equivalents, bank
loans and mortgage debt.
According to the Treasury Policy, hedging of in-
terest rates is governed by a duration range and
is managed by using derivatives such as interest
rate swaps. No interest derivatives have been
used during 2019 or 2020.
As of 31 December 2020, the majority of our in-
terest-bearing debt is carrying a floating rate.
All other things being equal, a 1% point increase
in the interest rate will increase our interest cost
by DKK 18m (2019: DKK 25m), calculated as 1% of
the net interest bearing debt as of 31 December
2020.
The reduction is directly related to our increased
focus on operational cashflow during 2020,
where we have been able to reduce net interest-
bearing debt by DKK 684m.
Currency risk
The objective of the Treasury Policy is to reduce
the most significant currency risks to better pre-
dict the impact to the income statement as well
as the cash flows to be paid or received. The
risks are managed through hedging activities by
entering into commonly used derivatives such as
forward contracts. The currency risks arise pri-
marily from purchase and sale in foreign curren-
cies compared to the functional currency of each
of the Group entities.
The Treasury Policy sets forth thresholds and re-
quirements for the hedging strategy to be ap-
plied. Hedge accounting is applied for the largest
project transactions. For other project transac-
tions the currency risk is either not hedged or
economically hedged, dependent on the signifi-
cance of the risk.
We are, to a large extent, carrying out transac-
tions in EUR and USD as these hard currencies
are preferred in the Mining and Cement indus-
tries. EUR against DKK is currently not consid-
ered an exposure due to the Danish Kroner be-
ing pegged to the Euro.
DKKm
2020
2019
FLSmidth's share of profit, continuing activities
231
797
FLSmidth's share of loss, discontinuing activities
(21)
(22)
FLSmidth's share of profit
210
775
Number of shares (1,000)
2020
2019
Average diluted number of outstanding shares
50,153
50,092
DKK
2020
2019
Earnings per share from continuing and discontinued activities
4.2
15.5
DKK
2020
2019
Diluted earnings per share from continuing and discontinued activities
4.2
15.5
FLSmidth
Annual report 2020 100
Consolidated financial statements Consolidated financial statements
5.3 FINANCIAL RISKS
continued
The project nature of the business changes the
foreign currency risk picture towards and against
specific currencies from one year to another, de-
pending on the area in which we have activities.
The below analysis assumes that all other varia-
bles, exposures and interest rates in particular,
remain constant.
Translation impact,
DKKm
Change
2020
2019
The sensitivity analysis shows the gain/loss on
net profit for the year and other comprehensive
income of a 5% percent increase in the specified
currencies towards DKK. The analysis includes
the transactional impact from monetary items
and derivatives.
The impact on net profit for the year includes fi-
nancial instruments in foreign currencies that are
currency adjusted through the income statement
as well as any derivatives used for economic
hedging.
The impact on other comprehensive income in-
cludes the value adjustment on derivatives des-
ignated as hedge accounting.
In addition to the transactional effects, in the
event of currency developments, we will also be
impacted by translation effects from the Group
entities with net assets in functional currencies
other than Danish Kroner and Euro. A 5 % in-
crease in the specified currencies towards Dan-
ish Kroner will have the following effect on other
comprehensive income.
The emergence of the COVID-19 virus as it
spread across the world has increased exchange
rate volatility during 2020 by disrupting capital
flows. This has had an negative impact on many
emerging market currencies and countries more
adversely affected by the pandemic. In a number
of cases, the sensitivity analysis defined has ma-
terialised as the relative strength of the EUR has
seen the currency appreciate over 5% against a
number of currencies in countries FLSmidth op-
erate in. This has resulted in a large FX transla-
tion loss on equity of DKK 832m.
Credit risk
We are exposed to credit risks arising from cash
and cash equivalents, derivatives and receiva-
bles including work in progress.
The Treasury Policy sets forth authority limits for
the credit risk exposure related to cash and cash
equivalents as well as derivatives. The limits are
based on the counterparty credit rating. We have
entered into netting agreements with the coun-
terparties used for trading of derivatives, which
means that the credit risk for derivatives is limited
to the net assets per counterparty.
We aim at using banks of high quality in the
countries we operate in. However, due to the na-
ture of our business and operations in emerging
markets, we are sometimes exposed to banks
where the credit rating and quality can be lower
than what we typically see in developed coun-
tries.
For commercial risks the credit risks are gov-
erned by Credit Risk Policy. For receivables the
credit risk is managed by continuous risk assess-
ments and credit evaluations of customers and
trading partners; having country specific risk fac-
tors in mind. To the extent possible, the credit
risks are mitigated through use of payment secu-
rities, such as letters of credit and guarantees is-
sued by first class rated banks, or by securing
positive cash flow throughout the project execu-
tion. At the end of 2020, 17% (2019: 26%) of our
work in progress asset and 6% (2019: 7%) of our
trade receivables balance were covered by pay-
ment securities.
Our customers and trading partners mainly con-
sists of companies within the Cement and Mining
industry. Credit risk is among other things de-
pendent on the development in these industries.
Given our diverse global footprint and the ongo-
ing COVID-19 situation, it is difficult to fully deter-
mine the exposure to increasing credit risk re-
lated to our receivables and work in progress.
The varying responses, mitigations and contain-
ment of the pandemic across governments has
increased volatility and uncertainty. Our focus on
processes related to invoicing and cash collec-
tion during 2020, which will continue in 2021, has
mitigated some of the credit risk. For the ex-
pected credit loss refer to note 3.3 Trade receiv-
ables.
At 31 December 2020 total credit risk was meas-
ured as DKK 7,455m (2019: DKK 9,596m).
We consider the maximum credit risk to financial
counterparties to be DKK 981m (2019: DKK
1,003m). All financial assets, excluding other se-
curities and investments, are expected to be set-
tled during 2021.
Transaction impact, DKKm
2020
2019
Currency
Change
Net
profit for
the year
Other
compre-
hensive
income
Net
profit for
the year
Other
compre-
hensive
income
FLSmidth
Annual report 2020 101
Consolidated financial statements Consolidated financial statements
5.3 FINANCIAL RISKS
continued
Liquidity risk
The objective of the Treasury Policy is to ensure
that the Group always have sufficient and flexible
financial resources at our disposal to ensure con-
tinuous operations and to honor liabilities when
they become due.
The financial resources are continuously moni-
tored and consist of cash and cash equivalents
and undrawn committed facilities.
During 2019, our DKK 5bn club deal was re-
financed, and in 2020 a 1-year extension-option
within was exercised, extending the expiry to
2026. In 2020, a new facility of DKK 500m was
established to ensure sufficient funds as a pre-
caution to the COVID-19 situation. However, a
strong cashflow focus by the business has meant
that at the end of 2020, none of the DKK 500m
was utilised. Total committed facilities by the end
of 2020 was DKK 6,970m (2019: DKK 6,486m), of
which DKK 2,251m (2019: DKK 2,893m) was uti-
lised. The committed facilities will mature during
the years 2022-2026. Short-term liquidity risks
are managed through a cash pool in various cur-
rencies and by having short-term overdraft facili-
ties in place with various financial institutions,
mainly on a committed basis, but also through
uncommitted facilities.
According to the Treasury Policy the available fi-
nancial resources must not be lower than DKK
2bn at any point. The liquidity position is moni-
tored daily. As of 31 December 2020, the finan-
cial resources are well above the threshold.
The committed facilities contain standard clauses
such as pari passu, negative pledge, change of
control and a leverage financial covenant. The
Group did not default or fail to fulfil any of its fi-
nancial covenants, in neither 2019 nor 2020.
Having activities in various emerging markets im-
plies additional risks due to specific restrictions
and requirements. Mitigating actions are there-
fore considered on a case-by-case basis. It re-
quires thorough dedicated efforts to reduce re-
lated risks to an acceptable level.
Restricted cash
Cash and cash equivalents included cash with
currency restrictions. The cash, amounting to
DKK 781m (2019: DKK 824m), is part of the daily
operations and is not restricted to FLSmidth.
Credit risk ratings per financial
institution
%
Maturity profile of Group funding
facilities
DKKm
Group restricted cash
DKKm
0%
20%
40%
60%
80%
100%
2019 2020
AA A BBB BB B Not rated
0
1,000
2,000
3,000
4,000
5,000
6,000
< 1 year 1-5 years > 5 year
2019 2020
0
50
100
150
200
250
300
350
China
India
South Africa
Egypt
Brazil
Ghana
Angola
Mongolia
Morocco
Other
2019 2020
FLSmidth
Annual report 2020 102
Consolidated financial statements Consolidated financial statements
5.4 FINANCIAL INCOME
AND COSTS
DKKm
2020
2019
Total financial income
952
821
Total financial costs
(999)
(939)
Net financial costs
(47)
(118)
DKKm
2020
2019
Cash flow effect
(51)
(59)
Foreign exchange adjustments, net of hedging
effect, amounted to DKK 11m (2019: DKK -43m),
primarily related to the cost of hedging the loan
portfolio to the functional currency of the borrow-
ing entity (forward points) and exposures in non-
hedgeable emerging market currencies, as well
as timing differences between cash flows and
hedges.
The net interest cost totalled DKK 48m (2019:
DKK 53m) related to loans and deposits.
Lease interest cost amounted to DKK 11m (2019:
DKK 12m).
Fair value adjustment of shares of net DKK 1m
(2019: DKK -10m) relates to shareholdings in ce-
ment companies.
Accounting policy
Financial income and costs comprise interest in-
come and costs, realised and unrealised foreign
exchange gains and losses arising from mone-
tary items, and fair value adjustments of shares
and derivatives where hedge accounting is not
applied.
5.5 DERIVATIVES
Economic hedge
We use derivatives to hedge currency risks aris-
ing from monetary items recognised in the bal-
ance sheet.
Fair value adjustments recognised in financial
items in the income statement amounted to DKK
-48m (2019: DKK 28m). At 31 December 2020 the
fair value of our hedge agreements that are not
recognised as hedge accounting amounted to
DKK 1m (2019: DKK -11m).
Cash flow hedge
We use forward exchange contracts to hedge
currency risks regarding expected future cash
flows that meet the criteria for cash flow hedging.
2020
2019
DKKm
Econo-
mic
hedge
Cash
flow
hedge
Total
hedge
Econo-
mic
hedge
Cash
flow
hedge
Total
hedge
Total
1
29
30
(11)
(7)
(18)
Economic hedge, DKKm
2020
2019
Currency
Notional
amount
Net fair
value
Notional
amount
Net fair
value
Total
1
(11)
A negative notional amount represents a sale of the currency
Cash flow hedge, DKKm
2020
2019
Currency
Notional
amount
Net fair
value
Notional
amount
Net fair
value
Total
29
(7)
A negative notional amount represents a sale of the currency
FLSmidth
Annual report 2020 103
Consolidated financial statements Consolidated financial statements
5.5 DERIVATIVES
continued
The fair value reserve of the derivatives is recog-
nised in other comprehensive income until the
hedged items are included in work in progress.
The fair value of derivatives is recognised in
other receivables and other liabilities. The major-
ity of the cash flow hedge instruments are ex-
pected to settle and affect the income statement
within one year.
At 31 December 2020, the fair value of our cash
flow hedge instruments amounted to DKK 29m
(2019: DKK -7m).
Changes in the cash flow hedging reserve:
DKKm
2020
2019
Accounting policy
Derivatives are initially recognised in the balance
sheet at fair value and subsequently measured at
fair value. Fair value of derivatives is included in
other receivables or other liabilities respectively.
Fair value changes of derivatives used for cash
flow hedging are recognised in other compre-
hensive income.
Any ineffective portions of the cash flow hedges
are recognised as a financial item. Upon settle-
ment of the cash flow hedges, the fair value is
transferred from other comprehensive income
into the line item of the hedged item.
Any changes in the fair value of derivatives not
used for hedge accounting are recognised in the
income statement as financial items.
Certain contracts contain conditions that corre-
spond to derivatives. In case the embedded de-
rivatives deviate significantly from the overall
contract, they are recognised and measured as
separate instruments at fair value. That is unless
the contract concerned as a whole is recognised
and measured at fair value.
5.6 FAIR VALUE
MEASUREMENT
Financial instruments measured at fair value are
measured on a recurring basis and categorised
into the following levels of the fair value hierar-
chy:
Level 1: Observable market prices for identical
instruments
Level 2: Valuation techniques primarily based
on observable prices or traded prices for com-
parable instruments
Level 3: Valuation techniques primarily based
on unobservable prices
Securities and investments measured at fair
value through profit/loss are either measured at
quoted prices in an active market for the same
type of instrument (level 1) or at fair value based
on available data (level 3).
Hedging instruments are not traded on an active
market based on quoted prices. Measured in-
stead using a valuation technique, where all sig-
nificant inputs are based on observable market
data; such as exchange rates, interest rates,
credit risk and volatilities (level 2).
There have been no transfers between the levels
in 2020 or 2019.
2020
2019
DKKm
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
9
30
34
73
6
(18)
38
26
FLSmidth
Annual report 2020 104
Consolidated financial statements Consolidated financial statements
5.7 NET INTEREST
BEARING DEBT
5.8 FINANCIAL ASSETS
AND LIABILITIES
All financial assets and liabilities, except for
hedging instruments, securities and investments,
are measured at cost and amortised cost. The
carrying amount for these is an approximation of
fair value.
The financial assets are classified based on the
contractual cash flow characteristics of the finan-
cial asset as well as our intention with the finan-
cial asset according to our business model.
If cash flows from a financial asset are solely pay-
ments of principal and interests the classification
is either:
Amortised cost, for financial assets, where the
objective is to hold the financial asset to collect
the contractual cash flows
Fair value through profit/loss, for other financial
assets
Hedging instruments designated as hedge ac-
counting are classified separately and are meas-
ured at fair value through other comprehensive
income.
2020
DKKm
Effective
interest rate
Carrying
amount 1
January 2020
Cash flows
Additional
lease liability
during the
year
Foreign
exchange
effect
Transferred
to assets
classified as
held for sale
Carrying
amount 31
December
2020
Interest bearing debt
3,493
(942)
147
115
(58)
2,755
Interest bearing assets
1,001
90
0
(114)
(30)
947
Net interest bearing debt
2,492
(1,032)
147
229
(28)
1,808
2019
DKKm
Effective
interest rate
Carrying
amount 1
January 2019
Cash flows
Additional
lease liability
during the
year
Foreign
exchange
effect
Transferred
to assets
classified as
held for sale
Carrying
amount 31
December
2019
Interest bearing debt
3,119
266
108
0
0
3,493
Interest bearing assets
880
126
0
(5)
0
1,001
Net interest bearing debt
2,239
140
108
5
0
2,492
FLSmidth
Annual report 2020 105
Consolidated financial statements Consolidated financial statements
5.8 FINANCIAL ASSETS AND LIABILITIES continued
2020
2019
Assets
DKKm
Maturity of cash flows
Total cash
flows
Fair value
Carrying
amount
Maturity of cash flows
Total cash
flows
Fair value
Carrying
amount
< 1 year
1-5 years
> 5 year
< 1 year
1-5 years
> 5 year
Hedging instruments (hedge accounting)
54
2
0
56
56
56
28
1
0
29
29
29
Fair value through profit and loss
9
0
43
52
52
52
7
0
44
51
51
51
Amortised costs
6,957
0
0
6,957
6,957
6,957
8,982
0
0
8,982
8,982
8,982
Total financial assets
7,020
2
43
7,065
7,065
7,065
9,017
1
44
9,062
9,062
9,062
2020
2019
Liabilities
DKKm
Maturity of cash flows
Total cash
flows
Fair value
Carrying
amount
Maturity of cash flows
Total cash
flows
Fair value
Carrying
amount
< 1 year
1-5 years
> 5 year
< 1 year
1-5 years
> 5 year
Hedging instruments (hedge accounting)
(27)
0
0
(27)
(27)
(27)
(34)
(2)
0
(36)
(36)
(36)
Fair value through profit and loss
(8)
0
0
(8)
(8)
(8)
(18)
0
0
(18)
(18)
(18)
Amortised cost
(4,469)
(952)
(1,751)
(7,172)
(7,027)
(7,027)
(5,901)
(1,354)
(2,010)
(9,265)
(9,078)
(9,077)
Total financial liabilities
(4,504)
(952)
(1,751)
(7,207)
(7,062)
(7,062)
(5,953)
(1,356)
(2,010)
(9,319)
(9,132)
(9,131)
FLSmidth
Annual report 2020 106
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 6
OTHER NOTES
OUTSTANDING
PERFORMANCE SHARES
114,174
SALE OF MÖLLER PNEUMATIC
CONVEYING SYSTEMS BUSINESS
FLSmidth
Annual report 2020 107
Consolidated financial statements Consolidated financial statements
6.1 SHARE-BASED PAYMENT
Accounting policy
We have established two different share-based
incentive schemes; a share option programme
and a performance share programme. Both of
the share-incentive schemes are classified as eq-
uity based, as the schemes settle in shares.
The value of the services received in exchange
for the granting of options and performance
share units is measured as the fair value of the
option and performance share unit, respectively.
The share options and performance share units
(PSUs) are measured at fair value at granting and
are recognised in staff cost in the income state-
ment and in equity over the vesting period.
On initial recognition of the share options/PSUs,
the number of options/PSUs expected to vest are
estimated. Subsequently, the estimate is revised
so that the total cost recognised is based on the
actual number of options/PSUs expected to vest.
The fair value of the share options is estimated
using an option pricing model (Black-Scholes). In
determining the fair value, the terms and condi-
tions related to the share options granted are
taken into account. The fair value of the PSUs is
determined based on the quoted share price.
Share options
Executive Management and a number of key em-
ployees in the Group have been granted options
to purchase 544,246 shares in the company at a
set price (strike price).
The calculated fair values in connection with allo-
cation are based on the Black & Scholes model
for valuation of options. The calculation takes
into account the terms and conditions under
which the share options are allocated. Year of al-
location, strike price and exercise period for the
individual allocations are shown in the table.
In 2020, the recognised fair value of share op-
tions in the consolidated income statement
amounts to DKK 0m (2019: DKK 0m). The calcula-
tion of average weighted fair value and strike
prices per option is based on a dividend of DKK
0 (2019: DKK 9) in the exercise period.
Specification of outstanding number of share options
Group
Executive
Management
Key
employees
Total number
Outstanding options 31 December 2019
49,889
776,265
826,154
Outstanding options 31 December 2020
65,049
479,197
544,246
Total fair value of outstanding options DKKm
DKK
2020
2019
Year of allocation
Strike price
Exercise
period
Allocated
Lapsed
Exercised
Outstanding
FLSmidth
Annual report 2020 108
Consolidated financial statements Consolidated financial statements
6.1 SHARE-BASED PAYMENT
continued
Performance-shares
In March 2016, the share-based programmes
were revised. The share options programme was
replaced by a long-term incentive programme.
The long term incentive programme is based on
a three year performance period and perfor-
mance measurement based on key financial per-
formance indicators as EBITA and net working
capital as well as continued employment. The
purpose of introducing the performance share
programme is to ensure common goals for
Group Executive Management, key employees
and shareholders.
Fair value is based on the market price. Market
price is not adjusted for dividend as participants
of the programme will be compensated for any
dividend pay-outs in the performance period.
For the 2020 plan, 52,242 shares (2019: 36,640
shares) pertain to Executive Management at the
grant date.
In 2020, the recognised fair value of perfor-
mance shares in the consolidated income state-
ment amounted to an income of DKK 21m (2019:
DKK -13m).
An income is recognised as it is expected that fi-
nancial KPIs will not be achieved for two of the
share incentive programmes related to perfor-
mance share units, hence the costs previously
recognised have been reversed.
The total number of outstanding performance
shares at 31 December 2020 was 478,038 of
which 114,174 performance shares are expected
to vest.
2020
2019
Specification of performance shares
Group
Executive
Management
Key
employees
Total number
Group
Executive
Management
Key
employees
Total number
Outstanding performance shares 31 December
28,420
85,754
114,174
31,109
194,837
225,946
31/12/2020
31/12/2019
DKK/DKKm
2020
2019
FLSmidth
Annual report 2020 109
Consolidated financial statements Consolidated financial statements
6.2 RELATED PARTY
TRANSACTIONS
Related parties to FLSmidth are determined as
members of the Board of Directors and Group
Executive Management, their close family mem-
bers, or companies in which these persons have
significant influence and the associated entities
over which FLSmidth has significant influence.
During 2020, FLSmidth has had ordinary sales
transactions of DKK 12m with its associate Inter-
tek Robotic Laboratories Pty Ltd. Other than that,
there were no significant transactions between
FLSmidth and any of its related parties, other
than ordinary remuneration of the Board of Direc-
tors and Group Executive Management in 2020
and 2019. Please refer to note 1.5 Staff cost and
the Remuneration report 2020.
6.3 AUDIT FEE
DKKm
2020
2019
Total audit related services
16
16
Total non-audit services
2
1
Total fees to
independent auditor
18
17
In addition to statutory audit, EY Godkendt Revi-
sionspartnerselskab, the Group auditors ap-
pointed at the Annual General Meeting, provided
other assurance engagements and tax compli-
ance services to the Group, DKK 1m (2019: DKK
1m).
All non-audit services have been approved by
the Audit Committee.
6.4 EVENTS AFTER THE
BALANCE SHEET DATE
Effective 1 January 2021, we have divested our
Möller pneumatic conveying systems business.
The divestment is part of the ongoing process to
December 2020 the balances related to the di-
vestment was classified as held for sale in the
balance sheet. A revaluation of the balances was
made in December 2020 to reflect the net assets
held for sale at fair value less cost to sell and,
therefore, the loss arising from the sale was al-
ready recognised in 2020.
On 15 January 2021, FLSmidth announced that
we are in negotiations with ThyssenKrupp con-
cerning an acquisition of ThyssenKrupp's mining
business. The negotiations are at a non-binding
stage. Accordingly, there can be no assurances
as to whether and when a transaction will tran-
spire.
We are not aware of any other subsequent mat-
ters, that could be of material importance to the
FLSmidth
Annual report 2020 110
Consolidated financial statements Consolidated financial statements
6.5 LIST OF GROUP COMPANIES
Company name
Country
Direct Group
holding (pct.)
FLSmidth & Co. A/S
○
○
○
○
○
○
⌂
○
FLSmidth Global Services A/S
○
○
○
FLSmidth A/S
○
○
○
⌂
○
○
○
○
○
○
○
⌂
○
○
○
○
○
○
○
Company name
Country
Direct Group
holding (pct.)
○
○
○
○
○
○
○
⌂
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
⌂
FLS US Holdings, Inc.
○
⌂
⌂
⌂
⌂
⌂
⌂
FLSmidth
Annual report 2020 111
Consolidated financial statements Consolidated financial statements
6.5 LIST OF GROUP COMPANIES
continued
Company name
Country
Direct Group
holding (pct.)
FLSmidth Tyskland A/S
○
⌂
⌂
⌂
⌂
⌂
FLSmidth Minerals Holding ApS
○
⌂
⌂
⌂
⌂
⌂
⌂
⌂
⌂
⌂
○
○
○
○
Company name
Country
Direct Group
holding (pct.)
○
⌂
⌂
⌂
⌂
⌂
*Associate
All other enterprises are Group enterprises
FLSmidth
Annual report 2020 112
Consolidated financial statements Consolidated financial statements
FLSmidth
Annual report 2020
SECTION 7
BASIS OF REPORTING
The consolidated financial statements complies with IFRS and further require-
ments in the Danish Financial Statements Act
Alternative Performance Measures Alternative additional measures to
describe performance
UNCHANGED ACCOUNTING POLICIES
FLSmidth
Annual report 2020 113
Consolidated financial statements Consolidated financial statements
7.1 INTRODUCTION
This section provides an overview of our princi-
pal accounting policies, key accounting esti-
mates and judgements as well as new and
amended IFRS standards and interpretations.
The following sections provide an overall de-
scription of the accounting policies applied to the
consolidated financial statements. We provide a
more detailed description of the accounting poli-
cies and key estimates and judgements in the
notes.
The descriptions of accounting policies in the
statements and notes form part of the overall de-
scription of accounting policies.
The annual report has been approved by the
Board of Directors at its meeting 10 February
2021. The annual report will be presented to the
shareholders of FLSmidth & Co. A/S for approval
at the Annual General Meeting.
7.2 BASIS OF PREPARATION
The consolidated financial statements of FLS-
midth Group have been prepared in accordance
with IFRS as adopted by the EU and further re-
quirements in the Danish Financial Statements
Act. We have prepared the consolidated financial
statements in accordance with all the IFRS stand-
ards effective at 31 December 2020. The finan-
cial year for the Group is January 1 December
31.
The consolidated financial statements have been
prepared on a going concern basis and under
the historical cost convention, except for deriva-
tives and securities, which are measured at fair
value. The accounting policies are unchanged
from last year except from changes included in
note 7.6.
7.3 DEFINING MATERIALITY
Our annual report is based on the concept of ma-
teriality, to ensure that the content is material and
relevant to the readers. The consolidated finan-
cial statements consist of many transactions.
These transactions are aggregated into classes
according to their nature or function, and pre-
sented in classes of similar items in the financial
statements and in the notes as required by IFRS.
If items are individually immaterial, they are ag-
gregated with other items of a similar nature in
the statements or in the notes.
The disclosure requirements throughout IFRS are
substantial, and we provide the specific disclo-
sures required by IFRS unless the information is
considered immaterial to the economic decision-
making of the readers of these financial state-
ments.
7.4 ALTERNATIVE
PERFORMANCE MEASURES
We present financial measures in the consoli-
dated financial statements which are not defined
according to IFRS. We use these alternative per-
formance measures (APM) as we believe that
these financial measures provide valuable infor-
mation to our stakeholders and management.
The financial measures should not be considered
as a replacement for performance measures as
defined under IFRS, but rather as supplementary
information.
The alternative performance measures may not
be comparable to similarly titled measures pre-
sented by other companies, as the definitions
and calculations may be different. Our definitions
of the financial measures are included in note 7.8
Definition of terms.
We use several alternative performance
measures throughout the report. The most com-
monly used are:
Growth
We use different alternative performance
measures related to growth, such as order in-
take, order backlog and growth. We use these
measures in the daily management of our busi-
ness, as order intake and order backlog are part
of the main indicators of our future activity level.
Profit
We use different alternative performance
measures related to profit, such as EBIT, EBITA
and EBITDA. EBITA is a measure which is com-
monly used within the industry and included in
our calculation of return of capital employed.
Cash flow
We use different alternative performance
measures related to cash flow, such as free cash
flow. We use free cash flow to measure how
much cash we generate from our operations af-
ter maintaining our capital employed.
Financial position
We use different alternative performance
measures related to the financial position, such
as capital employed, net working capital and net
interest-bearing debt. Capital employed and net
working capital are included in our calculation of
return of capital employed. Net working capital is
also a measure we use in the daily management
of our business, as it is closely related to the ac-
tivity.
7.5 ACCOUNTING POLICIES
The descriptions of accounting policies in the
notes form part of the overall description of ac-
counting policies.
Consolidation
The consolidated financial statements comprise
the financial statements of FLSmidth & Co. A/S
(the parent company) and subsidiaries controlled
by FLSmidth & Co. A/S, prepared in accordance
with Group accounting policies. The consolidated
financial statements are prepared by combining
items of a uniform nature and subsequently elimi-
nating intercompany transactions, internal share-
holdings and balances and unrealised intercom-
pany profits and losses.
Foreign currencies
The consolidated financial statements are pre-
sented in Danish Kroner (DKK).
Foreign currency transactions are translated into
the functional currency defined for each com-
pany using the prevailing exchange rates at the
transaction date. Monetary items denominated in
foreign currencies are translated into the func-
tional currency at the prevailing exchange rates
at the reporting date.
Financial statements of foreign subsidiaries are
translated into Danish Kroner at the prevailing
FLSmidth
Annual report 2020 114
Consolidated financial statements Consolidated financial statements
exchange rates at the reporting date for assets
and liabilities, and at average exchange rates for
income statement items.
All exchange rate differences are recognised as
financial income or financial costs, except for the
following, that are recognised in other compre-
hensive income, translated at the prevailing ex-
change rates at the reporting date:
at the beginning of the year
statements from average exchange rates to
the exchange rates prevailing at the reporting
date
Translation of long-term intercompany bal-
ances, which are considered to be an addition
to net assets in subsidiaries.
Goodwill arising from the acquisition of new com-
panies is treated as an asset belonging to the
new foreign subsidiaries and translated into Dan-
ish Kroner at prevailing exchange rates at the re-
porting date.
Unrealised gain/loss relating to hedging of future
cash flow is recognised in other comprehensive
income.
7.6 IMPACT FROM NEW IFRS
We have implemented all new or amended ac-
counting standards and interpretations as
adopted by the EU and applicable for the 2020
financial year, including:
Amendments to References to the Conceptual
Framework in IFRS Standards (issued 2018, ef-
fective date 1 January 2020)
Amendments to IFRS 3, Business Combina-
tions (issued 2018, effective date 1 January
2020)
Amendments to IAS 1 and IAS 8, Definition of
Material (issued 2018, effective date 1 January
2020)
Interest Rate Benchmark Reform - Amend-
ments to IFRS 9, IAS 39 and IFRS 7 (issued
2019, effective date 1 January 2020)
Amendment to IFRS 16, Leases COVID 19-Re-
lated Rent Concessions (issued May 2020, ef-
fective date 1 June 2020)
None of these have had a significant impact on
the financial statements.
7.7 NEW IFRS NOT YET
ADOPTED
Generally, we expect to implement all new or
amended accounting standards and interpreta-
tions when they become mandatory and have
been endorsed by the EU. IASB has issued new
or amended accounting standards, which be-
come effective after 31 December 2020. The fol-
lowing amendments are relevant for FLSmidth,
but none of these are expected to have a signifi-
cant impact on the financial statements:
IFRS
Description
Effective
date
*Other changes included in the Annual improvements 2018-2020 to other standards will not have an impact on our financial statements.
FLSmidth
Annual report 2020 115
Consolidated financial statements Consolidated financial statements
7.8 DEFINITION OF TERMS
Acquisition development
Development as a consequence of business ac-
quisition, disregarding development from cur-
rency. After 12 months business acquisitions are
included in the development from organic
growth.
Alternative performance measure
A financial measure of historical or future finan-
cial performance, financial position or cash flows,
other than a financial measure defined or speci-
fied according to IFRS.
Book-to-bill
Order intake as a percentage of revenue.
BVPS (Book value per share)
FLSmidth & Co. A/S´ share of equity excluding
minorities divided by year-end number of shares.
Capital employed, average
(Capital employed, end of period + capital em-
ployed end of same period last year)/2.
Capital employed, end of period
Intangible assets (cost) + Property, plant and
equipment (carrying amount) + lease assets + Net
working capital.
Capital expenditure (CAPEX)
Investment in Property, plant and equipment.
CFFF
Cash flow from financing activities.
CFFI
Cash flow from investing activities.
CFFO
Cash flow from operating activities.
CFFO / Revenue
nue.
CFPS (cash flow per share), (diluted)
CFFO as a percentage of average number of
shares (diluted).
Currency development
The difference between the current figure re-
ported and the same figure had the exchange
rates towards DKK been the same as in the com-
parison period.
DIFOT
Delivery in full on time.
Dividend yield
Dividend as percent of share price end of year.
EBIT
Earnings before interest and tax and impairments
of investments in associated companies.
EBIT margin
EBIT as a percentage of revenue.
EBITA
Earnings before, interest, tax, amortisation and
impairments of investments in associated compa-
nies.
EBITA margin
EBITA as a percentage of revenue.
EBITDA
Earnings before special non-recurring items, in-
terest, tax, depreciation, amortisation and impair-
ments of investments in associated companies.
EBITDA margin
EBITDA as a percentage of revenue.
EBT
Earnings before tax.
EBT margin
EBT as a percentage of revenue.
Effective tax rate
Income tax expenses as a percentage of EBT.
EPC projects
Engineering, procurement and construction.
EPS projects
Engineering, procurement and supervision.
EPS (earning per share)
Net profit/(loss) divided by the average number
of shares outstanding (adjusted for treasury
shares).
EPS (earnings per share), (diluted)
Net profit/(loss) divided by the average number
of shares outstanding (adjusted for treasury
shares) less share options in-the-money.
Equity ratio
Equity as a percentage of total assets.
Financial gearing (NIBD/EBITDA)
Net interest-bearing debt (NIBD) divided by
EBITDA.
Free cash flow
CFFO + CFFI.
Free cash flow adjusted for acquisitions
and disposals of enterprises and
activities
CFFO + CFFI + acquisitions of enterprises and ac-
tivities - disposals of enterprises and activities.
Free cash flow adjusted for acquisitions
and disposals of enterprises and
activities and IFRS 16, Leases
CFFO + CFFI + acquisitions of enterprises and ac-
tivities - disposals of enterprises and activities +
repayment of lease liabilities.
Gross margin
Gross profit as a percentage of revenue.
Growth
Increase/decrease in percentage compared to
last year. Currency effect is current year amount
foreign exchange rate. Organic effect is growth
+/- currency effect and acquisition effect.
Market capitalisation
The share price multiplied by the number of
shares issued end of year.
Net interest-bearing debt (NIBD)
Interest-bearing debt less interest-bearing assets
and bank balances.
Net working capital, average
(Net working capital, end of year + net working
capital, end of last year)/2.
FLSmidth
Annual report 2020 116
Consolidated financial statements Consolidated financial statements
7.8 DEFINITION OF TERMS -
continued
Net working capital, end
Inventories + Trade receivables + work in pro-
gress for third parties, net + prepayments, net +
financial instruments, net + other receivables
other liabilities trade payables.
Net working capital ratio, average
Net working capital, average as a percentage of
last 12 months revenue.
Net working capital ratio, end
Net working capital as a percentage of last 12
months´ revenue.
Number of shares outstanding
holding of treasury shares.
NIBD/EBITDA
Net interest-bearing debt (NIBD) divided by last
One-offs
Costs/income assessed by Management to be
non-recurring by nature.
Operational expenditure (OPEX)
External costs, personal cost and other income
and costs.
Order backlog
The value of outstanding performance obliga-
tions on current contracts at end of year. On
O&M contracts entered into after 2014, the order
backlog includes the next 12 months´ expected
revenue.
Order backlog / Revenue
Order backlog as a percentage of last 12 months´
revenue.
Order intake
Orders are included as order intake when an or-
der becomes effective, meaning when the con-
tract becomes binding for both parties depend-
ent on the specific conditions of the contract. On
O&M contracts entered into after 2014, the order
intake includes the next 12 months´ expected
revenue, and subsequently order intake will be
included on a monthly rolling basis.
Organic development
Development as a consequence of growth in al-
ready existing business, disregarding develop-
ment from currency.
Other comprehensive income
All items recognised in equity other than those
related to transactions with owners of the com-
pany.
Pay-out ratio
The total dividends for the year as a percentage
of profit/(loss) for the year.
Return on equity
Profit/(loss) for the last 12 months´ as a percent-
age of equity ((Equity, end of year + equity, end
of last year)/2).
ROCE (return on capital employed)
EBITA as a percentage of capital employed, aver-
age.
Sales, General & Administrative costs
(SG&A costs)
Sales cost + Administrative cost ± other operating
items.
Special non-recurring items
Costs and income of a special nature in relation
to the main activities of the continued activities,
including gains and losses from acquisitions and
disposals of enterprises and activities.
Total shareholder return
Share price increase and paid dividend.
TRIR
Total recordable incident rate.
FLSmidth
Annual report 2020 117
Parent company financial statements Consolidated financial statements
Parent Company Financial
statements
Notes
PARENT COMPANY
FINANCIAL STATEMENTS
FLSmidth
Annual report 2020 118
Parent company financial statements Parent company financial statements
Management review
Parent company activities
include holding of shares in Group enterprises
Dividend from Group enterprises to the parent
company, FLSmidth & Co. A/S, was DKK 0m in
2020 (2019: DKK 0m) and the profit for the year
was DKK -6m (2019: DKK -42m).
Increase in financial income and cost is related
to foreign exchange gains and losses. Net fi-
nancial income is DKK 79m (2019: DKK 63m).
The result is significantly impacted by write
downs of investments in Group enterprises.
Total assets at year-end amounted to DKK
8,445m (2019: DKK 8,854m) and the equity was
DKK 2,516m (2019: DKK 2,522m). Management
consider the result to be lower than expected.
For financial outlook of 2021 please refer to
page 11.
INCOME STATEMENT
Parent company financial statements
Notes
DKKm
2020
2019
EBIT
(62)
(105)
EBT
17
(42)
Profit for the year
(6)
(42)
(109)
(42)
103
0
FLSmidth
Annual report 2020 119
Parent company financial statements Parent company financial statements
Notes
DKKm
2020
2019
ASSETS
Property, plant and equipment
9
10
Financial assets
2,554
2,632
Total non-current assets
2,563
2,642
Receivables
5,793
6,201
Cash and cash equivalents
89
11
Total current assets
5,882
6,212
Total assets
8,445
8,854
Notes
DKKm
2020
2019
EQUITY AND LIABILITIES
Equity
2,516
2,522
Provisions
8
7
Total non-current liabilities
2,008
2,633
Total current liabilities
3,913
3,692
Total liabilities
5,929
6,332
Total equity and liabilities
8,445
8,854
BALANCE SHEET
FLSmidth
Annual report 2020 120
Parent company financial statements Parent company financial statements
Each share entitles its holder to 20 votes, and
there are no special rights attached to the
shares.
Profit for the year DKK -6m (2019: DKK-42m) is
transferred to retained earnings, of which DKK
103m (2019: DKK 0m) is proposed as dividend.
EQUITY
DKKm
Share capital
Retained
earnings
Proposed
dividend
Total
Equity at 1 January 2019
1,025
1,505
461
2,991
Equity at 31 December 2019
1,025
1,497
0
2,522
Equity at 31 December 2020
1,025
1,388
103
2,516
Number of shares (1,000):
2020
2019
2018
2017
2016
Share capital at 31 December
51,250
51,250
51,250
51,250
51,250
FLSmidth
Annual report 2020 121
Parent company financial statements Parent company financial statements
1. OTHER OPERATING
INCOME
DKKm
2020
2019
1
6
2. STAFF COSTS
DKKm
2020
2019
(4)
(14)
Average number of employees
8
7
Remuneration of the Board of
Directors for 2020 amounts to DKK 6m (2019:
DKK 6m), including DKK 0m (2019: DKK 1m),
which was incurred by the parent company. The
total remuneration of the Group companys Exec-
utive Management amounted to DKK 51m (2019:
DKK 43m), of which DKK 4m (2019: DKK 14m) was
incurred by the parent company.
3. FINANCIAL INCOME
DKKm
2020
2019
1,177
776
4. FINANCIAL COST
DKKm
2020
2019
(1,098)
(713)
5. TAX FOR THE YEAR
DKKm
2020
2019
Tax for the year
(23)
0
6. DISTRIBUTION OF PROFIT
FOR THE YEAR
Proposed distribution of profit:
DKKm
2020
2019
Profit for the year
(6)
(42)
7. PROPERTY, PLANT AND
EQUIPMENT
DKKm
Land and
buildings
Operating
equipment,
fixtures and
fittings
Total
Cost at 31 December 2020
23
2
25
Depreciation and impairment at 31 December 2020
(14)
(2)
(16)
Carrying amount at 31 December 2020
9
0
9
FLSmidth
Annual report 2020 122
Parent company financial statements Parent company financial statements
8. FINANCIAL ASSETS
For specification of investments in Group enter-
prises, see note 6.5 in the consolidated financial
statements.
Result of annual impairment test
As of 31 December 2020, the cost price of the in-
vestments in subsidiaries was tested for impair-
ment. The impairment test identified impairment
charges for 2020 amounting to DKK 54m (2019:
DKK 90m). The impairment was related to the
subsidiary FLSmidth Global Services A/S based
on value in use.
ment amounted to DKK 7m (2019: DKK 0m).
Key assumptions
The impairment test has been based on a five
year forecast for FLSmidth Global Services A/S.
The applied discount rate after tax is 7.5% and
reflects the latest market assumptions for the risk
free rate based on a 10-year Danish government
bond, the equity risk premium and the cost of
debt.
The long-term growth rate for the terminal period
is based on the expected growth in the world
economy as well as input from current long-term
swaps. Based on these factors, a long-term an-
nual growth rate for the terminal period of 1.5%
has been applied.
9. DEFERRED TAX ASSETS
AND LIABILITES
Deferred tax relates to the following items:
DKKm
2020
2019
Net value of deferred
tax assets/(liability)
23
32
10. OTHER RECEIVABLES
Other receivables mainly include fair value of fi-
nancial contracts (positive value) of DKK 67m
(2019: DKK 77m), receivable from Canadian tax
authorities DKK 17m (2019: DKK 18m) and tax on
account for the Danish jointly taxed enterprises.
11. DERIVATIVES
The currency exposure is hedged according to
the Financial Policy. At 31 December 2020 the
fair value of our hedge agreements amounted to
DKK -1m (2019: DKK 5m).
Economic hedge, DKKm
2020
Currency
Notional
amount
Net fair
value
Total
(1)
A negative notional amount represents a sale of the currency
Economic hedge, DKKm
2019
Currency
Notional
amount
Net fair
value
Total
5
A negative notional amount represents a sale of the currency
12. PROVISIONS
DKKm
2020
2019
Provisions at 31 December
8
7
13. OTHER LIABILITIES
Other liabilities include fair value of financial con-
tracts (negative value) of DKK 68m (2019: DKK
72m).
14. MATURITY PROFILE OF
CURRENT AND NON-
CURRENT LIABILITIES
Maturity profile of liabilities:
DKKm
2020
2019
Within one year
3,913
3,692
Within one to five years
2,008
2,633
After five years
0
0
Total
5,921
6,325
DKKm
Investments
in Group
enterprises
Other
securities and
investments
Total
Cost at 31 December 2020
3,121
37
3,158
Impairment at 31 December 2020
(609)
(18)
(627)
Carrying amount at 31 December 2020
2,512
19
2,531
FLSmidth
Annual report 2020 123
Parent company financial statements Parent company financial statements
15. AUDIT FEE
In addition to statutory audit, EY Godkendt Revi-
sionspartnerselskab, the Parent company audi-
tors provided other assurance engagements to
the Parent company.
DKKm
2020
2019
Total audit related services
3
3
Total fees to
independent auditor
3
3
16. CONTRACTUAL AND
CONTINGENT LIABILITIES
The parent company has provided guarantees
primarily to financial institutions at a total amount
of DKK 13,088m (2019: DKK 13,947m) of which
DKK 4,208m have been utilised in 2020 (2019:
DKK 5,670m).
In connection with disposal of enterprises, nor-
mal guarantees, etc. are issued to the acquiring
enterprise. Provisions are made for estimated
losses on such items.
The parent company is the administration com-
pany of the Danish joint taxation. According to
the Danish corporate tax rules, as of 1 July 2012,
the Company is obliged to withhold taxes on in-
terest, royalty and dividend for all companies
subjected to the Danish joint taxation scheme.
The parent company has issued letter of support
for certain Group companies.
There are no significant contingent assets or lia-
bilities apart from the above.
See also note 2.9 in the consolidated financial
statements.
17. RELATED PARTY
TRANSACTIONS
Board of Directors and Group Executive Manage-
ment and the Group companies and associates
that are part of the Group.
There has been no transactions with related par-
ties in 2020 and 2019, apart from Group Execu-
tive Management´s remuneration stated in note 2
and Treasury activities as mentioned below. Cap-
ital transactions with subsidiaries are included in
note 8 and balances are disclosed separately in
the balance sheet.
managerial services and insurance services. The
parent company´s purchase of services mainly
consists of legal and tax assistance provided by
FLSmidth A/S.
Financial income and costs are attributable to the
-house Treasury function,
which is performed by the parent company, FLS-
midth & Co. A/S. Receivables and payables are
mainly attributable to this activity.
These transactions are carried out on market
terms and at market prices.
For guarantees provided by the parent company
for related parties, please see note 16 in the par-
ent company financial statements.
18. SHAREHOLDERS
At the end of 2020:
One shareholder has reported a participating in-
terest above 10%:
Lundbeckfond Invest A/S, Denmark.
No shareholders have reported a participating in-
terest above 5%.
FLSmidth
Annual report 2020 124
Parent company financial statements Parent company financial statements
19. ACCOUNTING POLICIES
PARENT COMPANY
Accounting policy
The financial statements of the parent company
(FLSmidth & Co. A/S) are presented in conformity
with the provisions of the Danish Financial State-
ments Act for reporting class D enterprises.
To ensure uniform presentation, the terminology
used in the consolidated financial statements has
as far as possible been applied in the parent
measurement are generally consistent with those
of the Group. The instances in which the parent
those of the Group have been described below.
The accounting policies for the parent company
are unchanged from 2019.
income
from Group enterprises, is presented first in the
income statement.
Dividend from Group enterprises
Dividend from investments in subsidiaries is rec-
ognised as income in the parent companys in-
come statement in the financial year in which the
dividend is declared. This will typically be at the
time of the approval by the Annual General
Meeting of distribution from the company con-
cerned. When the dividend distributed exceeds
the accumulated earnings after the date of acqui-
sition, the dividend is recognised in the income
statement, however, this will trigger an impair-
ment test of the investment.
Property, plant and equipment
Depreciation is charged on a straight line basis
over the estimated useful life of the assets until
they reach the estimated residual value. In the
preciation period and the residual value are de-
termined at the time of acquisition and are reas-
sessed every year.
Financial assets
Investments in Group enterprises are measured
at cost less impairment. Where the cost exceeds
the recoverable amount, an impairment loss is
recognised to this lower value. To the extent the
distributed dividend exceeds the accumulated
earnings after the date of acquisition, an impair-
ment test of the investment is triggered.
Other securities and investments
Other securities and investments consist of
shares in cement plants that are acquired in con-
nection with the signing of contracts and are
measured at fair value. Value adjustments are
recognised in the income statement as financial
items.
Cash flow statement
As the consolidated financial statements include
a cash flow statement for the whole Group, no in-
dividual statement for the parent company has
been included, see the exemption provision, sec-
tion 86 of the Danish Financial Statements Act.
FLSmidth
Annual report 2020 125
Parent company financial statements Statement By management
Executive management
Thomas Schulz
Group CEO
Roland M. Andersen
Group CFO
Board of directors
Vagn Ove Sørensen
Chairman
Tom Knutzen
Vice chairman
Gillian Dawn Winckler
Thrasyvoulos Moraitis
Richard Robinson Smith
Anne Louise Eberhard
Mette Dobel
Søren Dickow Quistgaard
Claus Østergaard
STATEMENT BY MANAGEMENT
Statement By management
FLSmidth
Annual report 2020 126
Parent company financial statements Independent auditor’s report
Report on the audit of the
consolidated financial
statements and parent company
financial statements
Opinion
Basis for opinion
Key audit matters
INDEPENDENT AUDITOR'S REPORT
Independent auditor’s report
FLSmidth
Annual report 2020 127
Parent company financial statements Independent auditor’s report
Statement on the Management's
review
Management's responsibilities
for the financial statements
FLSmidth
Annual report 2020 128
Parent company financial statements Independent auditor’s report
Auditor's responsibilities for the
audit of the financial statements
Report on compliance with the
ESEF Regulation
FLSmidth
Annual report 2020 129
Parent company financial statements Independent auditor’s report
Copenhagen, 10 February 2021
EY Godkendt Revisionspartnerselskab
CVR no. 30 70 02 28
Henrik Kronborg Iversen
State Authorised
Public Accountant
mne24687
Jens Thordahl Nøhr
State Authorised
Public Accountant
mne32212
FLSmidth
Annual report 2020 130
Parent company financial statements Forward looking statement
the form of annual reports or interim reports, filed
with the Danish Business Authority and/or an-
NASDAQ Copenhagen, as well as any presenta-
tions based on such financial reports, and any
other written information released, or oral state-
ments made, to the public based on this report or
in the future on behalf of FLSmidth & Co. A/S,
may contain forward looking statements.
other words and terms of similar meaning in con-
nection with any discussion of future operating or
financial performance identify forward-looking
statements. Examples of such forward-looking
statements include, but are not limited to:
Statements of plans, objectives or goals for fu-
ture operations, including those related to FLS-
re-
search and product development.
Statements containing projections of or targets
for revenues, profit (or loss), CAPEX, dividends,
capital structure or other net financial items.
Statements regarding future economic perfor-
mance, future actions and outcome of contin-
gencies such as legal proceedings and state-
ments regarding the underlying assumptions or
relating to such statements.
Statements regarding potential merger &
acquisition activities.
These forward-looking statements are based on
current plans, estimates and projections. By their
very nature, forward-looking statements involve
inherent risks and uncertainties, both general
and specific, which may be outside FLSmidth &
fect such forward-looking statements.
FLSmidth & Co. A/S cautions that a number of im-
portant factors, including those described in this
report, could cause actual results to differ materi-
ally from those contemplated in any forward-
looking statements.
Factors that may affect future results include, but
are not limited to, global as well as local political
and economic conditions, including interest rate
and exchange rate fluctuations, delays or faults
in project execution, fluctuations in raw material
prices, delays in research and/or development of
new products or service concepts, interruptions
of supplies and production, unexpected breach
or termination of contracts, market-driven price
and/or services, introduction of competing prod-
ucts, reliance on information technology,
current and new products, exposure to product
liability and legal proceedings and investigations,
changes in legislation or regulation and interpre-
tation thereof, intellectual property protection,
perceived or actual failure to adhere to ethical
marketing practices, investments in and divesti-
tures of domestic and foreign enterprises, unex-
pected growth in costs and expenses, failure to
recruit and retain the right employees and failure
to maintain a culture of compliance. Unless re-
quired by law FLSmidth & Co. A/S is under no
duty and undertakes no obligation to update or
revise any forward-looking statement after the
distribution of this report.
FORWARD LOOKING STATEMENTS
Forward looking statement
Annual Report 2020
1 January - 31 December 2020
FLSmidth & Co. A/S
Vigerslev Allé 77
DK-2500 Valby
Denmark
Tel.: +45 36 18 18 00
Fax: +45 36 44 11 46
corpir@smidth.com
www.smidth.com
CVR No. 58180912
