Annual report 2016 ROCE EBITA margin CFFO Order intake (DKKm) (DKKm) 8.5% 7.1% 1,447 18,303 Down from 10.3% Down from 8.0% Up from DKK 538 Down from DKK 18,490 CONTENTS MANAGEMENT’S REVIEW 3-69 Group Financial Highlights (5-year summary) 3 Main conclusions 4-6 FLSmidth at a glance 7-9 Meet the Chairman and the Group CEO 10 Strategy and Business model 11-19 10 Financial performance 20-33 MEET THE CHAIRMAN AND CEO Divisional performance 34-41 Understand what is at the top of Key Innovations 42-47 management’s agenda. Risk Management 48-50 Sustainability performance 51 Corporate governance at a glance 52 Board of Directors 53-55 Group Executive Management 56-57 Shareholder information 58-60 Company Announcements 2016 61 Statement by management on the annual report 62 4-6 Independent auditor’s report 63-67 Quarterly key figures 68-69 MAIN CONCLUSIONS Quickly comprehend the takeaways from the Annual Report. CONSOLIDATED FINANCIAL STATEMENTS 70-137 Contents and list of notes 71 Consolidated income statement 72 Consolidated statement of comprehensive income 73 Consolidated cash flow statement 74 Consolidated balance sheet 75 Consolidated equity 77 Notes to the consolidated financial statements 79 66-67 List of group companies 133-134 QUARTERLY KEY FIGURES PARENT COMPANY FINANCIAL STATEMENTS 138-147 Check the past two year’s quarterly Parent company income statement 139 developments. Parent company balance sheet 140 Parent company equity 141 Notes to the parent company financial statements 142-147 68 FINANCIAL STATEMENTS Dive into the numbers and the explanatory notes. FLSMIDTH ANNUAL REPORT 2016 / 2 GROUP FINANCIAL HIGHLIGHTS (5-YEAR SUMMARY) / BACK TO CONTENTS GROUP FINANCIAL HIGHLIGHTS 5-YEAR SUMMARY DKKm 2012 2) 2013 2) 2014 2) 2015 2016 2016 EUR 1) INCOME STATEMENT Revenue 24,283 25,027 20,499 19,682 18,192 2,443 Gross profit 6,193 5,060 5,125 4,946 4,581 615 EBITDA 2,959 1,618 2,106 1,878 1,588 213 EBITA 2,703 1,379 1,823 1,582 1,289 173 EBIT 2,189 67 1,416 1,141 881 118 Earnings from financial items, net (61) (227) (137) (256) (54) (7) EBT 2,128 (160) 1,279 885 827 111 Profit/(loss) for the year, continuing activities 1,415 (472) 881 603 590 79 Profit/(loss) for the year, discontinued activities (112) (312) (68) (178) (68) (9) Profit/(loss) for the year 1,303 (784) 813 425 522 70 CASH FLOW CFFO 1,720 (157) 1,298 538 1,447 195 Acquisition of tangible assets (739) (524) (366) (139) (203) (27) CFFI (3,398) (567) (598) 750 (194) (26) Free cash flow (1,678) (724) 700 1,288 1,253 169 Free cash flow adjusted for acquisitions and disposals of enterprises and activities 830 (751) 884 415 1,253 169 Net working capital 1,553 2,027 2,276 2,583 2,099 282 Net interest-bearing debt (3,189) (4,780) (4,593) (3,674) (2,525) (340) ORDERS Order intake, continuing activities 27,702 19,794 17,267 18,490 18,303 2,462 Order backlog, continuing activities 29,343 20,813 17,726 14,858 13,887 1,868 BALANCE SHEET Total assets 31,875 27,328 26,352 24,362 24,112 3,243 Equity 9,419 6,922 7,761 7,982 8,462 1,138 Proposed dividend to shareholders 479 106 461 205 307 41 FINANCIAL RATIOS Gross margin 25.5% 20.2% 25.0% 25.1% 25.2% 25.2% EBITDA margin 12.2% 6.5% 10.3% 9.5% 8.7% 8.7% EBITA margin 11.1% 5.5% 8.9% 8.0% 7.1% 7.1% EBIT margin 9.0% 0.3% 6.9% 5.8% 4.8% 4.8% EBT margin 8.8% -0.6% 6.2% 4.5% 4.5% 4.5% CFFO / Revenue 7.1% -0.6% 6.3% 2.7% 8.0% 8.0% Cash conversion 37.9% n/a 62.4% 36.4% 142.2% 142.2% Book-to-bill (order intake/revenue) 114.1% 79.1% 84.2% 93.9% 100.6% 100.6% Order backlog / Revenue 120.8% 83.2% 86.5% 75.5% 76.3% 76.3% Return on equity 14% -10% 11% 5% 6% 6% Equity ratio 30% 25% 29% 33% 35% 35% ROCE (return on capital employed), average 17.9% 9.2% 12.1% 10.3% 8.5% 8.5% Net working capital ratio, average 8.3% 7.1% 10.5% 12.3% 12.9% 12.9% Financial gearing 1.2 3.0 2.2 2.0 1.6 1.6 Capital employed, average 13,205 15,070 15,040 15,162 15,157 2,039 Number of employees at 31 December, Group 15,900 15,317 14,765 12,969 12,187 12,187 SHARE RATIOS CFPS (cash flow per share), (diluted) 33.0 (3.1) 26.3 11.0 29.5 3.8 Free cash flow yield 4.8% n/a 6.3% 3.4% 8.3% 8.3% EPS (earnings per share), (diluted) 25.1 (15.3) 16.4 8.6 10.6 1.4 BVPS (Book value per share) 181 139 158 162 172 23 Dividend per share 9 2 9 4 6 0.8 Pay-out ratio 37% n/a 57% 49% 59% 59% FLSmidth & Co. A/S´ share price 327.2 296.1 272.3 240.0 293.0 39.4 Number of shares (1,000), 31 December 53,200 53,200 51,250 51,250 51,250 51,250 Market capitalisation 17,407 15,753 13,955 12,300 15,016 2,020 The financial ratios have been computed in accordance with the guidelines of the Danish Society of Financial Analysts from 2015. Please refer to note 7.15 for definitions of terms in the consolidated financial statements. 1) Income statement and cash flow items are translated at the average EUR exchange rate of 7.4454 and the balance sheet items are translated at the year-end EUR exchange rate of 7.4344. 2) The income statement figures have been restated as Cembrit and bulk material handling activities are presented as discontinued activities. FLSMIDTH ANNUAL REPORT 2016 / 3 MAIN CONCLUSIONS / BACK TO CONTENTS FINANCIAL RESULTS 2016 KEY PERFORMANCE INDICATORS 2016 (part of management’s short- and long-term incentive Following a slow start to the year, market programmes) activity resumed in the second half. Capital 2016 2015 orders remained subdued throughout 2016, whereas service orders showed good Financial momentum in the second half. Improved Order intake DKK 18,303m DKK 18,490m working capital and strong operating cash ROCE 8.5% 10.3% flow led to a significant debt reduction. Net Working Capital% (end) 11.5% 13.1% Revenue was above and the EBITA EBITA margin 7.1% 8.0% margin was within 2016 guidance. Non-financial A similar level of revenue and EBITA Safety (LTIFR)1) 1.5 1.8 margin is expected in 2017. Quality (DIFOT)2) 84% 77% 1) LTIFR = Lost time injury frequency rate 2) DIFOT = Delivery in full on time GROWTH EFFICIENCY After a weak first half, activity picked up and finished the year on strong note. Rising commodity prices had an CAPITAL EFFICIENCY increasingly positive impact on sentiment in the mining The equity ratio increased to 35% and the financial industry in 2016, but has yet to translate into higher gearing (NIBD/EBITDA) declined to 1.6, both comfortably capital investments. The cement industry is showing early within the targeted capital structure. Improved net working signs of recovery. Order intake increased 2% organically in capital and positive operating cash flow led to a reduction 2016, while revenue declined 5%. The Customer Services in net interest-bearing debt of DKK 1.1bn. and Product Companies divisions have been fairly resilient, though not immune to market headwinds, as both mining and cement companies have been holding back on discretionary spend and postponing investments in inventory and refurbishments. GUIDANCE PROFIT EFFICIENCY The EBITA margin was 7.1% in 2016 (2015: 8.0%), negatively impacted by lower revenue and under-absorption Guidance1) Realised Guidance of costs. As a consequence, corrective actions were DKK 2016 2016 2017 announced in August 2016 and the full year EBITA margin Revenue 17-18bn (17-20bn) 18.2bn 17-19bn2) guidance was narrowed to 7-8% from originally 7-9% to EBITA margin 7-8% (7-9%) 7.1% 7-9% account for one-off costs associated with the corrective ROCE 8-9% (8-10%) 8.5% 8-10% actions. Adjusted for one-off costs, the EBITA margin was 8.0% in 2016. 1) Updated in August 2016 (Announced in February 2016) 2) at prevailing currency rates FLSMIDTH ANNUAL REPORT 2016 / 4 MAIN CONCLUSIONS / BACK TO CONTENTS MAIN CONCLUSIONS ROCE REVENUE EBITA (DKKm) (DKKm) 8.5% 18,192 1,289 Down from 10.3% Down from 19,682 Down from 1,582 EBITA MARGIN CFFO ORDER INTAKE (DKKm) (DKKm) 7.1% 1,447 18,303 Down from 8.0% Up from 538 Down from 18,490 ORDER BACKLOG NET INTEREST-BEARING DEBT NET WORKING CAPITAL (DKKm) (DKKm) (DKKm) 13,887 2,525 2,099 Down from 14,858 Down from 3,674 Down from 2,583 FREE CASH FLOW FINANCIAL GEARING SERVICE ORDER INTAKE (DKKm) (NIBD/EBITDA) (DKKm) 1,253 1.6 10,029 Down from 1,288 Down from 2.0 Up from 9,660 FLSMIDTH ANNUAL REPORT 2016 / 5 MAIN CONCLUSIONS / BACK TO CONTENTS FINANCIAL RESULTS 2016 Revenue DKKm 18,192 EBITA margin 7.1% Order intake DKKm 18,303 FLSmidth Customer Product Minerals Cement Services Companies Revenue DKKm Revenue DKKm Revenue DKKm Revenue DKKm 6,555 5,015 3,185 4,286 EBITA margin EBITA margin EBITA margin EBITA margin 12.5% 11.2% -4.3% 0.6% Order intake DKKm Order intake DKKm Order intake DKKm Order intake DKKm 6,599 5,326 2,679 4,576 REVENUE SPLIT BETWEEN REVENUE SPLIT BETWEEN CEMENT AND MINERALS BUSINESS SERVICE AND CAPITAL BUSINESS Cement Minerals Capital Service business business business business 45% 55% 44% 56% EITA EITA 4.8% 8.7% FLSMIDTH ANNUAL REPORT 2016 / 6 FLSMIDTH AT A GLANCE / BACK TO CONTENTS FLSMIDTH AT A GLANCE LONG-TERM INVESTING FINANCIAL TARGETS IN FLSMIDTH Group long-term financial targets FLSmidth & Co.