Hitt og þetta 7. apríl 2006

FLSmidth & Co. A/S Annual General Meeting 7 April 2006 Chairman's report

Welcome to the FLSmidth & Co. Annual General Meeting. It is a great pleasure to see so many of our shareholders in attendance.

The Board of Directors has asked Mr Klaus Søgaard, lawyer, to chair the meeting. I hereby entrust Klaus Søgaard with the task of guiding us through the items on the agenda.

Many events have taken place since I stood on this rostrum for the first time, four years ago. At that time, the Group was burdened with DKK 5.5bn worth of debt - it was a conglomerate of widely differing activities with very limited synergy - and its main shareholder had decided to dispose of the controlling interest within a timeframe of three to five years.

It was against that background that, in March 2002, the present Board of Directors was elected, whose members are experienced executives from the business community and whose mandate has been to optimise the assets of the FLSmidth Group and establish the best possible platform for the Company's future development.

In August 2002, after thoroughly analysing the Group, the Board presented a strategy and action plan for the coming years. As part of this very drastic, but also necessary plan, all non-core activities were to be prepared for sale and disposed of and the Company was in future to focus on the cement and minerals markets.

The feasibility of carrying out this ambitious plan within the limited timeframe we had set for ourselves was questioned from various quarters. The press, in particular, gave us a hard time. Besides, the heavy debt burden was a very demanding task for the Management. The Board of Directors was never in doubt that the strategy was right and necessary in order to disclose the real value of the Group to the benefit of its owners.

I am therefore satisfied to note today that we have reached our objectives set forth in the 2002 strategic plan - and in some respects are even ahead of our plans. The FLSmidth Group is today a focused company with a strong management, a solid capital base and increasing profitability based on global market leadership.

The Company has also regained its investors' confidence. The market capitalisation of the FLSmidth Group has risen from DKK 2.9bn at the end of 2002 to DKK 9.8m at the end of 2005. In 2005 alone, the price of the FLSmidth & Co. B share increased 89% from 102.4 at the beginning of the year to 186 at the end of the year, and the first quarter of 2006 has seen an additional 33% increase to 247, market capitalisation thus amounting to DKK 13.1bn.

Against this encouraging background, on 16 March this year FLSmidth & Co. submitted a share exchange offer to the shareholders in Potagua FLS. Once this offer is finalised, the last remaining task will have been completed, and the Board is confident that the uncertainty regarding the Group's future ownership structure will have been settled in a way that is satisfactory for all parties concerned. I shall revert to this theme later in my report.

On 28 January 2005, it was decided at an extraordinary general meeting to change the name of the Group to FLSmidth & Co. This was yet another sign of the planned strategy to revert to the Company's roots and market the whole Group under the more than 120-year-old well-known and well-established FLSmidth brand. As of 1 October, Mr Christian Jepsen joined the Corporate Management, and as of 1 February this year Mr Søren Iversen left the FLSmidth A/S Management after many years of competent service. This aligns the Board of Directors and the Management of FLSmidth A/S with those of FLSmidth & Co. A/S, and the intended streamlining of the Group structure is thus in place.

As to the year's financial results, I refer to the printed Annual Report which can also be seen on the FLSmidth website. I shall limit my comments to a few specific issues.

The positive development seen in 2004 continued and led to an even stronger operating profit which exceeds the expectations for 2005. During the year it was possible to upgrade the earnings forecasts. 2005 saw positive developments in markets and earnings in all business segments.

The Group achieved a turnover of DKK 10.5bn, which is 3% lower than in 2004. The turnover fell DKK 1bn in the Cement market, it rose DKK 500m in Minerals and grew DKK 200m in Dansk Eternit. The lower turnover in Cement mainly reflects the exceptionally high turnover in 2004 deriving from the processing of a very large turnkey contract.

Earnings before interest and tax (EBIT) grew to DKK 353m, up from DKK -194m in 2004, and earnings before tax (EBT) rose to DKK 480m, up from DKK -206m in 2004. This is a very gratifying development which is attributable to much improved management of projects, a focused strategy and a strong global market.

The profit for the year of the continuing activities amounted to DKK 498m as against a loss of DKK 342m in 2004. So we are well on track to fulfil the aim of an EBT result commensurate with 5% of the turnover. We had originally set this goal for 2007, but now expect to reach it already this year.

The order intake in 2005 reached a record level and was highly satisfactory in that the contracts awarded were at an improved contribution margin. The total value of the orders received was DKK 13.3bn, the highest ever in the Company's history. Compared to the total value of the orders received in 2004, this represents an increase of 57%.

The strategically important aftermarket for replacement parts and services saw similarly positive 18% growth on 2004.

A year ago, I emphasised that in 2005 we would focus strongly on cash flow. As a result, our consolidated cash funds at 31 December amounted to DKK 2.6bn, representing a DKK 1.4bn improvement of net cash funds. The prepayments received in connection with the very large order intake play a significant role in this highly satisfactory development. This item alone amounts to some DKK 1bn more than expected. As the orders are executed, this extra cash flow will be translated into work-in-progress. In connection with the prepayments it is still necessary to maintain bank guarantees amounting to some DKK 3bn. Later in my report, I shall revert to the question of the Group's capital structure.

The Group sold its shares in Sinai Cement Company, Spæncom and Denerco in 2005.

The consolidated net profit after tax amounted to DKK 489m as against DKK 151m in 2004 in which the profit was attributable to the disposal of Aalborg Portland and Unicon.

Among the individual business segments, Cement in 2005 saw a total turnover of DKK 7.1bn as against DKK 8.1bn in 2004 and an EBIT result of DKK 151m compared to DKK 143m in 2004.

The market for new cement making capacity reached a record high in 2005. The high oil prices and the general low level of interest rates have made cement producers more inclined to invest. This should also be viewed against the latter years' low level of investment. The total market for contracting of new cement kiln capacity (exclusive of China) amounted to 75 million tonnes per year in 2005 as against 53 million tonnes per year in 2004.

This positive trend is expected to continue in the next few years - although not at the same high record level as in 2005. This year we expect a global market (exclusive of China) in the vicinity of 50 million tonnes per year.

In 2005, FLSmidth retained its market share of 33%. We are facing increasing competition from a Chinese competitor who has specialised in supplying turnkey facilities mainly to the Middle East.

FLSmidth continues to expand its engineering activities in India. A new office complex is being built near the present office in Chennai to accommodate the growing workforce. At the beginning of 2006 there were about 1,000 employees in India, representing 350 new recruitments in 2005.

Besides, global division of work and transfer of knowledge between the project centres in Denmark, USA and India has been strengthened during the past year, for example by implementing and adopting common global IT tools.

FLSmidth is also expanding its manufacturing plant in Qingdao in China, and a new 10,000 square metre production building currently under construction will this year double the capacity compared to 2004.

In research and development, all activities are now concentrated in Denmark, and a high-technology laboratory and research centre is practically in place at FLSmidth's existing Dania R & D centre near Mariager.

Research and development of environmentally sustainable solutions for reduction of emissions and the use of alternative forms of energy are an important issue in order to maintain FLSmidth's global market leadership.

Among the results of the Company's research and development efforts was the launching in September of the new Multi-Movable Cross-Bar cooler which will help to retain FLSmidth's leading position in cooler technology. The new cooler has been well received by the market, and eight units have already been sold.

In October, FLSmidth decided on a new project-focused structure by establishing four project divisions each with individual responsibility for implementing major projects from negotiation to final commissioning. The aim is to enhance employee ownership and introduce more effective control of the major projects. Two of the four regional project divisions are based in Denmark, one in India and one in the USA.

Turning to FLSmidth's specialised product divisions, FLSmidth Customer Services, which sells services and spare parts and plans and carries out minor projects for the cement industry, has grown its sales of spare parts in a number of important markets, notably North and South America, Africa, the Middle East and Europe. Sales of services have also made good progress. Overall, the Division recorded a turnover of DKK 1.3bn, which marks an improvement of 24% on 2004.

FLSmidth Automation, which supplies electrical systems as well as control packages for the cement and minerals industries, experienced a high level of activity and a large flow of orders in all its markets for new installations, services and spare parts.

The comprehensive restructuring and adjustment process which took place at FLSmidth Airtech in 2004 has had the desired effect. From an EBIT loss of DKK 88m in 2004, the Division made an operating profit in 2005. The company achieved a satisfactory intake of orders.

The two product companies, Italian-based Ventomatic which produces and sells packing, loading and palletising installations and German-based Pfister which produces and markets weighing and dosing equipment, both achieved highly satisfactory results.

Swiss-based MAAG Gear, which produces industrial gear units at its own plants in Poland and Switzerland, had an unsatisfactory year and posted an operating result which reflects, in particular, the problems incurred in connection with some marine gear projects. A reorganisation of MAAG Gear has been initiated.

In the Minerals business segment, similar to Cement, 2005 saw a high level of demand due to the continuous rise in metal prices and the high demand for minerals.

FFE Minerals posted a highly satisfactory financial result with turnover amounting to DKK 2.1bn in 2005, up from DKK 1.6bn the year before, and earnings before interest and tax (EBIT) at DKK 103m, up from DKK 21m in 2004.

Having completed the two major projects that caused problems in 2004, the company is back on the positive track of rising turnover and earnings which has characterised FFE Minerals since its formation in 1995.

FFE Minerals is among the world's two market leaders for equipment provided by the four business areas: Minerals Technology, Pyro Technology, Materials Handling and Service Technology. All business areas experienced a high level of activity with large contracts won in India, Australia, Africa and North and South America. The prospects for the coming years are also promising as the minerals industry is expected to maintain an unrelenting high level of investment due to the continuous growth in demand.

The acquisition in September of the controlling interest in Excel Crusher Technologies in the USA will expand the FFE Minerals product portfolio to include large mining cone crushers. Acquisition of new technologies to fill product gaps and to improve equipment systems offerings within our core business continues to receive high priority.

Dansk Eternit Holding and Densit are making good progress as reflected in the satisfactory development of their results for 2005. Both companies have been through a process of restructuring which is now nearly completed. The companies serve markets outside the Group's actual core business.

Dansk Eternit, Europe's second largest producer and distributor or fibre cement products, posted earnings before interest and tax (EBIT) of DKK 61m as against a loss of DKK 391m in 2004 based on a turnover of DKK 1.1bn as against DKK 978m in 2004. Densit posted an EBIT result of DKK 10m, up from breakeven in 2004, based on a turnover of DKK 132m compared to DKK 111m in 2004.

FLS miljø has finally handed over the Eggborough and West Burton desulphurisation plants. Both plants were commissioned in 2004 and are operating successfully, and in 2005 a financial settlement was reached with the customers. The only pending issue in connection with the two projects is a final settlement with FLS miljø's consortium partner, Mitsubishi Heavy Industries.

The single remaining activity of FLS miljø is an operating contract for the straw-fired power station Sangüesa in Spain.

Provisions have been made previously for liabilities during the warranty period and for closure of the company. No further provisions or costs related to the final closure of the company are anticipated.

In November 2005, the European Commission imposed a penalty on 16 European plastic product manufacturers for participation in an illegal cartel from early 1982 to 2001. Among the companies concerned is the French compny Trioplast Wittenheim S.A. which the FLSmidth Group acquired in 1990 via its former subsidiary, Nyborg Plast, from the French Saint Gobain Group and sold again in 1999 to the Swedish company Trioplast Industrier AB. A penalty of EUR 17.5m has been imposed on Trioplast Wittenheim SA.

According to the European Commission's decision, via its former ownership FLSmidth & Co. is held jointly and severally liable together with the present owner, Trioplast Industrier, for Trioplast Wittenheim SA's payment of the penalty imposed - up to a maximum amount of EUR 15.3m.

The cartel was established long before FLS acquired the company, and FLS has at no point been aware of the alleged cartel which appears to have continued after the company was sold. Against this background we consider the Commission's decision unjustified and not founded in former practice and have therefore appealed the decision to the European Court of Justice.

At no stage has FLS been consulted nor involved in the process.

As to the prospects for 2006 and 2007 we expect the Company to continue its current positive development.

The total consolidated turnover in 2006 is expected to reach some DKK 11bn with earnings before interest and tax (EBIT) amounting to some DKK 525m and earnings before tax approximately DKK 550m. This corresponds to an EBT margin of 5%. This goal is expected to be reached one year earlier than previously announced. These prospects correspond to the announcement made on 1 March when the Annual Report for 2005 was released.

The cement and minerals industries are cyclical markets in which turnover and earnings vary from year to year. In periods of low market activity the aim is to maintain an EBT margin of at least 5%, and in periods of high activity an EBT margin of 6 to 7%.

It is now obvious that the turnaround which we launched in March 2002, has been successful. The future challenge is to make the company less dependent on market fluctuations and make FLS less cyclical in its performance. Already in 2005, major organisational changes have been introduced in the form of streamlining the global structure for sales, procurement, project management and processing of cement projects. The aftermarket activities are increasingly being geared to the customers' demands for low costs and higher productivity, increased availability and reduced energy consumption. Increased sourcing of products and services from low cost countries combined with focus on higher technological expertise will improve FLSmidth's competitive strength in the longer term. This strategy is being supported by expansion of the activities in India and China and investments in product development in Mariager.

When turning to the start of 2006, it is particularly encouraging to note that the American cement industry is again showing willingness to invest after a number of years of very limited capital spending on new capacity. The contract awarded in February by Holcim, one of the world's leading cement producers, for the world's largest single cement production line to be built on the Mississippi river in the state of Missouri, marks a technological milestone. This production line will be 20% larger than the hitherto largest facilities with a daily throughput of 12,000 tonnes cement clinker per day or 4 million tonnes per year. The line will be built within a period of three years and FLSmidth's share of the project amounts to DKK 1.5bn, with all FLS companies participating as subsuppliers. In March, we received a major order in Brazil which is particularly interesting considering the competition we faced from our largest competitor.

The unrest experienced in many Muslim countries has not had any consequences that will in any way affect the Group, neither in terms of turnover nor in terms of earnings. Obviously, in the most unstable regions there have been some minor practical difficulties. Delays in declaring documents and ensuring that our equipment reaches the construction sites have not caused major irregularities that are unlikely to be overcome through the extra efforts of our staff. Nor from the aspect of order intake have we encountered any setbacks in the Muslim countries - as demonstrated by the order for a new plant received from an Egyptian customer in March.

Our expectations for the first quarter of 2006 remain unchanged, yet perhaps based on a slightly lower turnover because of timing variations.

As mentioned in the printed Annual Report on page 8, the Board of Directors recommends that a high dividend be again paid out for 2005 at DKK 7 per share, the total amount being DKK 372m which accounts for 76% of the net profit after tax.

The Board of Directors is of the opinion that surplus cash flow should be redistributed to the shareholders to the extent that the company cannot ensure a reasonable return on the capital employed. Lately, there has been some uncertainty owing to Potagua's wish to sell its shares and this has affected the opportunities for making acquisitions. Over the past five years, FLSmidth & Co. has been unable to make any significant acquisitions. It is expected that acquisitions will be made to strengthen the core business both on the product and on the technology side. This will also require cash funds. Besides, in connection with the offer submitted to exchange Potagua FLS shares, the prospect has been raised that FLS will be willing within the 10% authorisation granted to purchase own shares in order to support the FLSmidth & Co. share price, should this be necessary. Finally, the next three years are expected to see a drain on liquidity due to prepayments once the large portfolio of orders is to be executed. In addition, it remains a fact that day-to-day operations require a substantial volume of bank guarantees.

Against this background, the Board of Directors recommends to the Annual General Meeting that a dividend of DKK 7 per share be paid.

Finally, I would like to include in my report a brief reference to the background and the consequences of the exchange offer which was announced on 16 March. The Chairman of the meeting will take care of the technicalities of the offer when we reach that item on the agenda.

In December 2001, the FLSmidth Group's main shareholder, Potagua, announced that in the longer term it did not wish to continue as the operational owner of FLSmidth & Co. As part of the process to prepare the sale, in the spring of 2005 Potagua split up the company, and the shares in FLSmidth & Co. were spun off from the other activities and transferred to a separate listed company, Potagua FLS. The demerger set the stage for an active sales process, and Potagua FLS's Board of Directors has since made tentative inquiries in cooperation with a number of external advisers to explore the options of selling the entire block of shares. However, none of the options considered have fulfilled the conditions set by Potagua FLS for a sale on satisfactory terms. Against this background, on 16 March this year the Boards of Directors of FLSmidth & Co. and Potagua FLS announced an agreement with a view to submitting an offer to Potagua FLS's shareholders for tax-exempt exchange of the Potagua FLS shares with shares in FLSmidth & Co. The Potagua FLS shareholders will be offered the same number of FLSmidth & Co. shares regardless of whether they exchange A or B shares in Potagua FLS, and they will be offered the precise number of shares currently held by Potagua FLS in FLSmidth & Co. According to the agreement, the exchange of shares will be preceded by a merger of the A and B share classes in FLSmidth & Co. It is a condition that two thirds of the shareholders in Potagua FLS exchange their shares by 26 April at the latest. Another condition is clearance by the Central Tax Administration of a tax-exempt merger of the A and B shares in FLSmidth & Co., and this was received last Monday. The Board of Directors of Potagua FLS has unanimously recommended the share exchange, taking into account the advantages to be gained by the Company's shareholders whilst achieving the goal set in 2001 to disengage from the controlling interest in the Group. When, as it is hoped, the share exchange has taken place in early May, a new Board of Directors in Potagua FLS, identical with the FLSmidth & Co. Board of Directors, will be elected with the aim of winding up Potagua FLS, either by compulsory redemption of the remaining shares or by liquidation or merger. The aim is to delist the company and have it integrated into FLSmidth & Co. The shares currently held by Potagua FLS will then be cancelled.

The prospect has also been raised of supporting the share price within the authorisation to acquire own shares up to 10% of the share capital, should this prove necessary. We shall revert with further details when the result of the exchange offer is published, probably on 28 April. There is unanimous agreement in the Boards of Directors of both Potagua FLS and FLSmidth & Co. and full agreement with ATP, the major shareholder in both companies. When we reach that item on the agenda, the Board of Directors will recommend that the shareholders vote for the proposals submitted. Abolishing the present holding structure will enable the FLSmidth Group to continue as a listed Danish company with a simpler and more transparent ownership structure - and it will eliminate uncertainty regarding the future pattern of ownership. The shares will be fairly well distributed, however, with a few major shareholders. As to the liquidity of the share, the merger of the four share classes is expected to generate a higher turnover on the Stock Exchange and, hopefull, enable the share to join the C 20 index. Our turnover on the Stock Exchange has been very high this year, and we are already number 22 on the Stock Exchange list of most sold shares. ooOoo 2005 was yet another active and successful year for the FLSmidth Group and I would like to end my speech by thanking the Management and the Board of Directors for their unfailing and constructive cooperation as well as the many employees at home and abroad who have all contributed to and played a significant role in the Company's progress.

Yours faithfully

Torben Seemann Hansen Corporate Public Relations