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NKT - 2021 2021-01-012021-12-31NKT A/SVibeholms Allé202605Brøndby62725214529900197LKWCEQ0NL182020-01-012020-12-31Regnskabsklasse Dwww.nkt.com/sustainability-report-2021www.nkt.com/sustainability-report-2021www.nkt.com/sustainability-report-2021

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Dette er til corporate governancelink

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Årsrapport62725214NKT A/SVibeholms Allé 202605 BrøndbyxWizard version 1.1.1096.1, by EasyX Aps. www.easyx.euRevisionspåtegningGrundlag for 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NKT Statutory ESEF tagged Annual Report 2021 We connect a greener world Company Reg: 6272 5214 NKT Group Contents Introduction NKT NKT Photonics Annual Report 2021 | NKT A/S | 2 Business overview Group overview NKT Annual Reports 2021 Group NKT Group Read more in: 04 At a glance 14 At a glance 70 Group ﬁnancials 72 Shareholder information 74 Corporate governance 77 Board of Directors 80 Executive Management 05 Letter from the Chairman 07 Key messages 2021 08 5-year ﬁnancial highlights 09 Financial review Q4 2021 16 Letter from the CEO 18 Key ﬁnancials – 5-year review 19 Business model – NKT connects a greener world 20 Business line organization 21 Megatrends 10 Financial performance versus outlook 2021 11 Financial outlook – NKT 12 Financial outlook – NKT Photonics 23 Market overview Financial statements 27 Strategy Sustainability Report 30 Sustainability Group 32 Financial and business review 35 Business review – Solutions 38 Business review – Applications 41 Business review – Service & Accessories 81 Consolidated ﬁnancial statements 82 Income statement 82 Statement of comprehensive income 83 Balance sheet 84 Cash ﬂow statement 85 Statement of changes in equity 87 Sections 44 Risk management 47 NKT Group Leadership Team 119 Parent company ﬁnancial statements 120 Statement of comprehensive income 120 Balance sheet NKT Photonics Remuneration Report 49 At a glance 50 Letter from the CEO 51 Key ﬁnancials – 5-year review 52 Market overview 121 Statement of changes in equity 122 Cash ﬂow statement 122 Sections 62 Sustainability 63 Product portfolio Statements 64 Financial & business review 66 Risk management 68 NKT Photonics Leadership Team Group 126 Group Management’s statement 127 Independent auditor’s report Corporate Governance Report NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 3 Introduction Group 04 At a glance 05 Letter from the Chairman 07 Key messages 2021 08 5-year ﬁnancial highlights 09 Financial review Q4 2021 10 Financial performance versus outlook 2021 11 Financial outlook – NKT 12 Financial outlook – NKT Photonics Construction of new extrusion tower at NKT's production site in Karlskrona, Sweden. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 4 NKT Group at a glance NKT Group consists of two standalone companies: NKT, a leading provider of power cable solutions, and NKT Photonics, a leading supplier of ﬁber lasers and photonic crystal ﬁbers. Both companies are headquartered in Denmark and have operations across the world. Financial ﬁgures 2021 Years of innovation People worldwide Nationalities NKT at a glance, page 14 130 4,176 84 Listed on the Danish stock exchange Nasdaq Copenhagen Registered shareholders Share price development, 2021 EUR 1,263m Revenue (std. metal prices) (2020: EUR 1,087m). EUR 131.1m Operational EBITDA in 2021 (2020: EUR 56.7m) +30,000 +16% NKT A/S share price 400 350 300 250 200 NKT Photonics at a glance, page 49 Jan 2021 Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021 Dec 2021 EUR 80.1m Revenue in 2021 (2020: EUR 69.9m) EUR 7.5m Operational EBITDA in 2021 (2020: EUR 2.6m) NKT A/S, DKK OMX C25 (rebased), DKK NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 5 Letter from the Chairman Growing and investing for a greener future In 2021, NKT celebrated 130 year anniversary. Our long history has provided us with experience to resist global challenges and agility to be at the forefront of innovative, technical solutions. These traits proved valuable in a year of new exciting projects and high growth on one side, and COVID-19, global supply disruptions, limited access to certain goods and services and high pressure on price levels on the other side. Our businesses emerged from 2021 with ﬁnancial performance that was better than originally expected, a high-voltage order backlog at a strong level and in an attractive position for further growth. Anniversary celebrated in 2021 130 years Global megatrends such as the green transformation increasingly drive further electriﬁcation. The overarching goal of reducing carbon emissions has placed green ambitions high on the political agendas around the world and we are committed to providing continued sup- port for the transition to renewable energy by ensuring the necessary infrastructure enabling the green transformation. Strong foundation for realising growth ambitions Our power cables and photonics businesses are both among the market leaders in their domains and provide innovative solutions for our customers. These capabilities proved to be beneﬁcial foundations for us in 2021 to strengthen our market positions. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 6 “As a key contributor to the green transformation, we expect our strong market and technology positions to represent signiﬁcant growth potential.” As planned, we invested heavily in year despite the challenges of 2021. our high-voltage power cable plants in Germany and Sweden during 2021 with a view to further strengthening our performance and capabilities in the years ahead. Further, we made various footprint changes to increase our cost competi- tiveness across the business. Investing in technology, manufacturing capabilities and people is key to stay competitive and to secure our future success. We would also like to extend a warm welcome to many new colleagues adding skills and diversity to our company. The Board of Directors extends its sincere thanks to all shareholders, customers and business partners for their support in 2021. We value these strong rela- tionships. Now we look conﬁdently into 2022 as we pursue our continued growth ambitions. NKT Photonics supplies leading-edge technology to customers and growing markets in innovative industries such as autonomous electric cars, smartphones, quantum computing, artiﬁcial intelli- gence, med-tech and health care, as well as renewable energy. NKT Photonics recovered in 2021 following the COVID-19 related challenges during 2020 and our strong commercial position resulted in all-time high revenues. The year was again impacted by Our established market positions and innovative skillset will keep us at the forefront of our industries enabling further growth in the coming years. COVID-19. We successfully managed to navigate the challenges by effectively protecting the health of our employees, and limit the impact on daily operations at our sites in order to continue serving our customers and projects. In parallel, we reduced our corporate CO2e emissions signiﬁcantly. Jens Due Olsen Chairman of the Board of Directors, NKT A/S NKT’s high-voltage order backlog remained at a high level with a value of almost EUR 3bn by the end of 2021. The backlog comprises projects covering a variety of technologies and markets and reﬂects our ambition to be a key player in connecting both offshore wind farms and developing the global power grids. Both NKT and NKT Photonics delivered ﬁnancial results that slightly exceeded our initial expectations and improved proﬁt- ability satisfactorily above the previous year. In July 2021, we decided to resume the review of strategic alternatives for NKT Photonics with the aim of maximizing value creation and positioning NKT Pho- tonics for long-term growth. We engaged a lead ﬁnancial advisor to assist and the review is ongoing. NKT is among the leading global compa- nies within high-voltage DC technology and the majority of our order back- log comprises projects in this area of expertise. The foundation for our strong position in this market is based on the acquisition of ABB HV Cables in 2017. Broad-based growth in 2021 Growth is a core ambition for the compa- ny and we grew our revenues organically by 15% in both NKT and NKT Photonics. This was key for the positive earnings development. People, leadership and collaboration key to success Our employees and leadership teams de- serve a special thanks for a well-executed NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 7 Key messages 2021 In 2021, the NKT Group showed continued Applications continued the positive de- NKT also signed an exclusive Preferred Supplier Agreement for delivery of the high-voltage DC power cable system to the prospective Champlain Hudson Pow- er Express transmission line in the USA. As NKT has not received a ﬁrm order, the project is not included in the high-voltage order backlog. NKT Photonics velopment and grew well in a favourable market, while Service & Accessories had an exceptionally strong year driven by a high activity level within offshore service repair work. NKT Photonics returned to positive growth momentum again in 2021 after ﬁnancial perfor- mance in 2020 was adversely impacted by the COVID-19 pandemic. Revenues and earnings recovered well, particularly in the Industrial and Quantum & Nano Technology segments. improvement in operating and ﬁnancial results. The operational EBITDA more than doubled to EUR 139m. This was driven by improved performance in both NKT and NKT Photonics. NKT was awarded high-voltage projects of around EUR 500m in 2021. These will contribute to the ongoing transition towards increased level of renewable energy in the power mix mainly across Europe. The two largest project awards were Dogger Bank C, an offshore wind project in the UK, and Troll West, a pow- er-from-shore project outside the coast of Norway. The high-voltage order backlog totalled EUR 2.87bn at end-2021. In 2021, the Board of Directors decided to resume the review of strategic alternatives for NKT Photonics, with the objective of maximiz- ing value creation for the shareholders. The re- view is ongoing and J.P. Morgan Securities plc has been appointed as lead ﬁnancial advisor. As planned, NKT continued the invest- ment programme to upgrade and expand the high-voltage production sites in Cologne and Karlskrona during 2021. NKT In the power cable business, all three business lines contributed to higher revenue and earnings compared to 2020. Solutions executed satisfactorily on projects awarded in recent years, In 2022, NKT expects a revenue of ap- prox. EUR 1.35–1.45bn and an operation- al EBITDA of approx. EUR 130–155m. In 2022, NKT Photonics expects organic reve- nue growth of approx. 12-17% and an EBITDA margin of approx. 11-14%. NKT NKT Photonics Q4 2020 2021 NKT Group Q4 2020 Amounts in EURm Q4 2021 Q4 2020 2021 2020 Q4 2021 2020 Q4 2021 2021 2020 Revenue 436.2 289.7 7% 348.3 268.7 1% 1,827.9 1,263.1 15% 1,402.5 1,087.0 15% 27.6 27.6 6% 25.9 25.9 3% 80.1 80.1 69.9 69.9 463.3 316.8 373.6 1,906.7 1,341.9 1,470.2 1,154.7 Revenue in std. metal prices Organic growth Operational EBITDA Operational EBITDA margin EBIT 294.0 15% 7.5 -6% 13.7 9.1 131.1 10.4% 23.9 56.7 5.5 4.2 2.6 19.2 6.1% -13.1 -8.9 13.3 4.5% -14.7 -30.6 138.6 10.3% 16.8 59.3 5.1% 4.7% -14.5 -10.2 3.4% -15.5 -30.0 5.2% 19.9% 1.4 16.2% 0.8 9.4% -7.1 3.7% -9.5 -38.4 -47.9 Net result 11.9 -63.5 1.3 -0.6 -7.8 -11.0 27.4 4.1 -74.5 Working capital Working capital % of revenue, LTM RoCE -93.2 -2.2% 3.4% -164.5 -7.1% -2.9% 33.6 -59.6 -0.6% 2.5% -137.1 -4.8% -3.5% 36.3% -6.2% 41.9% -8.8% * Std. metal prices ** Alternative performance measures *** RoCE is calculated on Operational EBIT, LTM, as a percentage of average capital employed as deﬁned in Section 7.4 on page 133 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 8 5-year ﬁnancial highlights Amounts in EURm 2021 2020 2019 2018¹ 2017¹ Amounts in EURm 2021 2020 2019 2018¹ 2017¹ Income statement Revenue Revenue in std. metal prices 3 Operational EBITDA ** 6 One-off items ** 5 EBITDA Financial ratios and employees 1,906.7 1,341.9 138.6 1,470.2 1,154.7 59.3 1,342.4 1,019.3 29.7 1,501.6 1,147.1 79.3 1,479.3 1,108.4 141,8 -44.9 Operational EBITDA margin, continuing operations (std. metal prices) 10.3% 1% 5.1% -2% 2.9% 30% 8.2x 6.9% 28% 3.1x 12.8% 36% 1.9x Gearing (NIBD as % of Group equity) NIBD relative to operational EBITDA 11 Solvency ratio (equity as % of total assets) ** 12 Return on capital employed (RoCE) ** 13 Number of DKK 20 shares ('000) EPS, EUR 1 0.1x 45% 2.5% 42.976 -0.1 -0.4x 50% -3.5% 42,976 -2.7 -12.7 -9.9 -12.0 -29.5 45% -6.2% 27,260 -3.1 48% -0.7% 27,126 -1.8 43% 11.8% 27,126 34.3 125.9 49.4 17.7 49.8 96.9 Amortization, depreciation and impairment Operational EBIT 7 -109.1 29.5 16.8 -12.4 4.4 -97.3 -38.0 -47.9 -16.7 -64.6 -74.5 0.0 -100.7 -71.0 -83.0 -12.3 -95.3 -76.0 0.0 -87.3 -8.0 -79.6 62.2 17.3 -14.7 2.6 EBIT -37.5 -8.0 Diluted EPS, EUR 1 -0.1 -2.7 -3.1 -1.8 34.3 Financial items, net Earnings before tax (EBT) Proﬁt from continuing operations Proﬁt from discontinued operations Net result Equity value, EUR, per outstanding share 14 Market price, DKK, per share Average number of employees 23 22 24 27 30 -45.5 -46.3 0.0 316 271 161 89 283 4.1 -3.4 4,176 3,800 3,671 3,744 3,600 0.0 932.2 928.8 4.1 -74.5 -76.0 -46.3 ESG See details in Sustainability Report Cash ﬂow Cash ﬂow from operating activities Cash ﬂow from investing activities hereof investments in P,P&E Free cash ﬂow 207.8 -225.5 -191.3 -17.7 136.3 -107.4 -65.5 28.9 125.0 -66.8 -34.4 58.2 -42.2 -60.9 87.8 -493.3 -50.6 1 Comparison ﬁgures have not been restated following the implementation of IFRS 16 Leases 1st January 2019. 1–14 Deﬁnitions appear in Section 7.4 in the consolidated ﬁnancial statements. ** Alternative performance measures -28.5 -103.1 -405.5 Balance sheet Share capital 115.4 1,159.9 2,553.4 13.2 115.4 1,076.4 2,150.6 -25.9 73.2 803.8 72.8 895.6 1,859.2 248.3 1,143.9 7.7 72.8 816.3 Group equity Total assets 1.789.4 242.2 1,904.6 293.2 Net interest-bearing debt 8 Capital employed 9 Working capital 10 1,173.1 -59.6 1,050.5 -137.1 1.046.0 -118.1 1,109.5 -83.5 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 9 Financial review Q4 2021 NKT backlog during the quarter. However, the project work related to AC power cable projects was at a lower level compared to Q4 2020. The operational EBITDA was similarly below Q4 2020 as it was negatively impacted by EUR 4m due to closing of a commercial dispute regarding installation related to a completed project. drove operational EBITDA to a higher level. The operational EBITDA margin of 5.7% in Q4 2021 was the highest level achieved under the current business line structure in the traditionally seasonally low Q4. NKT from Q4 2020 to Q4 2021 with the shift to more service revenue being a positive contributor. The power cable business grew revenue by EUR 21.0m to EUR 290m in Q4 2021 compared to Q4 2020. This correspond- ed to organic growth of 7%. The positive development was due to improved performance in Applications and Service & Accessories. Organic growth in Q4 2021 NKT Photonics As in previous years, NKT Photonics had 7% a strong Q4 in 2021 due to the seasonali- ty of the business. The revenue reached a record-high quarterly level of EUR 27.6m in Q4 2021, corresponding to 6% organic growth. Service & Accessories satisfactorily end- ed a year with strong growth. The organic growth of 17% in Q4 2021 was based on improved sales across the service and accessories businesses. In the service business, a continued high activity level was recorded on various projects. In the The revenue growth drove an increase in operational EBITDA. In Q4 2021, NKT delivered operational EBITDA of EUR 13.7m, which was an increase of EUR 4.6m compared to Q4 2020. The main contributor was Applications. The revenue development was very positive in Applications in Q4 2021 as or- ganic growth was 33%. The improvement should be seen in light of a low revenue level in the comparison period of 2020, when the COVID-19 pandemic impacted some markets negatively. Applications continued to perform well in a market characterized by favourable market NKT Photonics Organic growth in Q4 2021 NKT Photonics managed the high activity level in Q4 2021 with limited disturbances from the global supply chain challenges and the continued presence of the COV- ID-19 pandemic. The growth in revenue was, as in the previous quarters of 2021, primarily driven by strong performance in the Industrial and Quantum & Nano Technology segments. accessories business, growth was driven 6% by sales of medium-voltage accessories. Operational EBITDA beneﬁtted from the higher revenue level. The operational In Solutions, the organic growth was -10% in Q4 2021. NKT continued exe- cution of several projects from the order conditions. The signiﬁcant lift in revenue EBITDA margin increased by 2.1%-points Financial development in Q4 NKT Photonics delivered EBITDA of EUR 5.5m in Q4 2021, compared to EUR 4.2m in Q4 2020. The higher revenue impact- ed the earnings development positively and Q4 2021 also had a more favourable product mix. Revenue Operational EBITDA Oper. EBITDA margin Amounts in EURm Q4 2021 Q4 2020 Change Q4 2021 Q4 2020 Change Q4 2021 Q4 2020 NKT - Solutions 138.8 112.4 49.0 155.2 83.6 38.5 -16.4 28.8 10.5 6.0 6.4 5.9 8.9 0.4 3.8 -2.9 6.0 2.1 4.3% 5.7% 5.7% 0.5% 9.9% NKT - Applications NKT - Service & Accessories 12.0% Elimination of transactions between segments and non-allocated costs -10.5 289.7 27.6 -8.6 268.7 25.9 -1.9 21.0 1.7 -4.6 13.7 5.5 -4.0 9.1 4.2 -0.6 4.6 1.3 NKT 4.7% 3.4% NKT Photonics 19.9% 16.2% Elimination of transactions between segments -0.5 -0.6 0.1 0.0 0.0 0.0 NKT Group 316.8 294.0 22.8 19.2 13.3 5.9 6.1% 4.5% * Std. metal prices NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 10 Financial performance versus outlook 2021 Financial performance for NKT and NKT Photonics in 2021 was in line with the outlook updated in October 2021. NKT The initial ﬁnancial outlook, published in the Q3 2020 Interim Report, was based on several critical assumptions: Additionally, NKT closed outstanding The ﬁnancial performance for 2021 was in line with the expectations in the most recently published ﬁnancial outlook from October 2021. Final revenue amounted to EUR 1,263m compared to approx. EUR 1.2bn in the ﬁnancial outlook. Operational EBITDA, which was guided to be approx. EUR 125-135m in the outlook, ended within the range at EUR 131.1m. insurance cases relating to past incidents, generating an income of EUR 20.7m in Q3 2021. The operational EBITDA in 2021 excluding income from insurance cases was EUR 110m. ■ The global COVID-19 pandemic and its consequences will not have materi- al negative impact on NKT's operating markets or NKT’s ability to execute customer orders NKT Photonics Financial performance for NKT Photon- ics for 2021 was in line with the ﬁnancial outlook updated in July 2021. Organic revenue growth amounted to 15% in 2021, compared to the outlook of approx. 8-15%. The ﬁnal EBITDA margin was 9.4%, compared to the most recent out- look ﬁgure of approx. 6-8%. ■ Satisfactory execution of high-voltage projects will deliver on expected proﬁt- ability margin ■ Award of additional high-voltage pro- jects with ﬁnancial impact in 2021 ■ Continued proﬁtability improvement in At the start of 2021 the ﬁnancial outlook was subject to high uncertainty relating to the COVID-19 pandemic, which impacted some parts of the market negatively in 2020. However, NKT Photonics recov- ered well during 2021 and the ﬁnancial performance was better than initially anticipated. Applications driven by increased reve- nue and improved production efﬁciency Realized ﬁgures versus ﬁnancial outlook 2021 Initial, November 2020 Initial, Adjustment, Adjustment, July Adjustment, October 2021 Realized ■ Satisfactory level of activity in offshore February 2021 May 2021 Amounts in EURm 2021 power cable repairs NKT performed well in regard to these assumptions. In particular, proﬁtability in Applications continued its recovery in 2021, and the Service business delivered exceptionally high volume of repair work, mainly in 1st half 2021. NKT Upper end of ~1.1-1.2bn Revenue ~1.1-1.2bn ~80-110m Unchanged Unchanged Unchanged Unchanged ~1.2bn 1.263bn 131.1m Upper end of ~80-110m Operational EBITDA ~125-135m NKT Photonics Upper end of ~0-10% Organic revenue growth EBITDA margin - - ~0-10% ~3-7% ~8-15% ~6-8% Unchanged Unchanged 15% Upper end of ~3-7% 9.4% * Std. metal prices ** NKT supplied its initial ﬁnancial outlook for 2021 in November 2020. NKT Photonics did so in February 2021 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 11 Financial outlook – NKT ■ NKT Limited ﬁnancial impact due to the global supply chain challenges satisfactory project execution in order to generate the expected proﬁtability on the individual projects. Outlook 2022 2022 Revenue (in std. metal prices) is expected to be approx. EUR 1.35–1.45bn and the operational EBITDA is expected to be approx. EUR 130–155m in 2022. Revenue EUR Medium-term ambitions In its Q3 2020 Interim Report, NKT introduced medium-term ambitions. The underlying assumptions and the ambi- tions remain unchanged. The ﬁnancial performance in 2021 was well-aligned with the below ambitions. In Applications, NKT has to improve proﬁtability and has several initiatives ongoing. The main areas include a strong commercial mindset, improved produc- tion efﬁciency and control of the cost level. To support proﬁtability further, NKT is focusing on having the relevant product portfolio available and targeting the most attractive market segments. ~1. 35 – The Solutions and Applications business lines are expected to be the positive contributors to revenue and operational EBITDA in 2022, and thereby continue the positive development from 2021. In Service & Accessories, revenue and operational EBITDA are expected to be at a lower level in 2022 compared to the ex- ceptionally strong ﬁnancial results in 2021. 1.45bn * Std. metal prices The ambition is to grow revenue organ- ically from 2019 (EUR 945m) to the me- dium-term by a CAGR above 10% and to increase the operational EBITDA margin to approx. 10-14%. Operational EBITDA EUR In Service & Accessories, the overall fo- cus area is to maintain its growth momen- tum. This will be achieved through various initiatives such as geographical expansion in new and existing markets. Furthermore, the portfolio of products and services is continuously being expanded with a broader customer offering. ~130 –155m Delivering on the ﬁnancial outlook is based on several assumptions. Currently, the most critical are identiﬁed to be the following: To achieve the targeted medium-term ﬁnancial ambitions, NKT has to perform satisfactorily in its three business lines. Additionally, the COVID-19 pandemic is assumed not to impact ﬁnancial perfor- mance materially. Medium-term ambitions ■ Satisfactory execution of high-voltage projects to deliver on expected proﬁt- ability margin Organic growth CAGR In Solutions, NKT needs to continuously be successful in relevant high-voltage project tenders across market segments and to ensure the projects awarded will be based on satisfactory terms and con- ditions. Order wins will be a prerequisite to have optimal utilization of production and installation assets with satisfactory mix of power cable types. Following the project awards, it is key for NKT to deliver ■ Award of additional high-voltage pro- >10% jects with ﬁnancial impact in 2022 From 2019 as base year ■ Continued revenue growth and proﬁta- bility improvement in Applications Operational EBITDA margin ■ Satisfactory offshore power cable repair work activity ~10 –14% * Std. metal prices. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 12 Financial outlook – NKT Photonics NKT Photonics An important assumption in order to fulﬁl the ﬁnancial outlook is that the current global supply chain challenges will have limited impact on the ﬁnancial results. The current situation remains a challenge for the industry and addressing this contin- ues to be a focus area for NKT Photonics. Accordingly, actions have been taken to mitigate risks and ensure unimpacted production ﬂow. The ambition is to grow revenue organi- cally from 2021 (EUR 80m) to the medi- um-term by a CAGR of approx. 12-17% and to increase the EBITDA margin to approx. 20-25%. Outlook 2022 2022 The organic revenue growth is expected to be approx. 12-17%, and the EBITDA margin is expected to be approx. 11-14% in 2022. Organic growth ~12 –17% EBITDA margin NKT Photonics has a product portfolio offering a variety of innovative solutions. These are addressing and applicable for several growing markets. This founda- tion is the prerequisite for the expected improved ﬁnancial performance in the years ahead. NKT Photonics is thereby expected to continue the positive ﬁnancial develop- ment from 2021. The revenue growth is expected to be broad-based driven by product introductions and favourable market conditions. The main growth con- tributors are expected to be the Quan- tum & Nano Technology, Medical & Life Science, and Aerospace & Defence seg- ments. In the Industrial segment, growth is anticipated to be more moderate after strong growth in 2021. As in previous years, the largest earnings contribution is expected to be generated in Q4. ~11–14% NKT Photonics is operating in four market segments: Medical & Life Science, Indus- trial, Aerospace & Defence, and Quantum & Nano Technology. These are all expect- ed to contribute to revenue growth. Medium-term ambitions NKT Photonics is introducing ﬁnancial medium-term ambitions. Medium-term ambitions The expected revenue growth should lead to improved proﬁtability due to the operational leverage of the business. Organic growth CAGR ~12 -17% From 2021 as base year The fast moving consumer electronics market led by the big cellphone manufacturers increases use of NKT Pho- tonics' laser technology for characterization of the many optical components used in the devices. EBITDA margin ~20–25% NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 13 Business overview NKT 14 At a glance 15 Sustainability highlights 16 Letter from the CEO 18 Key ﬁnancials – 5-year review 19 Business model 20 Business line organization 21 Megatrends 23 Market overview 27 Strategy 29 Investing in the future 30 Sustainability 31 ESG ratings 2021 32 Financial and business review 35 Business review – Solutions 38 Business review – Applications 41 Business review – Service & Accessories 44 Risk management 47 NKT Group Leadership Team NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 14 NKT at a glance As a company dedicated to power cable technology, NKT’s purpose is to connect you, us and society to a greener world. With the global community moving towards clean and renewable energy, NKT delivers life-time value by enabling sustainable energy transmission. The main production sites for the three NKT business lines are located in the northern part of Europe Falun Drammen Solutions production sites Applications production sites Accessories production sites Service hubs Alingsås Asnæs Brøndby Karlskrona Gdynia Headquarters Founded in Countries with oﬃces Nationalities Employees Runcorn Nordenham Rotterdam 1891 14 57 3,948 Cologne Kladno Warszowice Velke Mezirici Selected ESG High-voltage order awards in 2021 ratings of NKT EUR ~500m Three business lines Revenue distribution 2021, EURm High-voltage order backlog EUR 640m EUR 2.87bn Solutions 16% 49% EUR 450m NKT ﬁnalized the German section of NordLink connecting Germany and Norway, which will meet the power need of Applications 35% EUR 206m 3.6m Service & Accessories * Std. metal prices German households. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 15 Sustainability highlights Total amount of of waste sent for material recycling All time high Employee Engagement Score 80% 74 Corporate emissions Diversity and Inclusion Score up to Total Recordable Injury Rate From 70% in 2020 From 73 in 2020 decreased by 72 1.19 34% Compared to 2020 From 1.20 in 2020 From 65 in 2020 * Scope 1 and 2 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 16 Letter from the CEO Growing to connect a greener world We are continuing to preparing for further growth in the years All three business lines contributed to ahead. connect a greener world. In 2021, NKT again played a central part in creating the infrastructure needed for transition to renewable energy by providing Positive development in all business lines 15% In 2021, our ﬁnancial performance continued to develop positively, and it was satisfying that all three business lines contributed well. Having joined NKT as Chief Executive Ofﬁcer in 2019, I am pleased that our ﬁnancial situation has improved, leaving us stronger and pre- pared to strengthen further in the years ahead. Organic revenue growth in 2021 the required power cable solutions. We also progressed on our journey to become a net zero emissions company Positive development in Growing to connect a greener world NKT's contribution to the global green transformation continued in 2021. Our company purpose - we connect a green- er world – is reﬂected in the work we do every day. The past year was growth driven with a broad-based contribution from all parts of our business, and we are all business lines In 2021, our Solutions business line progressed on several high-voltage projects awarded in recent years and added new projects to an already strong backlog. This provides a solid foundation for future growth. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 17 Furthermore, as part of our commitment to connect a greener world based on responsibility and ethical behaviour, NKT continued to promote safety, diversity and equality across our organization. production of high-voltage power cable accessories is currently being moved “In 2021, NKT again played a central part in creating the infrastructure needed for transition to renewable energy by providing the required power cable solutions. We also progressed on our journey to become a net zero emissions company.” from Cologne and centralized at our exist- ing factory in Alingsås, Sweden. Thank you for your eﬀorts in 2021 – now we are ready for 2022 Our initiatives in NKT resulted in improved ESG ratings, but we will not stop here, we are focused on further actions in the years ahead. In NKT, we have four shared beliefs: We Advance, We Connect, We Deliver, and We Care - ACDC. These will all be impor- tant looking into 2022 when we expect to continue to deliver positive developments and to beneﬁt from the steps taken in 2021. The Group Leadership Team and I are committed to delivering even better performance in the year ahead. Preparing for future growth We believe the power cable industry will continue to offer attractive opportunities in the years ahead. In 2021, as part of our preparations for growth, we launched and progressed a series of initiatives across the businesses. In 2021, NKT continued to reduce corporate CO2e emissions through dedicated initiatives by Our Applications business line continued its positive trajectory by improving earn- ings further. The positive development was a result of higher revenues and satis- factory execution on efﬁciency initiatives. We must act now on ESG related matters The impacts of climate change are clearly evident and action is required to support the transition to a low carbon future. NKT remains committed to delivering the es- sential infrastructure for the green trans- formation and to continue our journey to net zero emissions. In 2022, we will develop our long-term, strategic opportunities further to ensure NKT is well prepared to deliver on the green agenda These initiatives included investments in the Solutions business line, the expan- sion of our high-voltage production sites in Karlskrona, Sweden, and Cologne, Germany. Progress was made during the year at both sites, including construction of a new extrusion tower in Karlskrona. Standing 150 metres tall, the tower is the third highest building in Sweden. Our Service & Accessories business delivered exceptionally strong ﬁnancial performance. This was primarily due to our ability to win and execute a large number of offshore repair projects. 34% We have accomplished great things during 2021 and I am very satisﬁed with the work we have done. I wish to thank all our employees and stakeholders for a positive year and look forward to contin- uing our strong teamwork in the years ahead. Together, we are connecting a greener world. compared to 2020 In 2021, we reduced our corporate CO2e emissions by 34% from 2020 through dedicated initiatives. We also updated our sustainability strategy with long-term targets and commitments to ensure continued positive development. As a signiﬁcant portion of our carbon footprint is attributable to our supply chain, we have embarked on collaboration with key suppliers to reduce emissions from them. The positive ﬁnancial performance in 2021 was achieved despite the continued presence of the COVID-19 pandemic, the effects of high price increases on several cost items and global shortages of products and services. In the light of these obstacles I believe we can be even more satisﬁed with our results. It was only possible to achieve them by teamwork and focused effort. In our two other business lines, projects were launched to improve efﬁciency and production output. In Applications, we commenced the relocation of building wire and 1kw production from Asnæs in Denmark to Warszowice in Polen, and Kladno in the Czech Republic. The Alexander Kara President & Chief Executive Ofﬁcer, NKT A/S NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 18 Key ﬁnancials – 5-year review 20181 20171 Revenue development Amounts in EURm Amounts in EURm 2021 2020 2019 Income statement 1,263 Revenue 1,828 1,263 131.1 -12.7 118.4 -94.5 36.6 1,403 1,087 56.7 1,268 945 1,429 1,080 70.2 1,004 1,058 138.3 -44.9 93.4 -74.4 63.9 19.0 -13.8 5.2 1,087 Revenue in std. metal prices 1,080 1,058 Operational EBITDA 15.1 -12.0 3.1 945 One-off items -9.9 -29.5 40.8 EBITDA 46.8 Depreciations, amortizations and impairment -85.2 -28.5 -38.4 -11.5 -49.9 -13.6 -63.5 -90.8 -75.7 -87.7 -11.6 -99.3 20.8 -78.5 -79.4 -9.2 Operational EBIT EBIT 23.9 -38.6 -7.7 Financial items, net -8.2 EBT 15.7 -46.3 -2.0 Tax -3.8 -6.4 2017 2018 2019 2020 2021 Net result 11.9 -48.3 -1.2 Cash ﬂow Cash ﬂow from operating activities Cash ﬂow from investing activities excl. acq. & div. Free cash ﬂow excl. acq. & div. 208.8 -213.3 -4.5 135.6 -90.8 44.8 117.8 -52.3 65.5 -46.3 -49.1 -95.4 78.2 -63.0 15.2 Operational EBITDA Amounts in EURm 13.1% Balance sheet Capital employed Working capital 10.4% 1,053 -93.2 940 942 1,065 -16.2 1,041 -164.5 -146.3 -106.5 Financial ratios and employees Organic growth 6.5% 15% 10.4% 3.4% 15% 5.2% -10% 1.6% 0% 6.5% 7% 13.1% 7.5% 5.2% Operational EBITDA margin, ** RoCE -2.9% 3,469 -7.2% 3,303 -0.8% 3,419 Full-time employees, end of period 3,948 3,393 1.6% ESG 138 70 15 57 131 See details in Sustainability Report 2017 2018 2019 2020 2021 1 Comparison ﬁgures have not been restated following the implementation of IFRS 16 Leases on 1 January 2019. Std. metal prices Operational EBITDA Operational EBITDA margin, std. metal prices * ** Alternative performance measures NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 19 Business model – NKT connects a greener world Resources Business Value creation People A greener world NKT's core consists of a diverse, engaged and highly skilled workforce Sustainability is at the heart of NKT, with a strong focus on connecting a greener world and achieving net-zero emissions by 2050 Installation Innovation More than 130 years of pioneering the power cable industry with innovative technology for the future Service Production Health & safety NKT conducts its business and operations according to Design & Partners Engineering the highest safety standards NKT's business is built on long-standing relations and strong partnerships Customer value NKT supports its customers with extensive experience, high quality and strong project execution Shareholder value NKT creates shareholder value through excellent business performance Business lines Solutions Applications Service & Accessories NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 20 Business line organization NKT is divided into three business lines: Solutions, Applications, and Service & Accessories. Each specializes in separate areas of the power cable market with attractive growth opportunities driven by sustainable megatrends. The business lines are supported by cross-functional global functions comprising Finance, Human Resources, IT and Technology. Solutions Applications Service & Accessories Revenue, EUR 640m (49%) Revenue, EUR 450m (35%) Revenue, EUR 206m (16%) Operational EBITDA, EUR 83m (57%) Operational EBITDA, EUR 29m (20%) Operational EBITDA, EUR 33m (23%) Solutions specializes in high-voltage power cable solutions for off- and onshore power transmission and offers complete and customized end-to-end turnkey solutions. Applications offers a broad range of high-quality low- and medium-voltage power cable solutions. These are important contributors to the ongoing electriﬁcation of societies. Service & Accessories supplies on- and offshore power cable services and offers a full portfolio of power cable accessories across the medium- and high-voltage categories. Revenue, std. metal prices, in 2021 (% of total NKT revenue) and Operational EBITDA in 2021 (% of total NKT operational EBITDA). The ﬁgures exclude intersegment transactions and non allocated costs. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 21 Megatrends A number of global megatrends are key drivers for the development of the power cable industry. In an increasingly power-dependent world, NKT has identiﬁed four megatrends – Sustainability, Urbanization. Energy Transition and Digitization – as primary factors inﬂuencing the future market direction. Sustainability Urbanization The global focus on climate change is moving societies towards increasing re- liance on renewable energy sources and alternative fuels. In several countries, the transition away from conventional power generation towards renewable energy sources such as wind and solar is high on the political agenda and backed by an ambition to reduce carbon emissions. greenhouse gas emission levels to drop substantially in the next decades. As an intermediate step towards climate neu- trality, the EU has raised its 2030 climate ambition, committing to cut emissions by at least 55% by 2030, also called – “Fit for 55” – EU’s plan for a green transition. In the USA, President Biden’s plan to cut greenhouse gas emission levels by 50% from 2005 to 2030 also underlines the global political ambitions. The demographic landscape of today’s societies is gradually changing, with people increasingly living in cities. Today, around 55% of the world’s population are city dwellers, and by 2050 - with the global urban population set to more than double its current size - it is estimated that nearly seven out of ten people will live in cities (World Bank). This requires power cable solutions that can meet the increased power demand of dense, high- ly-populated areas and also address the logistical challenges of travelling. The growing demand for power supply necessitated by these concentrated urban zones will lead to a signiﬁcant boost for both high-voltage transmission and medium-voltage distribution lines to bring power to the households. In addition, development in the low- and medium-voltage market will be driven by the increasing demand for power supply within urban infrastructure and buildings. At EU level, the European Green Deal sets the direction for a sustainable EU econo- my with net zero emissions of greenhouse gases by 2050. This requires current Projected impact on power cable market segment Projected impact on power cable market segment High-voltage Low- and Services High-voltage Low- and Services medium-voltage medium-voltage High High Medium High High High NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 22 Megatrends Energy Transition Digitization The shift towards renewable energy is stressing the current power grid archi- tecture. The grid needs to be capable of handling the increasingly unbalanced power generation and growing long-distance power transmission. doubled to 6.6 million, representing close to 9% of the global car market in 2021 and more than tripling their market share from two years earlier. On the supply side, the world is increasing its commitment and actions towards decarbonization with green sources increasingly replacing fossil fuels. Digital technologies are part of everyday life and increasingly inﬂuence the way we live, work, travel and play. Digitization is a global trend that affects almost every industry. In the power cable industry, this trend is primarily visible in the emergence of smart power grids and power cable solutions. Smart cables are required to support data collection and monitoring an optimal operation. Data collection helps grid operators maximize utilization of power cables and grid balancing. Power cable monitoring is important to avoid failures and manage reliability by providing insights into power grid charac- teristics, thereby enabling weak spots to be anticipated and preventive intervention taken. In the coming years, new invest- ments is expected in smart grids and digital solutions to cater for the need for optimal operation monitoring. Further electriﬁcation of societies will drive the agenda of strengthening and expanding the power grids and will require higher degrees of reliability while reducing environmental impact by enabling more green power to be supplied to the grids. Electrifying transportation, including ship- ping and aviation, and home appliances will demand more power. Production and sales of electriﬁed vehicles (EV) are increasing at record pace. Globally, EV sales more than The increasing transition towards electri- ﬁed transportation requires power to be instantly available and easily accessible at the point of demand, away from traditional ﬁxed-point sources. To meet these require- ments, power grids will be expanded and upgraded, driving demand for high-voltage transmission and medium-voltage power distribution lines to bring energy to the point of consumption. * www.iea.org/commentaries/electric-cars-fend-off-supply-challenges-to-more-than-double-global-sales Projected impact on power cable market segment Projected impact on power cable market segment High-voltage Low- and Services High-voltage Low- and Services medium-voltage medium-voltage High High High Medium Medium High NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 23 Market overview ■ High-voltage AC onshore power cable systems are used primarily for power transmission over shorter distances. The trend towards renewable power generation has increased the distance between the point of production and the point of consumption, as well as upgrade of existing power grids for the continuing urbanization and general electriﬁcation of societies. offshore wind farms situated further from shore and the increase in long-distance cross-country interconnections. While AC technology is expected to continue losing share to DC within some markets, there will still be attractive markets for both technologies going forward. Market development in 2021 NKT estimates that the total awards in the market (NKT’s assessment of address- able high-voltage power cable projects) summed up to almost EUR 5bn in 2021. This was a decrease from around EUR 6bn in 2020, which included the alloca- tion of the three sizeable German corridor projects. The award levels in the two most The demand for high-voltage DC power cable systems has outpaced high-voltage AC technology in recent years, as this technology works more efﬁciently with lower losses over longer distances. This change is driven by the trend towards Solutions The high-voltage power cable market mainly encompasses projects that are engineered to order and demand a high level of expertise for successful imple- mentation. In some cases these projects require new R&D solutions as well as investments in both technology and production assets. As a project-driven business, revenue and earnings streams are affected by the number and size of project awards in the market and may therefore ﬂuctuate over time. The market can be divided into two NKT's addressable high-voltage market was almost EUR in 2021 categories with differing characteristics depending on technological solution and market dynamics: Market overview – Solutions Geographical scope Market characteristics ■ High-voltage DC offshore/onshore and DC off- and ■ ■ AC offshore power cables are used for Growing market onshore interconnectors, offshore wind, and oil 5bn & gas projects. The increasing reliance on renewable energy means that more efﬁcient, better connected and more ﬂexible power grids are required to High technical capabilities and know-how required (especially for higher voltage levels and DC) Global AC offshore ■ Increasing competition at lower voltage levels AC onshore Continental offset periods when power generation is limited in some areas. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 24 recent years marked a signiﬁcant step up in annual market value compared to the previous decade. The projects awarded in 2021 covered power cable types across DC and AC technologies. Geographically, the market included projects mainly in European countries, but the North American market also started to develop in a positive direc- tion with awards and generally increasing market activity within various segments. Market outlook NKT foresees a growing market in the coming years driven by underlying megatrends driving a need for growth in offshore wind, more interconnectors and grid expansion as well as grid reinforce- ment across several countries. The annual order allocation will be subject to uncertainty as the pipeline includes a number of large projects with no ﬁxed award date. continue to grow as a result of the need to prepare and modify existing power grids to accommodate the shift towards more renewable power generation. While the timing of future project awards is subject to uncertainty, particularly in the interconnector market, the prospective order awards are expected to improve the supply and demand situation for power cable manufacturers in the years ahead. continued installations of interconnectors and offshore wind farms, but also includ- ing emerging segments such as ﬂoating windfarm projects that will become a reality within this decade. In the period from 2022-2024, NKT expects the market size of new project awards (NKT’s assessment of address- able high-voltage power cable projects) to be around EUR 7-8bn on average per year. Based on the current assessment of the project pipeline, the potential awards in the market are expected to span interconnector, offshore wind, and power-from-shore projects. The market for underground cabling is expected to Technology wise, the majority of projects are expected to be DC solutions, but AC solutions will still be relevant in the market mainly within the offshore wind and pow- er-from-shore segments. In North America, the emergence of the offshore wind market will drive growth, supported by the recently-passed USD 1.2tn infrastructure bill in the USA aimed In a longer term perspective NKT fore- sees demand in its addressable market, mainly covering Europe and North America, to be at a sustained high level. This is driven by growth in Europe due to at invigorating the supply chain and regu- latory process. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 25 Market development in 2021 Market outlook The outlook for the low- and medi- In 2021, the low- and medium-voltage markets developed favourably in NKT’s addressable markets in Northern Europe. NKT estimates that overall market growth exceeded taht of recent years. The pos- itive development was recorded despite higher raw material prices and some local supply chain challenges. um-voltage markets is expected to reﬂect the investment made in renewable energy and the construction sector as well as the ongoing upgrade of the power grid. However, recurring restrictions related to the COVID-19 pandemic and volatile raw material prices can inﬂuence the market in the near future. NKT is taking proac- tive actions to mitigate the risks we can inﬂuence. High wage inﬂation as well as high energy prices are developments that are being followed closely due to potential market impact. The green transformation continued to impact medium-voltage markets positive- ly with ongoing expansions and upgrades of the Northern European power grids. The positive upswing in the European economy impacted the construction sen- timent across Northern Europe, and led to strong market conditions for building wires, especially in Eastern Europe. There are uncertainties in the market but the underlying demand remains positive. Applications ■ Low- and medium-voltage power cable market In the low-voltage power cable seg- ment the main driver is the construc- tion industry, with building wires as the most signiﬁcant volume product line, supported by urbanization and further electriﬁcation of homes. The offerings in the low- and medum-vol- tage market are less complex than for the high-voltage market. Further, the number of competitors is greater and products are typically being “made-to-stock” with differing speciﬁcations and designs from country to country to match local require- ments. Compared to the project-driven high-voltage market, demand in this segment is generally more aligned with the macroeconomic development. Market overview – Applications Geographical scope Market characteristics ■ Medium-voltage power cables primar- ily serve the power distribution grid, and the transition towards renew- able energy is a key element in the continuous need for grid optimization. This is further fuelled by the growing electriﬁcation of societies. ■ ■ ■ Scale and operational leverage are key competitive advantages Medium-voltage Regional Local technical regulations deﬁne markets Low-voltage and building wires Competitive market NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 26 gas-ﬁlled power cables, but also for grid modernization and extension. However, it is the volatile offshore repair market where demand for NKT services was exceptionally high, with multiple repair projects executed during 2021. Despite the underlying growth trend, the same demand for offshore cable repairs is not be expected in 2022.. Market outlook Services The service market is expected to grow in the years ahead due to an increasing installation of high-voltage power cables. At the same time, older cables are requiring extensive maintenance and ultimately decommissioning or replacement. The offshore service segment is expected to see attractive evolution as growth in the installed base of submarine cables contin- ues to accelerate. Like the overall market for power cables, the services business is positively affected by the green agenda and the general electriﬁcation. Accessories The green agenda and the continued electriﬁcation of societies are driving the demand for power cable accessories in the same way as for high- and medium-voltage cables. Initiatives to upgrade and maintain the power grids in NKT’s addressable mar- kets are driving the demand for power cable accessories. This trend is set to continue and the market outlook for NKT for the years ahead is positive. Service & Accessories Service market Accessories market The competitive landscape for power cable services is diverse. In the onshore segment, local companies, multi-nation- als and in some cases power cable oper- ators themselves perform service work. In regards to legacy technology, know-how is becoming increasingly scarce while expertise for extruded power cables is readily available, resulting in increased competition. The market development for accessories is closely linked to the general develop- ment of the medium- and high-voltage power cable markets. The stability and reliability of the power grid is to a high degree determined by the quality of power cable accessories and the quality of installation. The aspiration is to have power cable accessories in operation for the lifetime of the power cable itself. Consequently, NKT has a clear value proposition to offer high quality products that are safe and easy to install. Accessories Increased demand for power cables in developing markets will drive growth for power cable accessories. The accessories market is expected to grow in line with the growth in demand for high- and medi- um-voltage power cables. The transition to renewable energy generation and the need for more durable and reliable interconnec- tions together with expanding power grids in societies, are impacting the demand for the accessories in a positive direction. The positive growth trajectory in the Middle Eastern market continued for medium-volt- age accessories in 2021. The high-voltage market was also developing positively, driven by the increasing investments within renewable energy sources such as offshore wind. In the offshore segment there is less competition as only a few companies are able to provide a comprehensive service offering. At the same time urgency is high since the power cable systems are part of the power infrastructure and a poten- tial failure may have severe economic consequences for the operator. Accord- ingly, demand is high for service repairs, both to prevent issues (e.g. through maintenance or monitoring) and to offer repair work when there are failures. The increase in service repair work is sup- ported by the growing number of service agreements. The accessories market for medium-volt- age power cables is competitive, while there are fewer companies supplying the more complex accessories required for high-voltage power cables. Market overview – Service & Accessories Geographical scope Market characteristics ■ Growing market Market development in 2021 Services Service ■ Power cable service market requires fast response time There is continued stable demand for onshore services, driven by the need to maintain ageing infrastructure, particularly legacy technologies such as oil-ﬁlled and Global High- and ■ Profound experience and medium-voltage accessories complex technical capabilities required NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 27 Strategy NKT’s ReNEW strategy was launched in 2020 and laid the foundation for updated business line strategies. ReNEW contains the Solutions – Investing for the future In 2021, the focus for the high-voltage business was to build capacity and capabilities to address the anticipated growing market demand driven by the green transformation. This encompasses preparing for future projects, strengthen- ing technological leadership, and driving multiple investments, while at the same time maintaining stable production perfor- mance and continuing improvements to ensure future competitiveness. The strategic guidance provided in ReNEW for the three business lines is based on three key pillars: Fix and restart, Invest, and Grow. These pillars are incorporated in the business line strategies according to the individual challenges and points for improvement in technological, operational and ﬁnancial performance. In 2021, NKT focused on the strategy implementation and execution. building blocks for NKT to connect a greener world. ReNEW was introduced with the aim of improving business performance after a period of ﬁnancial results below the de- sired level. It had a near-term focus with concrete bottom-up plans to continously improve performance. The result of this has showed with the improved ﬁnancials in 2020 and 2021. Large-scale investments are being implemented in both Solutions factories in Karlskrona and Cologne. The purpose is to prepare production readiness for coming projects, further strengthen tech- nology and quality, and improve turnkey capabilities. Fix and restart NKT: Tackle, address and resolve internal key issues. This is the basis for Invest in NKT: Prepare NKT for tomorrow: Grow NKT: Enter growing markets: ■ ■ Invest in high-voltage technology Beneﬁt from green successful operation of the business and delivery to customers. to maintain technological leadership. transformation The strategic guidance provided in Re- NEW for the three business lines is based on three key pillars: Fix and restart, Invest, and Grow. ■ Expand Accessories' global footprint ■ Prepare NKT for delivery of In Karlskrona, NKT has invested in addi- tional XLPE extrusion capacity and the ability to manufacture long lengths of land cables. For this, a new extrusion tower, the third tallest building in Sweden, has been constructed. Heat treatment vessels and larger drum handling equipment have also been installed. Additionally, Karlskrona has continued to invest in a highly qualiﬁed and skilled workforce, through the launch of a trainee program to develop the next generation of talented engineers. Relocate business areas to improve proﬁtability future High Voltage projects. ■ ■ ■ Provide more services in home markets ■ These pillars are incorporated in the business line strategies according to the individual challenges and points for improvement, and to position NKT for the anticipated positive development in mar- ket demand in the years ahead. In 2021, NKT continued the focus on the strategy implementation and the execution of ReNEW. Upgrade production plants in Applications. Acquisition of Ventcroft Ltd ■ Expand capacity in Accessories. A new service hub in Gdynia, Poland NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 28 At the Cologne facility, the large-scale investment program includes a new test- ing hall, heat treatment vessels, and an extrusion line to increase focus on extra high-voltage AC and DC power cables in preparation for production of both new and existing orders. The production of lower high-voltage AC power cables will be relocated from Cologne to NKT’s production site at Velké Mezirící, Czech Republic. This will improve competitive- ness and prepare for growing market demand. With the ambition to grow the business further, NKT entered into an agreement to acquire Ventcroft Ltd, a family-owned business located south of Liverpool in the UK. This will increase NKT’s product portfolio with ﬁre-resistant cable technol- ogy. The acquisition is a step in NKT's strategy to grow the business with a strong product portfolio. The acquisition will also enable NKT to grow in the UK through the customer know-how Vent- croft will bring. Geographically, NKT expanded to the attractive UK market and a dedicated local sales and operations team has been assigned. The expanded capacity will lead to econ- omies of scale due to the higher produc- tion output. Furthermore, the accessories business has started to transform its factories into specialized competence centres for medium- and high-voltage accessories in order to meet a higher know-how demand from customers. The Oil and Gas Cable competence center in Germany was expanded with new capabilities and new employees to add competences and support further growth. With the purpose of centralizing know- how and in order to ensure best practice and high production efﬁciency, it has been decided to move the production of high-voltage accessories from Cologne to Alingsås in Sweden. A service business operations hub in Gdynia, Poland was established during 2021, with the purpose to position NKT for further Nordic and European growth and to prepare for Polish offshore wind expansion. For 2022, the strategic focus will continue to be on developing customer relations and proﬁtability. With the proﬁtability sta- bilizing at higher level, growth initiatives will also become increasingly relevant. In 2022, the focus will continue to be on securing new projects, execution of the projects in the order backlog and ﬁnaliz- ing the expansion program in Karlskrona and Cologne. In 2022, strategic focus will continue to be placed on capacity expansion and strengthening of competitiveness. Accessories is committed to develop and launch innovative products that are safe and reliable to install. The service business will continuously focus on preparing for future growth opportunities in 2022 and execute on the above activities. Service & Accessories – Focus on growth Service Applications – Performing through customer focus For the Applications business line, the key focus of the ReNew strategy has been to restore proﬁtability following a period of unsatisfactory earnings contribution and pursue market opportunities. In 2021, the service business focused on growing in three dimensions: increasing services to existing customers, expanding geographical coverage, and entering into new business segments. Accessories One of the overarching goals in the accessories business is to increase pro- duction capacity and capabilties to meet the anticipated increasing demand for high-quality products. The ReNew strategy has progressed well in 2021 driven by successful execution of several commercial and operational initia- tives leading to a positive development of proﬁtability. This was founded on broad- based growth across several countries. The offering has been expanded with new cable monitoring products aimed at preventing power cable failures and downtime to the beneﬁt of the cable owners. In 2021, NKT continued to invest in ca- pacity and automation of its Nordenham facility in Germany to meet the increase in demand for medium-voltage accessories. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 29 Investing in the future “The growing focus on renewable energy is already a key driver in the power cable market and it is a natural step for us to continue to develop our high-voltage power cable capacity, capabilities and technology.” To prepare for the growing market demand and to improve competitiveness, NKT invests across the business. Driven by recent years’ increase of the high- voltage order backlog, the majority of investments in 2021 were as planned executed in Solutions. In Karlskrona, the construction of a second extrusion tower was completed and is being prepared for production from 2022. The tower plays a central part in the factory's expansion. In Cologne, the investments include a new extrusion line and a new test centre for high-voltage power cables. To improve competitiveness, NKT will focus the pro- duction in Cologne on extra high-voltage AC and DC power cables by relocating the production of lower high-voltage power cables to NKT’s production site in Velke Mezirici, Czech Republic. Alexander Kara President & Chief Executive Ofﬁcer During 2021, NKT has continued its programme of strategic investments at the high-voltage sites located in Karl- skrona, Sweden, and Cologne, Germany, by adding capacity to prepare for future growth driven by the global transition to renewable energy. The investments will increase ﬂexibility in production planning between the two production sites. In Applications, NKT is relocating building wire and 1 kv production from Asnæs, Denmark, to Warszowice, Poland, and Kladno, Czech Republic, with the aim to improve proﬁtability. Going forward, Asnæs will focus on the expected growth in the medium-voltage market. The production of high-voltage accesso- ries is being centralized in Allingsås, Swe- den, from the production site in Cologne. Facts - new extrusion tower in Karlskrona With the ramp up at the high-voltage sites, and the improvement initiatives, NKT is strengthening its position to cap- ture future growth opportunities. ■ Erected in 2021 ■ 150 metres above ground ■ 36 metres below ground NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 30 Sustainability Sustainable business pro- cesses are an integrated part of all NKT's operations. NKT also achieved a breakthrough in re- cycling cable scrap, as newly developed methods now enable all material fractions from the onshore power cable production to be reused and recycled. This milestone achievement is an important step in the focus to generate zero waste, and the recycling processes will be scaled up in the coming years. People and safety NKT is committed to promoting diversity and inclusion across the company and ﬁrmly believes that an inclusive organi- zation provides the best foundation for driving both employee development, engagement and company performance. During 2021, NKT implemented several initiatives to maintain this focus and to en- sure the achievement of the target of 30% female representation on the Board of Directors, the Group Leadership Team and the Extended Leadership Team by 2024. In 2021, NKT continued its sustainability focus by pursuing a variety of initiatives to minimize environmental impact to achieve net-zero emissions by 2050. To support this transition, NKT has committed to the Science Based Targets initiative, which provides a scientiﬁcally based method for validating the corporate climate targets in 2022. partnerships supporting the development of female technical talent with view to achieving gender balance in the organiza- tion and the power cable industry. Find data and details in the Sustainability Report 2021 With the supply chain accounting for a signiﬁcant part of corporate CO2e emis- sions, NKT continued its drive to decar- bonize the supply chain through the supplier engagement launched last year. In 2021, NKT continued the ongoing dialogue with key suppliers driving data transparency and the development of decarbonization processes. In 2021, NKT continued to strengthen its safety culture through initiatives to drive awareness, increase focus and mitigate identiﬁed risks. The goal is to ensure safety for all employees, partners and customers. In 2021, NKT decreased its corporate CO2e emissions (scope 1 and 2) by 34% compared to 2020 through several initia- tives, including transferring all production sites to low carbon electricity supply. Initiatives included updating the Diversity & Inclusion Policy and implementing a dedicated strategy to strengthen the commitment to diversity and inclusion. Furthermore, NKT entered several “We are a key player in the global transition to renewable energy, and continue to take actions driving sustainability in NKT. In 2021, we have made signiﬁcant progress by reducing corporate emissions by 34%, raised industry standards in recycling and have strengthened the focus on diversity and inclusion across the organization.” Alexander Kara President and Chief Executive Ofﬁcer NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 31 ESG ratings 2021 NKT is constantly increasing sustainability in all activities which was recognized in ESG ratings provided by four independent agencies in 2021. ■ ■ NKT is rated in the Leadership (A-) band NKT scored 75 out of 100 in 2021 and was awarded a Platinum rating in the industry "Manufacture of wiring and wiring devices" ■ NKT is among the 21% of companies reaching Leadership level in the group ■ "Electrical and electronic equipment" It places NKT among the top 1% of companies. Bronze 45 - 53 Silver 54 - 65 Gold 66-72 Platinum 73 - 100 D- D C- C B- B A- A 0 - 44 ■ ■ NKT is rated AA in the MSCI ESG Ratings assessment in 2021 NKT was rated 16.8 in September 2021 and was therefore assessed to be at low risk of experiencing material ﬁnancial impacts from ESG factors ■ This places NKT in top 25% of companies in the "Electrical Equipment industry" assessed by Sustainalytics Negl. risk 0 - 10 Low risk 10 - 20 Medium risk 20 - 30 High risk 30 - 40 Severe risk 40+ CCC B BB BBB A AA AAA Copyright ©2021 Sustainalytics. All rights reserved. This page contains information developed by Sustainalytics (www.sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or its third party suppliers (Third Party Data) and are provided for informational purposes only. They do not constitute an endorsement of any product or project, nor an investment advice and are not warranted to be complete, timely, accurate or suitable for a particular purpose. Their use is subject to conditions available at https://www.sustainalytics.com/legal-disclaimers. The use by NKT of any MSCI ESG research LLC or its afﬁliates (“MSCI”) data, and the use of MSCI logos, trade- marks, service marks or index names herein, do not constitute a sponsorship, endorsement, recommendation, or promotion of [entity] by MSCI. MSCI services and data are the property of MSCI or its information providers, and are provided ‘as-is’ and without warranty. MSCI names and logos are trademarks or service marks of MSCI. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 32 Financial and business review NKT’s revenue developed positively in 2021, driven by increased activity in all three business lines. This resulted in organic growth of 15%. The increased revenue also drove up earnings and the operational EBITDA more than doubled from 2020 to 2021. Cash ﬂow generation was positively impacted by the improved ﬁnancial results, but free cash ﬂow was slightly negative due to execution of the planned investments. Revenue development and organic growth Revenue development Amounts in EURm Amounts in EURm 1,263 2020 revenue Currency effect Organic growth 2021 revenue Organic growth, % 1,087 18.3 1,087 1,080 1,058 157.7 1,263 15% 945 * Std. metal prices 2017 2018 2019 2020 2021 Per business line, organic growth was 9% for Solutions, 13% for Applications and 48% for Service & Accessories. The operational EBITDA in 2021 included insurance compensation that was previously expensed. This generated an income recognized as other operating income in Q3, thereby increasing opera- tional EBITDA in the Solutions business line with EUR 20.7m. Operational EBITDA Amounts in EURm Growth in revenue across all business lines 13.1% 10.4% Driven by growth in all three business lines, NKT’s revenue increased to EUR 1,263m in 2021, an increase of EUR 176m from last year, corresponding to organic growth of 15%. The revenue measured in market prices was EUR 1,828m in 2021, against EUR 1,403m in 2020. 6.5% Operational EBITDA more than doubled The earnings improvement led to an increased operational EBITDA margin of 10.4% in 2021, against 5.2% in 2020. 5.2% The largest absolute increase in revenue was delivered in the smallest business line, Service & Accessories with EUR 64.5m. The operational EBITDA for NKT increased by EUR 74.4m from 2020 to 2021. NKT thereby continued to improve the earnings level since the low point of 2019. All three business lines contributed with increased earnings driven by the higher revenue and successful implemen- tation of efﬁciency measures. 1.6% Total one-off items in 2021 amounted to EUR -12.7m, against EUR -9.9m in 2020. In Q3 2021, NKT expensed one-off costs of EUR 14.5m relating to the cost struc- ture review in Solutions, where the FTE count in Cologne will be reduced by more 138 70 15 57 131 2017 2018 2019 2020 2021 Operational EBITDA Operational EBITDA margin %, std. metal prices * Std. metal prices NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 33 than 100 during 2021- 2023. On the other hand, NKT had a one-off income of EUR 1.8m from the divestment of the plant in Stenlille, Denmark, in January 2021. commodity prices in 2021. The hedging value adjustments have no cash impact. Thus, excluding these adjustments, the underlying working capital development was favourable. Driven by the same parameters as for growth in operational EBITDA, the reported EBITDA increased to 118m in 2021 from EUR 46.8m in 2020. The changes in working capital will often be driven by Solutions due to the phasing of prepayments and milestone payments related to new and existing projects. In 2021, Solutions had a large inﬂow of project payments in 2nd half of the year. An increase in working capital is expected during the upcoming quarters due to the payments phasing. “The ﬁnancial development was positive for NKT in 2021. We have launched several initiatives during the year to improve our performance. We target a strengthened ﬁnancial situation for NKT to continue its growth trajectory in the years to come.” Improved net result The EBIT amounted to EUR 23.9m in 2021, an improvement from EUR -38.4m in 2020. The growth was achieved de- spite a higher depreciation and amortiza- tion level in 2021. The ﬁnancial items were EUR -8.2m in 2021, against EUR -11.5m in 2020. These primarily comprised inter- est and realized and unrealized currency effects and hedges. As a result, earnings before tax (EBT) turned positive to EUR 15.7m in 2021 from EUR -49.9m in 2020. The working capital ratio, last twelve months, LTM, was -2.2% at end-2021, compared to -7.1% at end-2020. Line Fandrup Chief Financial Ofﬁcer, Executive Vice President Positive earnings and working capital development outweighed by investments Driven by the positive EBITDA contribu- tion and the improved working capital position, the cash ﬂow from operating activities totalled EUR 209m in 2021. NKT’s net result for 2021 amounted to EUR 11.9m, an increase of EUR 75.4m from 2020. The reported tax rate was 24%. Low level of working capital As planned, NKT increased its investment level signiﬁcantly in 2021. The ramp-up was related to the investment programme in Solutions with the expansions of the high-voltage manufacturing facilities in Cologne and Karlskrona. As a result, the cash ﬂow from investing activities, excluding acquisitions and divestments, The working capital level in NKT was EUR -93.2m at end-2021. This corresponded to an increase of EUR 71.3m compared to end-2020. However, unrealized value adjustments of hedging instruments drove an increase in working capital of EUR 114m mainly due to increasing NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 34 amounted to EUR -213m in 2021, against EUR -90.8m in 2020. Working capital Amounts in EURm Impact of COVID-19 The continuation of the COVID-19 pan- demic had limited impact on the ﬁnancial performance of NKT in 2021. -16 NKT generated free cash ﬂow, excluding acquisitions and divestments, of EUR -4.5m in 2021. In 2020, the correspond- ing ﬁgure was EUR 44.8m. -2.2% -2.2% -93 -0.2% -2.1% The health and safety of the company’s employees has the highest priority and management continues to monitor the situation closely, including observing national and local ofﬁcial guidelines and also safeguarding the supply chain. Measures were successfully implement- ed at all sites, and all production sites remained in operation despite periods with illness rates above normal levels. -107 -7.1% Improved RoCE driven by earnings progress -146 2019 The improvement in earnings was reﬂect- ed in RoCE, which returned to a positive level of 3.4% end-2021, from -2.9% at end-2020. Capital Employed was EUR 940m at end-2020 and increased to EUR 1,053m end-2021 mainly due to investments. -165 2020 2017 Working capital Working capital ratio, LTM, % 2018 2021 Commercially the implications for NKT were limited. Several high-voltage pro- jects have been awarded in the market, and the demand has not been impacted in the low- and medium-voltage market. German Federal Cartel investigation In January 2022, unannounced inspec- tions were carried out at NKT’s two main German sites. This inspection was part of investigations by the German Federal Cartel Ofﬁce into various power cable manufacturers and other industry-related companies. The reason behind the inves- tigations are suspicions that power cable manufacturers potentially have coordinat- ed calculations of industry-standard metal surcharges in Germany. NKT is cooperat- ing with the German authorities. RoCE % 7.5% 3.4% -0.8% 2018 -2.9% 2020 -7.2% 2019 2017 2021 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 35 Business review – Solutions Increased revenue driven by execution of order backlog advancing as anticipated. The operational EBITDA margin improved from 6.2% in 2020 to 13.0% in 2021. Revenues for the Solutions business line increased by EUR 62m from 2020 to 2021, which corresponded to organic growth of 9%. The growth in revenues was due to execution of orders awarded over recent years covering most power cable types. In Q3 2021, NKT closed insurance cases, relating to past incidents, which were already expensed. This led to an income of EUR 20.7m, which was recognized as other operating income in Solutions. Excluding the insurance income, the operational EBITDA margin was 9.7% in 2021. Revenue measured in market prices amounted to EUR 755m in 2021, against EUR 653m in 2020. During 2021, NKT progressed several projects through their respective execu- tion phases. These included intercon- nector projects such as Attica-Crete, Shetland and Viking Link, several offshore wind farms including Borwin 5, Dogger Bank A and B, Hornsea 2 and Ostwind 2, and various power-from-shore projects, mainly Johan Sverdrup 2 and Troll West. Operational EBITDA more than doubled The growth in activity in 2021 resulted in improved operational EBITDA, which in- creased by EUR 47m compared to 2020. The earnings development is on a positive trajectory and overall project execution was satisfactory, with most projects Additionally, a number of power cable solutions were handed over to the cus- tomers and gradually put into operation. These included three major projects: The NordLink interconnection between Ger- many and Norway and two UK offshore wind farms, Moray East and Triton Knoll. Highlights ■ Satisfactory growth in revenue and earnings ■ High-voltage order backlog maintained at high level Utilization of NKT’s cable laying vessel, NKT Victoria, was in line with expec- tations in 2021, with deployment on a number of installation and service assignments. 640m 9% 83.1m Revenue, EUR Organic growth Operational EBITDA, EUR ■ Continued tender activity across segments (2020: EUR 579m) (2020: 26%) (2020: EUR 35.9m) * Std. metal prices NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 36 Business review – Solutions Order Intake driven by green transition In June 2021, NKT was awarded the Dogger Bank C project to deliver and install power cable systems comprising a total length of 2x250 km 320 kV DC offshore export power cable. This is the third and ﬁnal phase of the world’s largest offshore wind farm project, Dogger Bank Wind Farm, and thereby concludes NKT’s involvement in the project. The Dogger Bank A & B projects were previously awarded to NKT in 2019. High-voltage order backlog at high level Hudson Power Express. For NKT, the potential project is expected to have a value of approx. EUR 1.1 bn (approx. DKK 8.2bn) measured in current market metal prices. Expected revenue distribution of high-voltage order backlog EUR 2.87bn at end-2021 Driven by the ongoing transition towards renewable energy, NKT was awarded a number of new projects in 2021. Total order intake amounted to approximately EUR 500m and mainly comprised the two projects Troll West and Dogger Bank C. NKT’s high-voltage order backlog reached EUR 2.87bn (EUR 2.43bn in std. metal prices) at end-2021. This is down from EUR 3.07bn (EUR 2.59bn in std. metal prices) at end-2020. NKT expects around 25% of the order backlog to be realized in 2022. The Champlain Hudson Power Express will facilitate transmission of sustaina- ble hydropower from Canada to New York City in the USA. The 1,250 MWs transmission line will become a substan- tial contribution to the City of New York’s ambitions of transitioning its power gener- ation and consumption predominately to renewable sources. ~75% In April 2021, NKT was awarded the power-from-shore order for the Troll West project in the North Sea. This is a turnkey project that includes partial electriﬁcation of the Troll B platform and full electriﬁ- cation of Troll C. The power demand for both platforms will be met from shore and will reduce CO2e emissions in Norway. The order comprises turnkey supply and installation by NKT Victoria of more than 110 km of 145 kV high-voltage AC offshore power cable system with three dynamic sections. In September 2021, NKT announced it had entered an exclusive Preferred Supplier Agreement for delivery of the power cable system for the prospective US transmission line project, Champlain When fully commissioned the Dogger Bank offshore wind farm will be the ﬁrst high-voltage DC connected wind farm in the UK. ~25% A ﬁrm order is subject to ﬁnal contract negotiations and ﬁnancial closure. In ad- dition, the project needs ﬁnal approval by the relevant US authorities. The project is therefore not included in the high-voltage order backlog. 2022 2023 and onwards Largest high-voltage project awards for NKT in 2021 Project Country Segment Technology Contract value Troll West Norway UK Power-from-shore Offshore wind AC DC EUR ~95m Dogger Bank C EUR ~280m Continued tender activity Progress continued in 2021 on several project tenders across market segments and geographies. The timing of actual project awards will depend on various decisions for the individual projects. “The “European Green Deal” is EU’s roadmap for making the economy sustainable and be climate neutral in 2050. This will increase the demand for both oﬀshore and onshore power cable systems, for transmission of larger amount of renewable energy at higher voltage levels.” For NKT, achieving optimal production and installation ﬂow, and thereby opti- mizing earnings, is contingent upon high utilization of capacity across all produc- tion and installation phases. Michael C. Hjorth Chief Commercial Ofﬁcer HV Solutions, Executive Vice President NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 37 Business review – Solutions NordLink – an interconnecting milestone In 2021, NKT ﬁnalized the German section of the NordLink power cable system linking the German and The power cables for the NordLink project were manufactured at NKT's factory in Karlskrona, Sweden, which is powered exclusively by green elec- tricity, minimizing the carbon footprint of the cable system. As an integral part of NKT's overall environmental focus, installation of the submarine power cable systems was complet- ed by NKT Victoria, one of the most energy-efﬁcient cable-laying vessels in the industry. Norwegian power grids. The 525 kV MI HVDC power cable system from NKT is a milestone in the transition to an interconnected and green Europe and can meet the power needs of 3.6 million German households. The NordLink interconnector enables Norway to export its stable hydro power, helping Germany meet its daily power demand by balancing out the natural ﬂuctuations from its domestic wind power production. Surplus wind energy produced in Germany can in turn be transmitted via NordLink to Norway. “Interconnectors like NordLink are key to a greener future, and with our cutting-edge technology and strong turnkey project execution we are proud to continue taking centre stage in the European transition to renewable energy.” Claes Westerlind, Head of HV Solutions Karlskrona, Executive Vice President NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 38 Business review – Applications Higher revenue based on increased activity NKT has implemented several efﬁciency initiatives aimed at improving proﬁtability for Applications, and these measures are translating into improved performance. Through various commercial initiatives NKT will focus on growing proﬁtability by increasing revenues while maintaining a competitive cost base. In 2021, the Applications business line increased revenue by EUR 56.5m com- pared to 2020, corresponding to organic growth of 13%. This improvement was broad-based driven by favourable market conditions and NKT's ability to respond to the higher demand. Rising input costs in 2021 were managed satisfactorily. NKT was able to protect proﬁt margins in cooperation with cus- tomers and with a focused procurement approach. The revenue in market prices amounted to EUR 900m in 2021, against EUR 654m in 2020. Operational EBITDA margin up by 2.6 percentage points In the years ahead, NKT will be working on improving proﬁtability, some signiﬁcant steps having already been taken. Among the larger initiatives are the relocation of building wire production as well as 1 kV production from Asnæs, Denmark to Warszowice, Poland, and Kladno, Czech Republic, respectively. Production of low- er high-voltage cables in Cologne will be moved to Velke Mezirici, Czech Republic. The operational EBITDA for Applications amounted to EUR 28.5m in 2021, up from EUR 14.5m in 2020. This led to an increase in margin to 6.3% from 3.7%. Highlights ■ Financial performance continued on a positive trajectory At the beginning of 2021 NKT rolled out a uniform IT platform across its Eastern European sites. The implementation proceeded satisfactorily with only limited impact on daily operations. This rollout was the second and ﬁnal phase of the platform launch. ■ Positive organic growth across several markets ■ Acquisition of Ventcroft to 450m 13% 28.5m Revenue, EUR Organic growth strengthen product offering within ﬁre-resistant cables Operational EBITDA, EUR (2020: EUR 14.5m) (2020: EUR 394m) (2020: 3%) * Std. metal prices NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 39 Business review – Applications Broad-based growth favoured by market conditions The ongoing rollout of the 5G network beneﬁtted NKT´s power cable telecom business, which also contributed positive- ly to growth in 2021. The electriﬁcation of society, including the increase in the number of electric vehi- cles, and the ongoing transition to renew- able energy in the power generation mix, have positively impacted medium-voltage sales and resulted in high demand in 2021. This was combined with a positive European construction sentiment that supported sales of building wires. Acqusition of UK based supplier of ﬁre-resistant power cables In January 2022, NKT acquired Ventcroft Ltd in the UK to strengthen its position within ﬁre-resistant power cable technol- ogy. With this acquisition, NKT extended its portfolio of low-voltage power cables and building wires, an important step in its strategy of business growth. The attractive market conditions in- creased factory utilization across Applica- tions in 2021. NKT managed to maintain stable production and experienced only limited impact from the challenges relat- ing to the global supply chain. The medium-voltage segment contributed solidly to growth in 2021 across markets in Northern Europe such as Germany and Denmark. Sales to Sweden also increased, but at a more modest level. “Applications delivered healthy revenue growth The demand for building wires was high, which was reﬂected in a high utilization level for NKT’s factory in Warszowice, Poland. Growth in this segment was particularly driven by demand in Poland and Czech Republic supplemented by surrounding markets in Northern Europe. in 2021 with contributions from several markets. Our diﬀerent eﬃciency initiatives are also paying oﬀ and we have built the foundation for further earnings improvements in the coming years. ” Will Hendrikx Head of Applications, Executive Vice President NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 40 Business review – Applications Innovative power cables driving renewable energy in Denmark More than 33,000 Danish households will be powered by renewable energy when the Veddum Kær energy park becomes fully operational in 2022. The nine wind turbines and up to 10,000 hectares of solar panels will be connected by an innovative 36 kV AXAL-TT medium-voltage power cable system designed and manu- factured at NKT's factory in Falun, Sweden. NKT will supply 72 kV single -conductor cables and 36 kV 3-core cables for the coming project. The AXAL-TT cable system is specially designed and tested for tough instal- lation environments like the Nordics. The proven construction of the cable represents a unique solution which provides double protection against corrosion, ensuring reliable and long- term operation of the power cable system. “We are proud to continue to contribute to the advance of renewable energy in Denmark, where our power cable solutions have been integral to the development of on- and offshore wind power. The solution implemented at Veddum Kær clearly highlights the benefits of the innovative design of the AXAL-TT power cable technology,” Will Hendrikx, Head of Applications, Executive Vice President NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 41 Business review – Service & Accessories 48% organic growth driven by both business areas a margin of 15.9% in 2021 compared to 10.8% in 2020. Driven by higher contributions from both business areas, Service & Accessories achieved record-high revenue in 2021, up by EUR 64.5m from 2020. Growing this business line is a key strategic priori- ty, and performance in 2021 was a proof of this ambition. The improvement in earnings was driven by the growth in revenue due to an increase in service repairs. In parallel with this positive development, Service & Accessories increased its cost level by ramping up recruitment to prepare for future growth opportunities. In 2021, revenue measured in market prices amounted to EUR 206m, up from EUR 141m in 2020. Fluctuations in earnings and proﬁtability will occur from quarter to quarter, pri- marily depending on the volume of large offshore cable repairs, a factor which impacts the balance of revenue between the two business areas. Operational EBITDA more than doubled The operational EBITDA for Service & Accessories increased from EUR 15.2m in 2020 to EUR 32.8m in 2021. This led to Growth in service business driven by repair work The offshore cable repair work in 2021 was the main driver behind the exeptional revenue growth. A number of new or renegotiated service agreements also added to the growth and will also serve as a base for future business. Highlights ■ High activity in service business ■ Continued medium-voltage NKT has steadily expanded its portfolio of service agreements for both offshore and onshore power cables. These agree- ments are delivering an increasing share of recurring income, thereby supporting continued growth in revenue. In early 2021, NKT signed a long-term service contract with the Danish grid operator growth in the accessories business ■ New Service business hub in 206m 48% 32.8m Revenue, EUR Organic growth Gdynia, Poland, to prepare for future growth Operational EBITDA, EUR (2020: EUR 141m) (2020: 15%) (2020: EUR 15.2m) * Std. metal prices NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 42 Business review – Service & Accessories Energinet covering onshore and offshore NKT has over recent years invested in its Nordenham factory in Germany for the purpose of increasing output and auto- mating processes. power cable systems in Denmark. The level of offshore repair work was ex- ceptionally high in 2021. NKT completed a number of turnkey offshore repair as- signments during the year, including the high-voltage BritNed cable connecting the power grids in UK and the Nether- lands. NKT ﬁnalized an onshore repair on Kontiskan-1, an interconnector between Denmark and Sweden. The German market had many onshore repairs which also added growth during the year for the service business. To enable continued improvements in ﬁnancial performance, the production of high-voltage power cable accesso- ries is being centralized from Cologne, Germany to NKT's existing production site in Alingsås, Sweden. The project was initiated in 2021. The transition has led to temporary cost increases and has during the year extended delivery time on certain products. NKT initiated establishment of further service business operations in Gdynia, Poland, to position NKT for future growth in the Nordic and European region and prepare for Polish offshore wind expan- sion. NKT's accessories business experienced some supply chain difﬁculties during 2021, due to the challenges in the global transportation market and shortages of raw materials. Various initiatives were implemented to mitigate risks, and NKT was able to protect proﬁts. “2021 was a busy year for us. We have executed an unusually high level of oﬀshore repair jobs. This improved our ﬁnancial results signiﬁcantly, and also proved our ability to ramp up fast and eﬀectively when our customers are demanding it. NKT thereby underlined its position among the leading Growth in accessories business fuelled by medium-voltage sales The accessories business also report- ed revenue growth in 2021. This was accomplished through increased sales of medium-voltage power cable accesso- ries, particularly in the Middle East, which has been a solid growth contributor in recent years. companies in this market.“ Axel Barnekow Widmark Head of Service, Executive Vice President NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 43 Business review – Service & Accessories BritNed interconnector returned to operation During 2021, NKT successfully com- pleted two repairs on the vital 450 kV HVDC BritNed interconnector that links the national power grids of the UK and Netherlands. The BritNed interconnector is part of the investment program adopted by the national grid operators National Grid (UK) and TenneT (Germany/ Netherlands) to provide security and reliability of the power supply needed to drive the transition to renewable energy. As one of the leading com- panies in the market providing both standalone repairs and customized service packages, NKT delivers the fastest response and mobilization time available. Severely damaged by external impact, the cable system required repairs and reconﬁgurations on the seabed. Despite challenging weather conditions, the NKT crew managed to restore the interconnector quickly. The offshore activities for the ﬁrst repair in January-February were com- pleted in just 29 days. The second repair took place in May-June, since then the BritNed interconnector is back in full operation. “I am satisfied with our performance in reestablishing the BritNed connection. Once again, we demonstrated how our extensive experience in repair operations and a high degree of flexibility make a difference for our clients by minimizing the downtime of the power cable systems.” Axel Barnekow Widmark Head of Service, Executive Vice President NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 44 Risk management Risk taking is a natural part of doing business. NKT is fully committed to managing risks in accordance with good corporate governance and applies best practice to the internal risk processes. to hedge substantial exposure and pro- The Enterprise Risk Management cycle, includes twice-yearly reporting to the Risk Board and Audit Committee. The mid-year reporting provides an update on the most critical risks and overall ERM development. The annual report provides a comprehensive overview of the com- pany's risk position and perspectives on the overall impact of the risk proﬁle on the company's direction, risk mitigating actions, and future planning. tect earnings and assets from signiﬁcant ﬂuctuations. These are described in detail in Section 5.6 on pages 111-115. The overall risk picture for the company remains inﬂuenced by internal and exter- nal factors, the key changes compared to 2020 being stated below. The COVID-19 pandemic risk has been transitioned into contributing factors and root causes of other risks affected by the pandemic, including the supply chain landscape. The DC qualiﬁcation in Co- logne risk has been signiﬁcantly reduced as all major outstanding qualiﬁcation tests and requirements were successfully completed. The Key customers risk has been reduced due to general market developments and the evolution in NKT’s Applications business. The company’s main revenue streams originate from different segments of the power cable market with independent market dynamics. This income segmen- tation has the effect of spreading the risk. The Solutions business line is a project and backlog driven business and largely decoupled from short-term developments in the general economic environment. The Applications business line is mainly driven by construction development in both res- idential and non-residential building seg- ments, while the medium-voltage market beneﬁts from ongoing optimisation of the power grids by private and public stake- holders. Finally, growth in the Service & Accessories business line partly depends on large power cable repair projects. Risks are assessed by means of a two-di- mension risk matrix based on impact and probability. The identiﬁed key risks are prioritized and visualized on an illustrated heat map that highlights aggregated criti- cality and overall risk exposure to the Risk Board and Audit Committee. The risks are described in detail in the overview on the following two pages. Three new risks Regulatory require- ments, New competitors entering home markets and Commodity price changes have been introduced this year. Risk management process NKT operates a robust and efﬁcient enterprise risk management programme that aims to identify, prioritize and man- age key risks and monitor the mitigating actions. This enables NKT to manage the risks effectively. As a global, complex business, NKT is exposed to ﬁnancial risks from ﬁnancial market ﬂuctuations which primarily relates to currency, interest and commodity changes. NKT utilizes ﬁnancial derivatives NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 45 Risk management Risk 1. 2. 3. 4. 5. Risk identiﬁcation Regulatory requirements Product claims Operational breakdowns at factories Compliance New competitors entering home markets Risk description Change or new regulatory requirements of environmental, social, local, political or other character impacting production or production methods. Claims against NKT arising from defects in products or power cable solutions The inability to manufacture qualiﬁed products resulting in delays in delivery and claims against NKT. This is impacted by COVID-19 pandemic which may risk disrupting production Non-compliance with anti- Increased competition within NKT’s current core European bribery and anti-corruption regulations, competition law, data privacy and trade controls impacting NKT´s reputation and possible exclusion from tenders. market by new competitors from inside/outside Europe. May adversely affect NKT’s competitiveness. ■ ■ ■ ■ ■ Mitigation Monitoring of regulatory Monitoring of potential Monitoring of operational Monitoring of regulatory Monitoring of the global developments. failures in production and/or product designs. performance for critical developments and risk exposure. market and macro-economic developments and dynamics and regulatory developments impacting cross-regional ac- tivities, such as trade barriers and anti-dumping regulations. equipment and processes. ■ Proactive engagement in ■ ■ ■ regulatory processes via industry associations. Strengthening of quality Robust maintenance pro- Compliance programme and awareness and control procedures throughout the production. grammes across production and testing. procedures ensuring com- pliance with regulations and the ethical principles in the NKT Code of Conduct. ■ Maintaining strong focus ■ ■ on innovation and R&D to ensure timely and effective compliance with regulatory requirements. Contingency plans in place Focus on quality, innovation ■ Systematic root cause anal- to respond to incidents. and R&D. ■ ysis of product issues and implementation of correc- tive actions. Globally accessible whistle- ■ blower hotline allowing both NKT employees and third parties to report potential concerns. Proactive engagement in regulatory policy-making processes via industry associ- ations to ensure fair competi- tion within European markets. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 46 Risk management Risk 6. 7. 8. 9. 10. Risk identiﬁcation Project execution in high-voltage segment Cyber risk Supplier interruption and raw material availability Price pressure Commodity price changes Failures, delays or issues with execution of Solutions projects, resulting in customer claims and ﬁnancial losses. Loss or failure of business- critical IT systems in production or key business administrative functions. Interruption of supplies or services used in production or operations due to loss or interruption of supply chains or raw material availability. This risk is impacted by the ongoing COVID-19 pandemic. Adverse pressure on pricing for solutions, products and services in power cable markets. Adverse impact of price ﬂuctuations for non-hedged commodity materials, Monitoring components, and services. This risk is impacted by the ongoing COVID-19 pandemic. ■ ■ ■ ■ ■ Mitigating action Risk management activities Monitoring of developments Monitoring of the perfor- Monitoring of macro-eco- Monitoring of commodity covering all project phases. within the cybercrime land- scape and of the robust- ness and stability of the IT infrastructure and security. mance and reliability of key suppliers and availability of raw materials and compo- nents. nomic developments, gen- eral market conditions and the competitive landscape. price indexes and forecasts. ■ ■ Adequate balancing of in- Hedging mechanisms for surance, contract provisions and pre-production testing. commodity materials, com- ponents and services. ■ Establishing focused work- ■ ■ Strengthening of cyber Close working relationship ing groups, qualifying new markets and strengthening NKT’s value proposition. ■ security, IT governance and infrastructure, including adequate security controls, monitoring processes of improvement actions and incident response capa- bility. with identiﬁed key suppliers to reduce risks and maintain inventory control. Forecasting tools to predict price index developments. ■ Investigating and qualifying alternative sourcing oppor- tunities. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 47 NKT Group Leadership Team Alexander Kara President, Line Fandrup Fredrik Eskengren Head of Accessories, Executive Vice President Nationality: Swedish Born 1980 Will Hendrikx Michael C. Hjorth Chief Financial Ofﬁcer, Executive Vice President Nationality: Danish Born 1979 Head of Applications & Interim Head of Solutions Cologne, Executive Vice President Nationality: Dutch Chief Commercial Ofﬁcer HV Solutions, Executive Vice President Nationality: Danish Chief Executive Ofﬁcer Nationality: German/Swiss Born 1961 Born 1966 Gender: Male Gender: Female Gender: Male Born 1964 Gender: Male Joined NKT in 2019 Joined NKT in 2020 Joined NKT in 2007 Gender: Male Joined NKT in 1995-2012 and in 2017 Joined NKT in 2020 Anders Jensen Kira Johnson Claes Westerlind Head of HV Solutions Karlskrona, Executive Vice President Nationality: Swedish Born 1982 Axel Barnekow Widmark Head of Service, Chief Technology Ofﬁcer, Executive Vice President Nationality: Danish Born 1964 Chief Human Resources Ofﬁcer, Executive Vice President Nationality: American/Danish Born 1974 Executive Vice President Nationality: Swedish Born 1977 Gender: Male Gender: Female Gender: Male Gender: Male Joined NKT in 2018 joined NKT in 2021 Joined NKT in 2017 Joined NKT in 2020 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 48 Business overview NKT Photonics 49 At a glance 50 Letter from the CEO 51 Key ﬁnancials – 5-year review 52 Market overview 62 Sustainability 63 Product portfolio 64 Financial & business review 66 Risk management 68 NKT Photonics Leadership Team NKT Photonics is at the fore- front of optical ﬁber technolo- gy and manufactures some of the most sophisticated optical ﬁbers for use in its lasers. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 49 NKT Photonics at a glance Technology has the power to transform our lives. There are amazing innovations such as autonomous electric cars, smartphones, quantum computing, artiﬁcial intelligence, stem cell and cancer research, renewable energy and even space exploration. NKT Photonics’ customers are visionary innovators within these ﬁelds. They are changing the world through their innovations, and we are ready to deliver the cutting-edge solutions they need. Solutions for Innovators. Revenue distribution by geography in 2021 23% 59% 18% APAC Americas EMEA Founded in Countries with oﬃces Nationalities Employees Business segments Revenue distribution by segment in 2021 2000 8 42 424 19% 21% 11% Issued and People in R&D R&D spend pending patents and engineering as % of revenue 49% Medical & Life Science Industrial 355 160 22% Aerospace & Defence Quantum & Nano Technology NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 50 Letter from the CEO NKT Photonics returned to growth in 2021 Markets improved in 2021 Positive development to continue After an unusual 2020, which was nega- tively impacted by the COVID-19 pandem- ic, NKT Photonics delivered a rebound in 2021. Closing Q4 2021 at EUR 27.6m, the highest quarterly revenue ever, Q4 also marked the sixth consecutive record quarter for NKT Photonics. Although the COVID-19 pandemic is still creating some uncertainty, we expect fur- ther improvements in 2022. We see solid order intake across all segments, and we 80m will have new products coming on stream in 2022 to support growth. Additional- ly, we see underlying megatrends that support our business. These includes the worldwide pursuit of viable quantum computing technologies, the increased focus on safety and protection driving our directed energy initiatives within Aero- space & Defence, as well as the global demographic development driving our ophthalmology initiatives within Medical and Life Sciences. EUR revenue in 2021 Q4 marked our highest ever quarterly revenue. of EUR 27.6m The Industrial and Quantum & Nano Technology segments were the key growth drivers with broad-based pro- gress across sub-segments. We saw solid double-digit growth in most product areas – not least within our applications for the semiconductor, remote sensing, and quantum technology sectors. Growth in Medical & Life Science and Aerospace & Defence was slightly nega- tively impacted in 2021 by timing of pro- jects and OEM contracts, but the underly- ing positive dynamics are unchanged for these segments. Order intake is strong, and we are experiencing very high inter- est in our innovative solutions from both new and existing customers and partners. Finally, I would like to thank all our employees who have worked tirelessly throughout the year to deliver products to our customers despite restrictions, lockdowns, and the other complications that the global pandemic has imposed on all our lives. We are all looking forward to returning to more normal operation in 2022. Overall, 2021 was a record year for NKT Photonics where we returned to growth in both revenue and earnings despite con- tinuation of COVID-19 and a challenging supply chain. Basil Garabet President & Chief Executive Ofﬁcer, NKT Photonics NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 51 Key ﬁnancials – 5-year review 20181 20171 Revenue development Amounts in EURm 2021 2020 2019 Amounts in EURm Income statement 80.1 69.9 Revenue 80.1 7.5 69.9 2.6 74.6 14.6 -9.9 4.7 67.7 9.0 50.9 3.5 74.6 67.7 EBITDA Depreciations, amortizations and impairment -14.6 -7.1 -4.2 -11.3 3.5 -12.1 -9.5 -7.9 1.1 -5.2 -1.7 -0.9 -2.6 0.4 EBIT 50.9 Financial items, net -5.2 -0.7 4.0 -0.3 0.8 EBT -14.7 3.7 Tax -1.5 2.5 1.2 Net result -7.8 -11.0 2.0 -2.2 Cash ﬂow Cash ﬂow from operating activities Cash ﬂow from investing activities excl. acq. & div. Free cash ﬂow excl. acq. & div. -1.0 -14.3 -15.3 0.7 -16.6 -15.9 7.2 -16.7 -9.5 4.1 -11.8 -7.7 -0.4 -7.5 -7.9 2017 2018 2019 2020 2021 Balance sheet Capital employed Working capital EBITDA Amounts in EURm 120.5 33.6 110.7 27.4 104.4 28.2 78.6 24.0 69.0 23.1 Financial ratios and employees Organic growth 19.6% 15% 9.4% -6.2% 424 -6% 3.7% -8.8% 417 10% 19.6% 4.9% 403 16% 13.3% 1.6% 349 7% 6.9% -3.1% 302 EBITDA margin RoCE 13.3% Full-time employees, end of period 1 9.4% Comparison ﬁgures have not been restated following the implementation of IFRS 16 Leases on 1 January 2019. ** Alternative performance measures 6.9% 3.7% 3.5 9.0 14.6 2.6 7.5 2017 2018 2019 2020 2021 EBITDA EBITDA margin, % NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 52 Market overview Solutions for innovators Megatrends Technology has the power to transform our lives. This was true with the invention of penicillin, electricity and, more recently, the internet. Today, the transformation continues with innovations such as autonomous electric cars, smartphones, quantum computing, artiﬁcial intelligence, stem cell and cancer research, renewa- ble energy and even space exploration. NKT Photonics’ customers are visionary innovators within these ﬁelds and many more. They are changing the world, and NKT Photonics is ready to deliver the cut- ting-edge solutions they need. Solutions for innovators. Megatrend #1 Megatrend #2 Increased technological complexity As technology shrinks and more functions are packed into sophisticated everyday devices, the requirements for the tech- nology and tools used to manufacture the products are being pushed to new levels. Megatrend #3 Growing and ageing Focus on security population As technology advances and cost decreases, access to autonomous drones, surveillance equipment and other sophisticated technology is becoming easier. This is accompanied by increas- ing security concerns as small groups or individuals can harm civilian targets or disrupt infrastructure. Consequently, there is a growing need for fast and efﬁ- cient defence systems safe to use in any environment. Continued growth in global population is leading to pressure for more effective use of resources, and increasing the demand for optical sensing and monitoring to optimize use of energy and infrastructure. At the same time, continued rise in life expectancy is fuelling the need for faster, and cheaper medical instrumentation for mass screening, diagnostics and treat- ment based on lasers. Mechanical manipulation and processing of materials that was feasible a few years back is increasingly being replaced by laser processing and optical measuring techniques. This enables higher precision and faster throughput when processing the small structures used in high-tech devices like smartphones, semiconduc- tor components, and advanced medical equipment. Growth supported by megatrends NKT Photonics develops innovative solutions with multiple applications. These technology-leading solutions are tapping into sustainable megatrends that will support growth opportunities for the company going forward. Directed energy systems using ﬁbre lasers are uniquely suited to accomplish- ing some of these tasks. For example, they can safely disable small drones over an airport, ship or sports stadium in an effective and cost-efﬁcient way. In addi- tion, optical remote sensing technology like Distributed Acoustic Sensing, DAS, is increasingly being used for perimeter and border security and for securing critical infrastructure like communication lines and pipelines. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 53 Market overview – segmentation In Q3 2021, NKT Photonics introduced a new market segment: Quantum & Nano Technology. Previously included under Industrial, the new segment is a In 2020 the global COVID-19 pandemic temporarily shifted the size and balance of NKT Photonics market segments. However, while not a return to normal, 2021 saw a partial restoration of the markets and the total addressable market is still approximately EUR 2.5-3bn. growth area with signiﬁcant potential. NKT Photonics has been active in this ﬁeld for two decades but segment growth, particularly driven by quantum technology, has made this segmentation meaningful. The overall laser market is expected to grow at a CAGR (Compound Annual Growth Rate) of 9.6% in 2020-2025. Within this, the ﬁber laser market is expected to grow at 11.5% per year in the same period. NKT Photonics thereby divides its main market into four main segments: Medical & Life Science, Industrial, Aerospace & Defence, and Quantum & Nano Tech- nology. Most products in the company's portfolio have applications across these four segments. Expected CAGR for ﬁber laser market 11.5% For 2020-2025 Source: The Worldwide Market for Lasers, Trends and Five-Year Forecast (2019 – 2025) by Strategies Unlimited. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 54 Market overview Medical & Life Science Medical & Life Science is one of the fastest growing of the four market segments. Ultrafast lasers ﬁnd particular use in ophthalmology, while supercontinuum lasers are employed in advanced bio- imaging, enabling new ways of diagnosing e.g. cancer. Main applications for Medical & Life Science are: ■ Bio-imaging and microscopy ■ Ophthalmology The Medical & Life Science segment is predominantly driven by megatrend 1: Growing and ageing population. This and a general increase in living standards around the world are leading to increased demand for ophthalmic and other medical procedures. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 55 Medical & Life Science Examples of current main applications Pursuing the cure for COVID-19 with confocal microscopes Moreover, as the standard of living and general economy around the world improves, so does the demand for ophthalmic procedures. This leads to a heightened need for skilled surgeons, but as training takes years the demand is outpacing supply. Laser-based surgery offers a cost-effective solution to this problem as training in using a femtosec- ond laser cataract system takes weeks compared to years for manual surgery. Many of the procedures needed, espe- cially in Asia, are therefore expected to be fulﬁlled by laser surgery. COVID-19 has changed how we live and has affected the global economy in a way few had anticipated, and all the world’s top medical institutions have mobilized against the pandemic. NKT Photonics’ SuperK supercontinuum white light lasers power thousands of high-resolution con- focal Leica microscopes globally. Used for research and diagnostics within many medical ﬁelds such as virology, stem cells and oncology, these microscopes offer superior image contrast and ﬂexibility, enabling the user to see features in cells not previously visible. The SuperK is also used in super-resolution microscopes, such as STED, that offer even higher performance. In 2014, Stefan Hell was awarded The Nobel Prize in Chemistry for his work with STED microscopy using NKT Photonics’ lasers. Fast, low-cost detection of skin cancer Skin cancer is the most frequent cancer type and is becoming increasingly common. While survival rates are generally high, WHO estimates that 1.2 million people died from the disease in 2020. The traditional method of detection using biopsies is not optimal. It can be painful, costly, time-consuming, and even unreliable, being esti- mated to miss around 20% of early-stage skin cancers. A new medical imaging device developed by DAMAE Medical uses NKT Photonics’ SuperK supercontinuum white light laser to detect early-stage skin cancer faster, cost-efﬁciently, and without the need for biopsies. This eliminates unnecessary surgery and ultimately saves lives. Safer eye surgery with ultrafast lasers More than 20 million cataract surgeries are performed worldwide each year. Most of them with manual processes where results are dependent on the skill of the surgeon. In the latest generation of equipment the scalpel is replaced with an ultrafast femtosecond laser from NKT Photonics. Using lasers ensures consist- ent quality, reduces risk of complications and accelerates recovery. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 56 Market overview Industrial Industrial is the largest Remote sensing in the form of Distributed Acoustical Sensing, DAS, is one of the key industrial applications of NKT Photonics’ Koheras sin- gle-frequency lasers. Here km long ﬁbers are used as optical microphones detecting even the smallest disturbances along the length of the ﬁber. Typically such systems are used for asset protection such as pipeline monitoring, network protection, and segment for NKT Photonics. Customers utilize the full breadth of the company's product portfolio, including ultrafast lasers, supercontinuum lasers, and sensing systems. perimeter security. Within Industrial, NKT Photonics serves multiple subsegments and applications, such as: ■ Semiconductors ■ Remote sensing ■ Device characterization, sorting and quality control Industrial segment growth is predomi- nantly driven by megatrend 2: Increased technological complexity. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 57 Industrial Examples of current main applications More power from renewable energy with power cable monitoring Sorting and quality control of food The characteristic broadband light from the SuperK white light laser can be used for high-speed sorting of e.g. food and ingredients. In combination with the latest hyperspectral imaging techniques, these unique lasers allow sorting directly on the production line. This enables the manufacturer to switch from ofﬂine sam- ple-based batch quality control to full on- line sorting of all batches, and to increase the number of parameters that can be measured. Using NKT Photonics’ lasers, producers increase not only the quality of the food produced but also food safety. The latter is a growing concern globally, where ingredients and materials are often variable and inconsistent. The growth in decentralized renewable power sources such as wind and solar, is accompanied by greater ﬂuctuation in energy production than previous, increas- ing demands on the power grid. NKT Photonics’ EN.SURE monitoring systems are used to continuously supervise the health and load of power cables, enabling improved load distribution and capacity utilization. This means that more of the wind or solar energy produced can be sent into the grid. Solving the semiconductor NKT Photonics primarily supplies SuperK Safer tunnels and metros using ﬁber sensors chip shortage using lasers white light lasers and advanced ﬁbers to tool producers for integration in their equipment. Here they are used in e.g. wafer inspection and metrology at critical steps in the manufacturing process – typically after lithography and etching. The broadband lasers deliver the highest possible resolution for ever-decreasing feature sizes. Moreover, they can replace multiple single-line lasers, adding cost beneﬁts to the increase in resolution. As complexity increases and structures shrink, the use of white light lasers in the semiconductor industry is expected to increase. Among the many changes to which we are all becoming accustomed after two years of pandemic challenges is a global shortage of semiconductor chips. Affecting everything from mobile phones to cars, the chip shortage has resulted in dramatically increased prices and delivery times. The shortage is driven by many factors, but the demand for semiconductor devices will remain high for the foreseeable future. Consequently, manufacturing capacity is expanding everywhere, and semiconductor tool producers are ﬁghting to meet demand. At the same time, the push for smaller structure and more advanced devices is continuing, and new tools and techniques are constantly being developed. Fire safety in tunnels and metros is a priority and protection systems have never been better. DE.TECT linear heat detection systems from NKT Photonics currently monitor temperature in more than 300 tunnels and metros worldwide. The ﬁbre optic systems can detect tiny increases in temperature with down to one metre accuracy over several km of tunnel. DE.TECT feeds the data to the ﬁre protection systems, enabling fast and accurate response to ﬁres or hotspots, keeping people safe when travelling. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 58 Market overview Aerospace & Defence While NKT Photonics has always been active in the aerospace and defence ﬁeld, heightened focus over recent years has resulted in market growth. In Aerospace & Defence, NKT Photonics utilizes its entire portfolio of products and capabilities to serve special project needs, focused mainly within the European and US markets. The main applications include: ■ Directed energy ■ Aerospace ■ Remote sensing With the opening of its factory in Boston, Massachusetts, NKT Photonics can now serve the US aerospace and defence market even more effectively. Growth in the Aerospace & Defence segment is predominantly driven by meg- atrend 3: Focus on security. Both NKT Photonics’ Koheras single-frequency lasers and their SuperK white light lasers are used in various aero- space application including advanced satellite commu- nication and high-precision quantum inertial sensing. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 59 Aerospace & Defence Examples of current main applications Koheras lasers in space Koheras lasers keep communication safe NKT Photonics is supplying thousands NKT Photonics currently has several Ko- heras low-noise lasers in orbit on board the ESA SWARM satellites measuring the Earth’s magnetic ﬁeld. Space-qualifying a laser is no simple task, but the robust monolithic design of Koheras ﬁbre lasers makes them well suited to harsh environ- ments. The lasers have been operating in space for several years, helping scien- tists to better understand the planet and delivering higher-precision navigation for smart phones by mapping the magnetic poles. of Koheras lasers to a large-scale secure data network project in India. The lasers are the key component in a ﬁbre-optic intrusion detection and location system monitoring the several thousand km long network. The system keeps communica- tion lines secure and ensures that data cannot be siphoned out of the system without detection. Similar systems are also used for perimeter security at air- ports and other critical infrastructure. Lasers preventing drone attacks In 2018, small drones closed London Gatwick Airport for more than two days, incurring costs estimated at several mil- lion EUR. Small, fast-moving drones are an increasing concern around high-risk areas such as airports, ships or stadi- ums. Lasers from NKT Photonics are used in projects aimed at safely tracking and disabling these drones quickly and effectively. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 60 Market overview Quantum & Nano Technology NKT Photonics' quantum technology operations cover a range of fast- Quantum technology is positioned to revolutionize everything from computers growing segments within quantum computing, to navigation systems, and at the heart of most of these systems are sophisticated lasers. Niels Bohr pioneered quantum research in Denmark and NKT Photonics continues the work by supplying lasers to many of the best laborato- ries and quantum companies in the world. sensing, metrology, and communication. Nano technology activities span applications relating to development of advanced materials such as graphene, carbon nano tubes, meta materials, plasmonic structures and quantum dots. Finally, the segment includes a number of scientiﬁc instrumentation applications. The main applications include: ■ Quantum computing, sensing and metrology ■ Characterization of advanced materi- als and nano structures NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 61 Quantum & Nano Technology Examples of current main applications Lasers enable centimetre GPS precision Advanced materials for better solar cells Today, our deﬁnition of time is based on the vibration of a caesium atom. While this method is so accurate that caesium clocks will keep time to within one second over 100 million years, the next generation of timing standards is currently under development. The new optical clocks are based on lasers and will improve accuracy by several orders of magnitude. In the pursuit of the global transition to renewable energy sources and re- duced energy consumption, perovskite nanocrystals are important candidates for future solar cells and LEDs. Offering greatly improved efﬁciency, they can be easily manufactured from common salts in low-temperature processes, poten- tially making them a highly cost-effective solution. One practical everyday implication of this change is GPS precision. Today, GPS depends on atomic clocks Much research remains before per- ovskites reach commercial maturity. Therefore many institutions are using SuperK lasers from NKT Photonics to characterize the structures to better understand the response and efﬁciency at different colours of light, as well as the impact of the crystalline structure on the properties. installed in satellites. This generally translates to a GPS precision in the meter range – enough to navigate but not sufﬁcient for e.g. autonomous cars or warehouse inventory. Replaced with the new more precise optical clocks, the precision of the GPS system Laser-powered quantum revolution With some regularity, technology arrives which profoundly changes the world. The internet and smart phones are two recent examples that few would have anticipated only a couple of decades ago. We are now on the threshold of the next para- digm shift: Quantum computing. Several architectures for quantum computers are currently being pursued, trapped atom and trapped ion computers being among the most promising. These systems use an array of highly specialized lasers to cool, trap and manipulate atoms to form the qubits of the quantum com- puter. The requirements on the lasers, like the rest of the system, are very demand- ing and they are fulﬁlled perfectly by NKT Photonics’ Koheras single-frequency la- ser platform, which the company supplies to the majority of leading companies and labs in the ﬁeld. improves to the centimetre range, bringing GPS to all new applications. The new optical clocks demand extremely stable low-noise lasers at precise optical frequencies – ideal requirements for NKT Photonics’ Koheras lasers. Many leading metrology laboratories around the world are equipped with Koheras lasers to keep time. While still in its absolute infancy, quantum computing promises to massively speed up complex computational tasks and enable entirely new applications not pos- sible with classical computers. This has widespread implications for everything from our ﬁnancial systems to aerospace engineering and from artiﬁcial intelligence to drug development. Backed by substantial private and governmental funding, the race is on to reach commercial scale within quantum computing and NKT Photonics is an important player. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 62 Sustainability NKT Photonics is committed to working for a sound environment through sustainable business practices and with focus on human health and safety. Furthermore, the company operates from a compliance regime based on the cor- porate Business Code of Conduct. The code applies to all employees and deﬁnes the fundamental principles governing the behaviour internally as well as externally in relation to vendors, partners,the supply chain and the general public. With this in mind, the majority of the company’s products are manufactured in accordance with regulations such as the RoHS directive, which restricts the use of hazardous substances in electronic and electrical equipment to protect the environment and public health. Find data and details in the Sustainability Report 2021 As a high-tech company, attracting talented and highly skilled employees is essential to NKT Photonics. To ensure an attractive working environment, NKT Photonics encourages diversity within its organization and promotes gender equality without compromising on qualiﬁ- cations in terms of professional skills and personal competencies. Advanced monitoring systems from NKT Photonics enables increased performance in power cable systems by improving the utilization of the energy produced. This allows more renewable energy to be sent into the power grids. * Restriction of Hazardous Substances in Electrical and Electronic Equipment. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 63 Product portfolio The NKT Photonics product portfolio oﬀers a variety of innovative solutions. As stated in the market overview, these solutions are applicable for several market segments and described in more detail below. Photonic crystal ﬁbers Narrow linewidth low-noise lasers Koheras lasers are in many ways the ex- act opposite of SuperK white light lasers. They emit light in an extremely narrow and well-deﬁned spectral range and the light is very well controlled. As the charac- teristics of the light are so well known, Koheras lasers are ideal for sensing ap- plications, even very small disturbances being observable as changes to the light from the lasers. Primary sensing applica- tions include Distributed Acoustic Sensing (DAS), vibrometry, and PDV applications in areas such as pipeline monitoring and intrusion detection. Recently, the fastest growing applications of Koheras lasers are within quantum technology, where they are used in computing, sensing, and metrology. Sensing systems The company’s unique and heavily pro- tected photonic crystal ﬁbre technology is at the core of most of its laser products and is a main driver of differentiation and growth. NKT Photonics utilizes the technology to embed maximum function- ality directly into the ﬁbres to ensure that systems built with these high-function components are simpler, more cost effec- tive, and reliable. Photonic crystal ﬁbers are unique and differ from e.g. telecom- munication ﬁbers in using a microscopic array of materials running the length of the ﬁber. PCF ﬁbers are also known as microstructured ﬁbers NKT Photonics produces a range of linear optical sensing systems for power cable surveillance, ﬁre detection, and industrial temperature monitoring. All these systems can measure temperature with high accu- racy over many km of optical ﬁbre. Unlike with electronic temperature measuring, the optical ﬁbres are extremely robust and immune to electrical disturbances. This makes them well suited for use in harsh environments such as tunnels, metros, chemical plants, furnaces, and inside high-power optical cables. Fiber lasers versus solid-state lasers While the majority of NKT Photonics’ laser products are ﬁbre lasers, sol- id-state lasers and hybrid systems are also produced. In the last decade, ﬁbre lasers have taken market share from solid-state lasers as they have a range of key advantages, including robustness, scalability and maintenance-free opera- tion. Solid-state lasers on the other hand have advantages at high pulse energies required in certain applications. Supercontinuum white light lasers NKT Photonics is a leading global sup- plier of supercontinuum white light lasers – lasers which emit very bright light within a very broad spectral range, from UV all the way to the near infrared. This property is unique to supercontinuum technology as light sources are typically either bright or broad, and the SuperK is the only light source capable of doing both. This combination is important as it enables supercontinuum lasers to replace a range of other lasers which emit light of only one colour, thereby saving cost and space while improving reliability and robustness. Moreover, the broad spectrum of these lasers enables a new level of measuring precision not possible with any other laser type. Ultrafast lasers Ultrafast lasers emit very short bursts of high-intensity light that can be used to manipulate material with high precision. NKT Photonics’ Oneﬁve and aeroPULSE ultrafast lasers are used directly in ma- terial processing applications within the Medical & Life Science and Industrial seg- ments. The company's aeroGAIN mod- ules are supplied to other manufacturers of ultrafast lasers where they constitute the main “engine” of the lasers. With these two types of lasers, NKT Photonics can choose the platform that best suits the application and even com- bine the two to gain beneﬁts from both technologies. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 64 Financial & business review In 2021, NKT Photonics’ ﬁnancial performance recovered from the negative impacts of the COVID-19 pandemic in 2020. Driven by the Industrial and Quantum & Nano Technology segments, revenues and EBITDA The main growth contributors in 2021 were the Industrial and Quantum & Nano Technology segments, with broad- based contribution. The most signiﬁcant positive developments in the segments were in the semiconductor industry and the growth in quantum research and quantum computing. Industrial was the most heavily impacted segment by the COVID-19 pandemic in 2020. Revenue development and organic growth Amounts in EURm 2021 2020 revenue Currency effect Organic growth 2021 revenue Organic growth, % 69.9 -0.2 10.4 80.1 15% increased signiﬁcantly. The same positive development was seen in order intake which increased by 26% compared to 2020. The free cash ﬂow in 2021 was on the same level as in 2020, with improved EBITDA being oﬀset by increased working capital. In 2021, the Medical & Life Science segment experienced a decrease in revenue due to unfavourable phasing of orders compared to 2020. The revenue in Aerospace & Defence decreased due to the recognition of an unusually large order in 2020. EBITDA lifted by growth in revenue NKT Photonics’ EBITDA almost tripled from EUR 2.6m in 2020 to EUR 7.5m in 2021. The growth in earnings was primarily due to higher revenue together with higher gross margin from a more favourable product mix. Revenue Amounts in EURm EBITDA Amounts in EURm 19.6% All-time high revenue in 2021 Revenues in NKT Photonics reached EUR 80.1m in 2021 and was 10.2m above 2020. This equalled 15% organic growth. The revenue in 2021 was EUR 5.5m above the 2019 level before the COVID-19 pandemic. 13.3% The EBITDA level in 2021 was lower than in 2019. The primary reasons for this development were a higher cost level in 2021 to prepare for future growth and 2019 included certain positive non-recur- ring items. 9.4% 3.7% 6.9% 50.9 67.7 74.6 69.9 80.1 3.5 9.0 14.6 2.6 7.5 NKT Photonics’ growth was particularly strong in 1st half 2021 as the corre- sponding period in 2020 was adversely inﬂuenced by the COVID-19 pandemic. 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 EBITDA EBITDA margin, % The continuation of the COVID-19 pandemic in 2021 had limited impact on NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 65 Financial & business review operations. NKT Photonics prioritized the necessary steps to ensure the health of its employees and maintain largely unin- terrupted production. Order intake increased by 26% As for revenue, the order intake recovered in 2021 following the negative develop- ment in 2020 due to the COVID-19 pan- demic. The total order intake increased 26% compared to 2020. This brought the order intake in 2021 13% above the record intake in 2019. The higher level of orders was primarily driven by the semi- conductor, ophthalmology, and quantum technology segments. Medical & Life Science Revenue distribution by segment in 2021 Revenue for the Medical & Life Science segment was slightly down in 2021, which was mainly related to the timing of OEM orders. The order intake in the segment grew signiﬁcantly and growth is expected in 2022 driven by the Bio-imaging & Microscopy as well as the Ophthalmology segments. 19% 21% Further, NKT Photonics experienced only limited delays in supply of components for production in 2021, but the current situa- tion remains a challenge for the industry. Addressing this continues to be a focus area for NKT Photonics and actions have been taken to mitigate risks and ensure unimpacted production ﬂow. 11% Industrial All product lines saw growth within the Industri- al segment in 2021. However, the largest driver continued to be the semiconductor industry, where NKT Photonics delivers supercontinuum lasers and single-frequency laser to the tool manufactures. 49% Medical & Life Science Industrial RoCE developed positively Driven by the increased earnings, RoCE in 2021 improved by 2.6%-points from 2020. The EBITDA margin in 2021 was 9.4%, compared to 3.7% in 2020. Aerospace & Defence Quantum & Nano Technology Aerospace & Defence The Aerospace & Defence segment dropped in 2021 compared to 2020 due to completion of a large remote sensing project in 2020. However, the large Directed Energy projects continued with pos- itive development, and several new projects were initiated. Consequently, the segment is expected to return to growth in 2022. EBIT and net result EBIT and net result both increased from 2020 to 2021, reﬂecting the same drivers behind the growth in EBITDA. EBIT in 2021 amounted to EUR -7.1m, up from EUR -9.5m in 2020. Depreciations and amortizations increased in 2021, reﬂect- ing the investments made in recent years. NKT Photonics reported a net result of EUR -7.8m in 2021 against EUR -11.0m in 2020. Revenue distribution by geography in 2021 23% Quantum & Nano Technology This segment kept the high growth pace from previous quarters and remained the fastest growing segment. Main drivers were the quantum comput- ing markets as well as research within quantum sensing and metrology. As new products are intro- duced, growth is expected to continue in 2022. 59% 18% Cash ﬂow generation largely as in 2020 Americas APAC The free cash ﬂow of EUR -15.3m in 2021 was EUR 0.6m above 2020 driven by improved EBITDA. This was largely out- weighed by an increase in working capital due to higher inventory levels. EMEA NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 66 Risk management In 2021, NKT Photonics delivered broad-based growth and separated Quantum & Nano Technology into a new market segment due to the increased focus on this area. The risk of the COVID-19 pandemic has Risks are assessed by means of a two-di- mension risk matrix based on impact and probability. The identiﬁed key risks are prioritized and visualized on an illustrated heat map that highlights aggregated criti- cality and overall risk exposure to the Risk Board and Audit Committee. The risks are described in detail in the overview on the next page. been removed as a separate risk. While the pandemic still impacts macro-eco- nomic developments and supply chain landscape, the risk towards NKT Pho- tonics is considered to have transitioned into contributing factors and root causes of other, related risks in the risk matrix upon which the pandemic may still have a speciﬁc impact. So far, the COVID-19 pandemic has had limited disruption or operational impact. The Board of Directors and the Leader- ship Team of NKT Photonics conclude that the Group’s risk proﬁle and mitigat- ing actions in general, and speciﬁcally towards the COVID-19 pandemic-related risks, have proven effective throughout 2021 by staying alert and agile on im- pacts from possible adverse events. Risk Management Process NKT Photonics operates a robust and efﬁcient Enterprise Risk Management programme that aims to identify, prioritize and manage key risks and monitor the mitigating actions. This enables NKT Pho- tonics to manage the risks effectively. The outlook for the coming years is sub- ject to uncertainty with regard to access to some raw materials and components for the production due to the unknown effect on the global supply chain from further COVID-19 pandemic impact. The ERM cycle includes biannual report- ing to the Risk Board and Audit Commit- tee. The mid-year reporting provides an update on the most critical risks and over- all ERM development. The annual report provides a comprehensive overview of the company's risk position and perspectives on the overall impact of the risk proﬁle on the company's direction, risk mitigating actions, and future planning. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 67 Risk management Risk 1. 2. 3. 4. 5. Human Resources Risk identiﬁcation Competitive Market Environment and IT and Information Security Intellectual Property Rights Operations Dependence on Key Suppliers Research & Development Risk description Key market players ﬁnd Failure to adequately Intellectual Property Rights (IPR) relating to commercial opportunities are challenged either by third party Dependence on key suppliers constitutes a risk in case of delivery issues, quality issues, or excessive price increases including the adverse effects of COVID 19 Pandemic to the global supply chain in general. Ability to Identify, attract, and/or motivate and retain talents. alternatives to NKT Photonics’ products and solutions that enable them to compete in the form of new technology. protect NKT Photonics’ IT infrastructure and main IT systems from the risk of security incidents. This could lead to disclosures of business-critical information, stolen digital assets which may result in damaged reputation, and weakening of the infringements or infringements alleged against us. competitive position. ■ ■ ■ ■ ■ Mitigation Ongoing development and NKT Photonics continu- Pursue competitors violat- Selective implementation Cooperation with universi- improvement of offerings, and protection of our unique technologies by patents, etc. ously addresses such risks by processes and tools ing our IPR, and contin- uously build on existing strength by further IPR development and registra- tion. of dual sourcing wherever possible, and avoidance of critical dependency on single-source components as far as possible through design solutions and extend- ed supply forecasting. ties to ensure recognition and focus from students and schools and effective succession planning for key positions. designed and deployed to protect sensitive business information from malicious threats and security breach- es, supported by a high de- gree of security awareness among the employees. ■ Partnering up with other ■ ■ companies for further tech- nology enhancement. Closely supervise the spe- Focus on existing personnel ciﬁc area of technology and track the development and registration of IPR inside and outside the company. through employee engage- ment surveys and dialogue. Continuous dialogue with talents from the industry and ■ Perform early quality control ■ Continued focus on re- of purchased materials and services, and continuously evaluate key supplier perfor- mance and options for dual supply. ■ search and development of new technology and shifts in market/customer demands. Continuously log and ana- lyze threats related to IT and information security. education clusters in order to attract new people. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 68 NKT Photonics Leadership Team Basil Garabet Jakob Dahlgaard Fink Chief Financial Ofﬁcer Nationality: Danish President & Chief Executive Ofﬁcer Nationality: American/British Born 1959 Born 1972 Joined NKT Photonics in 2015 Joined NKT Photonics in 2021 Christian Vestergaard Poulsen Chief Technology Ofﬁcer Nationality: Danish Don Riddell Chief Operations Ofﬁcer Nationality: British Born 1967 Born 1968 Joined NKT Photonics in 2001 Joined NKT Photonics in 2017 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 69 Overview Group 70 Group ﬁnancials 72 Shareholder information 74 Corporate governance 77 Board of Directors 80 Executive Management NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 70 Group ﬁnancials Operational EBITDA and EBIT The NKT Group reported operational EBITDA of EUR 139m in 2021, up from EUR 59.3m in 2020. The improved per- formance was driven by both NKT and NKT Photonics. The operational EBITDA margin increased to 10.3% in 2021 from 5.1% in 2020. Financial items and net result Cash ﬂow The cash ﬂow from ﬁnancing activities totalled EUR -21.0m in 2021, which included the annual coupon payment of EUR 8.1m related to the outstanding hybrid security. The net ﬁnancial items in 2021 amounted to EUR -12.4m compared to EUR -16.7m in 2020. The ﬁnancial items primarily con- sisted of interest costs on debt, interest expenses on leases as well as exchange gain and losses. Earnings before tax were EUR 4.4m in 2021, compared to EUR -64.6m in 2020. In 2021, the cash ﬂow from operating ac- tivities amounted to EUR 208m, up from EUR 136m in 2020. The primary driver for this growth was the improved level of earnings. The favourable development in working capital in the Group’s power cable business was also a contributing factor. Liquidity, debt leverage and equity The net interest-bearing debt amounted to EUR 13.2m at end-2021, against EUR Operational EBITDA both in NKT and NKT Photonics increased in 2021. In 2021, EBIT amounted to EUR 16.8m, an improvement from EUR -47.9m in 2020. Depreciations and amortizations were at a higher level for both NKT and NKT Photonics in 2021 compared to 2020. -25.9m at end-2020. The increase in debt was due to the negative cash generation in 2021. At end-2021, net interest-bear- ing debt relative to operational EBITDA amounted to 0.1x, compared to -0.4x at the end of 2020. The NKT Group reported an effective tax rate of 7% in 2021. The tax rates were 24% and 31% in NKT and NKT Photon- ics, respectively. The net result in 2021 amounted to EUR 4.1m, against EUR -74.5m in 2020. The cash ﬂow from investing activi- ties amounted to EUR -226m in 2021, compared to EUR -107m in 2020. The in- creased level of investment was primarily due to upgrade and expansion of the pro- duction sites in Cologne and Karlskrona in NKT’s Solutions business line. 2021 ﬁnancial development Revenue Operational EBITDA Oper. EBITDA margin Amounts in EURm 2021 2020 Change 2021 2020 Change 2021 2020 NKT 1,263.1 80.1 1,087.0 69.9 176.1 10.2 0.9 131.1 7.5 56.7 2.6 74.4 4.9 10.4% 9.4% 5.2% 3.7% NKT Photonics Elimination of transactions between segments NKT Group -1.3 -2.2 0.0 0.0 0.0 1,341.9 1,154.7 187.2 138.6 59.3 79.3 10.3% 5.1% * Std. metal prices NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 71 At end-2021, NKT A/S had total available liquidity reserves of EUR 395m, com- prising cash of EUR 200m and undrawn credit facilities of EUR 195m. Net interest-bearing debt EURm X 10 300 8.2 293 In November 2021, NKT reﬁnanced its committed revolving credit facility. The new EUR 200m facility with a 3-year maturity is provided by a group consisting of ﬁve banks. 8 248 3.1 42 200 100 0 6 205 4 2 50 0.1 1.9 Group equity, including the hybrid secu- rity issued in Q3 2018, amounted to EUR 1,160m, an increase from 1,076m at end- 2020, mainly due to value adjustments of hedging instruments during 2021. The solvency ratio was 45%. 46 0 -37 -0.4 -72 -2 -100 2017 2018 2019 2020 2021 Net interest-bearing debt (excl. lease liabilities) Lease liabilities Net interest-bearing debt/oper. EBITDA, LTM (incl. lease liabilities from 2019) NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 72 Shareholder information NKT A/S Shareholders at end 2021 NKT A/S shares Dividend policy NKT A/S shares held by the Board of Directors and Executive Management The members of the Board of Directors held a total of 54,889 NKT A/S shares at the end of 2021, corresponding to a total market value of EUR 2.3m. Mem- bers of the Executive Management team owned 20,017 NKT A/S shares, equalling a market value of EUR 0.8m. As part of the long-term incentive programme, the Executive Management team has been awarded performance shares. Vesting will commence from 2022. The average daily turnover in NKT A/S shares on all trading markets was EUR 11m in 2021, compared to EUR 8m in 2020. The average daily trading volume was around 300,000 shares in 2021, against around 340,000 in the previous year. Nasdaq Copenhagen was the main trading market for the company’s shares with 43% of the total traded volume in 2021. NKT A/S dividend policy targets dis- tribution as dividend of approximately one third of the net result for the year, provided the capital structure so allows. Excess cash may be distributed as share buybacks or extraordinary dividends. No dividend payment is proposed in 2022 due to the realized net result in 2021 and the planned continued execution of investments. 5% 40% 55% Registered Danish shareholders Registered non-Danish shareholders Non registered shareholders The NKT A/S share price increased from DKK 271.20 at end-2020 to DKK 315.60 at end-2021. This equalled a return of 16% for 2021. NKT A/S did not pay dividend to its shareholders in 2021. The dividend-adjusted share price returns for the company’s largest European competitors, Prysmian and Nexans, were 16% and 46%, respectively. The Danish OMX C25 index, adjusted for dividends, increased by 19% in 2021. Shareholder structure The NKT A/S share is 100% free ﬂoat with no dominant shareholders. At end-2021, the company had approx. 30,600 regis- tered shareholders compared to approx. 27,400 at end-2020. At end-2021, 95% of the total share capital was registered, up from 89% at end-2020. 55% of the share capital was registered by Danish shareholders, while 40% was registered by shareholders outside of Denmark. Persons deemed insiders and their rela- tives may only transact NKT A/S shares during a four-week window following the publication of ﬁnancial statements provid- ed that no inside knowledge is possessed. NKT A/S share price development 2021 400 With effect from January 2022, NKT A/S moved up from the Mid Cap Index to become a member of the Nasdaq Copen- hagen Large Cap index. At the end of 2021, two NKT A/S in- vestors had reported shareholdings of between 5.00–9.99%: 350 300 250 200 ■ ATP (Denmark) ■ The total share capital of NKT A/S con- sists of 42,976,036 shares, each with a nominal value of DKK 20, corresponding to a total nominal share capital of EUR 115m (DKK 859,520,720). Greenvale Capital (UK) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2021 2021 2021 2021 2021 2021 2021 2021 2021 2021 2021 2021 NKT A/S, DKK OMX C25 (rebased), DKK Power cable peers (Prysmian and Nexans) (rebased) NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 73 Investor relations At the release of interim and annu- The Investor section on the NKT A/S website contains current and historical share information, presentations and a list of ﬁnancial analysts who monitor the development in the company’s shares. Interested parties can also subscribe to news releases. NKT A/S shares – basic data ID code: DK0010287663 NKT A/S seeks to maintain close dialogue with the market and its stakeholders by practising open, transparent and consistent communication. The aim is to ensure that: al reports an investor presentation is conducted at a live audiocast. Financial analysts, investors, the media and other stakeholders are invited to listen in and ask questions concerning the company. Listing: Nasdaq Copenhagen, part of the Large Cap index Share capital: EUR 115m (DKK 860m) Number of shares: 43.0 million Nominal value: DKK 20 ■ Timely, relevant and consistent infor- In addition, NKT A/S meets with Share classes: 1 mation is provided to all IR stakehold- ers to form the basis of a fair valuation of the NKT share stakeholders at some 200-300 yearly gatherings and roadshows in Denmark and internationally, while private investors have an opportunity to meet the Board of Directors and the business management at the company’s AGM. More shareholder information is available at investors.nkt.com ■ NKT A/S is perceived as a profession- al, proactive, reliable, accessible and transparent company ■ Relevant IR information is shared with Ownership of NKT A/S shares (at end-2021) Financial calendar 2022 the Board of Directors 24 Mar. Annual General Meeting 18 May Interim Report, Q1 2022 17 Aug. Interim Report, Q2 2022 16 Nov. Interim Report, Q3 2022 Name # of shares ■ Share liquidity and daily trading Board members Jens Due Olsen volume are high and a diversiﬁed shareholder base exists in terms of in- vestment horizon, investment strategy and geographical distribution 48,941 5,333 515 Rene Svendsen-Tune Jens Maaløe Stig Nissen Knudsen 100 Executive management Alexander Kara 20,017 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 74 Corporate governance Management bodies and one in Luxembourg. Two AGM-elect- Corporate governance framework The management structure of the NKT Group comprises the Board of Directors, the Executive Management of the parent company NKT A/S, and the group leader- ship teams. ed Board members have served for more than 12 years and are thereby not con- sidered independent as deﬁned by the Danish Corporate Governance recom- mendations. A minimum of six ordinary Board meetings is held annually. Shareholders Board of Directors The Board of Directors The Board of Directors consists of nine members. Six members are up for The Board of Directors represents inter- national business experience in the areas of industry, energy, infrastructure projects, high technology, business development and ﬁnance, and is deemed to possess requisite competencies and seniority. Audit committee Nomination committee Remuneration committee Working committee: NKT Photonics election every year at the Annual General Meeting and three members are elected by the employees for a four-year term. Six members were re-elected at the AGM in March 2021. The employee-elected mem- bers were elected in 2018 at an ordinary election of employee representatives. An ordinary election will be held before the 2022 Annual General Meeting. Executive Management Governance structure Organization The CEO of NKT reports to the Board of Directors of NKT. The CEO of NKT Pho- tonics reports to the Board of Directors of NKT Photonics. The Executive Manage- ment for the parent company, NKT A/S, comprises two people; the CEO and the CFO of NKT. Applicable laws and regulations Corporate governance standards Business code of conduct Thomas Torp Hansen, an employe elect- ed member, resigned from his employ- ment at NKT Photonics with effect from 1 July 2021 and consequently stepped down from the Board of Directors. Pia Kaaber Bossen, Sales Manager Ser- vice at NKT, replaced him as a new employee-elected member of the Board of Directors. See pages 77–79 for particulars of the Board of Directors. See pages 47 and 68 respectively for the business leadership teams. Board of Audit Remuneration Nomination Directors Committee Committee Committee Meetings in 2021 (11 meetings) (9 meetings) (5 meetings) (4 meetings) Furthermore, there is a working commit- tee speciﬁcally for NKT Photonics. Jens Due Olsen René Svendsen-Tune Karla Lindahl 11/11 (chair) 11/11 10/11 10/11 9/11 Committees 8/9 The AGM-elected Board members com- prise two females and four males. The three employee-elected members com- prise one female and two males. Of the six AGM-elected members, three live in Denmark, one in Finland, one in Germany The Board of Directors has appointed a chairmanship and three committees: Audit, Remuneration and Nomination. The committees are appointed for one year at a time and receive special remuneration approved by the AGM. The Chairmanship or the full Board of Directors also act as ﬁnal approvers in the evaluation of the largest high-voltage projects in NKT’s Solutions business line together with the Executive Management. Jens Maaløe 4/5 4/4 Andreas Nauen Jutta af Rosenborg Pia Kaaber Bossen Stig Nissen Knudsen René Dogan 4/4 (chair) 11/11 7/7 9/9 (chair) 5/5 (chair) 11/11 11/11 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 75 ■ Audit Committee The Audit Committee monitors the To monitor cyber security measures To monitor the ESG reporting are systematically tested in conjunction with controller visits performed by Group Finance or by external audit. In entities covered by EuroSox all key controls as well as general IT controls are tested at least once every three years. The Audit Committee also oversees the compliance programme, including the Business Code of Conduct as well as planned training. ■ company’s risk management, ﬁnancial reporting, regulatory compliance and internal controls as deﬁned in an annual plan, and oversees the work of the exter- nal auditors. Its principal tasks are: Monitoring of internal control and risk management systems The company further operates a whis- tle-blower scheme whereby employees and associated business partners can report suspected irregularities. The Chair- man of the Audit Committee is notiﬁed immediately of any incidents reported. In the event of incidents of a serious nature an investigation is conducted and, if substantiated, appropriate disciplinary sanctions are implemented. for ﬁnancial reporting The internal control and risk manage- ment systems for ﬁnancial reporting are designed to ensure that the ﬁnancial reporting presents a true and fair view of the company's results and ﬁnancial position, without material misstatements, and in compliance with current ﬁnancial legislation and accounting standards. The Audit Committee also once a year assesses the need for an internal audit function. It is currently the Committee’s opinion that such a function would not be required, as the present compliance and controlling structure provides an adequate level of overall compliance assurance. ■ To monitor the ﬁnancial reporting process and compliance with existing legislation, standards and other reg- ulations for listed companies relating to presentation and publication of ﬁnancial reporting ■ To monitor whether the company’s Scope internal control and risk management systems are properly designed and function effectively Framework In 2021, the Audit Committee focused particularly on the company’s continued strengthening and extension of its internal controls and compliance framework, including the ongoing automation of key process controls. Terms of reference for the Audit Committee can be found at investors.nkt.com The Audit Committee systematically assess- es material risks in relation to the ﬁnancial re- porting process, as well as compliance with related key internal controls. The Committee reviews the scope of the internal control system, also referred to as EuroSox, and monitors the design and the effectiveness of the internal controls on an ongoing basis. ■ To monitor the statutory audit of the Remuneration Committee annual ﬁnancial statements The Remuneration Committee is respon- sible for establishing the remuneration policy for the Board of Directors and the Executive Management of NKT A/S, for proposing changes to the remuneration policy, and for obtaining the approval of the Board of Directors prior to seeking shareholders’ approval at the AGM. The remuneration policy contains guidelines for setting and approving the remuner- ation for the Board of Directors and the Executive Management. ■ To monitor the independence of audi- Furthermore, the Audit Committee reviewed the company’s policies and pro- cedures related to information security, treasury and tax. tors, including in particular the supply to the company of non-audit services The company’s EuroSox framework is designed to reduce material risks in the ﬁnancial reporting process and covers all material entities. The EuroSox framework is furthermore designed so that the key controls cover all major ﬁnancial process- es in the material subsidiaries. ■ To make recommendations to the Board of Directors concerning the election of auditors Compliance The Audit Committee performs general supervision of compliance with policies and guidelines related to risk manage- ment and ﬁnancial reporting. This covers, among other things, policies for ac- counting, treasury, commodity hedging, insurance, ﬁnancial resources and tax. ■ To monitor the company’s legal compliance programme, including the Business Code of Conduct, training and whistle-blower scheme The key controls comprise both manual and automated controls. The key controls The NKT A/S Board of Directors receives a ﬁxed salary while the Executive Man- NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 76 agement receives both a ﬁxed salary and incentive pay. This structure ensures commonality of interest between the management and shareholders, and maintains management's motivation to achieve the company’s strategic goals. pay. The ﬁxed remuneration is set to be competitive but not excessive. The short- term and long-term incentive pay is based on ﬁnancial measures and key perfor- mance indicators that directly link to the company’s vision and strategic focus. and the competencies and performance of customers and other stakeholders, and the Executive Management. The assess- such data is handled in compliance with ap- ment takes the form of a general discussion plicable laws and regulations and in accord- by the Board of Directors, after which the assessment ﬁndings are communicated by the Chairman of the Board of Directors to the Executive Management. ance with our internal ethical standards. In 2021, NKT established a formal data ethics policy deﬁning our overall approach and the principles applied to the handling of data, including collecting, using, accessing and sharing data, as well as technical and organizational measures implemented to protect and safeguard data. Our data ethics values provide the foundation for ethical decision- making when adopting or developing new data-driven technologies. All parties must receive fair remuneration which is commensurate with the duties assigned and which represents an attrac- tive incentive for long-term commitment. See Section 2.2–2.3 on page 94–95 and the remuneration report published at investors.nkt. com/corporate-governance/ statutory-reports Target ﬁgure for the under- represented gender The Board of Directors wishes to ensure that both genders are represented on the Board of Directors. The target is to have at least two out of six members represent- ing the underrepresented gender among members elected at the Annual General Meeting (AGM). This target was achieved for the Board of Directors of NKT A/S in 2020 and has been maintained for 2021. The focus on diversity and equal opportu- nities for both genders is described in the annual UN Global Compact Communica- Terms of reference for the Remuneration Committee and the remuneration policy can be found at investors.nkt.com Nomination Committee The Nomination Committee deﬁnes and assesses the qualiﬁcations required by the Board of Directors, the Executive Management and the Global Leadership team, and initiates an annual self-assess- ment within the Board of Directors. Efforts and activities relating to continued implementation of the NKT data ethics policy will remain a focus point in 2022. Board of Directors remuneration At the AGM in 2022 the company will propose that the Board of Directors' remuneration be increased from the 2021 level to an amount which is competitive and comparable to that paid by Danish and European companies of similar size and complexity. As in previous years, the Board of Directors will receive a base fee as well as fees for committee duties. Corporate governance As a listed company on the Nasdaq Self-assessments The purpose of the annual self-assess- ment is to evaluate the effectiveness of the Board of Directors as well as to deﬁne competencies required within the Board of Directors, considering the contribution of the individual members, and to identify future areas of focus. The self-assess- ment for the current election period was performed during the winter of 2021/22. tion on Progress (COP) report. The report is Copenhagen stock exchange, NKT A/S is available at subject to rules governing share issuers and corporate governance recommen- dations. NKT A/S fulﬁls its obligations in re- spect of the latter either by compliance or by explanation of the reason for non-com- www.nkt.com/sustainability-report-2021. Terms of reference for the Nomina- The AGM-elected members of the Board of Directors will not participate in any of the company’s incentive plans. tion Committee at investors.nkt.com pliance. NKT data ethics policy* NKT A/S complies with all 40 recommen- NKT respects all relevant data which is received or collected from our employees, dations issued by the Danish Committee on Corporate Governance in December 2020. Remuneration of Executive Management The remuneration of the Executive Man- agement consists of a ﬁxed remuneration and short-term and long-term incentive The Board of Directors also performs an annual assessment of the Executive Management covering two main areas: the interaction between the two parties, * The NKT data ethics policy has been prepared in accordance with section §99(d) of the Danish Financial Statements Act. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 77 Board of Directors Jens Due Olsen René Svendsen-Tune Karla Lindahl Chairman Deputy Chairman Born 1981, Finland Born 1963, Denmark First elected in 2006 Not considered independent due to tenure Born 1955, Denmark First elected in 2016 Considered independent First elected in 2020 Considered independent MA in EC Competition Law 2009 Master of Laws (LL.M) 2005 MSc. Econ,1990 BSc. Eng. (hon.) ■ ■ ■ NKT Photonics NKT Photonics Audit NKT Committees: DKK 900,000 48,941 DKK 600,000 DKK 300,000 0 Board of Directors annual remuneration: 5,333 NKT shares at 31 December 2021: ■ Advantage Investment Partners A/S, Chairman Chief Executive Ofﬁcer, GN Store Nord A/S and GN Audio A/S Managing Director, KONE Finland and Baltics Other positions and directorships: ■ ■ BørneBasketFonden (non-proﬁt foundation), Chairman Nilﬁsk Holding A/S, Deputy Chairman ■ KMD A/S, Deputy Chairman ■ Stokke AS, Chairman ■ Nilﬁsk Holding A/S, Chairman ■ NIL Technology A/S, Chairman ■ ■ ■ ■ ■ Industrial management International management International and industrial management Special qualiﬁcations: ■ ■ ■ Management of listed companies Management of listed companies Expertise in leading service and project business and operations ■ Economic and ﬁnancial matters Specialist expertise in technology, service businesses, large account sales and strategy development with sustainability focus Specialist expertise in strategy development and execution as well as competition and corporate law ■ Risk management NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 78 Board of Directors Jens Maaløe Andreas Nauen Jutta af Rosenborg Born 1955, Denmark First elected in 2004 Not considered independent due to tenure Born 1964, Germany First elected in 2017 Considered independent Born 1958, Denmark First elected in 2015 Considered independent MSc. E.Eng. 1979, PhD. 1983 BSc. Mechanical Eng. 1991 State-Authorized Public Accountant, 1992 MSc. Business Economics and Auditing, 1987 ■ ■ ■ Remuneration Nomination, Chairman Audit, Chairman NKT Committees: ■ ■ Nomination Remuneration, Chairman ■ NKT Photonics, Chairman DKK 300,000 DKK 300,000 DKK 300,000 Board of Directors annual remuneration: 515 0 0 NKT shares at 31 December 2021: ■ ■ Poul Due Jensens Fond, Chairman Chief Executive Ofﬁcer, Siemens Gamesa Renewables Nilﬁsk Holding A/S, Chairman of Audit and Remuneration Committee Other positions and directorships: ■ Grundfos Holding A/S, Chairman of Technology Committee ■ ■ Standard Life Aberdeen, Remuneration and Audit Committee ■ Danish Technology Institute, Chairman JPMorgan European Investment Trust plc, Chairman of the Audit Committee ■ GomSpace Group AB, Chairman ■ Niras A/S, Chairman ■ BBGI Global Infrastructure S.A.,Chairman of the Audit Committee ■ OMT A/S (Odense Maritime Technology) ■ ■ ■ ■ ■ ■ ■ International and industrial management International and industrial management International management Special qualiﬁcations: ■ ■ Management of listed companies Management of listed companies Management of listed companies Transformation and Optimization of business Risk management ■ ■ Specialist expertise in technology and technological development Special expertise in technology, large infrastructure projects, renewable energy and wind power Finance and controlling NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 79 Board of Directors Pia Kaaber Bossen René Dogan Stig Nissen Knudsen Born 1980, Denmark Born 1982, Denmark Born 1969, Denmark Elected by the employees, 2018 Elected by the employees, 2018 Elected by the employees, 2018 Not considered independent due to employment with NKT Not considered independent due to employment with NKT Not considered independent due to employment with NKT Sales Manager, NKT Senior Sales Manager NKT (Denmark) A/S MSc. E.Eng. 1996, PhD. 2002 Senior Production Engineer NKT Photonics A/S NKT Committees: 300,000 0 300,000 0 300,000 100 Board of Directors annual remuneration: NKT shares at 31 December 2021: Other positions and directorships: Special qualiﬁcations: NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 80 Executive Management Alexander Kara Line Fandrup President & Chief Executive Ofﬁcer Chief Financial Ofﬁcer, Executive Vice President Born 1961, Germany Joined NKT in 2019 Born 1979, Denmark Joined NKT in 2020 Born Joined MSc. Electrical Technology 1986 IMD Development Program XII 2011 MSc. Business Administration and Math 2004 INSEAD Transition to General Management 2015 Chief Executive Ofﬁcer and Member of Executive Management 2019 Chief Financial Ofﬁcer and Member of Executive Management 2020 NKT positions: Directorships: - - 20,017 0 NKT shares at 31 December 2021: NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 81 Consolidated ﬁnancial statements 82 Income statement 82 Statement of comprehensive income 83 Balance sheet 84 Cash ﬂow statement 85 Statement of changes in equity 87 Sections NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 82 Income statement Statement of comprehensive income 1 January – 31 December 1 January – 31 December Amounts in EURm Note 2021 2020 Amounts in EURm 2021 2020 Revenue 2.1/2.2 1,906.7 32.7 1,470.2 12.0 Net result 4.1 -74.5 Other operating income Work performed by the Group and capitalized Costs of raw materials, consumables and goods for resale Staff costs 40.7 33.1 Other comprehensive income -1,269.3 -355.0 -229.9 -961.4 -299.6 -204.9 Items that may be reclassiﬁed to income statement: Foreign exchange adjustment, foreign companies Cash ﬂow hedges: 2.2/2.3 -9.5 25.0 Other costs 2.4/6.1/7.1 Earnings before interest, tax, depreciation and amortization (EBITDA) Value adjustment for the year 226.1 -8.9 103.6 0.0 125.9 49.4 Transferred to revenue Transferred to costs of raw materials, consumables and goods for resale Transferred to ﬁnancial income -67.2 -1.1 -6.4 -0.2 0.1 Depreciation of property, plant and equipment Amortization of intangible assets 3.2 3.1 -74.9 -34.2 16.8 -70.5 -26.8 -47.9 Transferred to ﬁnancial expenses 0.0 Earnings before interest and tax (EBIT) Cost of hedging: Value adjustment for the year for transaction-related hedges -24.9 0.0 Financial income 5.5 5.5 63.1 -75.5 4.4 51.6 -68.3 -64.6 Cumulative (gain)/loss from changes in the fair value of transaction-related hedged items reclassiﬁed to proﬁt or loss Financial expenses 3.3 0.0 Earnings before tax (EBT) Tax on comprehensive income -33.4 -25.2 Items that may not be reclassiﬁed to income statement: Actuarial gains/losses on deﬁned beneﬁt pension plans Tax on actuarial gains/losses Tax 2.5 -0.3 -9.9 2.3 -0.7 86.0 -1.4 0.5 Net result 4.1 -74.5 Total other comprehensive income 96.0 To be distributed as follows: Equity holders of NKT A/S Hybrid capital holders of NKT A/S Net result -4.0 8.1 4.1 -82.6 8.1 Comprehensive income for the year 90.1 21.5 -74.5 To be distributed as follows: Equity holders of NKT A/S 82.0 8.1 13.4 8.1 Basic earnings, EUR, per share (EPS) 5.2 5.2 -0.1 -0.1 -2.7 -2.7 Hybrid capital holders of NKT A/S Diluted earnings, EUR, per share (EPS-D) Comprehensive income for the year 90.1 21.5 The Board of Directors proposes a dividend for the year of DKK 0.0 per share (DKK 0.0 per share in 2020) for approval at the Annual General Meeting. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 83 Balance sheet 31 December 31 December Amounts in EURm Note 2021 2020 Amounts in EURm Note 2021 2020 Assets Equity and liabilities Goodwill 404.4 54.4 42.2 31.7 85.6 3.4 410.8 63.5 29.8 43.6 57.5 21.7 626.9 Share capital 5.1 5.3 115.4 147.5 115.4 63.1 Trademarks, patents and licences etc. IT software Reserves Retained comprehensive income Equity attributable to equity holders of NKT A/S Hybrid capital 744.6 745.5 924.0 152.4 1,076.4 Development projects completed Development projects in progress Other intangible assets under construction Total intangible assets 1,007.5 152.4 Total equity 1,159.9 3.1/3.3 621.7 Deferred tax 2.5 3.4 5.4 71.8 62.5 40.9 67.1 Land and buildings 288.4 257.5 45.6 291.8 261.9 48.3 Provisions and pension liabilities Interest-bearing loans and borrowings Total non-current liabilities Manufacturing plant and machinery Fixtures, ﬁttings, tools and equipment Property, plant and equipment under construction Total property, plant and equipment 196.4 330.7 200.6 308.6 191.4 782.9 55.6 3.2/3.3 2.5 657.6 Interest-bearing loans and borrowings Trade payables 5.4 17.5 341.8 170.4 459.3 10.5 12.8 273.2 168.0 296.5 2.1 Other investments and receivables Deferred tax 0.8 24.9 25.7 1.0 23.1 24.1 Other liabilities 5.4 4.4 Contract liabilities Total other non-current assets Income tax payable Provisions 3.4 63.3 13.0 Total non-current assets 1,430.3 1,308.6 Total current liabilities 1,062.8 765.6 Inventories 4.2 4.3 4.4 287.4 528.9 97.3 243.6 333.2 21.3 4.6 Total liabilities 1,393.5 2,553.4 1,074.2 2,150.6 Receivables Contract assets Total equity and liabilities Income tax receivable Interest-bearing receivables Cash at bank and in hand Total current assets 8.8 0.2 0.1 200.5 1,123.1 239.2 842.0 Total assets 2,553.4 2,150.6 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 84 Cash ﬂow statement 1 January – 31 December Amounts in EURm Note 2021 2020 Amounts in EURm Note 2021 2020 Earnings before interest, tax, depreciation and amortisation (EBITDA) 125.9 49.4 Repayment of loans -5.6 -7.3 -8.1 0.0 -41.3 -5.8 Repayment of lease liabilities Coupon payments on hybrid capital Capital increase Non-cash operating items: -8.1 Change in provisions, gain and loss on sale of assets, etc. Changes in working capital 47.9 46.6 -11.7 114.5 152.2 258.6 0.3 4.1 Cash from exercise of warrants Cash ﬂow from ﬁnancing activities 0.0 Cash ﬂow from operations before ﬁnancial items, etc. 220.4 -21.0 203.7 Financial income received Financial expenses paid Income tax paid 43.2 -55.4 -4.5 40.0 -57.0 -3.7 Net cash ﬂow for the year -38.7 232.6 Cash at bank and in hand, 1 January Currency adjustments 239.2 0.0 6.9 -0.3 Income tax received 4.1 4.8 Cash ﬂow from operating activities 207.8 136.3 Net cash ﬂow for the year -38.7 200.5 232.6 239.2 Cash at bank and in hand, 31 December Divestment of businesses 6.1 2.1 -191.3 0.2 0.0 -65.5 0.4 Investments in property, plant and equipment Disposal of property, plant and equipment Intangible assets and other investments, net Cash ﬂow from investing activities The above cannot be derived directly from the income statement and the balance sheet. -36.5 -225.5 -42.3 -107.4 Free cash ﬂow -17.7 28.9 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 85 Statement of changes in equity 1 January – 31 December Foreign exchange reserve Cash ﬂow hedge reserve Cost of hedging reserve Retained compreh. income Share capital Fair value reserve Proposed dividends Hybrid Capital Total equity Amounts in EURm Total Equity, 1 January 2021 115.4 -9.1 71.9 0.0 0.3 745.5 0.0 924.0 152.4 1,076.4 Other comprehensive income: Foreign exchange translation adjustments Value adjustment of hedging instruments: -9.5 -9.5 -9.5 Value adjustment for the year Transferred to revenue Transferred to consumption of raw materials 226.1 -8.9 -67.2 -24.9 3.3 201.2 -8.9 -63.9 201.2 -8.9 -63.9 Transferred to ﬁnancial income Actuarial gains/losses on deﬁned beneﬁt pension plans Tax on other comprehensive income Total other comprehensive income Net result -1.1 -1.1 2.3 -1.1 2.3 2.3 -0.7 1.6 -38.8 5.4 -34.1 86.0 -4.0 -34.1 86.0 4.1 0.0 0.0 -9.5 -9.5 110.1 -16.2 0.0 0.0 0.0 0.0 0.0 8.1 8.1 -4.0 -2.4 Comprehensive income for the year 110.1 -16.2 82.0 90.1 Transactions with owners : Coupon payments, hybrid capital Share based payment 0.0 1.5 1.5 -8.1 -8.1 -8.1 1.5 1.5 Total transactions with owners in 2021 0.0 0.0 0.0 0.0 0.3 1.5 0.0 0.0 -6.6 Equity, 31 December 2021 115.4 -18.6 182.0 -16.2 744.6 1,007.5 152.4 1,159.9 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 86 Statement of changes in equity 1 January – 31 December Foreign exchange reserve Cash ﬂow hedge reserve Retained compreh. income Share capital Fair value reserve Proposed dividends Hybrid Capital Total equity Amounts in EURm Total Equity, 1 January 2020 73.2 -34.1 0.0 0.3 612.0 0.0 651.4 152.4 803.8 Other comprehensive income: Foreign exchange translation adjustments Value adjustment of hedging instruments: Value adjustment for the year 25.0 25.0 25.0 103.6 -6.4 -0.2 0.1 103.6 -6.4 103.6 -6.4 Transferred to consumption of raw materials Transferred to ﬁnancial income -0.2 -0.2 Transferred to ﬁnancial expenses Actuarial gains/losses on deﬁned beneﬁt pension plans Tax on other comprehensive income Total other comprehensive income Net result 0.1 0.1 -1.4 0.5 -1.4 -1.4 -25.2 -24.7 96.0 -82.6 13.4 -24.7 96.0 -74.5 21.5 0.0 0.0 25.0 25.0 71.9 0.0 0.0 -0.9 0.0 0.0 0.0 8.1 8.1 -82.6 -83.5 Comprehensive income for the year 71.9 Transactions with owners : Capital increase 1 42.1 0.1 216.5 258.6 0.0 258.6 -8.1 0.3 Coupon payments, hybrid capital Exercise of warrants -8.1 0.0 0.2 0.3 0.3 Share based payment 0.3 0.0 0.3 Total transactions with owners in 2020 42.2 115.4 0.0 0.0 0.0 0.3 217.0 0.0 0.0 259.2 -8.1 251.1 Equity, 31 December 2020 -9.1 71.9 745.5 924.0 152.4 1,076.4 1 In 2020 the capital was increased twice, in May and December respectively, for a total net proceed of EUR 258,6 million after deducting directly attributable costs related to raising the capital. The cost directly related to the capital increases was EUR 9 million. For more information see section 5.1. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 87 Sections Section 1 Basis for preparation Section 5 Signiﬁcant judgements and estimates 88 88 Capital structure and ﬁnancial risk management 107 Signiﬁcant judgements and accounting estimates 1.1 General accounting policies Implementation of new and amended accounting standards and interpretations 89 made by Management are included in the sections to which they relate with the purpose to increase legibility. 5.1 5.2 5.3 5.4 Share capital 107 108 108 1.2 Earnings per share Hybrid capital 1.3 Signiﬁcant judgements and estimates 89 Net interest-bearing debt and maturity of ﬁnancial liabilities 109 110 111 Section 2 Proﬁt for the year 5.5 5.6 Financial items Sensitivity 90 Financial risks and ﬁnancial instruments Sensitivity analyses often accompany signiﬁcant judgements and accounting estimates, and are included in the sections to which they relate with the purpose to increase legibility. 2.1 2.2 2.3 2.4 2.5 Segment information and revenue 90 94 95 95 96 Staff cost Section 6 Share-based payment Research and development Tax Group structure 116 116 6.1 Acquisitions/divestments of businesses 6.2 Group companies 116 Accounting policy Section 3 Non-current assets and liabilities 98 Accounting policies are included in the sections to which they relate in order to facilitate understanding of the contents and the accounting treatment applied. Accounting policies not relating directly to individual sections are stated in Section 1.1. Section 7 Other sections 117 3.1 3.2 3.3 3.4 Intangible assets 98 7.1 Fees to auditor elected at Property, plant and equipment Impairment test 99 the Annual General Meeting 117 117 101 103 7.2 7.3 Events after the balance sheet date Provisions and pension liabilities Contingent liabilities, pledges and contractual obligations 117 118 7.4 Deﬁnitions Section 4 Working capital 104 4.1 4.2 4.3 4.4 Changes in working capital 104 104 105 106 Inventories Receivables Contract assets and liabilities NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 88 Section 1 – Basis for preparation This section provides the overall reporting framework applied in our consolidated ﬁnancial statements. Speciﬁc accounting policies applied are described in the relevant sections, while new and upcomming legislastion is presented in note 1.2, and signiﬁcant estimates and judgements exercised by management as part of the 1.1 General accounting policies Introduction Applying materiality Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a for- eign currency are translated using the exchange rates at the date, when the fair value is determined. The 2021 Annual Report for NKT Group, comprising both the consolidated ﬁnancial statements for NKT A/S and its subsidiaries (NKT Group) as well as the separate ﬁnancial statements for the parent company, has been prepared in accordance with International Financial Reporting Standards, IFRS, as adopted by the EU and additional Danish disclosure requirements. IFRS contains extensive disclosure requirements. The speciﬁc disclosures required according to IFRS are stated in the Annual Report unless the disclosures are considered irrelevant or immaterial, in which case these are omitted or aggregated in order to increase focus on material drivers behind the ﬁnancial perfor- mance. The assets and liabilities of foreign subsidiaries are translated into EUR at the rate of exchange prevailing at the reporting date, and their income statements are translated at average exchange rates. Exchange rate adjustments arising on translation are recognized in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that operation is recognized in the income statement. The Annual Report has been approved by the Board of Directors and Executive Management on 23 February 2022, an will be presented for approval by the shareholders at the Annual General Meeting on 24 March 2022. With materiality in mind, the presentation throughout the ﬁnancial statements focus on the accounting choices made to establish the NKT accounting policies as well as the signiﬁcant estimates and judgement exercised by management, while avoiding the replication of more generic accounting policies and standards. preparation of this Annual report is described in note 1.3. Basis for preparation The Annual Report is presented in EUR rounded to the nearest EUR 1,000,000 with one decimal. The Annual Report is prepared according to the historical cost principle with the exception that derivatives and ﬁnancial instruments classiﬁed as 'Fair value through proﬁt loss (FVTPL) are measured at fair value. Principles of consolidation Alternative performance measures (APMs) The consolidated ﬁnancial statement includes ﬁnancial performance measures that are not deﬁned according to IFRS. The consolidated ﬁnancial statements comprise the ﬁ- nancial statements of the Parent Company (NKT A/S) and the individual subsidiaries’ ﬁnancial statements prepared according to NKT Group’s accounting poli- cies. Subsidiaries are fully consolidated from the date of acquisition, being the date on which NKT obtains control, until the date that such control ceases. These measures are considered to provide valuable information to stakeholders and Management. Since other companies might calculate these differently from NKT Group, they may not be comparable to the measures applied by other companies. These ﬁnancial measures should therefore not be considered a replacement for performance measures as deﬁned under IFRS, but rather as supplementary information. Alternative performance measures are deﬁned in note 7.4 in more detail and some are reconciled to IFRS measures in note 2.1. The accounting policies described below and in the individual sections have been applied consistently during the ﬁnancial year and for the comparative ﬁgures. For standards implemented prospectively the comparative ﬁgures are not restated. All intercompany balances, income and expenses, un- realized gains and losses and dividends resulting from intercompany transactions are eliminated in full. As part of the preparation of the Annual Report, the Board of Directors and Executive Management have considered whether the ﬁnancial statements can be presented on a ‘going concern’ basis. Based on future prospects, considering identiﬁed uncertainties and risks, expectations of future cash ﬂows and exist- ence of credit facilities it is concluded that, at the time of the approval of the Annual Report, the ﬁnancial headroom is sufﬁcient to manage the level of activity expected in 2022 for the NKT Group. Foreign currency translation Transactions in foreign currencies are initially recognized in the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denom- inated in foreign currencies are translated at the functional currency spot rate at the reporting date. All adjustments are recognized in the income statement. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 89 Section 1 – Basis for preparation 1.1 General accounting policies 1.2 Implementation of new and 1.3 Signiﬁcant estimates and judgements – continued amended accounting standards and interpretations When preparing this Annual Report, Management has made a number of accounting judgements in applying the accounting policies, which form the basis for the recognition and measurement of assets, liabilities and disclosures provided. Further, Management provides signiﬁcant estimates regarding future developments. These are regularly reassessed based on historical experience and other factors, which Management assesses to be reliable, but which, by their nature, are associated with uncertainty and unpredictability. from construction contracts, impairment of goodwill and assessing the value of deferred tax assets. These assumptions may prove incomplete or incorrect, and unexpected events or circumstances may arise, but the assumptions are considered reasonable and reliable under the circumstances. Reporting under the ESEF regulation New standards, interpretations and The Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Reg- ulation) has introduced a single electronic reporting format for the annual ﬁnancial reports of issuers with securities listed on the EU regulated markets. amendments adopted by NKT Group NKT Group has adopted all new or amended stand- ards (IFRS) and interpretations (IFRIC) as adopted by the EU and which are effective for the ﬁnancial year 1 January – 31 December 2021. From Management perspective the following esti- mates and judgements are considered signiﬁcant and the applied estimates and judgements are further described in the respective notes. The applied tagging by the Group has been prepared in accordance with the ESEF taxonomy included in the ESEF Regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. The Annual Report submitted to the Danish Financial Supervisory Authority consists of the XHTML docu- ment together with the technical ﬁles included in the ZIP ﬁle nkt-2021-12-31-en.zip. On 1 January 2021, amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform, Phase 2 became effective. Signiﬁcant estimates and judgements are predomi- nantly applied in relation to the recognition of revenue None of the amendments had a material impact on the NKT Group. Signiﬁcant accounting Estimate/ Judgement Impact Note estimate and judgement assessment1 New standards, interpretations and amendments not yet adopted by NKT Group IASB has issued a number of new or amended accounting standards and interpretations, some of which are not yet endorsed by EU, and which are not mandatory for reporting periods ending at 31 De- cember 2021. NKT Group expect to implement these new and amended standards, when they become mandatory. 2.1 Segment information Determine recognition method for projects (PoC) Judgement Estimate Presentation in the notes Accounting policy and revenue 4.4 Contract assets and liabilities Valuation of construction contracts 2.5 Tax Valuation of deferred tax assets Judgement and estimate Estimate Apart from the more general acounting policy items presented above, speciﬁc accounting policies are included in the sections to which they relate in order to facilitate a better understanding of the contents and the accounting treatment applied. 3.3 Impairment of assets Estimate the value-in-use of intangible and tangible long-term assets None of the standards and interpretations are expect- ed to have a material impact on the NKT Group. 7.3 Contingent liabilities Determine recognition and measurement of obligations Judgement and estimate *** 1 The numbers of stars in the above assessment indicate the level of estimates and judgment applied, where ﬁve being the highest. Presentation in the notes Signiﬁcant estimates Sensitivity A description of the Signiﬁcant judgements and accounting estimates provided by Management are in- cluded in the respective sections to which they relate. Sensitivity analyses often accompany signiﬁcant judgements and accounting estimates, and are included in the sections to which they relate. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 90 Section 2 – Proﬁt for the year This section relates to proﬁt for the year, including revenue, segment information, staﬀ costs, share- based payments, research and development costs and tax. 2.1 Segment information and revenue Service & Acces- Inter- segment transact. Inter- segment transact. Appli- cations Non Total NKT Photonics NKT NKT Group Amounts in EURm Solutions sories allocated 2021 Income statement Goods1) Service, etc.1) Construction contracts2) 37.4 15.2 900.0 0.0 118.8 6.7 0.0 0.0 -21.2 -2.9 -9.2 -33.3 0.3 1,035.0 72.5 1.4 -0.8 -0.5 0.0 1,106.7 19.9 19.0 773.9 702.6 755.2 -115.1 640.1 -672.1 83.1 0.0 80.5 0.0 6.2 780.1 Revenue (market prices) Adjustment of market prices to std. metal prices Revenue (std. metal prices) Costs and other income, net (excl. one-off items) Operational EBITDA 900.0 -449.8 450.2 -871.5 28.5 206.0 -0.2 0.0 1,827.9 -564.8 1,263.1 -1,696.8 131.1 80.1 0.0 -1.3 0.0 1,906.7 -564.8 1,341.9 -1,768.1 138.6 NKT Group Operational EBITDA 0.0 205.8 -173.2 32.8 0.0 -33.0 33.3 0.0 80.1 -72.6 7.5 -1.3 1.3 -13.3 -13.3 -5.6 -18.9 0.0 138.6m Depreciation, amortization and impairment Operational EBIT -69.1 14.0 -15.4 13.1 -4.4 0.0 -94.5 -14.6 -7.1 0.0 -109.1 29.5 28.4 0.0 36.6 0.0 (59.3m in 2020) Working capital -152.8 64.3 22.6 -27.3 0.0 -93.2 33.6 0.0 -59.6 NKT Operational EBITDA 2020 Income statement Goods1) Service, etc.1) Construction contracts2) 35.4 17.1 653.6 0.0 88.2 19.6 0.0 0.0 -29.8 -4.6 -10.7 -45.1 18.6 -26.5 45.1 0.0 747.4 32.1 63.6 0.5 -2.2 0.0 0.0 -2.2 0.0 -2.2 2.2 0.0 0.0 0.0 808.8 32.6 131.1m 600.1 652.6 -74.1 578.5 -616.7 35.9 0.0 33.6 0.0 623.0 5.8 628.8 Revenue (market prices) Adjustment of market prices to std. metal prices Revenue (std. metal prices) Costs and other income, net (excl. one-off items) Operational EBITDA 653.6 -259.9 393.7 -639.1 14.5 141.4 -0.1 0.0 1,402.5 -315.5 1,087.0 -1,345.8 56.7 69.9 0.0 1,470.2 -315.5 1,154.7 -1,410.9 59.3 (56.7m in 2020) 0.0 141.3 -126.2 15.2 0.0 69.9 -67.3 2.6 -8.9 -8.9 -1.6 -10.5 NKT Photonics Operational EBITDA Depreciation, amortization and impairment Operational EBIT -64.2 -28.3 -14.7 -0.2 -4.7 0.0 -85.2 -12.1 -9.5 -97.3 10.5 0.0 -28.5 -38.0 Working capital -196.8 40.2 13.2 -21.1 0.0 -164.5 27.4 0.0 -137.1 7.5m 1) Revenue from the sale of goods and services are recognized at a point in time. 2) Revenue from construction contracts are recognized over time. (2.6m in 2020) NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 91 Section 2 – Proﬁt for the year 2.1 Segment information and revenue – continued Total NKT NKT Photonics NKT Group Accounting policy Segment information Geographical information, revenue Amounts in EURm Amounts in EURm 2021 2020 The segment information is based on internal man- agement reporting and is presented in accordance with the Group’s accounting policies. 2021 Germany UK 640.6 309.1 214.3 150.6 126.4 108.9 69.8 451.1 264.0 126.9 126.5 78.9 Reconciliation to net result Operational EBITDA One-off items EBITDA 131.1 -12.7 118.4 7.5 0.0 7.5 138.6 -12.7 125.9 Poland Segment income and expenses and segment working capital comprise those items that are directly attrib- utable to the individual segment and those items that can be reliably allocated to it. Other items are shown as non-allocated. Sweden Denmark Norway Czech Republic Other Depreciation, amortization and impairment -94.5 23.9 -8.2 -14.6 -7.1 -4.2 -11.3 3.5 -109.1 16.8 -12.4 4.4 109.7 56.8 EBIT Financial items, net 287.0 1,906.7 256.3 1,470.2 EBT 15.7 -3.8 The reportable segments are generally referred to as business lines. The business lines consist of Solutions, Applications, Service & Accessories and NKT Pho- tonics. For further details please refer to the Business review section of each business line. The Board of Directors assesses the operating results of the business lines separately to enable decisions concerning alloca- tion of resources and measurement of performance. Total Tax -0.3 Net result 11.9 -7.8 4.1 Geographical information, property, plant and equipment and intangible assets 2020 Reconciliation to net result Operational EBITDA One-off items EBITDA 56.7 -9.9 46.8 2.6 0.0 2.6 59.3 -9.9 49.4 Amounts in EURm 2021 2020 Revenue from Goods and Service are recognized at a point in time and revenue from construction contracts are recognized over time. Sweden Germany Norway Denmark Other 833.8 309.9 90.5 761.3 272.5 91.5 Depreciation, amortization and impairment -85.2 -38.4 -11.5 -49.9 -13.6 -63.5 -12.1 -9.5 -97.3 -47.9 -16.7 -64.6 -9.9 EBIT Financial items, net -5.2 46.3 46.1 Inter-segment transactions are performed on market terms and no single customer accounts for more than 10% of the revenue. EBT -14.7 3.7 124.1 1,404.6 113.1 1,284.5 Tax Total Net result -11.0 -74.5 The geographical disclosure of revenue is based on the country of delivery. Signiﬁcant judgements ■ Cable projects are to a certain degree measured based on management judgement in terms of when to recognize revenue and how to calculate the revenue in terms of stage-of-completion and estimated proﬁt on each project. The estimates include a risk provision, which is based on an assessment of the speciﬁc risks that each project is exposed to. The stage-of-comple- tion is based on costs incurred against estimated total project costs. In essence, the total project costs are therefore to a large extent based on estimates. Assumptions for the recognition of revenue over time regarding larger cable projects are determined con- tract by contract. Control is transferred as the project progresses, based on assumptions such as: NKT Group’s ability to provide products according to speciﬁcation and the risk that the cable is rejected Customer takes over risk and legal title to the cable installation on an on-going basis, and ■ ■ ■ Deliveries being approved on an ongoing basis Milestone payments from the customer. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 92 Section 2 – Proﬁt for the year 2.1 Segment information and revenue – continued 2021 2020 Accounting policy Inter- segment transact. Inter- segment transact. Other operating income comprises items of a sec- ondary nature relative to the operations of the Group, including grant schemes, reimbursements and gains on sale of non-current assets, etc. Total NKT NKT Photonics NKT Group Total NKT NKT Photonics NKT Group Balance sheet Assets Non-current assets Goodwill Change in inventories of ﬁnished goods and work in progress comprises changes in these items which correspond to staff costs and other costs charged to the income statement during the year and which relate directly or indirectly to the cost of the items stated in the balance sheet. 379.1 174.9 760.8 0.8 25.3 42.4 22.1 0.0 - - - - - 404.4 217.3 782.9 0.8 385.5 173.5 638.0 0.9 25.3 42.6 19.6 0.1 - - - - - 410.8 216.1 657.6 1.0 Other intangible assets Property, plant and equipment Other investments and receivables Deferred tax 23.8 1.1 24.9 22.5 0.6 23.1 Current assets Work performed by the Group and capitalized comprises income which corresponds to staff costs and other costs charged to the income statement during the year and which relate directly or indirectly to the capitalized cost of non-current assets of own manufacture. Inventories 265.2 509.2 96.0 22.2 29.0 1.3 - -0.5 - 287.4 537.7 97.3 225.1 313.0 20.6 18.5 25.6 0.7 - -0.8 - 243.6 337.8 21.3 Receivables (incl. tax receivables) Contract assets Interest-bearing receivables Cash at bank and in hand Segment assets 129.3 198.7 2,537.8 6.2 -135.3 - 0.2 108.7 237.8 2,125.6 3.7 -112.3 - 0.1 1.8 200.5 2,553.4 1.4 239.2 2,150.6 151.4 -135.8 138.1 -113.1 Raw materials, consumables and goods for resale Equity and liabilities Equity Costs of raw materials, consumables and goods for resale refer to purchases and changes during the year in inventory levels, including shrinkage, waste produc- tion and any write-downs for obsolescence. 1,171.0 -11.1 - 1,159.9 1,080.1 -3.7 - 1,076.4 Non-current liabilities Deferred tax 69.1 62.3 2.7 0.2 - - 71.8 62.5 37.8 66.2 3.1 0.9 - - 40.9 67.1 Provisions and pension liabilities Interest-bearing loans and borrowings Current liabilities Other costs comprise external costs relating to production, sale and administration, as well as losses on disposal of tangible and intangible assets. Write- downs of receivables from sales are also included. 192.5 128.1 -124.2 196.4 191.6 112.1 -103.1 200.6 Interest-bearing loans and borrowings Trade payables and other liabilities Contract liabilities 17.1 495.4 458.4 9.8 11.5 17.3 0.9 -11.1 17.5 512.2 459.3 10.5 14.6 426.9 294.5 1.8 7.4 15.1 2.0 -9.2 12.8 441.2 296.5 2.1 -0.5 -0.8 - - Income tax payables 0.7 - - 0.3 - - Provisions 62.2 1.1 63.3 12.1 0.9 13.0 Segment equity and liabilities 2,537.8 151.4 -135.8 2,553.4 2,125.6 138.1 -113.1 2,150.6 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 93 Section 2 – Proﬁt for the year 2.1 Segment information and revenue – continued NKT Group will usually obtain payment guarantees to minimize counter party risk during the execution of cable projects. Spare parts and other repair work contracts are determined as one performance obligation. The transaction price is usually variable, depending on the produced output, and revenue is recognized over time, using the cost-to-cost method. In case of signif- icant uncertainties related to measuring the revenue reliably, revenue is recognized according to payments. NKT Group is entitled to payment once the work or spare parts are delivered. Accounting policy Revenue Projects Revenue from the sale of cable projects accounted for as construction contracts comprises sale of onshore and offshore highly customized cables in Solutions, delivery of highly customized spare cables in Service and larger projects in NKT Photonics. Revenue from construction contracts with customers with a high degree of individual customization and no alternative use, are recognized as revenue over time, provided that NKT Group has secured an enforceable right to payment for work performed at any time. The revenue therefore corresponds to the sales price of work performed during the year (the percent- age-of-completion method). See note 4.3 for further information concerning construction contracts. Sale of products Sale of products relates to the sale of smaller less customized cable projects, standardized cables and equipment. Small cable projects with little or no customization usually have a short lead time of less than one year. Each delivered product is considered one performance obligation. Most of the products are sold at a ﬁxed price and revenue is usually recognized at the point in time when the control of the products transfers to the customers, usually upon delivery. Projects are usually signiﬁcant in amount, have a long lead time affecting the ﬁnancial statements of more reporting periods and have a high degree of project management. Each project is normally considered one performance obligation as each project comprise highly interrelated and interdependent physical assets and services, such as production, installation and project management. Providing new highly customized spare cables is de- ﬁned as one performance obligation. The transaction price is usually ﬁxed and revenue is typically recog- nized over time using the percentage of completion (PoC) cost-to-cost method. Revenue from sale of goods for resale and ﬁnished goods is recognized in the income statement when control of the goods has transferred to the buyer, normally at delivery, and it is virtually certain that the income will be received. Payment terms for small cable projects usually follow the payments described above under cable projects. The payment pattern for spare cables is similar to the pattern for cable projects described above and NKT Group will usually obtain payment guarantees to mini- mize the risk during the execution of the cable project. Depending on the contract structure, the performance obligation may consist of more than one contract. Cable projects are often sold as ﬁxed price contracts and revenue from these are therefore recognized over time by applying the percentage of completion (PoC) cost-to-cost method. For standardized products, NKT Group is usually entitled to payment upon delivery, and payment terms vary by market but are usually short. Revenue from services that include service packages and extended warranties relating to products and contracts is recognized concurrently with the supply of those services. Service contracts Service contracts comprise various service elements to support power cable efﬁciency and prevent or mitigate power cable failures and can include up to 365/24 hours support. Service delivered according to the contracts is considered as one performance obligation delivered over time. Revenue is accordingly recognized over the life of the contract. NKT Group is either entitled to payment once the service has been provided or on a periodic basis. Payment terms of a cable project contract usually comprise the following payments: Revenue is measured at the fair value of the expected consideration excluding VAT and taxes charged on behalf of third parties. In determining the transaction price, revenue is reduced by probable penalties and other claims and discounts that are payments to the customers. The transaction price is further adjusted for any variable elements of the transaction price. The variable amount is estimated at contract inception and revisited throughout the contract period. Variable income is recognized as revenue when it is highly probable that a reversal will not occur. ■ down payment from the customer at contract inception, ■ progress payments, linked to project milestones, ﬁnal payment upon completion and customer ■ acceptance. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 94 Section 2 – Proﬁt for the year 2.2 Staﬀ cost Amounts in EURm 2021 2020 Amounts in EURt 2021 2020 Accounting policy Staff costs comprise wages and salaries, remunera- tion, pensions, etc., and share-based payment for the company’s employees, including Group Management. The Board of Directors does not receive share-based payment. Wages and salaries 284.3 51.3 16.8 1.1 240.5 42.8 15.0 1.0 Remuneration to Executive Management Social security costs Salary 1,300 1,199 61 1,209 1,081 59 Deﬁned contribution plans Deﬁned beneﬁt plans Bonus Pension Share-based payments, NKT A/S (parent company) Total 1.5 0.3 Long-term incentive Other beneﬁts Total 478 63 Wages and salaries, social security contributions, leave and sick leave, bonuses and non-monetary beneﬁts are recognized in the ﬁnancial year in which services are rendered by the employee. When NKT provides long-term employee beneﬁts, the costs are accrued to match the rendering of services. 355.0 299.6 114 120 3,152 2,532 Of which: NKT 311.5 43.5 260.3 39.3 Remuneration of Executive Management comprise ﬁxed salary, short- and long-term bonus programs and other customary beneﬁts. Long term bonus program consists of share-based payments programs. The accounting for share-based payments is presented in details in note 2.3. NKT Photonics Total 355.0 299.6 Termination beneﬁts are recognized when an agreement has been reached between NKT and the employee and no future service is rendered by the employee in exchange for the beneﬁts. Average number of full-time employees Remuneration to Executive Management increased in 2021 compared to 2020, mainly due to slightly higher salaries, higher bonus accruals and bonuses paid regarding previous years as well as the Long-term bonus program, as the internal targets was met for the 2019 program contrary to expectations in 2020 (see note 2.3 Share-based payments). For more information on the development, refer to the Remuneration Report availa- ble at the website. NKT 3,775 401 3,390 410 NKT Photonics Total 4,176 3,800 In 2021, staff costs in NKT Group increased by 18%, and the average number of full time employees increased by 10%. In NKT, the average numbers of FTEs increased by 11% and staff cost by 20%, mainly driven by the increase in activity and new production capacity with- in Applications and Solutions as well as bonus accruals relating to the performance in 2021. In NKT Photonics average number of FTEs decreased by 2% while staff costs increased by 11%. Staff costs was mainly impacted by increased bonus accruals due to the better perfor- mance compared to 2020 as well as severance payments in the year. The Company has no related parties holding control. The Company’s related parties comprise the NKT Group Leadership Team and their close family members. Related parties also include businesses in which the aforementioned have material interests. Amounts in EURt 2021 2020 In NKT Group, most employees are covered by pension schemes, primarily in the form of deﬁned contribution-based plans managed by independent pension funds. Remuneration to Board members Base remuneration NKT Group’s deﬁned beneﬁt plans, primarily relating to the activities in Germany, are recognized at the present value of the actuarially measured obligations. If a plan is not fully covered by plan assets, a plan liability is recognized in the balance sheet. Expenses relating to pension beneﬁts are recognized as staff costs in the income statement. Actuarial gains or losses are recognized in other comprehensive income, EUR 2.3m (EUR -1.4m in 2020), see note 3.4 for more information. 480 42 482 46 Audit committee Nomination committee Remuneration committee NKT Photonics committee Total 20 17 20 20 28 20 590 585 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 95 Section 2 – Proﬁt for the year 2.3 Share-based payment Performance shares outstanding Executive management employees Other Long-term incentive programs for Executive Management and Group Leadership Team Accounting policy Total The decision to award performance shares to the Executive Management, the Group Leadership Team (GLT) and selected employees is made each year at the discretion of the Board of Directors after recommendation from the Remuneration Committee. The awarded shares represent a conditional right to receive shares after a three-year performance period at nil payment. The Board of Directors may decide to make cash awards in a given year. The performance shares vest subject to continued employment and the achievement of certain performance targets over a three-year period. The share-based payments contain internal performance measures and external market return measures. At the grant date the value of services received in exchange for share-based payments are measured at the fair 1 January 2020 61,963 28,731 -48,259 42,435 28,631 -3,118 90,919 55,599 152,882 84,330 Shares granted during the year Shares lapsed during the year 31 December 2020 -27,418 119,100 41,125 -75,677 161,535 69,756 value. The fair value of share-based payments is estimated using a valua- tion model that takes into account the terms and conditions upon which granting took place. During the vesting period, the costs related to the plans are recognized as staff costs and an equal amount is recognized in equity. For the internal performance targets, costs are recognized over the vesting period based on the number of shares expected to vest, whereas for the market return elements, costs are recognized over the vesting peri- od disregarding any changes in the number of shares expected to vest. Shares granted during the year Shares lapsed during the year 31 December 2021 -17,128 143,097 -20,246 211,045 67,948 For more information on the grant of performance shares, refer to the Group's Remuneration Report available on the website. * The number of shares lapsed during the year 2020 has been corrected by 6.136 shares. In 2021, a new performance share program was awarded to 19 partici- pants (17 in 2020) with a vesting period of 3 years. All programs contain two key performance targets, one relating to operational EBITDA, and one relating to Total Shareholder Return (TSR). The total market value at award date was EUR 2.0m (EUR 1.1m in 2020). 2.4 Research and development 2021 NKT 2020 NKT NKT NKT Amounts in EURm NKT Photonics Group NKT Photonics Group For the 2019 program, the TSR target was met and the EBITDA target partially met and 58.944 shares will vest in February 2022. Research and development costs - staff costs Research and development costs - other costs Total research and development costs Recognized as follows: 5.5 27.3 32.8 9.3 6.0 14.8 33.3 48.1 5.4 20.4 25.8 9.8 6.8 15.2 27.2 42.4 Costs relating to share-based payments in 2021 was EUR 1.5m (EUR 0.3m in 2020), the increased costs was mainly driven by an increased number of participants in the new programs, but also because the EBITDA target for the 2019 program was partly reached in 2021. In 2020, costs recorded related to the EBITDA target of the 2019 program was reversed, as EBITDA was not expected to be reached. As it became clear targets would be partly reached in 2021, the full cost relating to the full service period was recognized in 2021. 15.3 16.6 Expensed in the income statement Capitalized in the balance sheet 7.1 25.7 32.8 7.5 7.8 14.6 33.5 48.1 7.0 18.8 25.8 6.4 10.2 16.6 13.4 29.0 42.4 Total research and development costs 15.3 Remaining value to be expensed relating to current programs is EUR 2.3m (EUR 1.0m in 2020). The weighted average remaining contractual life of per- formance shares at the end of the period was 1.2 years (1.6 years in 2020). Accounting policy Research cost are expensed in the income statement as they occur. Clearly deﬁned and identiﬁable development projects for which the technical feasibility, adequacy of resources and a potential future market can be demonstrated, and where it is intended to manufacture, market or utilize the project, are recognized as intangible as- sets provided the cost can be reliably determined, and provided there is also adequate certainty that the future earnings or net selling prices can cover the carrying amount as well as the development costs necessary to ﬁnalize the project. Other development costs are expensed in the income statement as incurred. Capitalized development projects are measured at cost less accumulated amortization and impairment losses. The cost includes wages, amortization and other costs relating to the Group’s development activities. On completion of the development work, develop- ment projects are amortized on a straight-line basis over their estimated useful life from the date the asset is available for use. The amortiza- tion period is usually 3–10 years. The amortiza- tion base is reduced by any impairment losses. Assumptions The value of each PSP granted is calculated based on a number of assumptions including expected dividend payout during the vesting period, the volatility of NKT's share price (usually measured over a two year period), risk free interest rate and expected vesting period, usually 30-36 months. Apart from the expected dividend payout, which may vary in terms of actual payout, none of the assumptions listed have a material impact on the value of the PSP. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 96 Section 2 – Proﬁt for the year 2.5 Tax Amounts in EUR 2021 2020 Amounts in EURm 2021 2020 Tax Approach NKT Group complies with the tax legislation of the countries in which it operates and seeks to pay the right amount of tax in the countries where it creates value. Tax recognized in the income statement Current tax Deferred tax, 1 January, net -17.8 0.6 18.0 -0.8 4.9 -0.7 -4.7 0.8 1.1 -1.5 Foreign exchange adjustment Current tax, adj. prior years Deferred tax Tax recognized in other comprehensive income Deferred tax recognized in income statement Transferred to payable tax -34.1 3.9 -24.7 -10.3 0.0 NKT Group only uses business structures that are driven by commercial consideration and have the genuine substance. 13.8 Deferred tax, adj. prior years -3.5 0.5 NKT Group does not operate in tax havens. In accordance with NKT Group’s tax policy, any future operations in tax havens will be purely of commercial reasons. 0.3 9.9 Deferred tax, 31 December, net -46.9 -17.8 Tax rate for the year 6.8% -15.3% Recognized deferred tax: Reconciliation of tax: Deferred tax assets, 31 December Deferred tax liabilities, 31 December Deferred tax, 31 December, net 24.9 -71.8 -46.9 23.1 -40.9 -17.8 NKT Group believes in collaboration and transparency regarding its tax matters and actively pursues opportunities to engage with tax authorities and other relevant stakeholders with the purpose of building trust through collaboration and openness. Calculated 22.0% tax on earnings before tax Tax effect of: 1.0 -14.2 -4.6 Foreing tax rates relative to Danish tax rate -2.9 Non-taxable income/ non-deductible expenses, net 1.2 0.1 0.9 0.3 2.0 -5.0 31.7 9.9 NKT Group realized earnings before tax (EBT) of EUR 4.4m (EUR -64.6m in 2020), which resulted in a reported tax rate of 6.8% (-15.3% in 2020). Speciﬁcation on deferred tax assets and liabilities: Adjustment for previous years Value adjustment of tax assets Intangible assets -22.0 -16.3 1.7 -18.1 -17.9 1.6 The reported tax rate of 6.8% was primarily impacted by changes to recognition of deferred tax assets in Denmark, Germany and Sweden relating to tax losses in Denmark and Germany and interest carried forward in Sweden. Further, Foreign tax rates relative to Danish tax rate is primarily driven by business activities in Sweden and Poland. Tangible assets Other non-current assets Current assets -81.1 8.0 -44.3 4.0 Non-current liabilities Current liabilities 4.1 5.4 Tax losses 130.6 -81.7 9.8 126.2 -77.2 2.5 In 2021, NKT Group paid a net amount of EUR 0.4m in corporate income tax compared to receiving a net amount of EUR 1.1m in 2020. Valuation allowance, unrecognized tax assets Other See ‘Statement of changes in equity’ for details of tax related to the individual items in ‘Other comprehensive income’. Deferred tax, 31 December, net -46.9 -17.8 Earnings realized in NKT Group’s Danish companies resulted in payable corporate tax of EUR 0.3m in 2021 (EUR 0.0m in 2020), as the Danish Group realized positive taxable income. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 97 Section 2 – Proﬁt for the year 2.5 Tax – continued Signiﬁcant estimates Accounting policy Current income tax Tax for the period, consists of the year’s current tax, change in deferred tax and adjustments related to previous years. Tax for the period is recognized in the income statement including the effect of coupon payments on the hybrid capital. Tax relating to other items are recognized in other comprehensive income. The measurement of deferred tax assets and liabilities is based on the corporate tax rate applicable in the years when the assets and liabilities are expected to be utilized. The measurement of the tax assets is based on budgets and estimates for the coming years, which by nature are subject to uncertainty. As a result, there can be a substantial difference between the expected use of the tax asset and actual use of the tax asset related to previous years in the consoli- dated income statement. Tax losses in Denmark, Germany and Sweden has no expiry date. Deferred tax assets, including the tax base of tax losses allowed for carry forward, are recognized at their expected utilization value within the foreseeable future. NKT Group’s total net deferred tax liability amounted to EUR 47.4m (EUR 17.8m in 2020) at end-2021. The development mainly relates to deferred tax liability related to hedge accounting recognized in other com- prehensive income and deferred tax liability related to timing differences in revenue recognition in Germany. Deferred tax assets and tax liabilities are offset if the company has a legal right to offset current tax assets and liabilities and intends to settle current tax assets and liabilities on a net basis or to realize the assets and liabilities simultaneously. Current tax payable and receivable is recognized in the balance sheet as tax estimated on taxable income for the year, adjusted for tax on taxable income for previous years and for tax paid on account. Management judgement regarding deferred tax assets and provision for uncertain tax positions Deferred tax assets relating to tax losses carried forward are recognized when Management assesses that these can be utilized in a foreseeable future. The assessment is performed at the reporting date considering local tax legislation and Management’s business plans. Planned changes to capital structure are included in the assessment. The majority of the deferred tax assets relate to NKT Group’s German tax unit. The utilization of the German tax asset is depending on a successful turn- around of the high-voltage business. The tax losses carried forward from the German Tax unit increased from EUR 268.5m in 2020 to EUR 311.8m in 2021. The total deferred tax value amounts to EUR 99.8m. NKT Group has recognized a tax asset hereof of EUR 29.9m at year-end (EUR 17.5m in 2020). Deferred tax Deferred tax is measured according to the balance sheet liability method on all temporary differences between the carrying amount and the tax base of assets and liabilities. However, deferred tax is not rec- ognized on temporary differences relating to buildings and goodwill that for tax purposes do not qualify for depreciation and amortization, respectively, nor on other items where temporary differences – except for acquisitions – arose at the acquisition date without inﬂuencing either net earnings or taxable income. Where alternative taxation rules can be applied to determine the tax base, deferred tax is measured according to Group Management’s planned use of the assets or settlement of the liabilities, respectively. The tax losses carried forward at end-2021 in the Danish tax unit was EUR 58.1m which led to a deferred tax asset of EUR 12.2m. NKT Group has recognized a tax asset hereof of EUR 4.3m (EUR 5.3m in 2020) at year-end, assuming continued joint taxation with NKT Photonics. As the NKT Group conducts business around the world, tax and transfer pricing disputes with local tax authorities may occur. When assessing the expected outcome of these possible disputes, NKT Group applies IFRIC 23 ‘Uncertainty over Income Tax Treatments’ and methods directed herein when making provisions for uncertain tax positions. As this is an assessment, the actual obligations may deviate and will depend on the result of litigations and settlements with the tax authorities. Any taxes relating to tax disputes are included in ‘Income tax receiva- bles’, ‘Income tax payables’ and ‘Deferred tax’ based on an assessment of the most likely outcome of the disputes. The tax losses carried forward at end-2021 in the Swedish tax unit sums up to EUR 54.3m which led to a deferred tax asset of EUR 11.2m (EUR 26.7m in 2020), which was fully offset against a deferred tax liability. Further, a deferred tax asset of EUR 12.0m re- lating to interest carried forward has recognized (EUR 0.0m in 2020) and reported in Other (Speciﬁcation on deferred tax assets and liabilities). NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 98 Section 3 – Non-current assets and liabilities NKT Group's investments in non- current assets form a basis for the Group’s operation and non-current liabilities arising as a result thereof. The non-current liabilities in this section are regarded as non interest- bearing. 3.1 Intangible assets Breakdown of additions of intangible assets for the business units: In NKT, the addition of EUR 29.0m (EUR 30m in 2020) was mainly driven by development projects mainly within Solutions. In NKT Photonics, the addition of EUR 7.8m (EUR 12.3m in 2020) was driven by development activities. Trademarks, patents and Goodwill licences etc. Development Development Other, under Total Intangible assets IT projects projects Amounts in EURm software completed in progress construction NKT Group Cost, 1 January 2020 Additions 398.7 0.0 107.4 0.1 60.7 1.5 79.6 1.0 39.2 28.0 0.0 17.7 11.7 0.0 703.3 42.3 -28.6 0.0 Investment ratio Disposals 0.0 -9.2 0.8 -5.2 4.7 -14.2 12.7 1.2 Transferred between classes of assets Exchange rate adjustments Costs, 31 December 2020 0.0 -10.6 0.9 -7.6 -0.1 21.7 13% 13.4 412.1 2.5 0.3 18.2 735.2 101.6 62.0 80.3 57.5 (8% in 2020) Amortization and impairment, 1 January 2020 Amortization for the year -1.3 0.0 -37.8 -8.2 9.2 -30.8 -6.9 5.2 -39.4 -11.7 14.2 0.5 0.0 0.0 0.0 0.0 -109.3 -26.8 28.6 Disposals 0.0 0.0 0.0 NKT Investment ratio Transferred between classes of assets Exchange rate adjustments 0.0 -0.7 -0.6 -38.1 63.5 0.2 0.0 0.0 0.0 0.0 0.1 -0.3 0.0 0.0 -0.8 Amortization and impairment, 31 December 2020 Carrying amount, 31 December 2020 -1.3 410.8 -32.2 29.8 -36.7 43.6 0.0 0.0 -108.3 626.9 57.5 21.7 12% Cost, 1 January 2021 Additions 412.1 0.0 101.6 0.0 62.0 0.1 80.3 0.1 57.5 33.4 0.0 21.7 3.2 735.2 36.8 -4.3 (7% in 2020) Disposals -1.3 0.0 0.0 -1.4 21.5 0.0 -1.6 5.2 0.0 Transferred between classes of assets Exchange rate adjustments Costs, 31 December 2021 0.0 -5.2 -0.1 85.6 -21.5 0.0 0.0 -6.4 404.4 -1.2 100.4 -0.5 83.5 -8.2 NKT Photonics Investment ratio 82.2 3.4 759.5 Amortization and impairment, 1 January 2021 Amortization for the year -1.3 0.0 -38.1 -8.2 0.0 -32.2 -9.1 1.4 -36.7 -16.9 1.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.4 -108.3 -34.2 4.3 20% Disposals 1.3 0.0 Exchange rate adjustments 0.0 0.3 -0.1 -40.0 42.2 0.2 0.0 0.4 (26% in 2020) Amortization and impairment, 31 December 2021 Carrying amount, 31 December 2021 0.0 -46.0 54.4 -51.8 31.7 0.0 -137.8 621.7 404.4 85.6 * Investment ratio is calculated as additions in % of revenue NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 99 Section 3 – Non-current assets and liabilities 3.1 Intangible assets – continued 3.2 Property, plant and equipment Right-of-use assets are recognized as follows: Accounting policy Accounting policy Fixtures, ﬁttings, tools and equipment Manufacturing plant and Goodwill is initially recognized in the balance sheet at cost. Subsequently, goodwill is measured at cost less accumulated impairment losses and is not amortized. Contracts relating to leased equipment are usually made for a ﬁxed period, whereas lease contracts for buildings in some instances include an option to extend the lease. When assessing the life of the Land and buildings Amounts in EURm machinery Total The carrying amount of goodwill is allocated to NKT Group’s cash-generating units at the acquisition date. Cash-generating units is based on the managerial structure and internal ﬁnancial control. As a result of the integration of acquisitions in the existing NKT Group, and identiﬁcation of operating segments based on the presence of segment managers, Group Management ﬁnds that the smallest cash-generating units to which the carrying amount of goodwill can be allocated during testing for impairment are the reportable segments. leases, NKT considers the non-cancellable lease term and options to extend the lease where it is reasonably certain to extend. The lease period of ofﬁces and sales buildings are assessed to be approximately 3 – 10 years and for production facilities 5 – 10 years. For other assets the lease term is equal to the non-cancelable lease period and extensions are not considered. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Carrying amount, 1 January 2020 Addition for the year 37.2 4.9 0.0 8.5 0.0 0.8 37.2 14.2 -6.6 0.5 Depreciation of right-of-use assets Exchange rate adjustments -6.2 0.5 -0.3 0.0 -0.1 0.0 The carrying amount of right-of-use assets, 31 December 2020 36.4 8.2 0.7 45.3 Carrying amount, 1 January 2021 Addition for the year 36.4 11.0 -6.6 -0.2 8.2 0.0 0.7 0.7 45.3 11.7 -8.0 -0.4 Depreciation of right-of-use assets Exchange rate adjustments -1.0 -0.1 -0.4 -0.1 Payments related to short-term leases and leases of low-value assets continue to be recognized on a straight-line basis as an expense in the income statement. Low-value assets mainly comprise minor buildings, cars, forklifts, IT-equipment and other ofﬁce equipment. Other intangible assets includes IT software, trademarks, patents and licences are measured at cost less accumulated amortization and impairment losses and are amortized on a straight-line basis over the remaining patent or contract period or the useful life, whichever is the shorter. The carrying amount of right-of-use assets, 31 December 2021 40.6 7.1 0.9 48.6 Amounts recognized in the income statement: NKT Group has no leases where the rent is variable depending on revenue, etc. Some contracts are ex- posed to future increases in variable lease payments based on an index or rate, which are included in the lease liability when they take effect. Amounts in EURm 2021 2020 Expected useful life is determined as follow: Trademarks, patents and licences, etc. IT software 3 –15 years 3 – 8 years Costs relating to other immaterial leases including short term and low value leases, recognized in the income statement 7.2 8.4 Lease liabilities and interests relating to recognized lease contracts are included in Section 5.4 and 5.5 respec- tively. Future minium lease payments relating to leases not recognized in the balance sheet amount to EUR 13.4m (EUR 15.2m in 2020). NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 100 Section 3 – Non-current assets and liabilities 3.2 Property, plant and equipment – continued Property, Additions of property, plant and equipment for the business units: In NKT, the addition of EUR 194.8m (EUR 74.1m in 2020) was driven by the expansion in the production facilities within Solutions. In NKT Photonics, the addition of EUR 8.2m (EUR 5.6m in 2020) was mainly due to establishment of new production facilities in Denmark. Fixtures, ﬁttings, tools and plant and equipment under Total Manufacturing plant and property, plant and equipment Land and buildings Amounts in EURm machinery equipment construction Cost, 1 January 2020 Additions 384.9 6.5 627.4 13.2 -20.5 14.2 1.9 123.4 3.4 24.2 56.6 0.0 1,159.9 79.7 Accounting policy Disposals -1.9 2.1 -15.9 8.4 -38.3 0.0 Transferred between classes of assets Exchange rate adjustments Cost, 31 December 2020 -24.7 0.3 Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. 4.9 1.6 8.7 396.5 636.2 120.9 56.4 1,210.0 The cost comprises the purchase price and any costs directly attributable to the acquisition. The cost of self-constructed assets comprises costs of materials, components, subcontrac- tors and wages. The cost is supplemented by the present value of estimated liabilities related to dismantling and removing the asset and restoring the site on which the asset was utilized. Depreciation and impairment, 1 January 2020 Depreciation for the year -90.4 -15.7 -0.1 -351.2 -42.6 -0.7 -76.2 -12.2 0.8 -0.8 0.0 -518.6 -70.5 0.0 Transferred between classes of assets Disposals 0.0 1.9 20.1 15.7 -0.7 0.0 37.7 Subsequent costs, e.g. relating to replacement of parts of an item of property, plant and equipment, are recognized in the carrying amount of the asset if it is likely that the costs will result in future economic beneﬁts for the Group. All other costs relating to ordinary repair and maintenance are recognized in the income statement as incurred. Exchange rate adjustments -0.4 0.1 0.0 -1.0 Depreciation and impairment, 31 December 2020 Carrying amount, 31 December 2020 -104.7 291.8 -374.3 261.9 -72.6 48.3 -0.8 55.6 -552.4 657.6 Cost, 1 January 2021 Additions 396.5 13.4 -2.0 0.2 636.2 5.4 120.9 10.4 -1.8 56.4 173.8 0.0 1,210.0 203.0 -6.1 Depreciation is done on a straight-line basis over the expected useful life of the assets, as follows: Disposals -2.3 34.2 1.5 Buildings 10 – 50 years 4 – 20 years 3 – 15 years 20 years Transferred between classes of assets Exchange rate adjustments Cost, 31 December 2021 2.8 -37.2 -0.8 0.0 Manufacturing plant and machinery Fixtures, ﬁttings, tools and equipment Vessel 2.5 -0.8 2.4 410.6 675.0 131.5 192.2 1,409.3 Land is not depreciated Depreciation and impairment, 1 January 2021 Depreciation for the year -104.7 -16.7 1.7 -374.3 -42.8 2.1 -72.6 -15.4 1.8 -0.8 0.0 -552.4 -74.9 5.6 If individual parts of an item of property, plant and equipment have different useful lives, they are depreciated separately. Disposals 0.0 Exchange rate adjustments -2.5 -2.5 0.3 0.0 -4.7 Depreciation and impairment, 31 December 2021 Carrying amount, 31 December 2021 -122.2 288.4 -417.5 257.5 -85.9 45.6 -0.8 191.4 -626.4 782.9 The basis of depreciation is calculated according to the residual value less impairment losses. The residual value is determined at the acquisition date and reviewed annually. If the residual value exceeds the carrying amount, depreciation is discontinued. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 101 Section 3 – Non-current assets and liabilities 3.3 Impairment test Result of the annual impairment test Signiﬁcant estimates Goodwill Goodwill has been allocated to the cash-generating units according to the split presented below. The goodwill level in Applications was immaterial and the assumptions for the impair- ment test of goodwill are not described any further for this cash-generating unit. The carrying amount of goodwill was as follows: Accounting policy At 31 December 2021, the carrying amount of good- will, other intangible assets and tangible assets were tested for impairment. The impairment test showed no impairment for 2021 (no impairment in 2020). Goodwill, intangible assets with indeﬁnite useful lives and development projects are tested at least annually for impairment, and furthermore when a trigger event occurs. The recoverable amount per cash-generating unit exceeded the carrying amount of goodwill, other intangible assets and other assets allocated to the cash-generating unit with the following amounts at 31 December: The carrying amount of goodwill is tested for impairment together with the other non-current assets in the cash-generating unit to which good- will is allocated. The recoverable amount is generally computed as the present value of the expected future net cash ﬂows from the business or activity (cash-generating unit) to which goodwill is allocated. Amounts in EURm 2021 2020 Solutions 323.3 6.5 329.1 6.2 Headroom in EURm 2021 2020 Applications Service & Accessories NKT Photonics Total Other non-current assets 49.3 25.3 404.4 50.2 25.3 410.8 The carrying amount of other non-current assets is tested when a trigger event occurs which could indicate an impairment, in which case, the recoverable amount of the asset is determined. The recoverable amount is the fair value of the asset less anticipated cost of disposal, or its value- in-use, whichever is the higher. Cash-generating units Solutions 303 152 22 84 109 63 Service & Accessories NKT Photonics Key Assumptions The recoverable amount is based on a value-in-use calculation. For all cash-generating units, the calculation uses cash ﬂow projections (budget period) based on ﬁnancial budget for 2022 and ﬁnancial forecasts for 2023–2027, hence a 6 year budget period. Signiﬁcant parameters in these estimates are revenue growth, EBITDA margin, discount rate, working capital and growth expectations for the terminal period. The value-in-use is calculated as the present value of expected future cash ﬂows from the asset or the cash-generating unit of which the asset is part. Cash-generating units Cash-generating units identiﬁed in NKT Group are similar to the operating segments, being Solutions, Applications, Service & Accessories and NKT Pho- tonics. These are considered to be the lowest level of cash-generating units as deﬁned by management. Recognition of impairment loss in the income statement Impairment is recognized if the carrying amount of an asset or a cash-generating unit exceeds the respective recoverable amount. The impairment is recognized in the income statement and impairment of goodwill is recognized in a separate line item in the income statement. The discount rate has been revised for each cash-generating unit to reﬂect the latest market assumptions for the risk-free rate based on a 5-year German 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 long-term development for the industries and markets in which the cash-generating units operate. The deﬁnition of cash-generating units is based on the smallest identiﬁable group of assets that together generate cash inﬂows from continued use and which are independent of the cash ﬂows from other assets or groups of assets. Impairment of goodwill is not reversed. Impairment of other assets is reversed in the event of changes having taken place in the conditions and estimates on which the impairment calculation was based. Impairment is only reversed if the new carrying amount of the asset does not exceed the carrying amount that would have applied after amortization if the asset had not been impaired. Investments reﬂect both maintenance and expectations of organic growth. Based on the high order intake in Solutions, investments are high in the ﬁrst two budget years before being normalized. For the terminal period, the investments are expected to be slightly higher than the depreciations to support the growth expected. The deﬁnition of cash-generating units complies with the managerial structure and the internal ﬁnancial re- porting in NKT Group. For impairment test purposes, tangible assets and intangible assets are allocated to the respective cash-generating units. Group Management determines, as illustrated on the following page, the expected annual growth rate in the budget period, the expected margins based on historical experience and the assumptions about expected market developments. These assumptions are by nature subject to uncertainty, which is why attention to the sensitivity analysis provided is recommended. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 102 Section 3 – Non-current assets and liabilities 3.3 Impairment test – continued Solutions Budget period Terminal period Service & Accessories Budget period Terminal period NKT Photonics Budget period Terminal period 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Key assumptions1 Key assumptions1 Key assumptions1 Average revenue growth rate Average EBITDA margin Growth rate 13.3% 14.0% - 13.7% 11.4% - - - - - Average revenue growth rate Average EBITDA margin Growth rate 0.3% 12.7% - 4.2% 13.6% - - - - - Average revenue growth rate Average EBITDA margin Growth rate 10.6% 19.0% 11.2% 19.0% - - - - - 2.0% - 1.5% - 1.5% - 1.0% - 1.0% - 3.0% - Average working capital ratio Discount rate after tax Discount rate before tax -20.4% -21.3% Average working capital ratio Discount rate after tax Discount rate before tax 11.3% 6.5% 8.8% 11.5% 7.5% 10.2% Average working capital ratio Discount rate after tax Discount rate before tax 13.5% 7.7% 21.0% 8.5% 11.1% 6.8% 9.1% 8.0% 7.8% 10.4% 8.8% 12.1% 7.5% 10.1% 8.3% 11.3% 8.7% 11.4% 9.0% 11.7% 11.0% 10.1% Sensitivity Sensitivity Sensitivity Discount rate after tax Growth rate 9.9% -3.1% 9.6% -1.1% -8.9% Discount rate after tax Growth rate 25.5% 20.4% Discount rate after tax Growth rate 10.3% 0.4% 11.7% -2.7% -50.0% -26.3% -71.1% -62.4% Change in EBITDA -20.0% Change in EBITDA Change in EBITDA -9.0% -25.5% In 2021, Solutions was awarded new High-Voltage cable projects For Service, the market is growing as the number of cables increase. The competitive landscape among service providers is diverse, with different companies offering different solutions. Power cable failures are costly for both on- and offshore operators, hence the interest in service agree- ments, leading to an expected growth in line with the megatrends of the power cable market. While the market is expected to increase, the timing of and the number of cable repairs vary, and it is still expected that results will ﬂuctuate accordingly. NKT Photonics operates in the laser industry within three segments: Medical & Life Science, Industrial and Aerospace & Defense. When assessing the prospects of their market, NKT Photonics is still expecting growth rates above the average growth for the general laser industry. maintaining the high backlog, ensuring a high level of activity during the budget period. The renewable power generation is an important driver in the attractive outlook for the high-voltage market and is expected to ensure a continuously high level of activity for many years to come. While NKT views Europe as its largest market and still expects this market to provide signiﬁcant growth opportunities in the future, projects in the USA and Asia are also expected to contribute in the following years. Sensitivity to changes in assumptions The sensitivity analysis presented for each cash-generating unit in the ta- bles above, considers when a change in a given assumption will decrease the value-in-use to the extend that the value-in-use equals the carrying amount. Changes in more assumptions at once is not considered. The general assumption, that NKT will be awarded its fair share of future projects, is not considered separately. Assessing the future awards to NKT is by nature subject to uncertainty, and the value-in-use calculation of the Solution cash-generating unit is sensitive to changes in the actual share of projects awarded to NKT in the future. However, the large backlog provides higher certainty regarding the future revenue and earnings. For Accessories, the market is equally expected to increase in the coming years and NKT expect to be able to reach even more markets over the coming years to accommodate increased production capacity, develop- ment of products increase the possibility to cater for the higher demand for components. It is Management's assessment that likely changes in the key assumption will not cause the carrying amount of goodwill to exceed the recoverable amount. However, to show the headroom between the carrying amount and the recoverable amounts, a sensitivity analysis has been included, with focus on discount rate, growth rate and EBITDA in terminal period. 1 From 2020 NKT have applied two different discount rates for the budget and terminal period respectively NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 103 Section 3 – Non-current assets and liabilities 3.4 Provisions and pension liabilities Warranty Restructuring Other provisions Pension liabilities, net Accounting policy The provisions recognized are Management’s best estimate of the Amounts in EURm provision provision Total Provisions, 1 January 2021 Additions in the year 3.5 5.4 0.3 15.5 -1.1 0.0 19.4 57.6 -1.6 -24.6 -0.4 0.0 56.9 1.1 80.1 79.6 -5.0 amount required to settle the obligation. Warranty provisions are recog- nized in connection with the sale of goods and services based on the lev- el of warranty expenses incurred in previous years. Contingent warranty commitments are recognized in connection with business combinations. Restructuring costs are recognized under liabilities when a detailed, for- mal restructuring plan is announced to the affected parties on or before the balance sheet date. A provision for onerous contracts is recognized when the expected beneﬁts to be derived by the Group from a contract are lower than the Group’s unavoidable costs for meeting its contractual obligations. Provisions for dismantling are measured at the present value of the expected cost at the balance sheet date. The present value of the costs is included in the cost of the relevant tangible assets and depreci- ated accordingly. The addition of interests on provisions are recognized in the income statement under ﬁnancial expenses. Used during the year -0.4 -1.6 0.0 -1.9 0.0 Reversed during the year -26.2 -0.4 Exchange rate adjustment 0.0 0.0 Actuarial gains/losses on deﬁned beneﬁt pension plans Provisions, 31 December 2021 0.0 0.0 -2.3 53.8 -2.3 6.9 14.7 50.4 125.8 Provisions are recognized in the balance sheet as: Non-current liabilities 0.3 6.6 6.9 1.6 13.1 14.7 6.8 43.6 50.4 53.8 0.0 62.5 63.3 Current liabilities 53.8 125.8 For the Group's deﬁned beneﬁt plans, an annual actuarial calculation (the Projected Unit Credit Method) of the present value of future beneﬁts payable under the plan is provided. The present value is determined based on assumptions about the future development in variables such as salary levels, interest rates, inﬂation and mortality. The present value is determined only for beneﬁts earned by employees from their employment within the Group. The actuarial present value less the fair value of any plan assets is recognized in the balance sheet under pension liabilities. Actuarial gains related to the pension liabilities are recognized in other Sensitivity analysis comprehensive income. The pension liability also include other long term beneﬁts relating to anniversary bonuses, etc., amounting to EUR 1.9m (EUR 1.8m in 2020). At the end of 2021, there were no plan assets to be offset in the present value of the liability. The table below shows the sensitivity of the liability to changes in key assumptions for the measurement of the pension liabilities, net. The anal- ysis is based on the changes in the applied key assumptions considered reasonably likely provided the other parameters in the calculation are unchanged. Actuarial assumptions applied 2021 2020 Discount rate 1.1% 3.0% 2.0% 0.7% 3.0% 2.0% Amounts in EURm 2021 2020 Pension expenses and other long-term employee beneﬁts are recognized in the income statement based on actuarial estimates and ﬁnancial ex- pectations at the start of the year. Actuarial gains or losses are recog- nized in other comprehensive income. Future salary increases Future pension increases +0.5%-point in discount rate -0.5%-point in discount rate -3.5 3.9 -4.0 4.5 If a pension plan constitutes a net asset, the asset is only recognized if it offsets cumulative actuarial losses or future refunds from the plan, or if it will lead to reduced future payments to the plan. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 104 Section 4 – Working capital NKT Group's working capital 4.1 Changes in working capital in cash ﬂow represents the assets and liabilities necessary to support the day-to- day operations. Working capital is deﬁned as current assets less current liabilities, excluding interest-bearing items and provisions. Amounts in EURm 2021 2020 Amounts in EURm 2021 2020 Inventory -40.7 -69.3 57.0 99.6 46.6 -16.0 -12.0 125.3 17.2 Reconciliation to change in working capital in cash ﬂow Working capital 1 January Trade receivables and other receivables Contract assets and contract liabilities Trade payables and other liabilities Total -137.1 -59.6 77.5 -118.1 -137.1 -19.0 -97.2 0.6 Working capital 31 December Change in working capital based on balance sheet Effect of unrealized hedges reported on Equity Effect of changes in current tax 114.5 -127.4 4.2 The numbers in the table above cannot be derived directly from the balance sheet. Effect of changes in exchange rates, etc. Change in working capital based on cash ﬂow statement -0.9 1.1 NKT Group Working capital -46.6 -114.5 4.2 Inventories -59.6m NKT Group carries inventory to support their operations. Continuous efforts are made to maintain inventory at a low level, while maintaining a high level of customer service through short lead times. The inventory for NKT increased slightly compared to last year driven by Applications. (-137.1m in 2020) NKT Working capital Amounts in EURm 2021 2020 Accounting policy Inventories are measured at cost in accordance with the FIFO method or at a weighted average. If the net realizable value is lower than cost, inventories are writ- ten down to this lower value. Raw materials, consumables and goods for resale 127.9 69.7 107.6 61.1 -93.2m Work in progress Finished goods 89.8 74.9 (-164.5m in 2020) Inventories, 31 December 287.4 243.6 Raw materials, consumables and goods for resale are measured at cost, comprising purchase price plus delivery costs. Write-down of inventories, 1 January Write-down of inventories for the year Disposals from sales 21.8 3.0 18.5 10.3 -0.8 -6.2 21.8 NKT Photonics Working capital Finished goods and work in progress are measured at costs, comprising direct cost and production overheads. -1.6 -6.2 17.0 Scrapping Write-down of inventories, 31 December 33.6m (27.4m in 2020) NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 105 Section 4 – Working capital 4.3 Receivables Development in provision for bad debt In NKT Group, receivables comprise trade and other receivables from ex- ternal companies, other receivables from derivative ﬁnancial instruments and prepayments. Receivables are measured at amortized cost, which in all material respects corresponds to fair value and nominal value. Amounts in EURm 2021 2020 Accounting policy Trade receivables are at initial recognition measured at their transaction price less allowance for expected credit losses over the lifetime and are subsequently measured at amortized cost adjusted for changes to the expected credit losses. Expected credit losses at initial recognition are calculated for portfolios of receivables that share credit risk characteristics and is based on historical experience and, when applicable, adjusted for factors that are speciﬁc to the debtors and general economic conditions. The portfolios are primarily based on the debtor’s domicile and credit rating in accordance with NKT Groups credit risk management policy, see Section 5.6. Trade receivables, gross 215.8 165.0 Amounts in EURm 2021 2020 Provision for bad debt Provision for bad debt, 1 January Additions during the year 3.8 1.4 5.8 2.1 Trade receivables 212.6 266.7 49.6 161.2 146.1 25.9 Other receivables incl. derivatives Prepayments Reversed during the year -1.2 -0.9 0.1 -3.9 -0.2 0.0 Used during the year Receivables 528.9 333.2 Exchange rate adjustments Provision for bad debt, 31 December 3.2 3.8 In NKT Group, total receivables increased EUR 195.7m from EUR When there is an indication of impairment, expected credit losses are cal- culated at individual level and when there are no reasonable expectations of recovering, the receivable is written off in part or entirely. 333.2m in 2020 to EUR 528.9m in 2021. The increase was mainly driven by an increase of EUR 114.9m in the derivative ﬁnancial instruments due to increased commodity prices. Trade receivables, net 212.6 161.2 In 2021, credit losses recognized in the income statement count for 0.1% of total revenue (0.1% of total revenue in 2020). The expected loss rates are updated at every reporting date. The allowances for expected credit losses and write-offs for trade receiv- ables are recognized in the income statement as Other costs. Of the receivables, EUR 1.3m are expected to be received later than 12 months (EUR 1.3m in 2020). Impairment on trade receivables amounted to 1% of trade receivables un- changed from 1% in 2020. For further information on credit risks, please see Section 5.6. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 106 Section 4 – Working capital 4.4 Contract assets and liabilities Amounts in EURm 2021 2020 Accounting policy Contract assets comprise the sales value of work performed on construc- tion contracts, where NKT Group does not yet possess an unconditional right to payment, as the work performed has not been approved by the customer. Contract liabilities comprise contractual unconditional invoicing for work not yet performed. Construction contracts Contract assets, 1 January Addition from revenue recognized Transferred to receivables 21.3 85.6 -13.0 3.4 36.7 12.8 -28.5 0.3 Construction contracts are measured at the selling price of the work per- formed less progress billings and anticipated losses. If the value of work performed exceeds progress billings, the excess is recognized as con- tract assets. and if progress billings exceed the value of work performed, the deﬁcit is recognized as contract liabilities. Exchange rate adjustments Contract assets, 31 December 97.3 21.3 Amounts in EURm 2021 2020 Construction contracts are characterized by a high degree of customiza- tion in the design of the cables produced. It is furthermore a requirement that before commencement of the work, a binding contract is signed that will result in a ﬁne or compensation in case of subsequent cancellation. The contract value is measured according to the stage-of-completion, which is determined on the basis of an assessment of the work per- formed, calculated as the ratio of expenses incurred compared to total anticipated expenses on the contract concerned. When it is probable that the total contract costs will exceed the total contract revenue, the antici- pated loss on the contract is immediately recognized as a provision. Contract liabilities, 1 January Decrease from revenue recognized Prepayments received 296.5 -179.2 344.6 -2.6 186.3 -125.2 231.3 4.1 Construction contracts Contract value of work in progress Progress billing 1,859.9 -2,156.9 -297.0 1,960.8 -2,192.4 -231.6 Exchange rate adjustments Contract liabilities, 31 December 459.3 296.5 Recognized as contract assets Recognized as contract liabilities 97.3 -394.3 -297.0 21.3 -252.9 -231.6 Expected recognition of revenue: Within 1 year 281.0 178.3 0.0 143.9 152.6 0.0 Within 1-5 years After 5 years Construction contract 394.3 27.0 252.9 37.7 5.9 When income and expenses on a construction contract cannot be deter- mined reliably, the contract value is measured as the costs incurred which are likely to be recoverable. 459.3 296.5 Prepayments for construction contracts Other prepayments from customers Total contract liabilities 38.0 459.3 296.5 Prepayments from customers are recognized under contract liabilities. Signiﬁcant estimates Construction contracts are measured based on management judgement in terms of stage-of-completion and estimated proﬁt on a project-by- project approach to estimate the expected selling prices which affect the value recognized in the balance sheet. The estimate includes a risk provision, which is based on an assessment of the speciﬁc risk that each project is exposed to. Therefore, the recognition of revenue and related contract assets and liabilities are subject to uncertainty. Management’s estimates are based on the most likely outcomes of the projects. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 107 Section 5 – Capital structure and ﬁnancial risk management NKT's Capital structure targets are related to solvency (ratio of minimum 30%) and operational EBITDA leverage (ratio up to 1.0x). 5.1 Share capital NKT A/S’ share capital consists of shares with a nominal value of DKK 20 each. No shares carry special rights. NKT A/S’ Articles of Association specify no limits in respect of ownership or voting right, and Group Manage- ment is unaware of any agreements in this regard. Accounting policy Dividend is recognized as a liability at the date of Financial risk management mainly relates to managing the risks related to currency, commodities and interest rate risks relating to the ﬁnancing. adoption at the Annual General Meeting (declaration date). Proposed dividend payments for the year are disclosed as a separate item under equity. Interim dividend is recognized as a liability at the date when the decision to pay such dividend is made. Distribution of dividend to shareholders of NKT A/S has no tax consequences for the company. Number of DKK 20 shares 2021 2020 Shares, 1 January 42,976,036 27,260,115 20,806 Increase in capital by exercise of warrants Issue of new shares 0 0 Acquisition costs, consideration received, and dividends relating to treasury shares, are recognized directly in retained comprehensive income in equity. 15,695,115 42,976,036 Shares, 31 December 42,976,036 NKT Group Solvency ratio Mandates issued by the shareholders at the General Meeting in relation to the Group’s capital structure: 45% 1. The share capital may, by resolution of the Board of Directors, be increased by issue of shares to a maximum nominal amount of DKK 256m in the pe- riod until 30 April 2025. The mandate was granted on the Annual General Meeting in June 2020, and consequently subsequent the ﬁrst capital increase in 2020. With the second increase in December 2020 of DKK 215m, the remaining amount of the authorization is DKK 41,119,820. 2. For the period until 31 March 2026 the Board of Directors is authorized to arrange for acquisition of the Company’s own shares up to a nominal value of 10% of the share capital. The purchase price for such shares may not deviate more than 10 per cent from the price quoted on Nasdaq Copenha- gen at the time of acquisition. The price quoted at the time of acquisition shall mean Nasdaq Copen- hagen closing price - all transactions at 5 p.m. 3. In the period until 30 April 2025 loans may be raised against bonds or debt instruments in one of several transactions with a right for the lender to convert this claim to shares, each of a nominal value of DKK 20, up to a maximum nominal amount of DKK 128m (6.4 million new shares). This mandate is equally capped to DKK 41,119,820 due to the capital increases in 2020. (50% in 2020) NKT Group Operational EBITDA leverage 0.1x (-0.4x in 2020) NKT Group Average funding rate (excl. hybrid capital) 1.9% (2.6% in 2020) NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 108 Section 5 – Capital structure and ﬁnancial risk management 5.2 Earnings per share 5.3 Hybrid capital Accounting policy Amounts in EURm 2021 2020 Hybrid capital comprise issued bonds from September 2018 of EUR 150m, which is subordinated to other creditors. Hybrid capital is treated in accordance with the rules on compound ﬁnan- cial instruments based on the characteristics of the bonds. The notional amount, which constitutes a liability, is recognized at present value, and equity has been increased by the difference between the net proceeds received and the present value of the discounted liability. The part of the hybrid capital that is accounted for as a liability is measured at amortized cost. The carrying amount is zero on initial recognition and due to the 1,000-year term of the hybrid capital, amortization charges will only have an impact on the income statement for the years at the end of the 1,000- year term of the hybrid capital. Proﬁt attributable to equity holders -4.0 -82.6 The hybrid security bears a coupon of 5.375% until the ﬁrst call date on 12 September 2022 after which the coupon resets to the 4-year EUR swap rate prevailing at that time plus 10.225%. It has a ﬁnal maturity on 12 September 3018. Coupon payments may at the discretionary decision of NKT A/S be deferred and ultimately any deferred coupons outstanding in 3018 will be cancelled. However, deferred coupon payments become payable if NKT A/S decides to pay dividends to shareholders. Coupon payments are recognized in equity. Weighted average number of ordinary shares adjusted for the effect of dilution 43,090,596 30,846,489 Basic earnings per share, EUR Diluted earnings per share, EUR -0.1 -0.1 -2.7 -2.7 Coupon payments are accounted for as dividends and are recognized directly in equity when the obligation to pay arises. There has been no transactions between the balance sheet date and the date of publication of this Annual Report, that have signiﬁcantly changed the number of shares or potential shares in NKT A/S. The issued EUR 150m callable subordinated capital securities due in 3018 are accounted for as a hybrid capital reserve in equity. The obligation to pay coupon payments is at the discretion of Group Management and deferred coupon lapses upon maturity of the hybrid capital. Coupon payments are recognized in the statement of cash ﬂows in the same way as dividend payments within ﬁnancing activities. The classiﬁcation is based on the special characteristics of the hybrid bond, where the bondholders are subordinate to other creditors, and NKT A/S may defer and ultimately decide not to pay the coupon. As the principal of the securities ultimately falls due in 3018, its discount- ed fair value is zero due to the terms of the securities. Therefore, a liability of zero has been recognized in the balance sheet, and the full amount of the proceeds have been recognized as equity. Coupon payments are recognized in the statement of cash ﬂows in the same way as dividend payments within ﬁnancing activities. On redemption of the hybrid capital, the payment will be distributed between liability and equity, applying the same principles as used when the hybrid capital was issued. The difference between the payment on redemption and the net proceeds received on issue is recognized directly in equity as the debt portion of the existing hybrid issues will be nil during the ﬁrst part of the life of the hybrid capital. On the date on which the Board of Directors decides to exercise an op- tion to redeem the hybrid capital, the part of the hybrid capital that will be redeemed will be reclassiﬁed to loans and borrowings. The reclassiﬁca- tion will be made at the market value of the hybrid capital at the date the decision is made. Following the reclassiﬁcation, coupon payments and exchange rate adjustments will be recognized in the income statement as ﬁnancial income or expenses. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 109 Section 5 – Capital structure and ﬁnancial risk management 5.4 Net interest-bearing debt Changes in current loans, non-current loans and lease liabilities Net interest-bearing debt Effect of changes in exchange Net interest-bearing debt end 2021 was EUR 13.2m (EUR -25.9m end- 2020), corresponding to an increase of EUR 39.1m. The increase was driven by the expansions in the production facilities within Solutions. Changes from cash ﬂow Changes in leases Amounts in EURm 1 January rates 31 December In addition to the hybrid security mentioned in note 5.3 and Revolving Credit Facility (RCF) mentioned in note 5.6, NKT Group has mortgage debt of EUR 154.3 (EUR 159.7m in 2020). Current and non-current loans1, 2021 Current and non-current loans1, 2020 213.4 249.2 4.1 2.7 -5.6 2.0 2.8 213.9 213.4 -41.3 It is Group Management’s opinion, that the ﬁnancial headroom is sufﬁcient to manage the level of activity expected in 2022 for the NKT Group. 1 Current and non-current loans include leasing liabilities Amounts in EURm 2021 2020 Net interest-bearing debt includes debt related to capitalized lease contracts of EUR 50.2m (EUR 46.1m in 2020). Of this amount, EUR 42.5m was recognized as non-current (EUR 39.0m in 2020), and EUR 7.7m as current debt (EUR 7.1m in 2020). In 2021, payments related to capitalized lease contracts amounted to EUR 9.4m (EUR 7.7m in 2020), of which EUR 7.3m was installments on the debt (EUR 5.8m in 2020) and the remaining amount, EUR 2.1m (EUR 1.9m in 2020), was interest expenses recognized in ﬁnancial items in the income statement. Net interest-bearing debt comprise: Non-current loans 196.4 17.5 200.6 12.8 Current loans Interest-bearing debt, gross 213.9 213.4 Interest-bearing receivables Cash at bank and in hand Net interest-bearing debt 0.2 200.5 13.2 0.1 239.2 -25.9 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 110 Section 5 – Capital structure and ﬁnancial risk management 5.4 Net interest-bearing debt – continued The items in the table to the left do not include interest. The forward con- tracts are recognized at fair value and the discount element is considered insigniﬁcant because of short maturity. Changes in current loans, non-current loans and lease liabilities Less than More than 5 years Amounts in EURm 1 year 1-3 years 3-5 years Total Interest-bearing loans and borrowings are consequently recognized in the balance sheet at the amounts stated in the table. Interest-bearing loans and borrowings are predominantly based on ﬂoating interest rates and are measured at amortized cost. The carrying amount therefore in all material aspects corresponds to fair value and nominal value. 2021 Interest-bearing loans and borrowings1 Hereof leasing liabilities Trade payables 17.5 7.7 39.0 36.6 120.8 213.9 50.2 12.3 7.9 22.3 341.8 7.8 341.8 7.8 Prepayments Derivative Financial liabilities Other payables 14.6 155.8 537.5 14.6 Accounting policy 155.8 733.9 Total 39.0 36.6 120.8 Interest-bearing loans and borrowings are recognized at the amount of proceeds received at the date of borrowing, net of transaction costs paid. In subsequent periods the ﬁnancial liabilities are measured at amortized cost using ‘the effective interest method’, and the difference between the proceeds and the nominal value is therefore being recognized in the income statement under ﬁnancial expenses over the term of the loan. 2020 Interest-bearing loans and borrowings1 Hereof leasing liabilities Trade payables 12.8 7.1 33.0 35.5 132.1 213.4 46.1 13.0 6.6 19.4 273.2 5.9 273.2 5.9 Prepayments Derivative Financial liabilities Other payables 13.3 154.7 459.9 13.3 Interest-bearing loans and borrowings also include the capitalized residu- al lease obligations on ﬁnance leases measured at amortized cost. 154.7 660.5 Total 33.0 35.5 132.1 1 Interest-bearing loans and borrowings include leasing liabilities recognized in the balance sheet, but not short-term and low-value leases. These are speciﬁed in note 3.2. 5.5 Financial items Financial income 2021 2020 Financial expenses Net ﬁnancial items Financial income and expenses comprise interest, dividends, gain/loss on securities, receivables and transactions denominated in foreign curren- cies, amortization of ﬁnancial assets and liabilities, allowances under the Danish tax prepayment scheme, as well as changes in the fair value of derivative ﬁnancial instruments not designated as hedges. Amounts in EURm 2021 2020 2021 2020 Interest etc. relating to ﬁnancial assets/liabilities measured at amortized cost 0.4 0.0 0.6 0.0 -9.6 -2.1 -14.0 -1.9 -9.2 -2.1 -13.4 -1.9 Interest expenses on leases Total interest 0.4 0.6 -11.7 -18.0 -45.8 -63.8 -75.5 -15.9 -29.3 -23.1 -52.4 -68.3 -11.3 4.2 -15.3 -3.1 Accounting policy Foreign exchange gains/losses Gain/loss on derivative ﬁnancial instruments Total currency gain/losses Total ﬁnancial items 22.2 40.5 62.7 63.1 26.2 24.8 51.0 51.6 -5.3 1.7 Changes in market values of currency and interest rate derivatives not entered into with the purpose of hedging an exposure, are recognized in ﬁnancial income or expenses respectively. -1.1 -12.4 -1.4 -16.7 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 111 Section 5 – Capital structure and ﬁnancial risk management 5.6 Financial risks and ﬁnancial instruments Financial risk management policy NKT is exposed to and manages several ﬁnancial risks due to its operations, investments and ﬁnancing activities. The risk policy does not allow for speculation in ﬁnancial risks. (SEK, CHF, CZK, and PLN), a rate of exchange which is 10% lower than the year-end 2021 exchange rate would reduce NKT A/S’ equity by EUR Xm, compared to EUR 74.4m in 2020. Sensitivity analysis - ﬁnancial instruments EURm 2021 Effect on 2020 Effect on earnings before tax Effect on equity before tax Effect on equity before tax The principal currency exposure relates to sales and purchases in currencies other than the functional currency of the businesses. Hedging of these currency risks are based on an assessment of the likelihood of the future transaction being performed and materiality. Price earnings The risk management policy is managed by Group Treasury. The general principle is that all known risks are hedged, though with acceptance of an open position within a deﬁned threshold. The risk thresholds are de- ﬁned at a level, that insure NKT is sufﬁciently protected against any risk, whileproviding Group Treasury room for managing risks efﬁciently. Risk change before tax SEK 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 10% -10% 1% 11.4 -11.4 0.0 -3.1 3.1 7.6 -7.6 2.4 -2.4 1.1 -1.1 0.0 0.0 3.5 3.4 -0.7 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.3 -10.3 0.2 Expected cash ﬂows with signiﬁcant currency risk are hedged as they become known. Currency risks from project-related sales are considered on an individual basis. The fair value of the effective part of the hedge is recognized in other comprehensive income on a continuous basis. GBP 3.1 0.0 -3.1 -3.8 3.8 -0.2 0.2 NKT uses ﬁnancial instruments, such as forwards, swaps, interest rate caps to hedge exposures relating to currency, interest rates, and commodities. While options are also available as instrument, no option contracts are active at the end of 2021 and 2020. NOK 0.2 -0.2 -0.2 0.2 -0.2 0.2 USD 2.6 The table on the next page shows net outstanding for- ward exchange hedging contracts as at 31 December for NKT, which are used for and fulﬁl the conditions for hedge accounting of future transactions. -2.6 0.0 -0.2 0.3 CZK 3.4 The ﬁnancial risks, as described further below, are divided into: -3.4 -7.2 7.2 0.0 -0.3 0.0 PLN 0.0 1. Currency risks 2. Interest rate risks 3. Raw material price risks 4. Credit risks The fair value of the total portfolio of currency hedge contracts will impact other comprehensive income if currency rates change. The effect of a 10% increase in selected currency rates is shown in the table the right. 0.0 0.0 Copper Lead 0.0 6.2 5.9 0.0 -6.2 0.1 -5.9 0.3 5. Liquidity risks 0.0 As NKT currently only uses forwards and spots to hedge the FX risks, and only designate the spot ele- ment, the likelihood of inefﬁciency is low, thouh possible if changes in expected cashﬂows from projects are not reﬂected correctly in the hedges. 0.0 -0.1 0.1 -0.3 0.1 Currency risks With presence in several countries NKT is exposed to currency risks that may have considerable inﬂuence on the income statement and balance sheet. Currency risks refer to the risks of losses (or opportunities for gains) resulting from changes in currency rates. Currency risks arise through transactions, ﬁnancial assets and liabilities denominated in currencies other than the functional currency of the individual businesses. Quantiﬁcation and identiﬁcation of existing and anticipated currency risks are the responsibility of the individual businesses, while the actual hedging is executed by Group Treasury. Aluminium Gas-oil Interest rate 0.0 0.0 -0.1 0.2 -0.1 0.1 0.0 Interest rate risks 0.0 -0.2 0.8 -0.1 0.5 Interest rate risks refer to the inﬂuence of changes in market interest rates on future cash ﬂows concerning interest-bearing assets and liabilities. 0.0 -1% 0.0 -0.8 -0.5 In 2020 an interest rate hedge of DKK 370m (EUR 50m) was made in form of an interest rate swap with a ﬁxed rate of -0.2175 maturing in June 2025. During 2021 another interest rate swap was made, this time for EUR 30m with maturity in March 2026 with a ﬁxed rate of -0.3375. The table above show a sensitivity analysis of the exposures in currency, commodities and interest rates. The presented effect is from the ﬁnancial instruments only (all things being equal). If the impact on the underlying exposure had also been considered, the effect would have been fully or partially offset. NKT does not hedge the currency risks related to net investments in foreign subsidiaries. Gains and losses relating to unhedged net assets in foreign subsidiaries are accounted directly in other comprehensive income. For the most signiﬁcant investments in foreign currency As of end-2021, the market values of the interest rate derivatives were in total EUR 0.8m (2020: EUR -0.2m). NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 112 Section 5 – Capital structure and ﬁnancial risk management 5.6 Financial risks and ﬁnancial instruments – continued Cash ﬂow hedges related to the most siginiﬁcant currencies Notional value Local currency in mio. Notional value EURm Fair value EURm Average exchange rate1 Local currency 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 SEK USD GBP NOK CZK PLN Buy Sell Buy Sell Buy Sell Buy Sell Buy Sell Buy Sell Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year 0.0927 0.0915 0.0963 0.0948 0.0926 0.0953 334.18 23.82 6.96 695.85 351.04 770.00 30.99 2.18 0.67 65.98 32.5 1.3 0.1 0.0 2.8 2.1 73.37 -2.8 0.8445 0.8631 0.8494 0.8382 1.1570 1.1458 1.1398 1.1364 0.0980 0.0975 0.9660 25.43 19.70 64.73 10.35 42.90 31.32 80.20 19.93 130.00 295.00 0.12 21.48 17.00 54.98 8.68 0.12 0.7 0.0 0.0 0.8152 0.7992 2.00 0.18 1.63 0.14 -1.6 -0.2 1.0 0.0 0.0 49.63 35.98 91.41 22.64 12.74 28.76 0.6 1.1110 1.1321 0.1022 28.09 0.78 6.00 31.2 0.88 0.61 -3.1 -0.5 0.1 0.2 0.0 0.0 -0.3 0.0926 0.0322 0.0375 0.2221 140.00 0.76 995 12.97 0.02 -0.3 0 0.0988 40.00 4.00 0.1 37.32 6.66 -0.5 -0.1 30 Cash ﬂow hedges reported as assets Cash ﬂow hedges reported as liabilities 4.4 12.1 10.7 -6.2 1 EUR/Local currency NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 113 Section 5 – Capital structure and ﬁnancial risk management 5.6 Financial risks and ﬁnancial instruments – continued Average rate EUR/ton Notional value EURm Fair value EURm Raw material price risks Cash ﬂow hedges related to raw materials Commodity Raw material price risks primarily relate to metals and plastics used in the cable production. When changes in raw material prices cannot be transferred to customers, NKT uses ﬁnancial instruments to hedge the price risks. NKT has, due to the larger order backlog, a high amount of raw material derivatives to cover the risks related to the large future purchases of especially copper. Exposures and hedging of current and expected future raw material risks are managed by the businesses based on adopted Group guidelines. Hedging of awarded projects are done at the time of award and adjusted according to changes in production plans. 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 Copper Buy Sell Buy Sell Buy Sell Buy Sell Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year Less than 1 year More than 1 year 5,882 5,516 5,733 5,371 1,677 1,721 1,647 1,872 1,778 4,947 5,355 4,975 321.0 231.7 100.5 14.9 18.6 3.1 98.7 369.2 11.4 147.2 123.6 -47.4 -8.9 4.3 27.7 66.5 -4.0 Lead 1,564 1,582 1,564 18.9 10.4 1.4 0.7 0.5 NKT hedge raw material via LME. Changes in the fair value of the hedging instrument should offset changes in the value of the underlying because the reference prices are the same for the hedging instrument and the hedge item. NKT designate only the cash price of the hedging instrument, and therefore incur ineffectiveness from the forward element and, if hedges do not match the purchase plans. For the hedge of plastic, ineffectiveness will arise as this is hedged via a gas-oil proxy hedge. Ineffectiveness because of differences in the change between gas-oil and plastic are considered insigniﬁcant. 0.7 8.0 -1.9 0.0 -0.1 1.4 Aluminium Gas-oil 1,486 1,533 9.2 3.2 3.5 4.0 0.3 0.3 1,563 2.7 -1.6 As at 31 December 2021, NKT A/S had current ﬁnancial hedging instru- ments relating to future raw material supplies of a value of EUR 460m (EUR 548m in 2020) with a positive fair value of EUR 205.4m (positive value of EUR 90.1m in 2020). The impact of ineffectiveness on the income statement for the year was EUR -3.3m recorded in Costs of raw materials, consumables and goods for resale. 420 412 578 573 423 385 6.6 8.3 2.1 0.3 1.3 2.6 2.5 -0.2 -0.7 11.1 -0.1 0.0 Cash ﬂow hedges reported as assets Cash ﬂow hedges reported as liabilities 225.8 0.6 93.2 2.4 Sensitivity to the development (+/- 10%) in raw material prices was present- ed in the table on page 111. The table to the right provides an overview of the cash ﬂow hedges related to raw materials. Accounting policy NKT mainly apply hedge accounting for ﬁnancial instruments related to currency, raw materials as well as interest rates for loans. The hedges normally hedge the risk one-to-one with the hedged item. Only gas-oil hedges for the hedging of the price risk of plastic differs from this princi- ple, as Group Treasury here determine the ratio necessary to hedge the price risk for plastic. excluding the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts. In accordance with the cost of hedging principle all fair values related to the forward element of the hedging contract is recognized in other comprehensive income and accumulated in the cost of hedging reserve. As the hedged items are transaction-related, the forward element is reclassiﬁed to the proﬁt or loss when the hedged item affects proﬁt or loss, and in the same line item as the hedged item. Fair value changes for cash ﬂow hedges considered effective, are recog- nized in other comprehensive income in the hedging reserve. For each reporting date, effectiveness is considered and if the future cash ﬂows are no longer expected to materialize, the accumulated value reported in the hedge reserve is reclassiﬁed to ﬁnancial items in the income statement. In all other cases the accumulated value is reclassiﬁed to the income statement in the same line as the hedged item. The Group designates the share of the fair value of a forward contract that is related to cash price for metals and spot price for FX hedges (i.e. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 114 Section 5 – Capital structure and ﬁnancial risk management 5.6 Financial risks and ﬁnancial instruments – continued Cash ﬂow hedge reserve Amounts in EURm Categories of ﬁnancial instruments Foreign exchange risk hedging Interest Commodity rate risk hedging risk hedging Total Amounts in EURm 2021 2020 Balance at 1 January 2021 -0.4 -0.1 72.4 71.9 Financial assets Measured at amortized costs: Receivables Gain/(loss) from changes in fair value of hedging instruments Income tax related to gains/(losses) recognized in other comprehensive income (Gain)/loss reclassiﬁed to proﬁt or loss - hedged items Income tax related to amounts reclassiﬁed to proﬁt or loss Exchange rate adjustments 5.7 -1.3 -8.9 1.8 0.9 -0.2 0.0 0.0 0.0 0.6 220.2 -55.8 -68.3 16.6 226.8 -57.2 -77.2 18.4 308.8 97.3 0.2 228.0 21.3 0.1 Contract assets Interest bearing receivables -0.2 -3.3 -0.5 -0.7 Measured at fair value through proﬁt /loss: Other investments and receivables Cash at bank and in hand Balance at 31 December 2021 184.7 182.0 0.8 200.5 220.1 1.0 239.2 105.2 Derivative ﬁnancial instruments Financial liabilities Cost of hedging reserve Amounts in EURm Foreign exchange risk hedging Interest Commodity Measured at amortized costs: Trade payables and other liabilities Interest-bearing loans and borrowings rate risk hedging risk hedging 497.6 213.9 427.9 213.4 Total Balance at 1 January 2021 0.0 0.0 0.0 0.0 Measured at fair value through proﬁt /loss: Derivative ﬁnancial instruments 14.6 13.3 Gain/(loss) from changes in fair value of hedging instruments Income tax related to gains/(losses) recognized in other comprehensive income (Gain)/loss reclassiﬁed to proﬁt or loss - hedged items Income tax related to amounts reclassiﬁed to proﬁt or loss Exchange rate adjustments -1.4 0.4 0.0 0.0 0.0 -1.0 0.0 0.0 0.0 0.0 0.0 0.0 -23.4 5.8 -24.8 6.2 In the table above, ﬁnancial instruments are presented in the categories which determine, how they will be recognized in the ﬁnancial statements. 3.3 3.3 -0.8 -0.1 -15.2 -0.8 -0.1 -16.2 Accounting policy - continued Balance at 31 December 2021 Fair value changes of ﬁnancial instruments used to hedge the change in fair value of an asset or liability is recorded in the income statement in the same line item as the changes in value of the hedged asset or liability is recognized in. Of the fair values recorded in other comprehensive income, EUR 3.6m is expected to be recorded in Revenue (EUR -0.5m in 2020) and EUR 161.5m (EUR 72.4m in 2020) is expected to be recorded in Cost of raw materials, consumables and goods for resale. Hedging of currency risk is not performed for net assets (equity) in foreign subsidiaries. Gains and losses relating to unhedged net assets in foreign subsidiaries are accounted for directly in other comprehensive income. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 115 Section 5 – Capital structure and ﬁnancial risk management 5.6 Financial risks and ﬁnancial instruments – continued Measuring fair value Liquidity risks Liquidity resources Financial instruments measured at fair value in the balance sheet are designated as belonging to one of the following three categories (the ‘fair value hierarchy’): It is NKT Group’s policy to maintain adequate liquidity resources to im- plement planned operating activities and to be able to operate effectively in the event of unforeseen ﬂuctuations in liquidity. NKT Group’s liquidity resources consist of cash, cash equivalents and undrawn committed credit facilities (RCF). Amounts in EURm 2021 2020 Commited facilities (1-3 years) Commited facilities (<1 years) Total commited facilities Uncommited facilities Total facilities 200.0 0.0 300.0 0.0 Level 1: Listed prices (unadjusted) in active markets for identical assets and liabilities 200.0 0.0 300.0 0.0 At end-2021, NKT Group’s total available liquidity resources amounted to EUR 395.1m compared to EUR 535.9m in 2020. Level 2: Input, other than listed prices on Level 1, which is observable for the asset or liability either directly (as prices) or indirectly (derived from prices) 200.0 200.5 -5.4 300.0 239.2 -3.3 The EUR 200m RCF matures in November 2024, while the mortgage loan portfolio matures in 2032 and 2033. Cash Utilized facilities Level 3: Input for the asset or liability which is not based on observable market data (non-observable input) Liquidity ressources 395.1 535.9 The RCF is the only ﬁnancing instrument subject to ﬁnancial covenants. NKT Group’s ﬁnancing contains change of control clauses, which comes into effect if a shareholder or shareholder group gains control over NKT A/S or if NKT A/S is no longer listed at Nasdaq Copenhagen. Credit risks Financial instruments measured at fair value consist of derivative ﬁnancial instruments. The fair value at 31 December 2021 and 2020 of NKT Group’s forward transactions are measured in accordance with Level 2 as the fair value is based on ofﬁcial exchange rates and forward rates at the balance sheet date. NKT’s credit risks relate partly to receivables, contract assets and cash at bank and in hand, and partly to derivative ﬁnancial instruments with positive fair value. The maximum credit risk attached to ﬁnancial assets correspond to the values recognized in the balance sheet. NKT has no material risks relating to a single customer or partner. NKT’s policy for acceptance of credit risks entails ongoing monitoring and credit rating of important customers and other partners. NKT obtains prepay- ments or bank guarantees from customers, when considered needed. Thus, insurance cover and similar measures to hedge receivables are rarely applied as NKT historically has had only few material losses. No ﬁnancial instruments was moved from one level to another in the year (no move in 2020 either). NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 116 Section 6 – Group structure 6.1 Acquisition and divestment 6.2 Group companies of businesses Group companies Domicile Group companies Domicile Acquisitions: On 10 January 2022, NKT acquired 100% of the shares in Ventcroft Ltd, a UK based company. Vent- croft Ltd are specialized in ﬁre-resistant building wires and low voltage power cables, and the acquisition is made in order to strengthen the product portfolio and is an important step in the NKT strategy to grow the business. The completion accounts are still to be ﬁnalized, and consequently, the purchase price and other ﬁnancial information cannot be disclosed yet. NKT Group Middle East NKT Middle East DMCC Dubai Denmark NKT Cables Group A/S NKT (Denmark) A/S NKT Invest A/S Denmark Denmark Denmark Asia/Paciﬁc NKT Pty Ltd NKT South Asia Private Limited NKT OPERATIONS INDIA PRIVATE LIMITED Australia India India Europe NKT Group GmbH1 NKT Verwaltungs GmbH NKT GmbH & Co. KG NKT GmbH, Nordenham Zweite NKT GmbH NKT s.r.o. Germany Germany Germany Germany Germany Czech Republic Spain NKT Photonics Group There were no acquisitions in 2021 or 2020. Denmark NKT Photonics A/S Divestments: Denmark On 15 January 2021, NKT divested the recycling business in Stenlille, Denmark. The proceeds from the sale was EUR 2.1m and the gain was EUR 1.8m. The business was a part of the Applications segment prior to the divestment, and the gain is accordingly included in this segment. NKT (Ibérica) S.L. NKT (Sweden) AB NKT HV Cables AB NKT HVC Holding AB NKT HV Cables Holding AB NKT AS Europe Sweden Sweden Sweden Sweden Norway NKT Photonics GmbH NKT Photonics Technology GmbH Advanced Laserdiode Systems A.L.S. GmbH Germany NKT Photonics Switzerland GmbH NKT Photonics Holding Ltd NKT Photonics Ltd Germany Germany Switzerland UK There were no divestments in 2020. NKT HVC AS Norway UK NKT (U.K.) Ltd. UK NKT Photonics AB Sweden NKT HVC Ltd. UK NKT S.A. Poland America NKT (Netherlands) B.V. NKT HVC B.V. NKT HV Cables GmbH NKT Lithuania, UAB Netherlands Netherlands Switzerland Lithuania LIOS Technology Inc. NKT Photonics Inc. US US Asia/Paciﬁc NKT Photonics (Zhenzhen) Co., Ltd. Fianium Asia Ltd. NKT Photonics Korea Co., Ltd. China Hong Kong South Korea America NKT, Inc US All Group companies are wholly owned. Companies without material interest and dormant companies are omitted from the list. 1 The Group has applied Section 264b of the German Commercial Code (“Handelsgesetzbuch”) by which NKT Group GmbH is exempted from ﬁling local ﬁnancial statement. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 117 Section 7 – Other notes 7.1 Fees to auditor elected at 7.3 Contingent assets and liabilities and pledges the Annual General Meeting The NKT Group is a party to various disputes and inquiries from authori- ties whose outcome is not expected to materially affect proﬁt for the year and the ﬁnancial position. In connection with disposal of companies in previous years, guarantees have been provided which are not expected to materially affect net result. Further, NKT is a party to various insurance claims as well as customer claims whose outcome is still uncertain and not recognized in the ﬁnancial statement at the balance sheet day. Pledges Non-current assets with carrying amount of EUR 368.8.m (EUR 332.4m in 2020) have been pledged as security for mortgage loans and the revolving credit facility of total EUR 152.1m (EUR 161.8m in 2020). Amounts in EURm 2021 2020 Deloitte: Statutory audit Other assurance Other service Total 1.0 0.1 0.0 1.1 1.1 0.3 0.2 1.6 Amounts in EUR 2021 2020 Carrying amount of assets pledged as collateral for credit institutions: NKT Group is jointly liable for Danish corporate taxes on dividend, interest and royalties together with Nilﬁsk up until the demerger in October 2017. In a few cases the NKT Group’s foreign companies are subject to special tax schemes to which certain conditions are attached. As at 31 Decem- ber 2021 these conditions were complied with. Land and buildings Plant and machinery 207.0 47.7 215.9 120.2 NKT Group’s auditor fees decreased from EUR 1.6m in 2020 to EUR 1.1m in 2021 driven by the non-audit services related to review and assurance in connection with the capital increase in 2020. Property, plant and equipment under construction 114.1 0.0 0.0 -3.7 NKT Photonics net assets Guarantees The fee for other assurance delivered by Deloitte Statsautoriseret Revisionspartnerselskab to the Group amounts to EUR 0.1m (EUR 0.3m in 2020) and predominantly consists of advisory services. Total 368.8 332.4 As part of our commercial activities NKT has provided guarantees mainly relating to high-voltage projects, which is to cover for the risk relating to our performance inherent in such projects, the quality and delays. Liabilities related to pledged assets 152.1 161.8 At 31 December 2021 the value of issued guarantees was EUR 1,014.6m (EUR 991.8m in 2020). At the balance sheet date none of the issued guarantees are expected to materialize. Signiﬁcant judgments 7.2 Events after the balance sheet date Disclosures for contingent assets and liabilities and when they must be recognized is derived from evaluations of the expected outcome of the individual issues. These evaluations are based on legal opinions of the agreements contracted, which in signiﬁcant instances also include opin- ions obtained from external advisors, including lawyers. As disclosed in note 6.1, NKT acquired Ventcroft Ltd on 10 January 2022. In January 2022, unannounced inspections were carried out at NKT’s two main German sites as part of investigations by the German Federal Cartel Ofﬁce into various power cable manufacturers and other industry-related companies. The reason behind the investigations are suspicions that power cable manufacturers potentially have coordinated calculations of industry-standard metal surcharges in Germany. NKT is cooperating with the German authorities. As investigations are currently ongoing, the potential ﬁnancial implications remain unknow, and consequently no ﬁnancial effect has been recognized for 2021. Other than the above, Management is not aware of any subsequent matters that could be of material importance to NKT Group’s ﬁnancial position. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 118 Section 7 – Other notes 7.4 Deﬁnitions The Group operates with the following performance measures which arecalculated in accordance with the Danish Finance Society's guidelines: 8. Net interest-bearing debt – Cash and interest-bearing receivables less interest-bearing debt. Speciﬁed in Section 5.4. Hybrid capital is not included in net interest-bearing debt. 12. Solvency ratio (equity as a percentage of total assets) – Equity incl. hybrid capital as a percentage of total assets. Performance measures deﬁned by IFRS: 13. Return on capital employed (RoCE) – Operational EBIT as a 9. Capital employed – Group equity plus net interest-bearing debt. percentage of average of the last ﬁve quarters of capital employed. 1. Earnings, EUR per outstanding share (EPS) – Earnings attrib- utable to equity holders of NKT A/S relative to average number of outstanding shares. 10. Working capital – Current assets minus current liabilities (excluding 14. Equity value, EUR per outstanding share – Equity attributable to equity holders of NKT A/S per outstanding share at 31 December. Dilution effect of outstanding share programmes is excluded. interest-bearing items and provisions). 2. Diluted earnings, EUR per outstanding share (EPS) – Earnings attributable to equity holders of NKT A/S relative to average number of outstanding shares, including the dilutive effect of outstanding share programmes. 11. Net interest-bearing debt relative to operational EBITDA – Calculated as net interest-bearing debt as deﬁned in point 8 relative to operational EBITDA as deﬁned in point 6.. Further the group presents the following performance measures not deﬁned according to IFRS (non-GAAP measures) in the Annual Report: Financial ratios 3. Revenue at standard metal prices – Revenue at standard metal prices for copper and aluminium is set at EUR/tonne 1,550 and EUR/ tonne 1,350 respectively. Gearing Net interest-bearing debt x 100 Group equity 4. Organic growth – Revenue growth (standard metal price) as a percentage of prior-year adjusted revenue (standard metal price). Organic growth is a measure of growth, excluding the impact of exchange rate adjustments, acquisitions and divestments. Solvency ratio Equity x 100 Total assets Return on Capital Employed (RoCE) Earnings Per Share (EPS) Earnings Per Share Diluted (EPS-D) Book Value Per Share (BVPS) Operational EBIT 5. One-off items – Consist of non-recurring income and cost related to acquisitions, divestments, integration, restructuring, severance and other one-time items. Average last ﬁve quarters of capital employed Earnings attr. to equity holders of NKT A/S Average number of shares outstanding 6. Operational earnings before interest, tax, depreciation and amortization (Oper. EBITDA) – Earnings before interest, tax, depreciation and amortization (EBITDA) excluding one-off items. Earnings attr. to equity holders of NKT A/S Diluted average number of shares 7. Operational earnings before interest and tax (Oper. EBIT) – Earnings before interest and tax excluding one-off items. Equity Number of shares NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 119 Parent company ﬁnancial statements 120 Statement of comprehensive income 120 Balance sheet 121 Statement of changes in equity 122 Cash ﬂow statement 122 Sections NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 120 Statement of comprehensive income Balance sheet 1 January – 31 December 31 December Amounts in EURm Note 2021 2020 Amounts in EURm Note 2021 2020 Other costs 2 -5.9 -1.9 Assets Earnings before interest and tax (EBIT) -5.9 -1.9 Investment in subsidiaries Receivables from subsidiaries Deferred tax 6 9 5 402.7 1,226.5 0.4 401.2 Financial income 3 4 112.0 -55.4 50.7 80.3 -42.0 36.4 1,022.8 0.4 Financial expenses Earnings before tax (EBT) Total non-current assets 1,629.6 1,424.4 Tax 5 9.4 -6.1 Receivables from subsidiaries Other receivables 6.8 72.6 0.3 0.3 101.4 175.2 276.9 Net result 41.3 30.3 9 Cash at bank and in hand Total current assets Other comprehensive income 79.7 Items that may be reclassiﬁed to income statement: Foreign exchange adjustment Total assets 1,709.3 1,701.3 0.7 0.8 1.5 3.0 0.1 3.1 Value adjustment of hedging instruments Total other comprehensive income Equity and liabilities Share capital 115.4 1.0 115.4 0.3 Foreign exchange reserve Hedging reserve 0.6 -0.2 Retained comprehensive income Equity attributable to equity holders of NKT A/S Hybrid capital 1,216.1 1,333.1 152.4 1,485.5 1,181.4 1,296.9 152.4 1,449.3 Total equity Interest-bearing loans 9 54.7 62.2 Total non-current liabilities 54.7 62.2 Payables to subsidiaries 9 9 92.8 76.3 74.1 115.7 189.8 Trade payables and other liabilities Total current liabilities 169.1 Total liabilities 223.8 252.0 Total equity and liabilities 1,709.3 1,701.3 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 121 Statement of changes in equity 1 January – 31 December Foreign exchange reserve Retained compreh. income Share capital Hedging reserve Proposed dividends Hybrid Capital Total equity Amounts in EURm Total Equity, 1 January 2020 73.2 0.0 -2.7 -0.3 942.2 22.2 22.2 0.0 1,012.4 152.4 8.1 1,164.8 Net result 22.2 3.1 30.3 3.1 Other comprehensive income Comprehensive income for the year 3.0 0.1 3.0 0.1 0.0 25.3 8.1 33.4 Transactions with owners: Capital increase1 42.1 0.1 216.5 258.6 0.0 258.6 -8.1 0.3 Coupon payments, hybrid capital Exercise of warrants -8.1 0.2 0.3 0.3 Share based payment 0.3 0.3 Total transaction with owners in 2020 42.2 0.0 0.3 0.3 0.0 -0.2 -0.2 217.0 0.0 0.0 0.0 259.2 -8.1 152.4 152.4 251.1 Equity, 31 December 2020 Equity, 1 January 2021 115.4 115.4 1,181.4 1,181.4 33.2 1,296.9 1,296.9 1,449.3 1,449.3 Net result 33.2 1.5 8.1 0.0 8.1 41.3 1.5 Other comprehensive income Comprehensive income for the year 0.7 0.8 0.0 0.7 0.8 33.2 0.0 34.7 42.8 Transactions with owners: Coupon payments, hybrid capital Share based payment 0.0 1.5 1.5 -8.1 0.0 -8.1 1.5 1.5 Total transaction with owners in 2021 0.0 0.0 1.0 0.0 0.6 1.5 0.0 0.0 -8.1 -6.6 Equity, 31 December 2021 115.4 1,216.1 1,333.1 152.4 1,485.5 1 In 2020 the capital was increased twice, in May and December respectively, for a total net proceed of EUR 258,6 million after deducting directly attributable costs related to raising the capital. The cost directly related to the capital increases was EUR 9 million. For more information see note 5.1 in the Consolidated Financial Statements. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 122 Cash ﬂow statement Notes 1 January – 31 December Amounts in EURm 2021 2020 1 Accounting policies, estimates and judgements Earnings before interest and tax (EBIT) Changes in working capital -5.9 -7.8 -1.9 7.2 The annual ﬁnancial statements for the parent company are included in the Annual Report in pursuance of the requirements of the Danish Financial Statements Act. The annual ﬁnancial statements for the parent company are prepared in accordance with International Financial Re- porting Standards adopted by the EU and additional Danish disclosure requirements for annual reports for listed companies. Tax The parent company is jointly taxed with all Danish subsidiaries within the NKT Group. NKT A/S (parent company) is the administration company for the joint taxation and consequently settles all payments of tax with the tax authorities. Joint taxation contributions to/from subsidiaries are rec- ognized under income tax related to net proﬁt, and recognized separately in the balance sheet. Companies that use tax losses in other companies pay joint taxation contributions to the parent company equivalent to the tax base of the tax losses utilized. Companies whose tax losses are used by other companies receive joint taxation contributions from the parent company equivalent to the tax base of the tax losses utilized (full absorption). Cash ﬂow from operations before ﬁnancial items -13.7 5.3 Financial income received Financial expenses paid Income tax paid 104.1 -47.5 0.7 59.2 -21.0 -1.1 The changes, as described in the consolidated ﬁnancial statements, have not inﬂuenced recognition and measurement in the ﬁnancial statements of the parent company in 2021. See the description of the changes in note 1.2 to the consolidated ﬁnancial statements. Cash ﬂow from operations 43.6 42.4 Change in loans to/from subsidiaries -202.4 -148.7 Cash ﬂow from investing activities -202.4 -148.7 In relation to the accounting policies described for in note 1.1 in the consolidated ﬁnancial statements, the accounting policies of the parent company differ in the following: References to notes in the consolidated ﬁnancial statements The following notes in the consolidated ﬁnancial statements provide further information: Changes in interest-bearing loans Coupon payments on hybrid capital Capital increase -8.0 -8.1 0.0 30.7 -8.1 Foreign currency translation 258.6 0.3 ■ Translation adjustment of balances considered part of the total net investment in subsidiaries that have a functional currency other than EUR are recognized in the annual ﬁnancial statements for the parent company under ﬁnancial items in the income statement. 1.2 Accounting standards issued but not yet effective 5.1 Share capital 7.2 Events after the balance sheet date Cash from exercise of warrants Cash ﬂow from ﬁnancing activities 0.0 ■ -16.1 281.5 ■ Net cash ﬂow for the year -174.9 175.2 NKT A/S (parent company) operates as a holding company for the Group’s activities and undertakes the tasks related thereto. For descrip- tion of the enterprise’s activities, etc., please refer to the Group Manage- ment’s review. Dividend from investments in subsidiaries Dividends from investments in subsidiaries are recognized in the income statement of the parent company in the year the dividends are declared. If the dividend distributed exceeds the comprehensive income of the subsidiaries in the period the dividend is declared, an impairment test is performed. Cash at bank and in hand, 1 January Net cash ﬂow for the year 175.2 -174.9 0.3 0.0 175.2 175.2 Cash at bank and in hand, 31 December The above cannot be derived directly from the income statement and the balance sheet. Accounting estimates and judgements Investments in subsidiaries When preparing the ﬁnancial Statements for NKT A/S, a number of accounting estimates and judgements are made that affect the income statement and balance sheet. Estimates are regularly reassessed by management on the basis of historical experience and other relevant factors. Investments in subsidiaries are measured at costs. Impairment test is carried out, if indications for impairment exist. Where the carrying amount exceeds the recoverable amount, the value is written down to the recov- erable amount. Estimates that are signiﬁcant for the parent company are related to valuation of investments in subsidiaries. The estimates used are based on assumptions which Group Management consider to be reliable, but which by nature are uncertain and unpredictable. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 123 Notes 2 Fees to auditor elected at the 5 Tax 7 Contingent liabilities Annual General Meeting Amounts in EURm 2021 2020 The parent company is jointly taxed with all Danish subsidiaries. As an administration company, the parent company is liable with the other companies in the joint taxation scheme for Danish corporate taxes on dividend, interest and royalties within the joint taxation group. Any adjust- ments to the taxable joint taxation income may increase the amount for which the parent company is liable. The parent company is further liable for VAT under the joint registration with NKT (Denmark) A/S. Amounts in EURm 2021 2020 Current tax -9.4 0.0 -6.1 0.0 Deferred tax Statutory audit Other assurance Other services 0.1 0.0 0.0 0.1 0.1 0.2 0.1 0.4 Income tax for the year -9.4 -6.1 Reconciliation of tax: The parent company has issued guarantees for subsidiaries of EUR 2,632.6m (EUR 3,070.3m in 2020). In addition to the guarantees for sub- sidiaries, the parent company has issued guarantees related to various commercial activities. However, it is not possible to assess the amount of these contingent liabilities. Further, the parent company has a guarantee related to the subsidiaries credit facilities under the cash pool of EUR 581.7m (EUR 344.6m in 2020). Tax at 22% of earnings before tax Adjustments for previous years Non-deductable expenses -11.2 0.1 -8.0 0.1 1.7 1.8 3 Financial income -9.4 -6.1 Amounts in EURm 2021 2020 6 Investments in subsidiaries Interest from subsidiaries Foreign exchange gains Gains on derivatives 59.4 10.3 53.5 12.5 14.3 80.3 8 Related parties Amounts in EURm 2021 2020 42.3 112.0 In addition to the comments in note 3.2 and 3.3 to the consolidated ﬁnan- cial statements, the parent company’s related parties comprise subsidiaries including their afﬁliates. The subsidiaries and their afﬁliated can be found in note 6.2 to the consolidated ﬁnancial statements. No related parties have control over the parent company. Transactions with afﬁliated comprised: Cost, 1 January 444.2 1.5 443.9 0.3 Addition from share-based payments Cost, 31 December 445.7 444.2 4 Financial expenses Impairment, 1 January -43.0 0.0 -43.0 0.0 Amounts in EURm 2021 2020 Amounts in EURm 2021 2020 Exchange rate adjustments Impairment, 31 December -43.0 -43.0 Interest received, net Paid joint tax contribution, net Receivables, non-current Receivables, current Payables 58.5 0.0 1,226.5 6.8 52.7 -1.1 1,022.8 0.3 74.1 -1.3 -16.0 Interest to subsidiaries Foreign exchange losses Loss on derivatives -0.9 -7.9 -0.8 -10.7 -22.0 Carrying amount, 31 December 402.7 401.2 -42.5 Subsidiaries Domicile Interest, etc. relating to ﬁnancial liabilities measured at amortised cost 92.8 -3.5 6.6 -4.1 -8.5 Management fee Hedging -55.4 -42.0 NKT Cables Group A/S NKT Photonics A/S NKT Invest A/S Brøndby, Denmark Birkerød, Denmark Brøndby, Denmark The above subsidiaries are all owned 100% by NKT A/S. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 124 Notes 9 Financial risk, ﬁnancial instruments and management Management of capital structure at NKT A/S (parent company) is per- formed for the Group as a whole and no operational targets or policies are therefore established independently for the parent company. See note 5.6 to the consolidated ﬁnancial statements and the sections ‘Risk management’ in the Business Line sections. Maturity of ﬁnancial liabilities: Less than 1 year More than 3 years Amounts in EURm 1-2 years 2-3 years Total 2021 In order to strengthen the capital structure, NKT had two capital increas- es in May and December 2020, comprising 15,695,115 shares at an average price of EUR 17.05. Costs relating to the two increases was EUR 9.0m for a total net proceed of EUR 258.6m. Interest-bearing loans and borrowings Payables to subsidiaries Trade payables and other liabilities 0.0 92.8 0.0 0.0 0.0 0.0 54.7 0.0 0.0 0.0 0.0 0.0 54.7 92.8 76.3 76.3 0.0 152.4 54.7 223.8 NKT A/S has in September 2018 issued bonds of EUR 150m accounted for as hybrid capital reserve under equity. For more information refer to note 5.3 in the consolidated ﬁnancial statements. 2020 Interest-bearing loans and borrowings Payables to subsidiaries Trade payables and other liabilities 0.0 74.1 62.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 62.2 74.1 Categories of ﬁnancial instruments: 115.7 189.8 0.0 115.7 252.0 62.2 Amounts in EURm 2021 2020 Financial assets Measured at amortized cost: Receivables from subsidiaries Other receivables 1,226.5 0.0 1,022.8 0.5 10 Payables to credit institutions and other liabilities Payables to credit institutions, which predominantly are subject to ﬂoating interest rates, as well as Other payables are measured at amortized cost. The carrying amount therefore in all material respects corresponds to fair value and nominal value. Measured at fair value through proﬁt/loss: Derivative ﬁnancial instruments1 72.6 100.9 Changes in current and non-current loans: Financial liabilities Effect of Measured at amortized cost: Interest-bearing loans and borrowings Payables to subsidiaries Changes from cash ﬂow changes in exchange 54.7 76.9 2.9 62.2 74.1 9.2 Amounts in EURm 1 January rates 31 December Trade payables and other liabilities Current and non-current loans, 2021 Current and non-current loans, 2020 62.2 31.6 -8.0 0.5 0.0 54.7 62.2 Measured at fair value through proﬁt/loss: Derivative ﬁnancial instruments2 73.3 106.5 30.6 1 Included in Other receivables Included in Trade payables and other liabilities 2 NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 125 Statements Group 126 Group Management’s statement 127 Independent auditor’s report NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 126 Group Management’s statement The Board of Directors and the Executive Management have today considered and adopted the Annual Report of NKT A/S for the ﬁnancial year 1 January – 31 December 2021. Executive Management Alexander Kara Line Andrea Fandrup President & CEO CFO The Annual Report has been prepared in accordance with International Financial Re- porting Standards which have been adopted by the EU, Danish disclosure requirements for listed companies and, with the ﬁle Board of Directors nkt-2021-12-31-en.zip, in all material respects, in compliance with the ESEF Regulation. Jens Due Olsen René Svendsen-Tune Pia Kaaber Bossen Chairman Deputy Chairman In our opinion the consolidated ﬁnancial statements and the Company’s ﬁnancial statements give a true and fair view of the Group’s and the Company’s assets, liabilities and ﬁnancial position at 31 December 2021 and of the results of the Group’s and the Company’s operations and cash ﬂow for the ﬁnancial year 1 January – 31 December 2021. René Dogan Jens Maaløe Stig Nissen Knudsen* Andreas Nauen Karla Lindahl Jutta af Rosenborg We also ﬁnd that the Management’s review provides a fair statement of developments in the activities and ﬁnancial situation of the Group, ﬁnancial results for the period, the general ﬁnancial position of the Group, and a description of major risks and elements of uncertainty faced by the Group. We recommend that the Annual Report be approved at the Annual General Meeting. Brøndby, 23 February 2022 * Employee-elected member NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 127 Independent auditor’s report To the shareholders of NKT A/S Basis for opinion Key audit matters How the matter was addressed in the audit Based on our risk assessment, we have We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements ap- plicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the consol- idated ﬁnancial statements and the parent ﬁnancial statements section of this audi- tor’s report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Profes- sional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark, and we have fulﬁlled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion. Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the consolidated ﬁnancial statements and the parent ﬁnancial statements for the ﬁnan- cial year 01.01.2021 - 31.12.2021. These matters were addressed in the context of our audit of the consolidated ﬁnan- cial statements and the parent ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Opinion We have audited the consolidated ﬁnan- cial statements and the parent ﬁnancial statements of NKT A/S for the ﬁnancial year 01.01.2021 - 31.12.2021, which com- prise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash ﬂow statement and notes, including a summa- ry of signiﬁcant accounting policies, for the Group as well as for the Parent. The consolidated ﬁnancial statements and the parent ﬁnancial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. assessed and tested the relevant internal controls for construction contracts primarily relating to contract acceptance, change orders, monitoring of project de- velopment, costs incurred and estimation of costs to complete and assessment of speciﬁc project risks. We obtained from Management an overview of the Group’s construction contracts at 31 December 2021 relating to high voltage offshore contracts cov- ering both in progress contracts as of year-end and contracts completed during the year. Based on assessed project risks and materiality, we selected a sample of contracts where we obtained the under- lying contracts, including change orders, original budget and any changes made to original budgets, including estimates of costs to complete, project reports and overview of the risk register and corre- sponding risk provision, where deemed relevant by us. Valuation of construction contracts Refer to notes 1.3, 2.1, 4.3, 4.4, and 5.6 in the consolidated ﬁnancial statements Signiﬁcant judgements are required by Management in determining stage of completion and estimating proﬁt on each project, including assessment of provisions for speciﬁc project risks. Minor changes in the stage of comple- tion and speciﬁc project risks can have a signiﬁcant impact on the valuation and recognition of construction contracts and income for the year. In our opinion, the consolidated ﬁnan- cial statements and the parent ﬁnancial statements give a true and fair view of the Group’s and the Parent’s ﬁnancial position at 31.12.2021, and of the results of their operations and cash ﬂows for the ﬁnancial year 01.01.2021 - 31.12.2021 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014. We were appointed auditors of NKT A/S for the ﬁrst time on 21.03.2013 for the ﬁnancial year 2013. We have been reappointed annually by decision of the general meeting for a total contiguous engagement period of 9 years up to and including the ﬁnancial year 2021. For the selected contracts, we assessed and challenged Management’s assump- tions for determining stage of completion with due consideration to its assessment of project risks and risk provisions and estimated proﬁt/loss through interviews with project controllers, project manage- Accordingly, the valuation of construc- tion contracts especially relating to high voltage offshore contracts is considered to be a key audit matter. Our opinion is consistent with our audit book comments issued to the Audit Com- mittee and the Board of Directors. NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 128 ment, legal department and management representatives as well as our under- standing and assessment of the contract terms, associated project risks, including valuation of change orders under discus- sion with customers and ﬁnal acceptance. Additionally, we attended project steering committee meetings at which project performance, cost to complete and project risk register, including likelihood of the risk materialising, were discussed and assessed in detail. for the coming years and free net cash ﬂows from the terminal period. Signiﬁcant judgement is required by Management in determining value-in-use, including cash ﬂow projections based on ﬁnancial budgets for 2022 and ﬁnancial forecasts for 2023-2027, and growth rate in the terminal period and the discount rate to be applied. In assessing the level of headroom at Solutions level we performed down- side sensitivity analyses around the key assumptions, using a range of higher discount rates, lower terminal growth rates and lower EBITDA levels. were drawn up, including the mathemati- cal accuracy of the models, and agreeing future growth and margin assumptions to the latest Board approved budget for 2022 and ﬁnancial forecasts for 2023- 2025 as well as the expected related utilisation of the deferred tax asset. We assessed and challenged the reasona- bleness of Management’s determination of expected future taxable proﬁts in the light of Management’s plans for improving the operational results in Germany and Denmark. Valuation of deferred tax assets Refer to notes 1.3 and 2.5 in the consoli- dated ﬁnancial statements. Accordingly, the carrying value of non-current assets for Solutions is con- sidered to be a key audit matter. The valuation of deferred tax assets is based on an assessment of the recovera- ble value of tax losses carried forward as well as the part of deductible temporary tax differences expected to be utilised within a foreseeable future. Signiﬁcant judgement is required by Management in determining the recoverable value, includ- ing projections of future taxable income, based on ﬁnancial budgets for 2022 and ﬁnancial forecasts for 2023-2025. For the selected completed contracts, we performed retrospective reviews of assessment of project risk and develop- ment and utilisation of risk provisions to assess the completeness and accuracy of Management’s assumptions applied throughout the contract period. How the matter was addressed in the audit In assessing the valuation of deferred tax assets, we performed downside sensitiv- ity analysis around the key assumptions by using a range of lower growth rates and margins. Based on our risk assessment, we have obtained and evaluated Management’s determination of future cash ﬂow fore- casts for Solutions and the underlying process by which they were drawn up, in- cluding the mathematical accuracy of the valuation models applied and agreeing future growth, investments and margin assumptions to the latest Board approved budget for 2022 and ﬁnancial forecasts for 2023-2027. We used our valuation specialists to assist us in evaluating the appropriateness of key market-related assumptions in Management’s valuation models, including discount rates and terminal growth rates. We assessed and challenged key assumptions applied in Management’s future forecasts of growth, investments and margins included in the cash ﬂow forecasts” Statement on the Impairment test of non-current assets Refer to notes 1.3, 3.1, 3.2, and 3.3 in the consolidated ﬁnancial statements management commentary Management is responsible for the man- agement commentary. Accordingly, the valuation of deferred tax assets is considered to be a key audit matter. Our opinion on the consolidated ﬁnancial statements and the parent ﬁnancial state- ments does not cover the management commentary, and we do not express any form of assurance conclusion thereon. The recoverable amount of non-current assets in the Group’s high voltage power cable business (Solutions) is dependent on the expected increase in operational EBITDA and that the operational EBITDA level can be sustained in the long term. The determination of recoverable amount for Solutions is based on the value-in- use derived from future free net cash ﬂow based on budgets and the strategy How the matter was addressed in the audit Based on our risk assessment, we have, in assessing the valuation of deferred tax assets, obtained and evaluated Manage- ment’s expectations of generating future taxable proﬁts in the foreseeable future, especially in Germany and Denmark, and the underlying process by which they In connection with our audit of the consolidated ﬁnancial statements and the parent ﬁnancial statements, our responsibility is to read the management commentary and, in doing so, consider NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 129 ■ whether the management commentary is materially inconsistent with the consoli- dated ﬁnancial statements and the parent ﬁnancial statements or our knowledge obtained in the audit or otherwise ap- pears to be materially misstated. Statements Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated ﬁnancial statements and parent ﬁnancial statements that are free from material misstatement, whether due to fraud or error. ance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these consolidated ﬁnancial statements and these parent ﬁnancial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are ap- propriate in the circumstances, but not for the purpose of expressing an opin- ion on the effectiveness of the Group’s and the Parent’s internal control. Moreover, it is our responsibility to con- sider whether the management commen- tary provides the information required under the Danish Financial Statements Act. ■ In preparing the consolidated ﬁnancial statements and the parent ﬁnancial state- ments, Management is responsible for assessing the Group’s and the Parent’s ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in preparing the consolidated ﬁnancial statements and the parent ﬁnancial statements unless Management either intends to liquidate the Group or the Entity or to cease oper- ations, or has no realistic alternative but to do so. Evaluate the appropriateness of accounting policies used and the rea- sonableness of accounting estimates and related disclosures made by Management. Based on the work we have performed, we conclude that the management commentary is in accordance with the consolidated ﬁnancial statements and the parent ﬁnancial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the manage- ment commentary. As part of an audit conducted in ac- cordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism through- out the audit. We also: ■ Conclude on the appropriateness of Management’s use of the go- ing concern basis of accounting in preparing the consolidated ﬁnancial statements and the parent ﬁnancial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁcant doubt on the Group's and the Parent’s ability to continue as a going concern. If we conclude that a material uncer- tainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated ﬁnancial statements and the parent ﬁnancial statements or, if such disclo- sures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, ■ Identify and assess the risks of mate- rial misstatement of the consolidated ﬁnancial statements and the parent ﬁnancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufﬁcient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Auditor's responsibilities for the audit of the consolidated ﬁnancial statements and the parent ﬁnancial statements Our objectives are to obtain reasonable assurance about whether the consolidat- ed ﬁnancial statements and the parent ﬁnancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reason- able assurance is a high level of assur- Management's responsibilities for the consolidated ﬁnancial statements and the parent ﬁnancial statements Management is responsible for the prepa- ration of consolidated ﬁnancial statements and parent ﬁnancial statements that give a true and fair view in accordance with International Financial Reporting Stand- ards as adopted by the EU and additional requirements of the Danish Financial NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 130 ■ future events or conditions may cause the Group and the Entity to cease to continue as a going concern. We also provide those charged with gov- ernance with a statement that we have complied with relevant ethical require- ments regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and, where applicable, safeguards put in place and measures taken to eliminate threats. Report on compliance with the ESEF Regulation Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human readable format; and As part of our audit of the consolidated ﬁnancial statements and the parent ﬁnan- cial statements of NKT A/S we performed procedures to express an opinion on whether the annual report of NKT A/S for the ﬁnancial year 01.01.2021 - 31.12.2021 with the ﬁle name nkt-2021-12-31-en. zip is prepared, in all material respects, in compliance with the Commission Del- egated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annu- al report in XHTML format and iXBRL tagging of the consolidated ﬁnancial statements. ■ Evaluate the overall presentation, structure and content of the consol- idated ﬁnancial statements and the parent ﬁnancial statements, including the disclosures in the notes, and whether the consolidated ﬁnancial statements and the parent ﬁnancial statements represent the underlying transactions and events in a manner that gives a true and fair view. ■ For such internal control as Man- agement determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. From the matters communicated with those charged with governance, we de- termine those matters that were of most signiﬁcance in the audit of the consolidat- ed ﬁnancial statements and the parent ﬁnancial statements of the current period and are therefore the key audit matters. We describe these matters in our audi- tor’s report unless law or regulation pre- cludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest beneﬁts of such commu- nication. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the au- ditor’s judgement, including the assess- ment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: ■ Obtain sufﬁcient appropriate audit evidence regarding the ﬁnancial information of the entities or business activities within the Group to express an opinion on the consolidated ﬁnan- cial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. Management is responsible for prepar- ing an annual report that complies with the ESEF Regulation. This responsibility includes: ■ The preparing of the annual report in ■ XHTML format; Testing whether the annual report is We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signiﬁcant audit ﬁndings, including any signiﬁcant deﬁciencies in internal control that we identify during our audit. prepared in XHTML format; ■ The selection and application of ■ appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for ﬁnancial information required to be tagged using judge- ment where necessary; Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; NKT Group NKT NKT Photonics Annual Report 2021 | NKT A/S | 131 ■ Evaluating the completeness of the iXBRL tagging of the consolidated ﬁnancial statements; Copenhagen, 23.02.2022 Deloitte ■ Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identiﬁed; Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56 Kirsten Aaskov Mikkelsen Kåre Kansonen Valtersdorf State-Authorised Public Accountant Identiﬁcation No (MNE) mne21358 State-Authorised Public Accountant Identiﬁcation No (MNE) mne34490 ■ Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and ■ Reconciling the iXBRL tagged data with the audited consolidated ﬁnancial statements. In our opinion, the annual report of NKT A/S for the ﬁnancial year 01.01.2021 - 31.12.2021 with the ﬁle name nkt-2021- 12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. NKT A/S Vibeholms Allé 20 DK-2605 Brøndby Denmark Company Reg: 6272 5214 T: +45 43 48 20 00 [email protected] NKT is signatory of the Europacable Industry Charter: A commitment towards superior quality. nkt.com

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NKT Annual Report 2021