NKT - 2022 2022-01-012022-12-31NKT A/SVibeholms Allé202605Brøndby62725214529900197LKWCEQ0NL182021-01-012021-12-31www.nkt.com/sustainability-report-2022www.nkt.com/sustainability-report-2022www.nkt.com/sustainability-report-2022
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NKT Statutory ESEF tagged Annual Report 2022 We connect a greener world Company Reg: 6272 5214 Annual Report 2022 NKT A/S 2 Contents 03 12 26 41 Governance 42 Shareholder information 44 Corporate Governance 48 Board of Directors Introduction Group review and markets 13 Business model Business lines 04 NKT at a glance 27 Business line organization 05 Letter from the Chair and the CEO 08 Key highlights 2022 09 5-year financial highlights 10 Financial outlook 14 Markets and megatrends 16 ReNew BOOST strategy 19 Financial review 2022 22 Financial review Q4 2022 23 Risk Management 28 Solutions 33 Applications 37 Service & Accessories 51 Group Leadership Team 11 Divestment of NKT Photonics Consolidated financial statements 54 Income statement Parent company financial statements 92 Statement of comprehensive income 92 Balance sheet Statements 99 Group Management's statement 100 Independent auditor’s report 54 Statement of comprehensive income 55 Balance sheet 93 Statement of changes in equity 94 Cash flow statement 56 Cash flow statement 57 Statement of changes in equity 59 Notes 95 Notes NKT’s reports for 2022 Sustainability Report Cover photo Remuneration Report Corporate Governance Report High-voltage offshore power cables stored on a turntable in NKT’s factory in Karlskrona, Sweden. Annual Report 2022 NKT A/S 3 Introduction 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 value by enabling sustainable energy transmission. NKT was founded more than 130 years ago and is today growing its business, driven by the electrification of societies and the transition to renewable energy. Together, we connect a greener world. NKT Victoria is one of the world’s most advanced and fuel-efficient cable-laying vessels. The two turntables on the vessel have a combined capacity of 9,000 tonnes high-voltage power cables. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 4 NKT at a glance Founded in Main production sites NKT’s main sites are located across Northern Europe Solutions production site Applications production site Accessories production site Service hub 1891 10 Average number of employees Cable-laying vessel Headquarters Falun 4,062 1 Alingsås Asnæs Brøndby Karlskrona Gdansk Registered shareholders Reduction of scope 1 and 2 carbon emissions since 2019 Nordenham Rotterdam Cologne Runcorn Kladno Velke Mezirici Warszowice +31,000 79% Business lines, Revenue split (std. metal prices) NKT’s ReNew BOOST strategy will help enable the green transition 13% Solutions Applications 50% Service & Accessories 37% Let’s Grow Let’s Innovate Let’s Drive Sustainability Note: Excluding interseg- ment transactions Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 5 Letter from the Chair and the CEO An interconnected power grid will enable the transition to renewable energy We will grow and continue connecting a greener world It would be very hard to imagine our modern societies without a reliant supply of energy. The decarbonization of society through the ongo- ing transition to increased renewable energy generation can only be upheld if we ensure efficient supply of electricity. While the green transition has been high on the political agendas for several years, the energy crisis and risk of scarcity emerged as a key concern in 2022. The urgency to become independent of the supply of natural gas from Russia was fuelled by the war in Ukraine. A part of the solution will be to speed up the transition to renewable energy and build an interconnected power grid with upgraded, future-proof capacity to handle the increase in green electricity. Upgraded and interconnected power grids will mean a significant increase in demand for particularly medium- and high-voltage power cable solutions. Current power cable production capacity across the world is not expected to be able to meet this increase in demand. In 2022, NKT launched an updated strategy building upon the previous strategy, which successfully returned the company to net profit in 2021. Growing to enable a greener future and interconnected grid With the updated strategy ReNew BOOST, NKT will grow the business to meet the increasing de- mand for power cable solutions. We want to be a responsible and sustainable supplier of power cable solutions needed for the transition to re- newable energy. Our established market position and innovative skillset, as well as a strong focus on sustainability, form the foundation for an even stronger presence in the power cable industry. Renewable energy projects are being developed across the world. Northern Europe is a front runner on offshore wind and large interconnec- tor projects. In the US, the transition is gaining speed and key projects such as Champlain Hud- son Power Express, which will bring renewable hydro power from Canada to New York City, will drive the green transition forward. We expect to see even more ambitious projects in the coming years. Governments and power project devel- opers should work to ensure predictability and efficient permitting processes for large infrastruc- ture projects. An ambitious and long-term plan for upgraded and interconnected power grids globally is needed to ensure optimal transmission and use of renewable energy. Without a plan, the transition will stall. In recent years NKT has demonstrated the ability to accelerate growth. From 2019 to 2022, we have grown our revenues organically by 15% every year. This has been a significant step-up compared to growth rates before this period. With the updated strategy, we will continue to lift the financial performance of the company and have upgraded the medium-term ambitions for 2025. The past year has been extraordinary. The world around us has become volatile with war, supply chain disruptions, high inflation, and in Europe, an energy crisis with associated price surges. These are all factors impacting households and companies. Although these undesired developments affect NKT, we are relieved to have steered the company through 2022 with satisfactory financial performance. Our results form the basis for further growth. Investments are required for future growth NKT is ready to invest across business lines. In Solutions, additional high-voltage DC (Direct Cur- rent) manufacturing capacity and capabilities has Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 6 been added in recent years to support profitable completed. The programme also included a new high-voltage power cable test centre and a new extrusion line at the factory in Cologne, Germany, as well as ongoing investments in new machinery and logistics. Further, various footprint changes to increase cost competitiveness across Applica- tions and Service & Accessories werecompleted. Investing in people, technology and manufactur- ing capabilities will continue to be key to staying competitive and securing future success. growth. Subject to new, significant high-voltage project awards, NKT is preparing to expand pro- duction and installation capacity even further to be able to meet the increasing market demand. Our target is to reduce our corporate CO2e emissions by In the Applications and Service & Accessories business lines, we invest in technology, innova- tion and geographical expansions into new seg- ments and markets to complement the existing presence in Europe. 90% NKT is taking a leading position within sustainability in 2030 compared to 2019. Up until 2022, we have achieved a reduction of 79% In order to have flexibility to act on the growth opportunities, particularly in the high-voltage power cable market, NKT will propose to in- crease its share issuance authorization at the up- coming Annual General Meeting in March 2023. During the year, we continued our journey to net zero emissions by 2050. From 2019 to 2022, we have reduced our emissions by 79%, primarily driven by the switch to electricity originating from renewable energy sources at all production sites, but also through multiple other smaller initiatives. In 2022, we updated our sustainability strategy with long-term targets and commitments to ensure continued positive development. During 2022, we reached key milestones within the current high-voltage investment programme. At the factory in Karlskrona, Sweden, the construction of a new extrusion tower was Jens Due Olsen Chair of the Board of Directors NKT A/S “We see a growing demand for power cables which are required to ensure optimal and reliable transmission of renewable energy” Jens Due Olsen Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 7 A significant part of NKT’s carbon footprint is In 2022, the ESG board committee was estab- lished to provide oversight of ESG strategies and programmes with the overall purpose to support the sustainable growth of the company. We aspire to continue to advance and identify additional ESG actions in the coming years. The agreement to divest NKT Photonics is pend- ing authority approvals and expected to be com- pleted around the end of Q1 2023. This marks attributable to the supply chain and we are col- laborating with key suppliers to reduce emissions from materials. A key achievement in 2022 was the agreement with project developers SSE Re- newables, Equinor and Eni Plenitude, to produce power cables for the offshore wind farm, Dogger Bank C, using low-carbon copper sourced from Sweden. The initiative will reduce the carbon footprint of the high-voltage DC power cables by more than 35%. the final step in the process to fully focus NKT on the core business of power cable solutions. The proceeds from the divestment will enable further profitable growth in NKT. 2022 provides a strong foundation for realizing growth ambitions People, leadership and collaboration is our key to success Our businesses emerge from 2022 with improving financial performance, a high-voltage order back- log, which reached a record level, and conse- quently an attractive position for further growth. The performance was achieved despite war, disruptions to global supply chains, high inflation, and in Europe, an energy crisis impacting many households and companies. Our employees and leadership teams deserve a special thank you for a well-executed year de- spite the challenges of 2022. We would also like to extend a warm welcome to the more than 800 new colleagues that joined us during the year, adding skills and diversity to our company. As part of our commitment to connect a greener world based on responsible and ethical behav- iour, NKT continues to promote safety, diversity and equality across the organization. During the year, NKT hosted the first global safety week to raise awareness of physical and psychological safety and our general principle to ‘work safe or do not work at all’. On behalf of the Board of Directors and the Executive Management, we extend our sincere thanks to all shareholders, customers and busi- ness partners. We value these strong relation- ships and attribute a large part of our success in 2022 to you. Now we look confidently into 2023 as we pursue our strategic priorities and contin- ued growth ambitions. Together, we connect a greener world. Alexander Kara President & CEO NKT A/S “Our employees are key to our continued success. We will continue to recruit and invest in talented people to support our growth journey” Alexander Kara Jens Due Olsen Chair of the Alexander Kara President & CEO NKT A/S Board of Directors NKT A/S Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 8 Key highlights 2022 NKT continued to improve its financial performance in 2022. The results were in the high end of the financial outlook provided at the beginning of the year and have strengthened NKT’s foundation to grow further. Revenue (std. metal prices), EUR Operational EBITDA, EUR Free cash flow (excl. acquisitions & divestments), EUR 1,447m 155m 109m EUR 1,263m in 2021. EUR 131m in 2021. EUR -4.5m in 2021. Solutions and Applications contributed with improved revenues. Organic growth rates were 21% in Solutions, 19% in Applications and -11% in Service & Accessories. Revenues measured in market prices increased to EUR 2,079m in 2022 from EUR 1,828m in 2021 The increased earnings level was driven by Solutions, while Applications was flat compared to 2021 as higher revenues were offset by higher input costs and Service & Accessories decreased on the back of a high comparison base. Reported EBITDA increased to EUR 155m in 2022 from EUR 118m in 2021 The positive earnings contribution and development in working capital outweighed the continuation of planned investments to upgrade the high- voltage production sites in 2022 RoCE High-voltage order backlog, EUR Issuance of green hybrid securities , EUR 6.6% 4.7bn 150m 3.4% in 2021. EUR 2.9bn at end-2021. Issued in September 2022. RoCE increased due to the higher earnings contribution. This is expected gradually to improve in the years ahead when the anticipated earnings contributions from the record high-voltage order backlog and recent years’ investments materialize The record-high level was driven by project awards across technologies in 2022. The main contributors were the order for the SuedOstLink 2nd system in Germany and the turnkey contract for the Champlain Hudson Power Express in the USA. Both projects are large high-voltage DC transmission systems The proceeds will be applied for financing sustainable investments in accordance with NKT’s Green Finance Framework. The new green issuance replaced the existing EUR 150m hybrid securities that were redeemed Note: All figures are from continuing operations Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 9 5-year financial highlights Amounts in EURm 2022 2021 2020 2019 2018 ¹ Amounts in EURm 2022 2021 2020 2019 2018 ¹ Income statement Revenue Revenue in std. metal prices
3 Operational EBITDA ** 6 One-off items ** 5 Financial ratios and employees 2,079 1,447 154.5 0.1 1,828 1,263 131.1 -12.7 118.4 -94.5 36.6 23.9 -8.2 1,403 1,087 56.7 1,268 945 1,429 1,080 70.2 -29.5 40.8 -79.4 -9.2 Operational EBITDA margin, continuing operations (std. metal prices) 10.7% -5% 10.4% 1% 5.2% -2% 1.6% 30% 8.2 6.5% 28% 3.1 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)
15.1 -12.0 3.1 -0.4 0.1 -0.4 -9.9 41% 6.6% 42,976 1.1 45% 3.4% 42,976 0.1 50% -2.9% 42,976 -2.3 45% -7.2% 27,260 -3.2 48% -0.8% 27,126 -2.1 EBITDA 154.6 -85.4 69.1 69.2 9.1 46.8 Amortization, depreciation and impairment Operational EBIT 7 EBIT -85.2 -28.5 -38.4 -11.5 -49.9 -63.5 -11.0 -74.5 -90.8 -75.7 -87.7 -11.6 -99.3 -78.5 2.5 EPS, continuing operations, EUR 1 -38.6 -7.7 Diluted EPS, continuing operations, EUR 2 Equity value, EUR, per outstanding share
14 Market price, DKK, per share 1.1 0.1 -2.3 -3.2 -2.1 Financial items, net 23 23 22 24 27 Earnings before tax (EBT) Profit from continuing operations Profit from discontinued operations Net result 78.3 55.1 7.3 15.7 11.9 -7.8 -46.3 -48.3 2.0 391 316 271 161 89 Average number of employees
4,062 3,775 3,390 3,299 3,423 62.4 4.1 -76.0 -46.3 1 Comparison figures have not been restated following the implementation of IFRS 16 Leases 1st January 2019. Definitions appear in Section 7.4 in the consolidated financial statements. 1–14 ** Alternative performance measures Cash flow Cash flow from operating activities Cash flow from investing activities hereof investments in P,P&E Free cash flow 298.2 -204.8 -156.1 93.4 208.8 -211.2 -184.5 -2.4 135.6 -90.8 -61.3 44.8 117.8 -52.3 -28.5 65.5 -46.4 -49.1 -23.7 -95.5 Balance sheet Share capital 115.4 1,143.8 2,767.4 -54.8 115.4 1,159.9 2,553.4 13.2 115.4 1,076.4 2,150.6 -25.9 115.4 803.8 115.4 895.6 Group equity Total assets 1,789.6 242.2 1,859.3 248.3 Net interest-bearing debt 8 Capital employed
9 Working capital 10 951.1 1,173.1 -59.6 940.0 942.0 1,065.3 -16.2 -303.0 -164.5 -143.3 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 10 Financial outlook 2023 Medium-term ambitions ■ Revenues (in std. metal prices) are expected to be approx. EUR 1.75–1.85bn, and opera- tional EBITDA is expected to be approx. EUR 185–215m. Satisfactory execution of high-voltage In September 2022, NKT upgraded its medium- term financial ambitions to: Organic growth with a CAGR of above 12% from 2021-2025, operational EBITDA margin (std. metal prices) of approx. 12- 16% by 2025, and RoCE of above 12% by 2025. In Solutions, NKT needs to deliver satisfactory project execution of the record-high order back- log. Additionally, it is a prerequisite continuously to be successful in relevant high-voltage project tenders across market segments and to ensure that the projects awarded are based on satis- factory terms and conditions. Winning relevant orders will support optimal asset utilization. projects ■ Award of additional high-voltage projects with financial impact in 2023 The main contributor to the improved financial performance from 2022 to 2023 is expected to be Solutions, driven by the expanded production sites and execution of the large high-voltage order backlog. ■ ■ Profitability improvement in Applications The medium-term ambitions are based on sever- al assumptions including: Satisfactory offshore power cable repair work activity ■ Satisfactory execution of high-voltage projects In Applications, NKT aims to grow revenues based on its positioning in markets driven by sustainable growth trends. NKT will invest selec- tively in debottlenecking existing sites to facilitate growth. NKT needs to see continued improve- ments of operational and commercial excellence. ■ ■ Applications and Service & Accessories are also expected to contribute positively. However, Applications is entering 2023 with higher uncer- tainty than usual, given the fast-changing input cost environment and the weak construction sentiment due to the macroeconomic slowdown. Limited financial impact due to the uncertain global macroeconomic environment, supply chain challenges, and the high inflationary pressure Stable development of the global economy ■ A competitive environment supporting the current favourable supply/demand balance ■ The financial outlook does not include discontin- ued operations and the potential accounting gain that will derive from the expected divestment of NKT Photonics. Stable supply chain with limited disruptions and In Service & Accessories, the overall focus area is to maintain growth momentum. This will be achieved through various initiatives such as expanding geographical coverage and pursuing business opportunities. NKT should benefit from strengthening specialized competence centres. access to the required materials and services The financial outlook is based on several as- sumptions including: All business lines are expected to contribute to the improved financial performance with Solu- tions expected to be the main contributor. Financial outlook 2023 Medium-term ambitions Operational EBITDA Revenue Operational EBITDA, EUR Organic growth CAGR RoCE (std. metal prices), EUR margin (std. metal prices) ~1.75–1.85bn ~185 –215m >12% ~12–16% >12% from 2021-2025 by 2025 by 2025 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 11 Divestment of NKT Photonics In 2022, NKT entered into an agreement to divest NKT Photonics. The closing of the transaction is expected to take place around end-Q1 2023. Together with the previous divestment of its subsidiary LIOS, this completes the review of strategic alternatives for NKT Photonics. Agreement to divest NKT Photonics In June 2022, NKT entered into an agreement to divest NKT Photonics to Photonics Manage- ment Europe S.R.L, a 100% owned subsidiary of Hamamatsu Photonics K.K., which is a Japanese company engaged in developing photoelectric devices and application products. The transac- tion has a total enterprise value of approx. EUR 205m. ance sheet and enable strategic, organic growth opportunities. In February 2022, NKT Photonics introduced the following financial outlook for 2022: Organic rev- enue growth of approx. 12-17%, and an EBITDA margin (adjusted to operational EBITDA margin following the accounting gain related to LIOS) of approx. 11-14%. The outlook was introduced before the divestment agreement was signed. Financial performance in 2022 NKT Photonics’ revenues grew organically by 23% in 2022 and increased to EUR 86.5m. The growth was driven by positive development in the Industrial and Medical & Life Science segments with particularly strong sales to semiconductor and ophthalmology customers. NKT Photonics did better than initial revenue expectations as organic growth was 23%, while the operational EBITDA margin was 10.2%. The closing of the transaction is subject to reg- ulatory approvals being optained with remaining jurisdictions expected to take place around end-Q1 2023. Operational EBITDA in 2022 was EUR 8.8m, up from EUR 7.5m in 2021. The higher level was driven by the revenue growth, which outweighed higher input costs that impacted earnings neg- atively in 2022. NKT Photonics posted EBITDA of EUR 14.6m as one-off items were EUR 5.8m. These comprised costs associated with the divestment of EUR 2.2m and the accounting gain of EUR 8.0m related to the divestment of the LIOS sensing business. For accounting and reporting purposes, NKT Photonics is presented as discontinued opera- tions and assets held for sale in this report. The agreement to divest NKT Photonics, togeth- er with the previous divestment of the subsidiary LIOS announced in March 2022, concluded the review of strategic alternatives with the objectives of maximizing value creation and positioning both NKT and NKT Photonics for long-term growth. See more detailed financial information on dis- continued operations in Section 6.3 on page 88. The divestment marks the final step in the process to fully focus NKT on its core business within power cable solutions, where NKT has ambitions to continue to grow in the coming years. The proceeds from the NKT Photonics divestment will be used to strengthen NKT’s bal- For NKT Group, this led to a net result from discontinued operations of EUR 7.3m in 2022, compared to EUR -7.8m in 2021. This was due to the improved EBITDA and lower depreciations as assets held for sale are not depreciated. Annual Report 2022 NKT A/S 12 Group review and markets NKT is well positioned to take advantage of the significant growth opportunities that the green energy transformation implies for the power cable markets. In 2022, NKT launched its updated strategy ReNew BOOST that outlined ambitions to grow further. High-voltage power cables are being loaded from the factory in Karlskrona, Sweden. This is one of the world’s largest sea cable production plants (XLPE and MI). Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 13 Business model NKT is connecting a greener world with high-quality cable solutions for on- and offshore power transmission. 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 delivering net-zero emissions by 2050 Innovation More than 130 years of pioneering the power cable industry with innovative technology for the future Societal value NKT has a strong focus on ensuring equal opportunities in the organization, actively engaging in local communities and operating according to high safety standards Partners NKT’s business is built on long-standing relations and strong partnerships Customer value NKT supports its customers with extensive experience, high quality solutions and services and strong project execution Shareholder value NKT is creating shareholder value trough business performance Business lines Solutions Applications Markets building wires, low- and medium-voltage power cable solutions Service & Accessories On- and offshore power cable services and a full portfolio of accessories for medium- and high-voltage power cable systems Specialized in high-voltage power cable solutions for on- and offshore installation Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 14 Markets and megatrends As a pure play power cable solutions provider, NKT serves the market with solutions to bring power from electricity generation to consumption. ■ Sustainability New global electricity generation capacity from solar is expected to be 6x from 2020 to 2030 As countries and companies seek to reach their sustainability targets, an increasing focus on renewable energy sources is expected. In recent years, the yearly renewable energy additions have continuously increased. By 2050, approximately two thirds of the energy supply is expected to come from renewables1, with the USA aiming for 30 GW offshore wind genera- tion by 2030, and Europe for at least 60 GW by 2030 and 300 GW by 2050. The transition away from conventional power is high on the global agenda to reduce carbon emissions. This leads to significant market opportunities in the power cable industry2: This development will highly impact several parts of the power cable market. Within the high-volt- age market, DC (Direct Current) solutions will increase relative to AC (Alternating Current) as renewable energy sources will need to be connected to consumers over long distances. Further, medium-voltage power cables will be re- quired from wind and solar parks to substations and beyond, and a power grid that can enable distribution of the renewable energy must also be ensured. This covers the high-voltage transmission and medium-voltage distribution power grids to lower voltage building wires. Across market segments, technological progress has been an impor- tant market driver to ensure efficient and safe allocation of power. Future growth is to a large degree expected to be driven by development of high-voltage DC technology, where NKT is among the leading companies. As a result of several market drivers, the power cable market is growing and this is expected to continue in the years ahead. NKT is well-posi- tioned to benefit from this positive trend since its offering includes power cable system and service solutions across all voltage and capacity levels. ■ Total annual energy investments are expected Apart from sustainability driving the overall electricity and power cable demand, NKT also sees that sustainability-related requirements will play a larger role in the supply chain. This will cover low-carbon solutions and environmentally friendly materials and compounds e.g. lead-free and halogen-free technical solutions. to surge to around EUR 5,000bn by 2030 ■ New global electricity generation capacity from wind is expected to be 3x from 2020 to 2030, with strongest growth expected from offshore wind Many areas and decisions are set to play an important role for the future market development. NKT sees three megatrends having the greatest impact on the power cable market in the coming years: Sustainability, Electrification and Digitalization. Expected impact on power cable market segment High-voltage Low- and medium-voltage Services High High Medium 1 2 IEA Net Zero by 2050 – May 2021 IEA World Energy Outlook 10/2021, “Net Zero Pathway”; NKT desk research Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 15 Electrification Expected impact on power Digitalization Expected impact on power cable market segment In an effort to reduce their carbon footprint, consumers and companies are demanding electrical power solutions to substitute traditional carbon-based power systems. Power grid opera- tors must accommodate increased demand from non-traditional electrical power consumers such as electric vehicles, heat pumps and industrial motors. Electrification of cities and increased adoption of electrified public transportation will also require more power and will lead to more localized demand. cable market segment Digitalization continues to be a major global efficiency driver across industries. For power cables, this impacts the demand for smart power cable solutions that support data collection and monitoring for optimization, and reduction of the risk of failure through preventive maintenance. High-voltage High-voltage High Medium The impact of digitalization can most visibly be seen for the low- and medium-voltage segment, including solutions for the telecom power cable market. In addition, it is important to monitor op- erations within servicing of power cable systems. The unstable global geopolitical situation has led to an increased focus on securing critical infra- structure such as power cables so as to ensure stable conditions. Low- and medium-voltage Low- and medium-voltage The result is an increase in power grid expan- sions and strengthening programmes for existing electrical grids. This is to manage the more volatile electrical supply-demand mix and chang- ing distribution and micro-generation patterns. This will require more high- and medium-voltage power cable systems and services. High High Services Apart from the power cables themselves, Services digitalization can be utilized as a lever for factory automatization, supply chain integration and im- proved customer interfaces. As such, digitaliza- tion continues to impact everything NKT does. Medium Medium Macroeconomic environment Apart from the overall megatrends impacting the power cable market, the world has seen significant events in 2022. Market uncertainty increased due to Russia’s invasion of Ukraine, which triggered an energy crisis in Europe. Globally there have been high inflation, volatile raw materials prices, rising interest rates and foreign-exchange fluctuations as a result of the uncertain economic landscape. Following the political and economic development in 2022, supply chains have been disrupted and sourcing of certain raw materials has become more challenging. In the power cable market, this has increased companies’ focus on protecting profitability margins and ensuring access to raw materials to meet customer demand. However, it has also strengthened the market outlook as the need to have stable energy supplies has been under- lined. The impact on the various market segments has differed and will be described in more detail in the Business line section. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 16 ReNew BOOST strategy In 2022, NKT introduced its updated strategy: ReNew BOOST. The strategic direction rests on three main pillars: growth, innovation and sustainability. NKT Lighthouse, a beacon of the green transition In October 2022, NKT inaugurated its second extrusion tower at its high-voltage production site in Karlskrona, Sweden. The extrusion tower symbol- izes NKT’s leading role in the green transition and within advanced high-voltage technology. The tower will play a central role in the execution of the large high-voltage order backlog and prepare NKT for the expected increase in the high-voltage power cable market. Let’s Grow Let’s Innovate Let’s Drive Sustainability The tower is a key part of the company’s ongoing investments across its business. These investments also included upgrades and expansions within all three business lines. Over the past few years, NKT has delivered im- proved performance across several parameters. The ReNew strategy launched in 2020 success- fully returned NKT to net profit, strengthened the balance sheet and led to investments in growth. Let’s Grow NKT will continue to support the green transi- tion by selectively investing and expanding into new markets in all three business lines. NKT will continue its positive financial development, driven by the market opportunities expected from the green transition to renewable energy. In addition, the increased need for transmission security from the power source to the end-con- sumers will support growth. NKT is in a strong position to grow its business in a value-creating and profitable way. Now it is time to progress further – to take ad- vantage of the tailwinds in the form of strength- ened megatrends that are supporting the future of NKT. The green transition is accelerating in Europe and other parts of the world, and electrifi- cation of societies is gaining pace. The future of energy is green, and NKT will continue to play a central role in connecting a greener world with innovative power cable solu- tions and services. The three pillars of ReNew BOOST will guide NKT’s strategic direction in the years to come. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 17 Let’s Innovate New 145kV connector improves NKT will continue to deliver leading power cable products, services and solutions. There is and will continue to be a strong focus on innovation. This is to ensure that NKT’s solutions are at the leading edge and support the requirements of the market and the green transition. tomer demand. NKT is focused on developing the next generation of high-voltage power cable technology, including technology for deeper sea installation, dynamic cables, higher performance and lower losses. A focus area will be to continue strengthening internal capabilities as well as collaborating with key technology institutions and universities to develop new materials and state- of-the-art solutions. support for offshore wind In 2022, the accessories business introduced its first outer cone T-Connector for 145kV. It has been designed to address the increase in voltage levels in offshore wind projects. The new T-connector will offer various advantages in power cable routing to switchgear and transformer stations when voltage levels are increasing on inter-array and tower cables. This expands NKT’s current offering of offshore wind connectors. NKT will strengthen its position as one of the technologically leading companies in the power cable industry through innovations to meet cus- Outer cone T-connector for 145kV Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 18 Let’s Drive Sustainability 1kV low-carbon power cables NKT embeds sustainability in everything it does on the journey towards net zero emissions and aim to inspire and lead the industry in this direc- tion. NKT will maintain a leading industry position in sustainability by executing on the sustainability strategy. The company has clear targets to re- duce scope 1 and 2 emissions by 90% by 2030 from 2019, while also attracting and retaining diverse talent and becoming the preferred em- ployer in the electrification industry. sions, but NKT is actively working with suppliers NKT has begun designing, producing and installing 1kV power cables using low-carbon aluminium and polyolefins for the Swedish power grid. This initiative will significantly reduce the carbon footprint of the power cables and support growing cus- tomer demand for low-carbon solutions. and customers to identify and implement more low-carbon solutions. NKT executes the long-term strategy ImpACT for resolving global sustainability challenges in support of the Paris Agreement. ImpACT rests on three main pillars founded on responsible business processes: Climate Action, Circularity and Social Capital. The aluminium is produced using an efficient electrolysis tech- nology and renewable energy sources during production. As a result, the aluminium has a carbon footprint of 4 kg CO2 per kg aluminium – less than a quarter of the global average (source: www.hydro.com). The power cable insulation and jacketing are made with low-carbon polyolefins manufactured with renewa- ble feedstocks. NTK is already one of the most sustainability-fo- cused power cable producers in the industry, but wants to do more. The transition to Net Zero is challenging, given the size of scope 3 emis- More information about NKT’s efforts within ESG is available in the Sustainability Report 2022 Decarbonization targets 90% Net-zero reduction of scope 1 and 2 CO2e emissions in 2030 compared to 2019 emissions by 2050 Diversity and inclusion targets ≥30% ≥30% female representation in the Group Leadership Team and the Extended Leadership Team by 2025 share of female new-hires by 2025 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 19 Financial review 2022 Revenues developed positively in 2022, driven by Solutions and Applications. This resulted in organic growth of 15%. The increased revenue drove up operational EBITDA, which grew satisfactorily from 2021 to 2022. Free cash flow was positive due to increased earnings and a favourable development in working capital that outweighed the continued execution of the planned investments. Revenue development and organic growth Revenue
development Amounts in EURm Amounts in EURm 2021 revenue Currency effect Acquisition 1,263 -20.7 14.5 1,447 1,263 1,087 1,080 945 Organic growth 2022 revenue
Organic growth, % 190 1,447 15% * Std. metal prices Organic growth of 15% in 2022 The revenue measured in market prices was EUR 2,079m in 2022, against EUR 1,828m in 2021. Solutions drove the increase in earnings due to higher revenues and satisfactory project execu- tion. Applications was impacted by higher input prices in 2022. Despite the challenging economic environment, Applications delivered earnings in line with 2021. 2018 2019 2020 2021 2022 Driven by growth in Solutions and Applications, NKT’s revenues increased by EUR 184m in 2022, to EUR 1,447m. Service & Accessories delivered revenues below last year’s due to high activity in offshore repairs in 2021. The largest absolute increase in revenue
was delivered by Solutions, which saw higher activity, while growth in Applications was mainly due to increased prices on the back of increased inflation. Improved operational EBITDA The operational EBITDA of EUR 155m in 2022 was EUR 23.4m higher than in 2021. This was achieved despite negative developments in the European economy with high inflation and upward pressure on input costs. The operation- al EBITDA margin was 10.7% in 2022 against 10.4% in 2021. Operational EBITDA Amounts in EURm In 2021, Service & Accessories was positively impacted by high activity from offshore service assignments which resulted in higher earnings. The level of offshore repair activity normalized in 10.7% 10.4% The revenue
performance was in the high end of the most recent 2022 financial outlook of EUR 1.4-1.45bn announced in November 2022 (the initial financial outlook was EUR 1.35-1.45bn). 6.5% 5.2% Realized figures versus financial outlook 2022 1.6% Initial, Feb. 2022 Adjustment, Nov. 2022 Organic growth per business line was 21% for Solutions, 19% for Applications and -11% for Service & Accessories. Amounts in EURm Realized 70 15 57 131 155 2018 2019 2020 2021 2022 NKT Revenue ~1.35-1.45bn ~130-155m ~1.4-1.45bn ~140-155m 1,447m 155m Operational EBITDA Operational EBITDA margin, std. metal prices Operational EBITDA * Std. metal prices * Std. metal prices Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 20 “The financial development in 2022 was satisfactory Working capital (from continuing operations) Amounts in EURm despite the macroeconomic slowdown and increasing inflation which impacted our input costs. We have managed to improve our financial performance through focused efforts across the company. We target a further strengthened financial position for NKT and continue to take part in the megatrends unfolding around us.” -146 -165 -93 -303 -7.5% 2022 -16 -0.2% -2.2% -2.2% -7.1% Line Fandrup Chief Financial Officer, Executive Vice President 2018 2019 2020 2021 Working capital Working capital ratio, LTM, % 2022, and hence earnings were lower in 2022 than in 2021. Reported EBITDA increased from 118m in 2021 to EUR 155m in 2022, driven by the same parameters as the growth in operational EBITDA and improvements of one-offs of EUR 12.8m compared to last year. NKT’s net result from continuing opera- tions for 2022 amounted to EUR 55.1m, an increase of EUR 43.2m from 2021. The reported tax rate was 29.6%, against 24.0% in 2021. Operational EBITDA of EUR 155m in 2022 was in the high end of the most recently announced financial outlook of EUR 140-155m (the initial financial outlook was EUR 130-155m). Improved net result Positive free cash flow due to earnings improvement and EBIT amounted to EUR 69.2m in 2022, an improvement of EUR 45.3m from 2021. The in- crease was attributable to the same parameters as operational EBITDA and a lower depreciation and amortization level than in 2021. Total one-off items in 2022 amounted to EUR 0.1m, against EUR -12.7m in 2021. In 2022, NKT posted one-off items of EUR 1.2m relating to accounting gains arising from the acquisition of Ventcroft Ltd., and costs of EUR -1.1m related to the strategic review of NKT Photonics in Q1 2022. working capital development Driven by the positive EBITDA contribution and improved working capital position, the cash flow from operating activities from continuing operations improved by 89.4m to EUR 298m in 2022. Financial items were EUR 9.1m in 2022, against EUR -8.2m in 2021. While interests had a neg- ative contribution in 2022, this was more than offset by foreign-exchange rate gains. Earnings before tax (EBT) improved to EUR 78.3m in 2022 from EUR 15.7m in 2021. The working capital level (from continuing operations) was EUR -303m at end-2022. This corresponded to an improvement of EUR 210m compared to end-2021. Unreal- Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 21 ized value adjustments of hedging instruments drove a decrease in working capital of EUR 33m, mainly due to a decrease in commodity prices in 2022. The hedging value adjustments have no cash impact. Exclusive of these adjustments, the underlying working capital still developed favourably in 2022. Improved RoCE driven by growth in earnings At end-2022. the value of issued guarantees was EUR 1,231m, up from EUR 1,015m at end-2021. These were mainly provided in re- lation to high-voltage projects. The amount is expected to continue to grow as new projects are added to the high-voltage order backlog. RoCE (from continuing operations) % 6.6% The improvement in earnings led to an increase in RoCE (from continuing operations) to 6.6% at end-2022, up from 3.4% at end-2021. Capital employed (from continuing operations) went down from EUR 1,053m at end-2021 to EUR 951m at end-2022, driven by the cash gener- ation. RoCE is expected gradually to improve when the anticipated earnings contributions from the delivery of the high-voltage order backlog and recent years’ investments materialize. 3.4% -0.8% 20181 Group equity, including the green hybrid se- curity issued in September 2022, amounted to EUR 1,144m. The solvency ratio was 41% end of 2022, compared to 45% end of 2021. -2.9% 2020 The improved working capital was driven by Solutions due to the phasing of prepayments and milestone payments related to new and existing projects. The nature of the high-voltage market means that Solutions will normally improve its working capital when the order backlog increas- es. -7.2% 2019 2021 2022 In 2022, NKT issued green hybrid securities with an aggregated principal amount of EUR 150m. The maturity date is in 3022, with a first call option in July 2026. This was used to redeem the existing EUR 150m hybrid securities (with maturity in 3018) that were issued in Q3 2018 by exercising the right of early redemption. 1 Comparison figures have not been restated following the implementation of IFRS 16 Leases on 1 January 2019. Liquidity, debt and equity The positive cash flow in 2022 led to a positive net interest-bearing debt level of EUR -54.8m. This is an improvement of EUR 68.0m from end- 2021. The cash flow from investing activities from continuing operations, excluding acquisitions and divestments, amounted to EUR -189m in 2022, compared to EUR -213m in 2021. The invest- ments mainly related to the ongoing ramp-up in Solutions with expansions and upgrades of the high-voltage factories in Karlskrona and Cologne. Net interest-bearing debt EURm X Net interest-bearing debt relative to operational EBITDA amounted to -0.4x at end-2022, an improvement from 0.1x at end-2021. 300 9 8.2 200 6 At end-2022, NKT had total available liquidity reserves of EUR 453m, comprising cash of EUR 262m (of which EUR 3.7m is related to assets held for sale) and undrawn credit facilities of EUR 191m. NKT generated free cash flow from continuing operations, excluding acquisitions and divest- ments, of EUR 109m in 2022. This was an im- provement from 2021, when the corresponding figure was EUR -4.5m. 100 3 3.1 13 248 247 -0.4 -26 -0.4 -55 0 0 0.1 -100 -3 2018 2019 2020 2021 2022 Net interest-bearing debt (incl. lease liabilities from 2019) Net interest-bearing debt/oper. EBITDA, LTM (incl. lease liabilities from 2019) Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 22 Financial review Q4 2022 NKT reported positive financial development in Q4 2022 with improved revenues and earnings as a result of broad-based contributions from the three business lines. Revenues
grew by EUR 99.1m to EUR 389m in Q4 2022 compared to Q4 2021. This corre- sponded to organic growth of 35%. All three business lines contributed with organic growth, with Solutions being the most significant con- tributor. Champlain Hudson Power Express, Dogger Bank A and B, Hertel-NY, Shetland and SuedLink. January 2022, contributed with revenues of EUR 3.9m in Q4 2022. Service & Accessories Service & Accessories reported revenues
of EUR 46.1m in Q4 2022, which was EUR 2.9m lower than Q4 2021. The organic growth was 1%. The increased revenue level impacted profitability positively and Solutions delivered an increase of EUR 21.2m in operational EBITDA compared to Q4 2021. The operational EBITDA margin increased from 4.3% to 12.5%. The improvement was partly due to the negative impact from the closure of a commercial dispute of EUR 4m in Q4 2021. In the medium-voltage business, NKT grew reve- nues by both price increases and volume growth. The market continued to develop positively. The market for building wires and construction exposed 1kV power cables continued to be challenged in Q4 2022 reflecting construction sentiment slowdown in NKT’s main countries. This impacted revenues negatively. Despite the revenue development, operational EBITDA was EUR 11.5m which was EUR 5.6m above Q4 2021. This was mainly due to a re- versal of warranty provisions of EUR 4.7m in Q4 2022 related to the high level of offshore repairs in 2021, combined with underlying satisfactory performance. The operational EBITDA margin increased by 12.9%-points from Q4 2021 to Q4 2022. Excluding the reversal of warranty provi- sions, the margin increase was 2.8%-points. The revenue growth drove an increase in opera- tional EBITDA to EUR 39.8m from EUR 13.7m in Q4 2021. This equalled a margin improvement of 5.5%-points. Solutions Applications As a reaction to the higher input cost level, NKT has increased prices to protect earnings. In Q4 2022, the operational EBITDA was EUR 8.5m, up from EUR 6.4m in Q4 2021. The operational EBITDA margin for Q4 2022 was 5.9%, slightly above the level in the same quarter of 2021 in a traditionally seasonally low Q4. In Solutions, revenues increased by EUR 78.1m from Q4 2021 to Q4 2022, equivalent to organic growth of 60%. The growth was driven by a high- er activity level across the business line. NKT pro- gressed various projects in the order backlog at different stages of execution including Borwin 5, In Applications, revenue
development was pos- itive in Q4 2022 with organic growth of 25%. The higher revenue level was due to increased prices as NKT passed on the high inflationary pressure on several cost items, while volumes developed negatively. Ventcroft, which NKT acquired in In the service business, the main contributor to the financial performance in Q4 2022 was high onshore maintenance and repair activity in Den- mark and Germany. In addition, the demand for cable monitoring solutions grew revenues. Financial development in Q4 In Q4 2022, revenues deriving from the accesso- ries business were largely on par with Q4 2021. The positive development in sales of high-voltage accessories was outweighed by lower sales of medium-voltage accessories. Revenue Operational EBITDA Oper. EBITDA margin
Amounts in EURm Q4 2022 Q4 2021 Change Q4 2022 Q4 2021 Change Q4 2022 Q4 2021 Solutions 216.8 144.0 46.1 138.8 112.4 49.0 78.0 31.6 -2.9 27.2 8.5 6.0 6.4 5.9 21.2 2.1 12.5% 5.9% 4.3% 5.7% Applications Service & Accessories 11.5 5.6 24.9% 12.0% Elimination of transactions between segments and non-allocated costs -18.1 -10.5 -7.6 -7.5 -4.6 -2.9 NKT 388.8 289.7 99.1 39.7 13.7 26.0 10.2% 4.7% * Std. metal prices Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 23 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 proven practices to the internal risk processes. The company’s main revenue streams originate from different segments of the power cable market with independent market dynamics. This income segmentation has the effect of spread- ing the risk. The Solutions business line is a long-term project and backlog driven business and has a higher degree of resilience to short- term developments in the general economic environment. The Applications business line is mainly driven by market benefits from ongoing optimization of the power grids by private and public stakeholders in the medium-voltage market, while construction development in both residential and non-residential building segments is driving the market for building wires. Finally, revenue in the Service & Accessories business line is to a certain degree dependent on large power cable repair projects. The overall risk picture for the company is influ- enced by various internal and external factors. The key changes to the risk picture from 2021 to 2022 are described below. the mitigating actions. This enables NKT to manage the risks effectively. The Enterprise Risk Management cycle includes biannual 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 reporting 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. The macroeconomic cycle and market turbu- lences have become significant drivers, which impact large parts of the business. The current European energy challenges and increasing infla- tion rate have influenced input costs to produc- tion. These challenges combined with the war in Ukraine have caused volatilities in supply chains. The COVID-19 risk has been limited due to the development of the pandemic in the EU and has only had a minor effect. A new risk of Market dynamics has been introduced this year with turbulent market dynamics influencing business, including the ongoing war in Ukraine. This has replaced the previous risk of Price pressure. Risks are assessed by means of a two-dimen- sion risk matrix based on impact and probability. The identified and quantified key risks are pri- oritized and visualized in a Risk Dashboard that highlights aggregated criticality and overall risk exposure to the Risk Board and Audit Commit- tee. As a global business, NKT is exposed to strate- gic, operational, compliance and financial risks that present potential threats to NKT’s business objectives from the medium-term and long-term perspectives. The management of risks is an integral part of standard business operations and strengthens the governance model. The com- pany’s Enterprise Risk Management program follows best practices and is in accordance with the NKT Enterprise Risk Management principles. Specific financial risks, including risks related to currency, interest and raw material price chang- es, are described in more details in Section 5.6 on pages 82-86. The company´s key risks are described in detail in the overview on the following two pages in- cluding mitigations used to control the risks. Risk management process NKT operates a robust and efficient enterprise risk management programme that aims to iden- tify, prioritize and manage key risks and monitor Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 24 Risk management Risk 1. 2. 3. 4. 5. Risk identification Project execution in high-voltage segment Commodity price changes Supplier interruption and raw material availability New competitors entering home markets Product claims Risk description Deficient project execution in HV segment due to unplanned and unexpected events, failures or delays during project phases. Financial loss due to price fluctuations of commodities, components and services, driven by multiple factors including macroeconomic cycle and the war in Ukraine Interruption of critical Increased competition within NKT’s current core European market by new competitors from inside/outside Europe. Claims against NKT arising from defects in products or solutions. supplies or services from suppliers having an adverse effect on production flow. This risk is impacted by the macroeconomic cycle and the war in Ukraine. ■ ■ ■ ■ ■ Mitigation Risk management activities Monitoring of commodity Monitoring of the perfor- Monitoring of the global Monitoring of potential failures covering all the project phases. price indexes and forecasts. mance and reliability of key suppliers and availability of raw materials and compo- nents. market and macroeconomic developments and dynamics and regulatory developments impacting cross-regional activities, such as trade barriers and anti-dumping regulations. in production and/or product designs. ■ Hedging mechanisms for ■ ■ Adequate balancing of in- commodities, components and services. Strengthening of quality surance, contract provisions and pre-production testing. awareness and control procedures throughout the production and cable laying operations. ■ Close working relationship ■ Forecasting tools to predict with identified key suppliers to reduce risks and maintain inventory control. price index developments. ■ Focus on quality, innovation ■ ■ Clear contractual agree- and R&D. Systematic and structured ■ ments with customers and suppliers. Investigating, qualifying and root cause analysis of product issues and implementation of corrective actions. ■ securing alternative sourc- ing opportunities. Proactive engagement in regulatory policy-making processes via industry associations to ensure fair competition within European markets. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 25 Risk management Risk 6. 7. 8. 9. 10. Risk identification Market dynamics Compliance Regulatory requirements Cyber risk Operational disruptions at factories Risk description Loss due to market dynamics influencing business Non-compliance with anti- bribery and anti-corruption regulations, competition law, data privacy and trade controls impacting NKT’s reputation and possible exclusion from tenders. Changed or new regulatory requirements of environmental, social, local, political or other character impacting production or production methods. Loss or failure of business- critical IT systems in production or key business administrative functions. The inability to manufacture qualified products resulting in delays in delivery and claims. operations. Risk is driven by macro- and microeconomic factors and an increasingly competitive landscape. May adversely affect NKT’s competitiveness. ■ ■ ■ ■ ■ Mitigation Monitoring of macro- and Monitoring of regulatory Monitoring of regulatory Monitoring of developments Establishing operational excel- microeconomic develop- ments, general market con- ditions and the competitive landscape. developments and risk exposure. developments. within the cybercrime land- scape and of the robustness and stability of the IT infra- structure and security. lence and monitoring of oper- ational performance for critical equipment and processes. ■ Proactive engagement in ■ Compliance programme regulatory processes via industry associations. ■ and procedures ensuring compliance with regulations and the ethical principles in the NKT Code of Conduct. Robust maintenance pro- ■ ■ Establishing focused work- Strengthening of cyber grammes across production and testing. ■ ing groups, qualifying new markets and strengthening NKT’s value proposition. Maintaining strong focus security, IT governance and infrastructure, including on innovation and R&D to ensure timely and effective compliance with regulatory requirements. ■ adequate security controls, monitoring processes of improvement actions and incident response capability. Contingency plans in place to ■ Globally accessible whistle- respond to incidents. blower hotline allowing both NKT employees and third parties to report potential concerns. ■ Enforcement of zero toler- ance for breach Annual Report 2022 NKT A/S 26 Business lines NKT is divided into three business lines: Solutions, Applications, and Service & Accessories. Each serve separate areas of the power cable market. NKT has more than 4,000 employees. This employee works in the high-voltage factory in Karlskrona, Sweden. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 27 Business line organization NKT’s three business lines have the following main focus areas. Solutions Applications Service & Accessories Solutions: Specialized in high-voltage power cable solutions for on- and offshore installation 13% Applications: Markets building wires, low- and medium- voltage power cable solutions Revenue, Revenue
, Revenue, EUR EUR EUR 50% Service & Accessories: Provides on- and offshore power cable services and markets a full portfolio of accessories for medium- and high-voltage power cable systems 552m 193m 750m 37% 16% Operational EBITDA, Operational EBITDA, Operational EBITDA, EUR EUR EUR 18% 106m 29m 26m 66% Revenue, std. metal prices, in 2022 (% of total NKT revenue) and Operational EBITDA in 2022 (% of total NKT operational EBITDA). The figures exclude intersegment transactions and non-allocated costs. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 28 Business line Solutions The transition to renewable energy and increased electrification continue to be key growth drivers for high-voltage power cable solutions. In 2022, NKT increased revenues and operational EBITDA in Solutions driven by the execution of orders awarded over recent years covering most power cable types. The high- voltage order backlog reached a record-high level with project awards across market segments. 3 Business line overview Solutions has two high-voltage factories, in Karlskrona, Sweden and in Cologne, Germany. The two factories complement each other well. In Karlskrona, the strategic focus is primarily on offshore projects, while Cologne focuses primarily on onshore projects. Solutions also has a cable-laying vessel, NKT Victoria, allowing NKT to offer complete end-to-end turnkey solutions that are increasingly requested by customers. Solutions is the largest business line in NKT and serves the global high-voltage power cable market. The business line’s broad offering covers technology leading solutions across voltage levels and technological specifications. NKT has built up competencies within this market for more than 130 years with numerous projects success- fully delivered. 2 factories Karlskrona, Sweden and Cologne, Germany 2 1 2 3 Offshore AC and DC power cable solutions Onshore AC and DC power cable solutions 1 Installation offshore and onshore The solutions offered mainly cover: 1 vessel ■ Interconnectors ■ Offshore wind NKT Victoria, cable-laying vessel ■ Power-from-shore ■ Underground 3 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 29 Business line – Solutions “During 2022, we continued to play a central role in establishing the High-voltage market Market overview required, reliable infrastructure for the transmission of renewable energy. We grew our order backlog to a record level including our first significant US project, the Champlain Hudson Power Express, which will facilitate the transmission of hydropower from Canada to New York City. A milestone for NKT. In October, we inaugurated our new extrusion tower at our factory in Karlskrona. The growing order backlog has resulted in NKT initiating addition of further production capacity.” The high-voltage power cable market mainly encompasses projects that are engineered to order and demand a high level of expertise for successful implementation. The market can be divided into different cate- gories with differing characteristics and market dynamics. DC (Direct Current) solutions are primarily used for long-distance projects as this technology works more efficiently with lower losses over longer distances compared to AC (Alternating Current) technology. The solutions are either applied offshore or onshore. Michael C. Hjorth Chief Commercial Officer HV Solutions, Executive Vice President More than 80% of the projects covered long-dis- available production slots among the power cable suppliers. The timing of the actual project awards will depend on various decisions for the individual projects. Geographically, NKT expects most project awards to be in Europe. There are strong political ambitions across Europe, which have been adopted in the European Green Deal. Outside of Europe, the market is also expected to develop positively. Both in North America and Asia, there is a movement towards increased use of renew- able energy in the power grid, which will benefit the power cable market. In general terms, DC power cables are more complex and require higher technological capabilities and know-how compared to AC. Furthermore, offshore solutions will in general also be more complex than onshore due to more challenging cable design installation conditions. tance DC interconnectors and DC offshore wind projects with the balance being AC projects. Geographically, the majority of projects were awarded in Europe, but the US market also con- tributed, as was already the case in 2021. In Europe, the war in Ukraine has further increased the need for reliable transmission of renewable energy as a substitute to fossil fuel sources such as natural gas. More power cable operators are looking to ensure a stable supply chain and are accelerating planning and execu- tion of future projects. In 2022, progress continued on several project tenders across market segments and geogra- phies. The demand for power transmission over longer distances is increasing, as the source of energy being located further away from consumption. In addition, the power cable systems are also grad- ually required to transmit more power to support the increased electrification. Market outlook Based on the current and expected tendering activity, NKT expects project awards to remain at a high level. The average addressable market in 2023 and 2024 is estimated by NKT to be at least EUR 8bn on average per year. The market size could potentially be larger depending on the development of several sizable projects. The market is currently moving in a direction of awarding projects earlier in order to secure Power cable solutions based on DC technol- ogy are expected to continue to constitute the majority of the market. However, AC projects will continue to play a role in the market as well. The projects are expected to span between the dif- ferent project segments, mainly within intercon- nectors and offshore wind. Market development in 2022 NKT estimates that the value of projects awarded in its addressable high-voltage power cable mar- ket for 2022 was around EUR 8bn, representing a step-up from around EUR 5bn in 2021. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 30 Business line – Solutions ■ Financial development tributors were Borwin 5, Dogger Bank A and B as well as Ostwind 2, while various power-from- shore projects like Johan Sverdrup 2 and Troll West further progressed. The turnkey contract for the Champlain Hud- son Power Express. The contract includes engineering, manufacturing and installation of the high-voltage 400kV DC transmission line in the US with its partner in the project, CHPE LLC. Highlights in 2022 Increased revenues driven by execution of order backlog ■ Increase in revenues and Revenues
for Solutions increased by EUR 110m from 2021 to 2022, which corresponds to organic growth of 21%. Growth was due to the execution of a variety of orders with various tech- nologies awarded in recent years. In addition, the growth was due to capacity expansions that will also gradually benefit revenues. earnings In 2022, NKT completed a number of high-vol- tage projects. This included the commissioning of the 220kV HVAC power cable system for the Hornsea 2 offshore wind farm located 89 km off the English east coast. The windfarm holds a central position in the transition to renewable energy in the UK. ■ Record high-voltage order ■ backlog driven by project awards across geographies The Canadian transmission line Hertel-New York, developed by Hydro-Québec, which is the transmission line that will connect to the CHPE transmission line. The contract will comprise the design and manufacturing of a 2 x 60 km 400kV high-voltage DC onshore cable system. ■ Continued high tender activity across market segments Revenues measured in market prices amounted to EUR 867m in 2022 compared to EUR 755m in 2021. ■ Inauguration of a new extru- NKT Victoria, the company’s cable-laying vessel, had satisfactory deployment in 2022. This consti- tuted a variety of assignments relating to project installations, including the Dogger Bank A, Johan Sverdrup 2, Shetland and Troll West projects. sion tower in Karlskrona ■ Increased operational EBITDA margin The higher activity level resulted in improved operational EBITDA, which increased by 22.9m from 2021 to 2022. Earnings have continu- ously increased since 2019 as the utilization of assets has improved and project margins have developed positively. The execution of projects in 2022 has been at a satisfactory level. Inflationary pressure on various input cost items has im- pacted profitability and there are ongoing efforts to mitigate these increases. The operational EBITDA margin improved from 13.0% in 2021 to 14.1% in 2022. Two power cable systems for the Draugen and Njord electrification projects by OKEA ASA and Equinor Energy AS, respectively. The awards comprise design, manufacturing and installation by the cable-laying vessel NKT Victoria of 123/145kV high-voltage AC offshore power cable systems. This will include a dynamic section to electrify the floating Njord platform. Record-high order intake 750m Revenue
, EUR NKT was awarded high-voltage projects with a value of around EUR 2.7bn in 2022. This was driven by the ongoing transition towards increased generation of renewable energy across Europe and North America. The largest order awards in 2022 were the following: (2021: EUR 640m) ■ The turnkey cable system order for the electrification of the Hugin A (previously NOA) and Munin (previously Krafla) offshore fields in the Yggdrasil (previously NOAKA) area in the North Sea. The order was awarded by Equinor Energy AS on behalf of NOA Krafla Power from Shore JV and its owners Aker BP, Lotos and Equinor. The project comprises design, manufacturing and installation by the cable-laying vessel NKT Victoria of 145kV high-voltage AC power cables. 21% Organic growth (2021: 9%) ■ The SuedOstLink 2nd system by the German transmission system operator 50 Hertz. The order is an extension of the SuedOstLink project adding a second, parallel transmission line and comprises supply and installation of 525kV XLPE high-voltage DC onshore power cable solutions. In 2022, NKT further progressed several projects through different stages of execution. These included interconnector projects, such as Atti- ca-Crete, Champlain Hudson Power Express, Shetland, SuedLink, SuedOstLink and Viking Link. Within offshore windfarms, the largest con- 106m Operational EBITDA, EUR (2021: EUR 83.1m) * Std. metal prices Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 31 Business line – Solutions Largest high-voltage project awards for NKT in 2022 Project name Announced Size (EURm) Type Hugin A and Munin (NO) Draugen and Njord (NO) Hertel-New York (CA) Dec 2022 Dec 2022 Oct 2022 Jun 2022 May 2022 ~155 ~160 ~90 Power-from-shore Power-from-shore Interconnector Interconnector Interconnector Champlain Hudson (US) SuedOstLink 2nd system (DE) >1,400 <700 Note: Project sizes are shown in market prices High-voltage order backlog at a record level At end-2022, the high-voltage order backlog was EUR 4.7bn (EUR 4.1bn in std. metal prices). Driven by the order awards during 2022, the order backlog increased by 1.8bn from the end of 2021. NKT expects around 25% of the order backlog to be realized in 2023, while the remain- ing approximately 75% is expected in 2024 and beyond. Expected revenue distribution of the high-voltage order backlog (EUR 4.7bn) at the end of 2022 ~75% ~25% High-voltage power cables for offshore wind project 2023 2024 and onwards Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 32 Business line – Solutions ReNew BOOST strategy the electrification of societies. The focus will be solutions to facilitate expected future demand from floating offshore wind farms as well as deep-water applications to allow longer intercon- nectors and more widely used power-from-shore solutions. With the market growth prospects, NKT puts emphasis on ensuring that competent employ- ees can be attracted and retained. This is key for delivering profitable growth. As part of the company’s ReNew BOOST strate- gy, Solutions will continue to offer complete and customised end-to-end turnkey solutions within high-voltage power cable solutions for intercon- nectors, offshore wind, and power-from-shore applications. on the European market, but also on selective opportunities outside of Europe. NKT is regularly assessing further investments to address market demand. NKT has already established itself as a leading provider of green and sustainable solutions. This has to be strengthened with further initiatives in the years ahead. Solutions will build upon and further develop its HVDC technology leading position to catalyse the further decarbonization of societies. An additional focus will also be on dynamic cable Solutions will continue to enhance the product portfolio and optimize operations to increase competitiveness. This will include a simplification of the product mix. Solutions will grow with the attractive market opportunities driven by the green transition and Employees in Karlskrona test laboratory Solutions to grow with attractive market opportunities and maintain HVDC technology leadership Let’s grow Let’s innovate Let’s drive sustainability Focus on people and com- petences Focus on high-voltage DC and AC segment in Europe with selective global oppor- tunities Simplify operations and product portfolio to increase competitiveness Leading provider of green and sustainable solutions Maintain leadership in HVDC technology and develop floating wind, deep-sea and higher voltage systems Continued investment plans to grow with market demand and maintain market share Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 33 Business line Applications Increasing electrification of societies and the ongoing transition to renewable energy are important growth drivers for the low- and medium-voltage power cable markets. Applications is well positioned to take advantage of these opportunities. In 2022, the financial performance in Applications was impacted by increasing input cost levels and mixed market development. Revenues increased and the operational EBITDA development was flat compared to 2021. To strengthen its position within fire-resistant cable technology, NKT acquired UK-based Ventcroft in January 2022. 6 factories Asnaes, Denmark Falun, Sweden Kladno, Czech Republic Runcorn, United Kingdom Velké Meziříčí, Czech Republic Warszowice, Poland Business line overview Applications’ six main production sites are distributed across Czech Republic, Denmark, Poland, Sweden and the UK. Each production site is focusing on one or more market seg- ments. The customer relationship in Applications is based on long-term collaboration with several industry partners. NKT holds a leading position in key parts of Northern, Central and Eastern Europe. Applications is active within the low- and me- dium-voltage power cable and telecom power cable markets. The product offering is broad, supporting both the building sector and the Eu- ropean power grids to meet the growing demand for renewable energy. 3 4 2 1 2 3 4 Medium-voltage cables 1kV cables 3 Building wires 1 Telecom power cables 1 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 34 Applications “We managed to maintain earnings at a stable level in 2022 Low- and medium-voltage market Market overview despite a challenging macroeconomic situation with slowdown in the construction sentiment and increased input prices. This was steered through close cooperation with our suppliers and customers. Overall, our markets are driven by long-term sustainable growth trends and we are preparing ourselves to take advantage of them.” The offerings in the low- and medium-voltage markets are less complex than for the high-volt- age market. The number of competitors is greater and products are mainly “made-to stock” with differing specifications and designs from country to country. The competitive landscape is characterised by more local and regional com- petitors capable of complying with local technical regulation. Will Hendrikx Head of Applications, Executive Vice President Medium-voltage power cable demand is primarily driven by the need for electrification and the transition to more renewable energy sources. These power cables are mainly used for the power distribution grid with a continuous need for grid reinforcement and expansion. NKT sees an increased need for more power due to growing demand for charging stations for electric vehicles, heat pumps and the general electrifica- tion and digitalization of society. network. NKT is delivering power cables to sup- tively impacted construction sentiment and the markets. This was particularly present in 2nd half 2022, when market demand deteriorated. macroeconomic slowdown that also caused the port this build-out. market to deteriorate in the latter part of 2022. The uncertainty is higher than usual and it is challenging to assess when the market will turn around. The longer-term picture for the market remains positive, driven by the urbanization and electrification and energy renovation of residen- tial and non-residential buildings. Market development in 2022 In 2022, the market development differed across the market segments and geographies NKT is operating in. Market outlook Overall, the forward-looking prospects for the low- and medium-voltage markets which NKT operates in are positive, driven by sustainable megatrends. The transition to renewable energy sources is ex- pected to include more onshore wind and solar power generation. This is expected to accelerate in Europe, which will drive demand for low- and medium-voltage power cable solutions. The market for medium-voltage power cables remained positive in 2022. The green transfor- mation and the electrification of societies are positively influencing the investment levels of grid operators. The positive market sentiment for medium-volt- age power cables is expected to continue in 2023 and beyond. Consequently, NKT expects that market growth will be higher in the coming years compared to a growth rate of around 2% on average per year that has been recorded since 2019. Demand for the lower voltage power cables is generally more driven by the macroeconomic development and construction sentiment with building wires as the largest product line. The market dynamics for building wires and construction-exposed 1kV power cables have changed during 2022. The market started out strong in the beginning of the year with solid growth on top of a favourable 2021. However, the slowdown in the European economy with high inflation and increasing interest rates has nega- The market for building wires and construc- tion-exposed 1kV power cables is expected to be challenged in 2023. This is due to the The telecom market is being positively impacted by the ongoing global rollout of the 5G telecom Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 35 Applications Financial development NKT has been working to protect margins by gradually updating customer and supplier con- tracts in order to reflect the higher input prices and improve conditions. This led to an improve- ment of the profitability level in Q4 2022. Further input cost increases going into 2023 are being addressed to protect profitability. In contrast, NKT recorded a decrease in reve- nues within building wires and construction-ex- posed 1kV power cables in 2022, mainly due to lower sales in Poland and Germany. This was a reflection of the market slowdown that NKT was not able to offset immediately. In addition, the markets were at high levels in the comparison period of 2021. Highlights in 2022 Higher revenue driven by price increases In 2022, Applications increased revenue by EUR 102m compared to 2021, corresponding to organic growth of 19%. The higher revenue level was due to increased prices as NKT had to respond to the high inflationary pressure on sev- eral cost items. Ventcroft, which NKT acquired in January 2022, contributed with revenues
of EUR 14.5m in 2022. ■ Increased revenue level driven by price increases ■ Operational EBITDA maintained sta- ble despite high inflationary pressure on input costs Production footprint changes to improve profitability and output The telecom business contributed positively in 2022 due to the continued roll-out of the 5G network. ■ Continued growing medium-volt- As in previous years, NKT continued to imple- ment efficiency initiatives aimed at improving profitability in Applications. In 2022, NKT com- pleted the transition of building wire produc- tion from Denmark to the production facility in Poland. The transfer has progressed according to plan and has created a centre of excellence within building wires. age business driven by sustainable megatrends Revenues in market prices amounted to EUR 1,067m in 2022, against EUR 900m in 2021. Acquisition of a supplier of fire- ■ Acquisition of Ventcroft to strengthen Operational EBITDA impacted by higher input prices resistant power cables, Ventcroft Ltd In January 2022, NKT acquired Ventcroft Ltd in the UK to strengthen its position within fire-re- sistant power cable technology. With this acqui- sition, NKT extended its portfolio of low-voltage power cables and building wires. The business has been integrated into NKT. fire-resistant power cable offering Despite the higher revenue, operational EBITDA of EUR 28.5m in 2022 was on par with the level in 2021, primarily as the sales price increases were offset by higher input costs. As a result of this de- velopment, the operational EBITDA margin was 5.2% in 2022, against 6.3% in 2021. The financial performance differed substantially during 2022 with Q1 being the most profitable quarter. In addition, the production relocation of the lower range of high-voltage power cables from the high-voltage factory in Cologne to the site in Velké Meziříčí, Czech Republic, continued in 2022. Production from the Czech site will commence in 2023 and serve customers both in Solutions and Applications. 552m Revenue
, EUR (2021: EUR 450m) Increased input prices experienced from the latter part of Q2 2022 particularly challenged profitability in Q3 2022. NKT was not able to fully compensate for the increased cost level. The main reason for the increase was the disturbance of global supply chains in the raw material area. NKT did among others decide to close deliv- eries from Russian suppliers, which increased purchase of metal for production in new markets located further away from Northern Europe. 19% Organic growth (2021: 13%) Mixed development across market segments The positive development in the medium-voltage market in 2022 contributed to NKT’s revenue development within this segment. NKT is well- positioned across various countries. This led to solid volume and price growth in 2022. The largest contributors were Denmark, Germany and Sweden. 28.5m Operational EBITDA, EUR (2021: EUR 28.5m) * Std. metal prices Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 36 Applications ReNew BOOST strategy In the past years, NKT has focused on operation- al and commercial excellence in order to improve profitability. These efforts will continue, ensuring an optimized market presence, pricing strate- gies to improve profitability and a cost efficient production setup. Applications will continue to grow its business and take advantage of the attractive market outlook. This includes the opportunities that will arise from the expected growth within onshore wind and solar power generation. Installation of onshore power cables for a project in Sweden NKT will selectively invest in debottlenecking and adding capacity to the existing sites to increase output addressing the market opportunities. In addition, the product portfolio is intended to expand with a strong offering of renewable, fire-resistant and telecom power cable solutions. Future Applications performance will be driven by growth and further operational improvements Let’s grow Let’s innovate Let’s drive sustainability Increase focus on servicing the renewable market to Keep market share in core markets while increas- ing presence in non-core markets Continue improvements and digitalization of operational and commercial excellence support the green transition Expand product portfolio of renewables and telecom power cable solutions Invest selectively into debot- tlenecking of existing sites and adding capacity Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 37 Business line Service & Accessories The Service & Accessories business line is driven by the same market drivers as Solutions and Applications. The financial performance was satisfactory in 2022, although revenues and operational EBITDA as expected were below the strong performance in 2021. Service & Accessories is preparing for further growth in the years ahead and continued its expansion initiatives. 5 4 service hubs accessory factories Brøndby, Denmark Gdansk, Poland Alingsås, Sweden Cologne, Germany Gurgaon, India Karlskrona, Sweden Manchester, UK Nordenham, Germany Troisdorf, Germany Business Line Overview Power cable accessories are an essential link in the power chain, connecting electricity trans- mission systems. NKT develops, produces and installs high- and medium-voltage power cable accessories for use in offshore and onshore applications – including power cable joints, connectors and terminations. The accessories are primarily produced at four production sites in Germany, India and Sweden. Power cable accessory offerings Terminations Connect cable ends to con- sumers or overhead lines Service & Accessories offers a variety of both offshore and onshore power cable accessories and services to maximise the utilization of power cable systems and ensure reliable and long-term performance. Connectors Connect cable ends to switchgear or transformer In power cable services, NKT is a trusted partner for the whole lifecycle of a power cable system and has leading capabilities within repair, main- tenance and operations services. The service or- ganization is predominantly located in Denmark, Germany, Poland, Sweden and the UK. Joints Connect two cable ends Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 38 Service & Accessories “We have continued to strengthen our European position in 2022 Market for power cable services and accessories to cater for the increasing market demand. The power grids in our societies are in need of refurbishment and maintenance as well as fast repair services in certain cases. NKT plays an important role in addressing this. Our power grid is critical infrastructure and a failure in a power cable is costly for the power cable owner.” Market overview Power cable services The onshore market is operated by different providers, local companies, multinationals and some cable operators themselves. The mar- ket for onshore power cable services is driven by the need to maintain ageing infrastructure, particularly legacy technologies such as oil-filled and gas-filled power cables, but also for grid modernization and extension. Axel Barnekow Widmark Head of Service, Executive Vice President In the offshore segment only a few companies can provide a comprehensive service offering such as NKT. The increased demand for repair work on offshore power cables is supported by the growing number of cables. The urgent need for service that arises when a failure occurs, supports the demand for service agreements with cable owners to ensure a fast process when required. Market development in 2022 Power cable services increased investments within renewable energy projects such as offshore wind and the elec- trification of societies. In addition, the ongoing upgrades of power cable solutions require more complex accessories. Power cable accessories The transition to renewable energy sources and the continued electrification of societies are driv- ing the high- and medium-voltage power cable accessories in the same way as they drive the demand for overall power cable solutions. Initia- tives to upgrade and maintain the power grids in NKT’s addressable markets are also driving the demand for power cable accessories. The trend is set to continue and the market outlook in the years ahead is positive. Power grid modernization and extensions have driven the demand for services in 2022. The number of offshore repair projects, which was very high in 2021, was back to a more normal level in 2022. Offshore repair services are, by their nature, challenging to forecast. Market Outlook Power cable services Power cable accessories The service market is expected to grow in the years ahead due to an increasing installed base of high-voltage power cables. At the same time, older cables are requiring extensive maintenance and ultimately decommissioning or replacement. The market development for accessories is closely linked to the general development of the medium- and high-voltage power cable markets. The unstable global geopolitical situation has increased the focus and need to secure critical infrastructure such as power cables. This has resulted in increased demand for cable monitor- ing services. The stability and reliability of the power grid is often determined by the quality of power cable accessories and the quality of installation. The accessories market for medium-voltage power cables is competitive, while there are fewer com- panies supplying the more complex accessories required for high-voltage power cables. The offshore segment is expected to see par- ticularly attractive growth as the installed base of offshore cables continues to accelerate. Power cable accessories Both the medium- and high-voltage power cable accessories markets developed favourably. This is correlated to the overall positive development in the power cable markets. This was driven by Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 39 Service & Accessories Financial development As part of its growth ambitions, NKT is continu- ously expanding its portfolio of service agree- ments with power cable owners. The portfolio was expanded further in 2022. The accessories business has faced some headwind due to the global supply chain chal- lenges leading to higher transportation costs and shortages of raw materials. Initiatives have been implemented to mitigate risks in order to protect earnings. Highlights in 2022 Revenues lower against a high comparison base ■ Decrease in revenues and earnings The revenues for Service & Accessories decreased by EUR 13m from 2021 to 2022, cor- responding to organic growth of -11%. The lower level was due to the high volume of repair work in the service business in 2021. As expected, this did not continue in 2022. in 2022 as expected on a high comparison base Furthermore, NKT is strengthening its service offerings to expand its business and cater for the increasing market demand. During 2022, local service organizations were established and grown in Poland and the UK to serve the increas- ing demand in the European market. ■ Satisfactory development in service business ■ Geographical expansion continued to Profitability was impacted by lower activity and a higher cost level position NKT for future growth In addition to the lower revenue level, operational EBITDA was also impacted by the cost level in the accessories business that was tempo- rarily higher due to ongoing consolidation of high-voltage power cable accessory production. Operational EBITDA decreased to EUR 25.7m in 2022, compared to EUR 32.8m in 2021. The operational EBITDA margin for 2022 was 13.3%, compared to 15.9% in 2021. The unstable global geopolitical situation, mainly due to Russia’s invasion of Ukraine, has led to an increased focus on securing critical infrastructure such as power cables. NKT has experienced increased demand for monitoring services that is expected to continue into 2023. ■ Accessories business temporarily impacted negatively by higher costs associated with the ongoing consoli- ation of sites Increased activity in the accessories business, but temporarily challenged by higher costs In the accessories business, revenues increased in 2022. The positive development was main- ly driven by increased sales of high-voltage accessories. The market continued to develop positively. In addition, NKT benefitted from a strengthened market presence in India. 193m Revenue, EUR (2021: EUR 206m) Satisfactory development in service business The financial development in the service busi- ness was satisfactory in 2022. The sustainable recurring revenues are gradually increasing as the market grows and NKT strengthens its footprint. -11% Organic growth (2021: 48%) The consolidation of high-voltage accessories' production to Alingsås, Sweden, from Cologne, Germany, continued in 2022. The transition led to temporary higher costs, especially in 1st half 2022. The transition is progressing and will lead to improved profitability going forward. Revenues in 2022 were lower due to the reduced offshore repair work compared to 2021. The oth- er areas of the business grew satisfactorily. NKT has performed well on several onshore service projects in 2022. 25.7m Operational EBITDA, EUR (2021: EUR 32.8m) * Std. metal prices Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 40 Service & Accessories ReNew BOOST strategy This will be supported by engagements into fur- Growth opportunities will also arise on the back of the renewable energy transition. NKT will up- date its product portfolio to continue to address wider part of this market segment. The future growth in Service & Accessories will be driven by relevant products and expertise in offerings to customers. ther service agreements, preventive maintenance programmes and more comprehensive power cable monitoring solutions. In the service business, NKT will continue its geographical expansion in Poland, the UK and establish presence in the USA. The ambition is to strengthen and grow the turnkey concept and increase relationships with offshore customers, ensuring NKT is the number one option when a power cable connection is damaged or out of order. The accessories business will grow by the same parameters as Solutions’ high-voltage order backlog. Full focus is on ensuring successful execution of the projects. Further growth oppor- tunities will come from third-party customers in new markets like the Middle East, India and other parts of Asia. Future Service & Accessories growth will be driven by tailored products and expertise in service offerings Servicing a power cable Let’s grow Increase services to existing customers Let’s innovate Strengthen specialized com- petence centers Let’s drive sustainability Focus on people and com- petences Expand geographical cov- erage Add new products to enter further customer segments Efficient repairs and preven- tive maintenance increases the flow and reliability of green power Pursue business opportuni- ties such as renewables Drive commercial excellence, focusing on tender process- es, pricing and efficiency Reliable service provider enables the green transition Annual Report 2022 NKT A/S 41 Governance NKT's Board of Directors aims to possess experience in key fields and a mix of competencies that cover all critical aspects of the business. The Board includes a combination of members elected by the shareholders at the Annual General Meetings and employee-elected members. Four committees and a working committee are appointed by the Board to cover various areas of the business. Office meeting in Karlskrona Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 42 Shareholder information NKT A/S shareholders at end-2022 NKT A/S shares ed share price returns for the company’s largest Dividend policy The average daily turnover in NKT A/S shares on all trading markets was EUR 13m in 2022, compared to EUR 11m in 2021. The average daily trading volume was around 290,000 shares in 2022, against around 300,000 in the previous year. Nasdaq Copenhagen was the main trading market for the company’s shares with 39% of the total traded volume in 2022. European competitors, Prysmian and Nexans, were 6% and 0%, respectively. The return of the Danish OMXC25 index, adjusted for dividends, was -12% in 2022. The dividend policy of NKT A/S targets dis- tribution of approximately one third of the net result for the year as dividend, provided that the capital structure allows this. Excess cash may be distributed as share buybacks or extraordinary dividends. No dividend payment is proposed in 2023 due to the need to continue to strengthen the capital structure based on the positive mar- ket outlook and the planned continued execution of investments. 5% 41% 54% NKT A/S is a member of the Nasdaq Copenha- gen Large Cap index. The total share capital of NKT A/S consists 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). At end-2022, the NKT A/S share price was DKK 391, compared to DKK 316 at end-2021, repre- senting a total share price return of 24%. In the same period, the corresponding dividend-adjust- Registered Danish shareholders Registered non-Danish shareholders Non-registered shareholders NKT A/S share price development 2022 Shareholder structure The NKT A/S share has one class of shares, with 100% free float and no dominant shareholders. At end-2022, the company had approx. 31,900 registered shareholders, compared to approx. 30,600 at end-2021. At end-2022, 95% of the total share capital was registered, on par with the level at end-2021. 54% of the share capital was registered by Danish shareholders, while 41% was registered by shareholders outside of Denmark. 500 400 300 200 Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 At end-2022, two NKT A/S investors had report- ed shareholdings of 5.00–9.99%: NKT A/S, DKK OMX C25 (rebased), DKK ■ ATP (Denmark) ■ Power cable peers (Prysmian and Nexans) (rebased) Greenvale Capital (UK) Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 43 NKT A/S shares held by the Board of Directors and Executive Management The members of the Board of Directors held a to- tal of 54,889 NKT A/S shares at the end of 2022, corresponding to a total market value of EUR 2.9m. Members of the Executive Management team owned 30,603 NKT A/S shares, equal- ling a market value of EUR 1.6m. As part of the long-term incentive programme, the Executive Management team has been awarded perfor- mance shares. Investor relations In connection with the release of interim and annual reports an investor presentation is con- ducted as a live audiocast. Financial analysts, investors, the media and other stakeholders are invited to listen in and ask questions concerning the company. 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, timely and consistent com- munication. The aim is to ensure that: 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 information is provided to all IR stakeholders to form the basis of a fair valuation of the NKT share price In addition, NKT A/S meets with stakeholders at around 200-300 yearly physical and virtual meet- ings in Denmark and internationally, while private investors have an opportunity to meet the Board of Directors and the Executive Management at the company’s AGM. Share classes: 1 ■ NKT A/S is perceived as a professional, proactive, reliable, accessible and transparent company Persons deemed insiders and their relatives may only transact NKT A/S shares during a four-week window following the publication of financial statements, provided that no inside knowledge is possessed. ■ Relevant IR information is shared with the The Investor section on the NKT A/S website includes 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. Board of Directors Financial calendar 2023 ■ Share liquidity and daily trading volume are 23 Mar. Annual General Meeting 10 May Interim Report, Q1 2023 16 Aug. Interim Report, Q2 2023 08 Nov. Interim Report, Q3 2023 high and a diversified shareholder base exists in terms of investment horizon, investment strategy and geographical distribution More shareholder information is available at investors.nkt.com Ownership of NKT A/S shares (at end-2022) Name # of shares Board members Jens Due Olsen 48,941 5,333 515 Rene Svendsen-Tune Jens Maaløe Stig Nissen Knudsen 100 Executive management Alexander Kara 30,603 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 44 Corporate Governance Management bodies The AGM-elected Board members comprise 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 Leadership Team. two females and four males. The three employ- ee-elected members comprise one female and two males. Of the six AGM-elected members, three live in Denmark, two in Finland and one in Germany. The following nationalities are repre- sented: Danish, German, Finnish, and Dutch/ Turkish. Two AGM-elected Board members have served for more than 12 years and are therefore not considered independent as defined by the Danish Corporate Governance recommenda- tions. A minimum of six ordinary Board meetings are held annually. Shareholders Board of Directors The Board of Directors The Board of Directors consists of nine mem- bers. Six members are up for election every year at the Annual General Meeting, while three mem- bers are elected by the Danish employees for a four-year term. Five members were re-elected and one new member was elected at the AGM in March 2022. The employee-elected members were elected in 2022 at an ordinary election of employee representatives. Two new members were elected and one member was re-elected. Working committee: NKT Photonics Audit committee Nomination committee Remuneration committee ESG Committee Executive Management Organization The Board of Directors represents international business experience in the areas of industry, energy, infrastructure projects, technology, busi- ness development and finance and is deemed to possess the requisite competencies and seniority. Applicable laws and regulations Corporate governance standards Business code of conduct Board of Directors Audit Remuneration Committee Committee Nomination Committee (4 meetings) ESG Committee (3 meetings) Governance structure Meetings in 2022 (11 meetings) (10 meetings) (4 meetings) The Executive Management of the parent com- pany, NKT A/S, comprises two people: the CEO and the CFO. The CEO of NKT Photonics reports to the Board of Directors of NKT Photonics. Jens Due Olsen René Svendsen-Tune Karla Lindahl 11/11 9/11 1/1 10/10 9/9
1/1 (alternate) 3/3 3/3 10/11 10/11 11/11 8/8
Jens Maaløe 1/4 4/4 3/4
Andreas Nauen See pages 48–50 for particulars of the Board of Directors and see page 51 for the Group Leadership Team. Nebahat Albayrak Pernille Blume Simonsen Stig Nissen Knudsen Christian Dyhr 2/2 (alternate) 3/3 7/8 11/11 7/8
* elected/appointed during 2022 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 45 Corporate Governance ■ Committees Audit Committee To monitor the independence of auditors, in- cluding in particular the provision of non-audit services to the company 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 processes in the material subsidiaries. The Board of Directors has appointed a Chair- manship (Chair and Deputy Chair of the Board of Directors) and five committees: Audit, Remuner- ation, Nomination, ESG (Environment, Social, and Governance) and a NKT Photonics working committee. The committees are appointed for one year at a time and receive special remunera- tion approved by the AGM. The Audit Committee monitors the company’s risk management, financial reporting, regulatory compliance and internal controls as defined in an annual plan and oversees the work of the external auditors. Its principal tasks are: ■ To make recommendations to the Board of Directors concerning the election of auditors ■ ■ To monitor the financial reporting process and 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 are sys- tematically tested in conjunction with controller visits performed by Group Finance or by external auditors. compliance with existing legislation, stand- ards and other regulations for listed compa- nies relating to presentation and publication of financial reporting Together with the Executive Management, the Chairmanship and the Audit Committee Chair or the full Board of Directors also acts as final ap- prover in the evaluation of the largest high-volt- age projects in NKT’s Solutions business line. ■ ■ To monitor cybersecurity measures To monitor the ESG reporting ■ To monitor whether the company’s internal Once a year the Audit Committee also assess- es 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. control and risk management systems are properly designed and function effectively Monitoring of internal control and risk management systems for financial reporting The internal control and risk management systems for financial reporting are designed to ensure that the financial reporting presents a true and fair view of the company’s results and finan- cial position, without material misstatements, and in compliance with current financial legislation and accounting standards. ■ To monitor the statutory audit of the annual financial statements Scope In 2022, the Audit Committee focused particu- larly on the company’s continued strengthen- ing and expansion of its internal controls and compliance framework, including the ongoing automation of key process controls as well as the timeliness of the controls performed. Framework The Audit Committee systematically assesses material risks in relation to the financial report- ing 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. Furthermore, the Audit Committee reviewed the company’s policies and procedures related to in- formation security, treasury and tax. In 2022, the Audit Committee also monitored an audit tender conducted for the external audit. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 46 Corporate Governance Compliance and approving the remuneration for the Board of The Audit Committee performs general supervi- sion of compliance with policies and guidelines related to risk management and financial report- ing. This covers, among other things, policies for accounting, treasury, commodity hedging, insurance, financial resources and tax. Directors and the Executive Management. The NKT A/S Board of Directors receives a fixed salary, while the Executive Management receives both a fixed salary and incentive pay. This structure ensures commonality of interest between the management and shareholders and motivates management to achieve the compa- ny’s strategic goals. The Audit Committee also oversees the compli- ance programme, including the Business Code of Conduct as well as planned training. All parties must receive fair remuneration which is commensurate with the duties assigned and which represents an attractive incentive for long- term commitment. The company further operates a whistle-blower scheme whereby employees and associat- ed business partners can report suspected irregularities. The Chair 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 imple- mented. Terms of reference for the Remuneration Committee and the remuneration policy can be found at investors.nkt.com/corporate-governance/commit- tee-composition The AGM-elected members of the Board of Directors will not participate in any of the compa- ny’s incentive plans. Nomination Committee The Nomination Committee defines and assess- es the qualifications required by the Board of Directors, the Executive Management and the Global Leadership Team and initiates an annual Board assessment. Remuneration of the Executive Management Board of Directors’ remuneration At the AGM in 2022 it was approved to increase the Board of Directors’ remuneration from the 2021 level to an amount which was deemed competitive and comparable to that paid by Danish and European companies of similar size and complexity. Terms of reference for the Audit Committee can be found at investors.nkt.com/corporate-governance/ committee-composition The remuneration of the Executive Management consists of a fixed remuneration and short-term and long-term incentive pay. The fixed remuner- ation 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 compa- ny’s vision and strategic focus. Self-assessments The purpose of the annual Board assessment is to evaluate the effectiveness of the Board of Directors, to define competencies required within the Board of Directors, to consider the contribu- tions of individual members, and to identify future areas of focus. The Board assessment for the current election period was performed during the winter of 2022/23. It was made with assistance from external consultants. Remuneration Committee The Remuneration Committee is responsible for establishing the remuneration policy for the Board of Directors and the Executive Manage- ment of NKT A/S, for proposing changes to the remuneration policy and for obtaining the ap- proval of the Board of Directors prior to seeking shareholders’ approval at the AGM. The remu- neration policy contains guidelines for setting As in previous years, the Board of Directors will receive a base fee as well as fees for committee duties. The Chair of the Board of Directors will, however, not receive additional compensation for any committee duties. See Section 2.2–2.3 on pages 65–66 and the remu- neration report published at investors.nkt.com/corpo- rate-governance/statutory-reports Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 47 ■ The Board of Directors also performs an annual assessment of the Executive Management covering two main areas: interaction between the two parties and the competencies and performance of the Executive Management. This assessment can take the form of a general discussion by the Board of Directors or be sup- ported by external consultants, after which the assessment findings are communicated by the Chair of the Board of Directors to the Executive Management. resented gender among the members elected at To monitor risk management associated with ESG issues Implementation of the data ethics policy and the strengthening of the data ethics principles have been ongoing during 2022. This will remain a focus point going forward, with further initiatives planned for 2023 as part of the overall data priva- cy compliance and data protection programme at NKT. the Annual General Meeting (AGM). This target was achieved for the Board of Directors of NKT A/S in 2020 and has been maintained in 2021 and 2022. A new target has been set to have at least 40% female representation on the Board of Directors by 2025. The focus on diversity and equal opportunity for both genders is described in NKT's Sustainability Report. ■ To monitor the company’s performance against relevant external sustainability (ESG) indices, including public reporting and a review of the company’s annual CSR report Scope Corporate Governance At the AGM in 2022, a new ESG Committee was established. During 2022, the ESG Committee has implemented an annual reporting plan and provided recommendations to the Board of Directors on a number of ESG-related matters, including the updated sustainability strategy. As a listed company on the Nasdaq Copen- hagen Stock Exchange, NKT A/S is subject to rules governing share issuers and corporate governance recommendations. NKT A/S fulfils its obligations in respect of the latter either by compliance or by explanation of the reason for non-compliance. Terms of reference for the Nomination Committee can be found at investors.nkt.com/corporate-governance/ committee-composition Target figure for the under- represented gender The Board of Directors wants to ensure that both genders are represented on the Board of Direc- tors. The target in 2022 was to have at least two out of six members representing the under-rep- ESG Committee The ESG Committee prepares resolutions to be taken by the Board of Directors in fulfilling its re- sponsibility for oversight of relevant ESG policies, strategies and programmes of the company as defined in an annual plan. Its principal tasks are: Terms of reference for the ESG Committee can be found at investors.nkt.com/corporate-governance/ committee-composition NKT A/S complies with all 40 recommendations issued by the Danish Committee on Corporate Governance in December 2020. Female representation on Board of Directors Data Ethics ■ NKT's Corporate Governance Report 2022 can be found at investors.nkt.com/corporate-governance/ statutory-reports To review and provide oversight of pro- NKT respects all relevant data which is received or collected from its employees, customers and other stakeholders, and such data is handled in compliance with applicable laws and regulations and in accordance with internal ethical standards. grammes and make recommendations to the Board of Directors on the company’s policies, strategies pertaining to ESG issues and asso- ciated impacts ≥40% 33% 33% 33% ■ To ensure that appropriate policies are in In 2021, NKT established a formal data ethics policy defining the overall approach to handling data and the foundation for ethical decision-mak- ing when adopting or developing new data-driv- en technologies. place and working effectively to build and consistently protect the company’s internal and external reputation through NKT’s ESG Performance, Behaviours and Communica- tion 2020 2021 2022 2025 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 48 Board of Directors Jens Due Olsen René Svendsen-Tune Karla Lindahl Chair Deputy Chair Born 1981 Born 1963 First elected in 2006 Not considered independent due to tenure Born 1955 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.) ■ ■ ■ ESG Committee Nomination Committee, Chair Audit Committee NKT Committees: ■ ■ NKT Photonics (working committee) NKT Photonics (working committee) DKK 1,125,000 DKK 750,000 DKK 375,000 Board of Directors annual base remuneration: 48,941 5,333 0 NKT shares at 31 December 2022: ■ ■ ■ BørneBasketFonden (non-profit foundation), Chair Nilfisk Holding A/S, Deputy Chair (publicly listed company) KONE Corporation, Executive Vice President for the South Europe and Mediterranean region (publicly listed company) Other positions and directorships: ■ ■ KMD A/S, Deputy Chair Stokke AS, Chair ■ NIL Technology A/S, Chair ■ European Energy, Chair ■ ■ ■ ■ 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 ■ ■ Risk management Expertise in strategy development and execution as well as competition and corporate law ■ Technology Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 49 Board of Directors Jens Maaløe Andreas Nauen Nebahat Albayrak Born 1955 Born 1964 Born 1968 First elected in 2004 Not considered independent due to tenure First elected in 2017 Considered independent First elected in 2022 Considered independent MSc. E.Eng. 1979, PhD. 1983 BSc. Mechanical Eng. 1991 LLM, International and European Law, 1993 ■ ■ ■ Remuneration Committee Remuneration Committee, Chair ESG Committee, Chair NKT Committees: ■ ■ ■ Nomination Committee Audit Committee, chair NKT Photonics, Chair (working committee) DKK 375,000 DKK 375,000 0 DKK 375,000 0 Board of Directors annual base remuneration: 515 NKT shares at 31 December 2022: ■ ■ ■ Poul Due Jensens Fond, Chair Sandbrook Capital, USA, Operating Partner Fortum Oyj, Senior Vice President, Corporate Affairs, Sustainability and Safety and Security (publicly listed company) Other positions and directorships: ■ ■ ■ ■ Grundfos Holding A/S, Chair of Technology Committee Danish Technology Institute, Chair Niras A/S, Chair Havfram AS, Chair ■ Nederlandse Spoorwegen, Supervisory Board member ■ Topvrouwen.nl, Advisory Board member ■ ■ ■ ■ ■ International and industrial management Management of listed companies International and industrial management Senior leadership experience in the energy industry and energy transition Special qualifications: ■ Management of listed companies ■ International and industrial management ■ Specialist expertise in technology and technological development Finance expertise from project businesses applying IFRS ■ Experience from the public and private sector ■ Special expertise in technology, large infrastructure projects, renewable energy and wind power ■ Expertise in driving corporate sustainability strategy and performance ■ Specialist in corporate Reputation Management and Branding ■ Crisis management Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 50 Board of Directors Pernille Blume Simonsen Christian Dyhr Stig Nissen Knudsen Born 1983 Born 1974 Born 1969 Elected by the employees in 2022 Not considered independent due to employment with NKT Elected by the employees in 2022 Not considered independent due to employment with NKT Elected by the employees in 2018, re-elected 2022 Not considered independent due to employment with NKT Lean specialist NKT (Denmark) A/S Warehouse coordinator NKT Photonics A/S MSc. E.Eng. 1996, PhD. 2002 Senior Production Engineer NKT Photonics A/S NKT Committees: 375,000 0 375,000 0 375,000 100 Board of Directors annual base remuneration: NKT shares at 31 December 2022: Other positions and directorships: Special qualifications: Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 51 Group Leadership Team Executive Management Alexander Kara Kira Johnson Will Hendrikx Head of Applications, Executive Vice President Nationality: Dutch Born: 1964 Michael C. Hjorth Chief Commercial Officer HV Solutions, Executive Vice President Nationality: Danish Anders Jensen Chief Technology Officer, Executive Vice President Nationality: Danish Born: 1964 President & Chief Executive Officer Nationality: German/Swiss Born: 1961 Chief Human Resources Officer, Executive Vice President Nationality: American/Danish Born: 1974 Gender: Male Born: 1966 Joined NKT in 2019 Gender: Female Gender: Male Gender: Male Gender: Male Directorships: – NKT shares at 31 December 2022: 30,603 Joined NKT in 2021 Joined NKT in 2020 Joined NKT in 1995-2012 and in 2017 Joined NKT in 1993-2013 and in 2018 Line Fandrup Denis Schuler Head of Accessories, Executive Vice President Nationality: Swiss Born: 1973 Lukas Sidler Claes Westerlind Head of HV Solutions Karlskrona, Executive Vice President Nationality: Swedish Born: 1982 Axel Barnekow Widmark Head of Service, Executive Vice President Nationality: Swedish Born: 1977 Chief Financial Officer, Executive Vice President Nationality: Danish Born: 1979 Head of HV Solutions Cologne, Executive Vice President Nationality: Swiss Born: 1977 Gender: Female Gender: Male Gender: Male Gender: Male Gender: Male Joined NKT in 2020 Directorships: – Joined NKT in 2023 Joined NKT in 2022 Joined NKT in 2017 Joined NKT in 2020 NKT shares at 31 December 2022: 0 Annual Report 2022 NKT A/S 52 Financial statements Customer Service employee in Velke Mezirici, Czech Rep. Annual Report 2022 NKT A/S 53 Consolidated financial statements Revenue, EURm 54 Income statement 54 Statement of comprehensive income 55 Balance sheet 2,079.0 56 Cash flow statement 57 Statement of changes in equity 59 Sections 1,827.9 in 2021 Cash flows, EURm 65.4 -38.7 in 2021 EBITDA, EURm 154.6 118.4 in 2021 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 54 Income statement Statement of comprehensive income 1 January – 31 December 1 January – 31 December Amounts in EURm Note 2.1 2022 2021 Amounts in EURm 2022 2021 Revenue 2,079.0 14.2 1,827.9 30.9 Net result 62.4 4.1 Other operating income Other comprehensive income Work performed by the Group and capitalized Costs of raw materials, consumables and goods for resale Staff costs 33.1 28.5 Items that may be reclassified to income statement: Foreign exchange adjustment, foreign companies Cash flow hedges: -1,442.6 -302.5 -226.6 -1,241.6 -311.5 -215.8 -44.8 -9.5 2.2/2.3 Other costs 2.4/6.1/7.1 Value adjustment for the year 71.4 -14.2 -106.5 -2.1 226.1 -8.9 Earnings before interest, tax, depreciation and amortization (EBITDA) 154.6 118.4 Transferred to revenue Transferred to costs of raw materials, consumables and goods for resale Transferred to financial income -67.2 -1.1 Depreciation of property, plant and equipment Amortization of intangible assets 3.2 3.1 -62.7 -22.7 69.2 -68.7 -25.8 23.9 Tax on cash flow hedges 15.0 -38.8 Earnings before interest and tax (EBIT) Cost of hedging: Value adjustment for the year for transaction-related hedges 1.7 -24.9 Financial income 5.5 5.5 72.3 -63.2 78.3 65.8 -74.0 15.7 Cumulative (gain)/loss from changes in the fair value of transaction-related hedged items reclassified to profit or loss Financial expenses 2.9 3.3 5.4 Earnings before tax (EBT) Tax on cost of hedging -1.1 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 6.3 -23.2 55.1 7.3 -3.8 11.9 -7.8 4.1 11.7 -3.7 2.3 -0.7 86.0 Net result - continuing operations Net result - discontinued operations Net result Total other comprehensive income -69.7 62.4 Comprehensive income for the year -7.3 90.1 To be distributed as follows: Equity holders of NKT A/S Hybrid capital holders of NKT A/S Net result 53.8 8.6 -4.0 8.1 4.1 To be distributed as follows: Equity holders of NKT A/S -15.9 8.6 82.0 8.1 62.4 Hybrid capital holders of NKT A/S Basic earnings - continuing operations, EUR, per share (EPS) Diluted earnings - continuing operations, EUR, per share (EPS-D) Basic earnings, EUR, per share (EPS) 1.1 1.1 1.3 1.2 0.1 0.1 Comprehensive income for the year -7.3 90.1 -0.1 -0.1 Diluted earnings, EUR, per share (EPS-D) The Board of Directors proposes a dividend for the year of DKK 0.0 per share (DKK 0.0 per share in 2021) for approval at the Annual General Meeting. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 55 Balance sheet 31 December 31 December Amounts in EURm Note 2022 2021 Amounts in EURm Note 2022 2021 Assets Equity and liabilities Goodwill 350.4 39.4 31.2 19.7 87.7 528.4 404.4 54.4 42.2 31.7 89.0 621.7 Share capital 5.1 5.3 115.4 68.8 115.4 147.5 Trademarks, patents and licences, etc. IT software Reserves Retained comprehensive income Equity attributable to equity holders of NKT A/S Hybrid capital 805.9 990.2 153.6 1,143.8 744.6 Development projects completed Intangible assets under development Total intangible assets 1,007.5 152.4 3.1/3.3 Total equity 1,159.9 Land and buildings 292.4 297.9 45.0 288.4 257.5 45.6 Deferred tax 2.5 3.4 5.4 54.9 52.7 71.8 62.5 Manufacturing plant and machinery Fixtures, fittings, tools and equipment Property, plant and equipment under construction Total property, plant and equipment Provisions and pension liabilities Interest-bearing loans and borrowings Total non-current liabilities 180.9 288.5 196.4 330.7 209.5 844.8 191.4 782.9 3.2/3.3 2.5 Interest-bearing loans and borrowings Trade payables 5.4 14.9 351.0 223.7 677.6 9.6 17.5 341.8 170.4 459.3 10.5 Other investments and receivables Deferred tax 0.8 11.7 12.5 0.8 24.9 25.7 Other liabilities 5.4 4.4 Total other non-current assets Contract liabilities Income tax payable Total non-current assets 1,385.7 1,430.3 Provisions 3.4 6.3 22.7 63.3 Liabilities associated with assets held for sale Total current liabilities 35.6 0.0 Inventories 4.2 4.3 4.4 334.9 522.5 98.2 287.4 528.9 97.3 1,335.1 1,062.8 Receivables Contract assets Total liabilities 1,623.6 2,767.4 1,393.5 2,553.4 Income tax receivable Interest-bearing receivables Cash at bank and in hand Assets held for sale Total current assets 3.3 8.8 0.2 0.2 Total equity and liabilities 258.5 164.1 1,381.7 200.5 0.0 6.3 1,123.1 Total assets 2,767.4 2,553.4 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 56 Cash flow statement 1 January – 31 December Amounts in EURm Note 2022 2021 Amounts in EURm Note 2022 2021 Earnings before interest, tax, depreciation and amortisation (EBITDA) Repayment of loans -19.2 -5.3 -23.3 -5.2 0.0 154.6 118.4 Repayment of lease liabilities Purchase of treasury shares -2.5 Non-cash operating items: Coupon payments on hybrid capital Repurchase of hybrid capital Proceeds from issuance of hybrid capital Cash flow from financing activities -7.4 -8.1 0.0 Change in provisions, gain and loss on sale of assets, etc. Changes in working capital -34.7 185.1 305.0 48.4 50.7 5.3 5.3 -63.3 61.7 -36.0 4.1 0.0 Cash flow from operations before financial items, etc. 217.6 -36.6 Financial income received Financial expenses paid Income tax paid 50.1 -41.6 -26.4 11.1 43.2 -51.2 -4.5 Net cash flow for the year from continuing operations Net cash flow for the year from discontinued operations Net cash flow for the year 57.4 8.0 -39.0 0.3 6.3 65.4 -38.7 Income tax received 3.7 Cash flow from operating activities from continuing operations Cash at bank and in hand, 1 January Currency adjustments 200.5 -3.7 239.2 0.0 298.2 208.8 Net cash flow for the year 65.4 262.2 3.7 -38.7 200.5 0.0 Acquisition of businesses 6.1 6.1 -15.7 0.0 0.0 2.1 Cash at bank and in hand, 31 December Of which classified as assets held for sale Divestment of businesses Investments in property, plant and equipment Disposal of property, plant and equipment Intangible assets and other investments, net -156.1 2.0 -184.5 0.1 Cash at bank and in hand from continuing operations, 31 December 258.5 200.5 -35.0 -28.9 Cash flow from investing activities from continuing operations The above cannot be derived directly from the income statement and the balance sheet. -204.8 93.4 -211.2 -2.4 Free cash flow from continuing operations Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 57 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 Treasury shares Fair value reserve Proposed dividends Hybrid Capital Total equity Amounts in EURm Total Equity, 1 January 2022 115.4 0.0 -18.6 182.0 -16.2 0.3 744.6 0.0 1,007.5 152.4 1,159.9 Other comprehensive income: Foreign exchange translation adjustments Value adjustment of hedging instruments: Value adjustment for the year -44.8 -44.8 -44.8 71.4 -14.2 -106.5 -2.1 1.7 2.9 73.1 -14.2 -103.6 -2.1 73.1 -14.2 -103.6 -2.1 Transferred to revenue Transferred to consumption of raw materials Transferred to financial income Actuarial gains/losses on defined benefit pension plans Tax on other comprehensive income Total other comprehensive income Net result 11.7 -3.7 8.0 11.7 11.7 15.0 -1.1 10.2 10.2 0.0 0.0 0.0 0.0 -44.8 -44.8 -36.4 3.5 0.0 0.0 0.0 0.0 -69.7 53.8 0.0 8.6 8.6 -69.7 62.4 53.8 61.8 Comprehensive income for the year -36.4 3.5 -15.9 -7.3 Transactions with owners: Purchase of treasury shares Exercise of performance shares Share based payment -2.5 1.6 -2.5 0.0 -2.5 0.0 -1.6 2.7 2.7 2.7 Coupon payments, hybrid capital Issue of hybrid capital 0.0 -7.4 150.0 -150.0 -7.4 -7.4 -1.6 -1.6 0.0 148.4 -150.0 -8.8 Redeem of hybrid capital Total transactions with owners in 2022 0.0 -0.9 -0.9 0.0 0.0 0.0 0.0 0.3 -0.5 0.0 0.0 -1.4 Equity, 31 December 2022 115.4 -63.4 145.6 -12.7 805.9 990.2 153.6 1,143.8 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 58 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: Value adjustment for the year -9.5 -9.5 -9.5 226.1 -8.9 -24.9 3.3 201.2 -8.9 201.2 -8.9 -63.9 -1.1 2.3 Transferred to revenue Transferred to consumption of raw materials Transferred to financial income -67.2 -1.1 -63.9 -1.1 Actuarial gains/losses on defined benefit pension plans Tax on other comprehensive income Total other comprehensive income Net result 2.3 -0.7 1.6 2.3 -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 1.5 1.5 Total transactions with owners in 2021 0.0 0.0 0.0 0.0 0.0 0.3 1.5 0.0 0.0 -8.1 -6.6 Equity, 31 December 2021 115.4 -18.6 182.0 -16.2 744.6 1,007.5 152.4 1,159.9 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 59 Sections Section 1 Basis for preparation Section 5 Significant judgements and estimates 60 60 Capital structure and financial risk management 78 Significant judgements and accounting estimates made by Management are included in the sections to which they relate with the purpose to increase legibility. 1.1 General accounting policies 5.1 5.2 5.3 5.4 5.5 5.6 Share capital 78 78 79 80 81 82 1.2 Implementation of new and amended accounting standards and interpretations 61 Earnings per share 1.3 Significant judgements and estimates 61 Hybrid capital Net interest-bearing debt Financial items Section 2 Profit for the year Financial risks and financial instruments Sensitivity 62 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 62 65 66 66 67 Staff cost Section 6 Group structure 87 87 Share-based payment Research and development Tax 6.1 6.2 6.3 Acquisitions/divestments of businesses Group companies 87 Discontinued operations and assets held for sale 88 Accounting policy Section 3 Non-current assets and liabilities 69 Accounting policies are included in the sections to which they relate in order to facilitate understand- ing of the contents and the accounting treatment applied. Accounting policies not relating directly to individual sections are stated in Section 1.1. Section 7 3.1 3.2 3.3 3.4 Intangible assets 69 70 72 74 Other notes 89 Property, plant and equipment Impairment test 7.1 Fees to auditor elected at the Annual General Meeting 89 89 Provisions and pension liabilities 7.2 7.3 Events after the balance sheet date Contingent assets and liabilities and pledges 89 90 Section 4 Working capital 7.4 Definitions 75 4.1 4.2 4.3 4.4 Changes in working capital 75 75 76 77 Inventories Receivables Contract assets and liabilities Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 60 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 preparation of this Annual Report is described in note 1.3. 1.1 General accounting policies Introduction The 2022 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 for annual reports for listed companies. The Annual Report has been approved by the Board of Directors and Executive Management on 22 February 2023, an will be presented for approval by the shareholders at the Annual General Meeting on 23 March 2023. Applying materiality 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 performance. 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. 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 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 for- eign operation, the component of other comprehen- sive income relating to that operation is recognized in the income statement. 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. 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 have not been restated. 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 2023 for the NKT Group. Principles of consolidation The consolidated financial statements comprise the financial 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. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions are eliminated in full. Alternative performance measures (APMs) The consolidated financial statement includes financial performance measures that are not defined according to IFRS. 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 finan- cial 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. 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 61 Section 1 – Basis for preparation 1.1 General accounting policies 1.2 Implementation of new and amended accounting standards and interpretations 1.3 Significant estimates and judgements – continued 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, Manage- ment 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. Significant estimates and judgements are predomi- nantly applied in relation to the recognition of revenue 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. 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. Reporting under the ESEF regulation The Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) has introduced a single electronic reporting format for the annual financial statements of issuers with securities listed on the EU regulated markets. 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-2022-12-31-en.zip. New standards, interpretations and 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 2022. On 1 January 2022, amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contin- gent Assets, and Annual Improvements 2018-2020 became effective. None of the amendments had a material impact on the NKT Group. Significant accounting Impact Note estimate and judgement Estimate/ Judgement assessment1 2.1 Segment Determine revenue recognition Judgement and estimate information for projects (PoC) and revenue 4.4 Contract Valuation of construction contracts Judgement and estimate assets and liabilities 2.5 Tax Valuation of deferred tax assets Judgement and estimate 3.3 Impairment Estimate the value-in-use of intangible Estimate of assets and tangible long-term assets 7.3 Contingent Determine recognition and Judgement and estimate liabilities measurement of obligations 1 The numbers of boxes in the above assessment indicate the level of estimates and judgment applied, where five being the highest. 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 2022. NKT Group expect to implement these new and amended standards, when they become mandatory. None of the standards and interpretations are expect- ed to have a material impact on the NKT Group. Presentation in the notes Accounting policy 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. Presentation in the notes Significant estimates A description of the Significant judgements and accounting estimates provided by Management are in- cluded in the respective sections to which they relate. Sensitivity Sensitivity analyses often accompany significant judgements and accounting estimates, and are included in the sections to which they relate. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 62 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 & Intersegment Amounts in EURm Solutions Applications Accessories Non allocated transact. Total NKT 2022 Income statement Goods1) 46.7 1,066.7 132.8 0.0 -38.2 1,208.0 Service, etc.1) 16.9 0.0 7.3 0.0 -2.6 21.6 Construction contracts2) 803.5 0.0 53.2 0.0 -7.3 849.4 Revenue (market prices) 867.1 1,066.7 193.3 0.0 -48.1 2,079.0 Adjustment of market prices to std. metal prices -117.6 -514.7 -0.1 0.0 0.2 -632.2 Revenue (std. metal prices) 749.5 552.0 193.2 0.0 -47.9 1,446.8 Costs and other income, net (excl. one-off items) -761.2 -1,038.2 -167.6 -5.6 48.1 -1,924.5 Operational EBITDA 105.9 28.5 25.7 -5.6 0.0 154.5 Depreciation, amortization and impairment -64.3 -14.9 -4.2 -2.0 0.0 -85.4 Operational EBIT 41.6 13.6 21.5 -7.6 0.0 69.1 Working capital -437.2 89.7 36.2 8.3 0.0 -303.0 2021 Income statement Goods1) 37.4 900.0 118.8 0.0 -21.2 1,035.0 Service, etc.1) 15.2 0.0 6.7 0.0 -2.9 19.0 Construction contracts2) 702.6 0.0 80.5 0.0 -9.2 773.9 Revenue (market prices) 755.2 900.0 206.0 0.0 -33.3 1,827.9 Adjustment of market prices to std. metal prices -115.1 -449.8 -0.2 0.0 0.3 -564.8 Revenue (std. metal prices) 640.1 450.2 205.8 0.0 -33.0 1,263.1 Costs and other income, net (excl. one-off items) -672.1 -871.5 -173.2 -13.3 33.3 -1,696.8 Operational EBITDA 83.1 28.5 32.8 -13.3 0.0 131.1 Depreciation, amortization and impairment -69.1 -15.4 -4.4 -5.6 0.0 -94.5 Operational EBIT 14.0 13.1 28.4 -18.9 0.0 36.6 Working capital -152.8 64.3 22.6 -27.3 0.0 -93.2 Revenue from the sale of goods and services are recognized at a point in time. 1) 2) Revenue from construction contracts are recognized over time. Operational EBITDA 154.5m (131.1m in 2021) Solutions Operational EBITDA 105.9m (83.1m in 2021) Applications Operational EBITDA 28.5m (28.5m in 2021) Service & Accessories Operational EBITDA 25.7m (32.8m in 2021) Introduction / Group review and markets / Business lines / Governance / Financial statements Section 2 – Profit for the year 2.1 Segment information and revenue – continued Annual Report 2022 NKT A/S 63 Amounts in EURm 2022 2021 Reconciliation to net result Operational EBITDA 154.5 131.1 One-off items 0.1 -12.7 EBITDA 154.6 118.4 Depreciation, amortization and impairment -85.4 -94.5 EBIT 69.2 23.9 Financial items, net 9.1 -8.2 EBT 78.3 15.7 Tax -23.2 -3.8 Net result - continuing operations 55.1 11.9 Net result - discontinued operations 7.3 -7.8 Net result 62.4 4.1 Accounting policy Segment information The segment information is based on internal management reporting and is presented in accordance with the Group’s accounting policies. Segment income and expenses and segment working capital comprise those items that are directly attributable to the individual segment and those items that can be reliably allocated to it. Other items are shown as non-allocated. The reportable segments are generally referred to as business lines. The business lines consist of Solutions, Applications and Service & Accesso- ries. 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 allocation of resources and measurement of performance. Revenue from Goods and Service are recognized at a point in time and revenue from construction contracts are recognized over time. Inter-segment transactions are performed on market terms. No single customer accounts for more than 10% of the revenue. The geographical disclosure of revenue is based on the country of delivery. Other operating income comprises items of a secondary nature rela- tive to the operations of the Group, including grant schemes, reimburse- ments and gains on sale of non-current assets, etc. 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. 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. Raw materials, consumables and goods for resale Costs of raw materials, consumables and goods for resale refer to purchases and changes during the year in inventory levels, including shrinkage, waste production and any write-downs for obsolescence. Geographical information Property, plant and equitment and Revenue intangible assets Amounts in EURm 2022 2021 2022 2021 Denmark 120.5 126.1 11.5 46.3 Germany 679.1 614.1 324.5 309.9 Sweden 154.8 150.4 837.3 833.8 UK 359.1 306.9 18.8 21.7 Poland 213.5 213.9 17.2 16.3 USA 99.6 4.4 0.1 6.9 Norway 90.4 108.4 87.9 90.5 Czech Republic 62.0 69.5 63.7 45.1 Other 300.0 234.2 12.2 34.1 Total 2,079.0 1,827.9 1,373.2 1,404.6 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. 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-completion 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 contract by contract. Control is transferred as the project progresses, based on assumptions such as: Deliveries being approved on an ongoing basis ■ 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 Milestone payments from the customer. ■ Introduction / Group review and markets / Business lines / Governance / Financial statements Section 2 – Profit for the year 2.1 Segment information and revenue – continued Annual Report 2022 NKT A/S 64 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. 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 minimize the risk during the execution of the cable project. Accounting policy Revenue 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 4.4 for further information concerning construction contracts. 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. Revenue from services that include service packages and extended warranties relating to products and contracts is recognized concurrently with the supply of those services. 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. 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. 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. However, 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. 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. For standardized products, NKT Group is usually en- titled to payment upon delivery, and payment terms vary by market but are usually short. 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. 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 significant 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. Payment terms of a cable project contract usually comprise the following payments: down payment from the customer at contract ■ inception, progress payments, linked to project milestones, ■ final payment upon completion and customer ■ acceptance. NKT Group will usually obtain payment guarantees to minimize counter party risk during the execution of cable projects. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 2 – Profit for the year 2.2 Staff cost Amounts in EURm 2022 2021 Wages and salaries 237.0 247.6 Social security costs 50.9 48.7 Defined contribution plans 14.6 15.2 Total 302.5 311.5 Average number of full-time employees 4,062 3,775 Annual Report 2022 NKT A/S 65 Amounts in EURk 2022 2021 Remuneration to Executive Management Salary 1,469 1,300 Bonus 1,153 1,199 Pension 75 61 Long-term incentive 1,039 478 Other benefits 114 114 Total 3,850 3,152 Accounting policy Staff costs comprise wages and salaries, remuner- ation, pensions, etc., and share-based payment for the company’s employees, including Group Man- agement. The Board of Directors does not receive share-based payment. 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. In 2022, staff costs in NKT Group decreased by 3%, and the average number of full-time employees increased by 8%. Staff costs was impacted by exchange rates and utilization of the restructuring provision recognised in 2021 regarding German activities (recognised as a one-off item in 2021). 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. In NKT Group, most employees are covered by pension schemes, primarily in the form of defined contribution-based plans managed by independent pension funds. 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. Remuneration to Executive Management increased in 2022 compared to 2021, mainly due to higher salaries as well as the long-term bonus program, as the internal targets were fully met for the 2020 program (see note 2.3 Share-based payment). For more information on the develop- ment, refer to the Remuneration Report available at the website. 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 11.7m (EUR 2.3m in 2021), see note 3.4 for more information. 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 EURk 2022 2021 Remuneration to Board members Base remuneration 576 480 Audit committee 48 42 ESG committee 13 0 Nomination committee 24 20 Remuneration committee 33 20 NKT Photonics working committee 26 28 Total 720 590 Introduction / Group review and markets / Business lines / Governance / Financial statements Section 2 – Profit for the year 2.3 Share-based payment Long-term incentive programs for Executive Management and Group Leadership Team The decision to award performance shares to the Executive Manage- ment, the Group Leadership Team (GLT) and selected employees is made each year at the discretion of the Board of Directors after rec- ommendation from the Remuneration Committee. The awarded shares represent a conditional right to receive shares after a three-year per- formance 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. For more information on the grant of performance shares, refer to the Group’s Remuneration Report available on the website. In 2022, a new performance share program was awarded to 18 partici- pants (19 in 2021) 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 2.5m (EUR 2.0m in 2021). For the 2020 program, both the TSR target and EBITDA target were met and 82.092 shares will vest in February 2023. Costs relating to share-based payments in 2022 was EUR 2.7m (EUR 1.5m in 2021). The increased costs was mainly driven by an increased number of shares in later programs, but also because the EBITDA target for the 2020 program was reached in 2022, which was previously only expected to be partially reached. Remaining value to be expensed relating to current programs is EUR 2.6m (EUR 2.3m in 2021). The weighted average remaining contractual life of performance shares at the end of the period was 1.1 years (1.2 years in 2021). Annual Report 2022 NKT A/S 66 2.4 Research and development Amounts in EURm 2022 2021 Research and development costs - staff costs 5.2 5.5 Research and development costs - other costs 32.1 27.3 Total research and development costs 37.3 32.8 Recognized as follows: Expensed in the income statement 6.0 7.1 Capitalized in the balance sheet 31.3 25.7 Total research and development costs 37.3 32.8 Assumptions The value of each Performance shares Program (PSP) granted is calcu- lated 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. Performance shares Executive Other outstanding management employees Total 1 January 2021 42,435 119,100 161,535 Shares granted during the year 28,631 41,125 69,756 Shares lapsed during the year -3,118 -17,128 -20,246 31 December 2021 67,948 143,097 211,045 1 January 2022 67,948 143,097 211,045 Shares granted during the year 30,554 42,335 72,889 Shares lapsed during the year -10,586 -50,908 -61,494 31 December 2022 87,916 134,524 222,440 Accounting policy Research costs are expensed in the income statement as they occur. Clearly defined and identifiable development projects are recognized as intangible assets provided that the following requirements are met: the technical feasibility, adequacy of resources and a potential future market can be demonstrated, it is intended to manufacture, market or utilize the project, the cost can be reliably determined, and there is reasonable certainty that the future earnings or net selling prices can cover the car- rying 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, development projects are amortized on a straight-line basis over their estimated useful life from the date the asset is available for use. The amortization period is usually 3–10 years. The amortization base is reduced by any impairment losses. Accounting policy 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 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 period disregarding any changes in the number of shares expected to vest. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 2 – Profit for the year 2.5 Tax 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. NKT Group only uses business structures that are driven by commercial consideration and have the genuine substance. 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. NKT Group believes in collaboration and transparency regarding its tax matters and actively pursues opportunities to engage with tax author- ities and other relevant stakeholders with the purpose of building trust through collaboration and openness. NKT Group realized earning before tax (EBT) of EUR 78.3m (EUR 15.7 in 2021), which resulted in a reported tax rate of 29.6% (24.1% in 2021). The reported tax rate of 29.6% was primarily impacted by changes to deferred tax assets in Germany and utilization of not recognized deferred tax assets in Denmark. In 2022, NKT Group paid on net amount of EUR 15.3m in corporate income tax compared to paying a net amount of EUR 0.4m in 2021. Earnings realised in NKT Group’s Danish companies resulted in payable corporate tax of EUR 3.3m after utilizing tax losses carried forward (EUR 0.3m in 2021). Annual Report 2022 NKT A/S 67 Amounts in EUR 2022 2021 Tax recognized in the income statement Current tax 11.1 7.6 Current tax, adj. prior years 1.5 -0.3 Deferred tax 13.6 -4.9 Deferred tax, adj. prior years -3.0 1.4 23.2 3.8 Tax rate for the year 29.6% 24.1% Reconciliation of tax: Calculated 22.0% tax on earnings before tax 17.2 3.4 Tax effect of: Foreing tax rates relative to Danish tax rate -5.0 -2.8 Non-taxable income/ non-deductible expenses, net -4.1 1.6 Adjustment for previous years -1.5 1.1 Value adjustment of tax assets 16.6 0.5 23.2 3.8 Amounts in EURm 2022 2021 Deferred tax, 1 January, net -46.9 -17.8 Tax recognized in other comprehensive income 10.2 -34.1 Addition from acquisitions -0.9 0.0 Deferred tax recognized in income statement -10.6 3.9 Transferred to payable tax 0.0 0.5 Transferred to assets held for sale 2.4 0.0 Foreign exchange adjustment 2.6 0.6 Deferred tax, 31 December, net -43.2 -46.9 Recognized deferred tax: Deferred tax assets, 31 December 11.7 24.9 Deferred tax liabilities, 31 December -54.9 -71.8 Deferred tax, 31 December, net -43.2 -46.9 Specification on deferred tax assets and liabilities: Intangible assets -22.7 -22.0 Tangible assets -13.3 -16.3 Other non-current assets 1.4 1.7 Current assets -65.1 -81.1 Non-current liabilities 5.8 8.0 Current liabilities 13.7 4.1 Tax losses 128.7 130.6 Valuation allowance, unrecognized tax assets -92.7 -81.7 Other 1.0 9.8 Deferred tax, 31 December, net -43.2 -46.9 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 68 Section 2 – Profit for the year 2.5 Tax – continued Significant estimates 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 consolidated income statement. 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 high-voltage business. The tax losses carried forward from the German tax unit increased from EUR 311.8m in 2021 to EUR 387.9m in 2022. The total deferred tax value amounts to EUR 124.1m. NKT Group has recognized a deferred tax hereof of EUR 30.7m at year-end (EUR 29.9m in 2021). The tax losses carried forward in the Danish tax unit were fully utilized during 2022. The tax losses carried forward at end-2022 in the Swedish tax unit sums up to EUR 6.3m, which lead to a deferred tax asset of EUR 1.3m (EUR 11.2m in 2021). Further, a deferred tax asset of EUR 11.3 relat- ing to interest carried forward has been recognized (EUR 12.0m in 2021). The deferred tax asset has been fully offset against a deferred tax liability. Tax losses in Germany and Sweden has no expiry date. 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. Current tax payable and receivable is recognized in the balance sheet as tax estimated on taxable in- come for the year, adjusted for tax on taxable income for previous years and for tax paid on account. NKT Group reported a net deferred tax liability of EUR 43.2m (EUR 46.9m in 2021). The development mainly relates to deferred tax liability related to hedge ac- counting recognized in other comprehensive income and deferred tax liability related to timing differences in revenue recognition in Germany and utilization of tax losses carried forward in Denmark and Sweden. 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. 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. 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. 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 receivables’, ‘Income tax payables’ and ‘Deferred tax’ based on an assessment of the most likely outcome of the disputes. 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 69 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 Trademarks, Development Intangible Total patents and projects assets under Intangible Amounts in EURm Goodwill licences etc. IT software completed development assets Cost, 1 January 2021 412.1 101.6 62.0 80.3 79.2 735.2 Additions 0.0 0.0 0.1 0.1 36.6 36.8 Disposals -1.3 0.0 -1.4 -1.6 0.0 -4.3 Transferred between classes of assets 0.0 0.0 21.5 5.2 -26.7 0.0 Exchange rate adjustments -6.4 -1.2 0.0 -0.5 -0.1 -8.2 Costs, 31 December 2021 404.4 100.4 82.2 83.5 89.0 759.5 Amortization and impairment, 1 January 2021 -1.3 -38.1 -32.2 -36.7 0.0 -108.3 Amortization for the year 0.0 -8.2 -9.1 -16.9 0.0 -34.2 Disposals 1.3 0.0 1.4 1.6 0.0 4.3 Exchange rate adjustments 0.0 0.3 -0.1 0.2 0.0 0.4 Amortization and impairment, 31 December 2021 0.0 -46.0 -40.0 -51.8 0.0 -137.8 Carrying amount, 31 December 2021 404.4 54.4 42.2 31.7 89.0 621.7 Cost, 1 January 2022 404.4 100.4 82.2 83.5 89.0 759.5 Disposal of subsidiary 0.0 -1.7 0.0 -7.7 -2.3 -11.7 Additions 0.0 0.0 1.1 0.2 39.3 40.6 Disposals 0.0 0.0 0.0 -0.4 -0.1 -0.5 Transferred between classes of assets 0.0 0.0 1.5 8.8 -10.3 0.0 Transferred to assets held for sale -25.3 -26.9 -7.8 -17.9 -24.4 -102.3 Exchange rate adjustments -28.7 -5.6 -0.4 -3.2 -3.5 -41.4 Costs, 31 December 2022 350.4 66.2 76.6 63.3 87.7 644.2 Amortization and impairment, 1 January 2022 0.0 -46.0 -40.0 -51.8 0.0 -137.8 Disposal of subsidiary 0.0 1.2 0.0 5.8 0.0 7.0 Amortization for the year 0.0 -6.3 -8.5 -11.6 0.0 -26.4 Disposals 0.0 0.0 0.0 0.4 0.0 0.4 Transferred to assets held for sale 0.0 22.3 2.7 12.3 0.0 37.3 Exchange rate adjustments 0.0 2.0 0.4 1.3 0.0 3.7 Amortization and impairment, 31 December 2022 0.0 -26.8 -45.4 -43.6 0.0 -115.8 Carrying amount, 31 December 2022 350.4 39.4 31.2 19.7 87.7 528.4 Investment ratio 13% (18% in 2021) Headroom in impairment test 831m (303m in 2021) Capex 125.7m (165.7m in 2021) * Investment ratio is calculated as additions for continuing operations in % of revenue SP Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 70 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: Manu- Fixtures, facturing fittings, Land and plant and tools and Amounts in EURm buildings machinery equipment Total Carrying amount, 1 January 2021 36.4 8.2 0.7 45.3 Addition for the year 11.0 0.0 0.7 11.7 Depreciation of right-of-use assets -6.6 -1.0 -0.4 -8.0 Exchange rate adjustments -0.2 -0.1 -0.1 -0.4 The carrying amount of right-of-use assets, 31 December 2021 40.6 7.1 0.9 48.6 Carrying amount, 1 January 2022 40.6 7.1 0.9 48.6 Addition for the year 1.8 0.0 0.0 1.8 Disposals for the year 0.5 0.0 0.0 0.5 Disposal of subsidiaries -0.5 0.0 0.0 -0.5 Depreciation of right-of-use assets -5.4 -1.0 -0.4 -6.8 Transferred to assets held for sale -6.5 0.0 0.0 -6.5 Exchange rate adjustments -1.0 0.0 0.0 -1.0 The carrying amount of right-of-use assets, 31 December 2022 29.5 6.1 0.5 36.1 Amounts recognized in the income statement: Amounts in EURm 2022 2021 Costs relating to other immaterial leases including short term and low value leases, recognized in the income statement 7.8 7.1 Lease liabilities and interests relating to recognized lease contracts are included in Section 5.4 and 5.5 respec- tively. Future minimum lease payments relating to leases not recognized in the balance sheet amount to EUR 11.6m (EUR 13.4m in 2021). Accounting policy Goodwill is initially recognized in the balance sheet at cost. Subsequently, goodwill is measured at cost less accumulated impairment losses and is not amortized. 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. Other intangible assets, which 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. Expected useful life is determined as follow: Trademarks, patents and licences, etc. 3 –15 years IT software 3 – 8 years Accounting policy Contracts relating to leased equipment are usually made for a fixed period, whereas lease contracts for buildings and land in some instances include an option to extend the lease. When assessing the life of the leases, NKT considers the non-cancellable lease term and options to extend the lease where it is rea- sonably certain to extend. The lease period of offices and sales buildings are assessed to be approximately 3-10 years, for production facilities 5-10 years and for land up to 20 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. 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. 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 71 Section 3 – Non-current assets and liabilities 3.2 Property, plant and equipment – continued Property, Manu- Fixtures, plant and Total facturing fittings, equipment property, Land and plant and tools and under con- plant and Amounts in EURm buildings machinery equipment struction equipment Cost, 1 January 2021 396.5 636.2 120.9 56.4 1,210.0 Additions 13.4 5.4 10.4 173.8 203.0 Disposals -2.0 -2.3 -1.8 0.0 -6.1 Transferred between classes of assets 0.2 34.2 2.8 -37.2 0.0 Exchange rate adjustments 2.5 1.5 -0.8 -0.8 2.4 Cost, 31 December 2021 410.6 675.0 131.5 192.2 1,409.3 Depreciation and impairment, 1 January 2021 -104.7 -374.3 -72.6 -0.8 -552.4 Depreciation for the year -16.7 -42.8 -15.4 0.0 -74.9 Disposals 1.7 2.1 1.8 0.0 5.6 Exchange rate adjustments -2.5 -2.5 0.3 0.0 -4.7 Depreciation and impairment, 31 December 2021 -122.2 -417.5 -85.9 -0.8 -626.4 Carrying amount, 31 December 2021 288.4 257.5 45.6 191.4 782.9 Cost, 1 January 2022 410.6 675.0 131.5 192.2 1,409.3 Additions 4.2 20.6 2.6 134.5 161.9 Additions from business combinations 6.4 12.7 0.2 1.6 20.9 Disposals -0.4 -7.3 -2.2 -1.3 -11.2 Disposal of subsidiaries -1.6 -0.3 -3.9 0.0 -5.8 Transferred between classes of assets 33.4 53.2 16.2 -102.8 0.0 Transferred to assets held for sale -20.9 -16.5 -9.5 -3.4 -50.3 Exchange rate adjustments -13.9 -10.2 -5.8 -11.3 -41.2 Cost, 31 December 2022 417.8 727.2 129.1 209.5 1,483.6 Depreciation and impairment, 1 January 2022 -122.2 -417.5 -85.9 -0.8 -626.4 Depreciation for the year -15.5 -37.7 -12.4 0.0 -65.6 Disposals 0.2 7.1 2.4 0.8 10.5 Disposal of subsidiaries 1.1 0.0 3.4 0.0 4.5 Transferred to assets held for sale 8.7 13.7 5.8 0.0 28.2 Exchange rate adjustments 2.3 5.1 2.6 0.0 10.1 Depreciation and impairment, 31 December 2022 -125.4 -429.3 -84.1 0.0 -638.8 Carrying amount, 31 December 2022 292.4 297.9 45.0 209.5 844.8 Accounting policy Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. 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, subcon- tractors 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. 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. Depreciation is done on a straight-line basis over the expected useful life of the assets, as follows: Buildings 10 – 50 years Manufacturing plant and machinery 4 – 20 years Fixtures, fittings, tools and equipment 3 – 15 years Vessel 20 years Land is not depreciated If individual parts of an item of property, plant and equipment have different useful lives, they are depreciated separately. 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 72 Section 3 – Non-current assets and liabilities 3.3 Impairment test Result of the annual impairment test At 31 December 2022, the carrying amount of good- will, other intangible assets and tangible assets were tested for impairment. The impairment test showed no impairment for 2022 (no impairment in 2021). 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: Headroom in EURm 2022 2021 Cash-generating units Solutions 831 303 Service & Accessories 120 152 Cash-generating units Cash-generating units identified in NKT Group are similar to the operating segments, being Solutions, Applications and Service & Accessories. These are considered to be the lowest level of cash-generating units as defined by management. 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. 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. Significant estimates Goodwill Goodwill has been allocated to the cash-generating units according to the split present- ed below. The goodwill level in Applications was immaterial and the assumptions for the impairment test of goodwill are not described any further for this cash-generating unit. The carrying amount of goodwill was as follows: Accounting policy 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 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. Other non-current assets 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. 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. 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. Impairment of goodwill is not reversed. Impairment of other assets is re- versed 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. Amounts in EURm 2022 2021 Solutions 298.1 323.3 Applications 6.7 6.5 Service & Accessories 45.6 49.3 NKT Photonics - 25.3 Total 350.4 404.4 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 2023 and financial forecasts for 2024–2028, 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 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. 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 recom- mended. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 3 – Non-current assets and liabilities 3.3 Impairment test – continued Annual Report 2022 NKT A/S 73 Solutions Budget period Terminal period 2022 2021 2022 2021 Key assumptions1 Average revenue growth rate 13.0% 13.3% - - Average EBITDA margin 17.5% 14.0% - - Growth rate - - 2.0% 1.5% Average working capital ratio -46.3% -20.4% - - Discount rate after tax 10.0% 6.8% 10.0% 7.8% Discount rate before tax 13.3% 9.1% 13.3% 10.4% Sensitivity Discount rate after tax 19.2% 9.9% Growth rate -16.7% -3.1% Change in EBITDA -49.7% -20.0% Service & Accessories Budget period Terminal period 2022 2021 2022 2021 Key assumptions1 Average revenue growth rate 4.6% 0.3% - - Average EBITDA margin 11.9% 12.7% - - Growth rate - - 2.0% 1.0% Average working capital ratio 13.2% 11.3% - - Discount rate after tax 9.7% 6.5% 9.7% 7.5% Discount rate before tax 13.1% 8.8% 13.1% 10.1% Sensitivity Discount rate after tax 21.4% 25.5% Growth rate -24.2% -50.0% Change in EBITDA -60.7% -71.1% NKT Photonics Budget period Terminal period 2021 2021 Key assumptions1 Average revenue growth rate 10.6% - Average EBITDA margin 19.0% - Growth rate - 2.0% Average working capital ratio 13.5% - Discount rate after tax 7.7% 8.7% Discount rate before tax 10.1% 11.4% Sensitivity Discount rate after tax 10.3% Growth rate 0.4% Change in EBITDA -9.0% In 2022, Solutions was awarded additional high-voltage cable projects maintaining the high backlog, ensuring a high level of activity during the budget period. Management assesses that NKT will be one of the key beneficiaries of the global expansion in green technology over the world. These will be the main drivers for the growth in Solutions from 2023 and onwards. The continued growth in renewable power generation is an important driver in the attractive outlook for the high-voltage market. Progress continues on several tenders across market segments and ge- ographies, where NKT still views Europe as its largest market opportuni- ty, but more projects are coming particularly in the US as well as in Asia. Following the awards in 2022, NKT still expects the value of high-voltage project awards in relevant markets to stay at a high level for a long term. Assessing future awards to NKT is although by nature subject to uncer- tainty, 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. However, the large backlog provides higher certainty regarding the future revenue and earnings. The market for servicing power cables is gradually growing, and 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, and if an incident does occur, power cable operation must be restored as fast as possible, hence the increas- ing interest in service agreements. The customers increasingly demand services that will enable them to improve power cable efficiency and solutions that can help predict, prevent and mitigate power cable failures. 2021 was a very positive year for Service, driven by an unusual high level of repair jobs. While not expected at the same level as 2021, the Service market is expected to see attractive growth in the years ahead, driven by the installation of further power cables both off- and onshore in line with the megatrends driving the power cable market. However, the market will fluctuate during this period depending on the number of large offshore cable repairs. In June 2022, NKT Photonics was transferred to assets held for sale. Con- sequently, no impairment test based on value-in-use has been performed in 2022. Reference is made to note 6.3 for further information of NKT Photonics. In 2021, the impairment test for NKT Photonics resulted in a headroom of EUR 22m based on the key assumptions illustrated above. 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. 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. Accessories deliver necessary components of power cable systems, and their market is therefore closely linked to that for medium- and high-voltage power cables. The market is therefore expected to increase and NKT expects to reach even more markets over the coming years. As with power cables, competitive pressure for Accessories is greatest at the lowest voltage levels due to the increasing complexity of accessories for higher voltage application. 1 In 2021 NKT applied two different discount rates for the budget and terminal period respectively. Due to normalization in the financial markets, where negative interests are no longer observed, the discount rates no longer differentiate between the budget period and the terminal period. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 3 – Non-current assets and liabilities 3.4 Provisions and pension liabilities Warranty Restructuring Other Pension Amounts in EURm provision provision provisions liabilities, net Total Provisions, 1 January 2022 6.9 14.7 50.4 53.8 125.8 Additions in the year 0.5 0.1 14.2 1.1 15.9 Used during the year -0.1 -5.3 -11.2 -1.9 -18.5 Reversed during the year -4.9 -0.3 -27.7 0.0 -32.9 Transfer to assets held for sale -1.1 0.0 0.0 0.0 -1.1 Exchange rate adjustment -0.4 0.0 -1.7 0.0 -2.1 Actuarial gains/losses on defined benefit pension plans 0.0 0.0 0.0 -11.7 -11.7 Provisions, 31 December 2022 0.9 9.2 24.0 41.3 75.4 Provisions are recognized in the balance sheet as: Non-current liabilities 0.0 4.4 7.0 41.3 52.7 Current liabilities 0.9 4.8 17.0 0.0 22.7 0.9 9.2 24.0 41.3 75.4 Annual Report 2022 NKT A/S 74 Accounting policy The provisions recognized are Management’s best estimate of the amount required to settle the obligation. Warranty provisions are recognized in connection with the sale of goods and services based on the level 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, formal 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 depreciated accordingly. The addition of interests on provi- sions are recognized in the income statement under financial expenses. For the Group’s defined benefit plans, an annual actuarial calculation (the Projected Unit Credit Method) of the present value of future benefits pay- able 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 deter- mined 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. Pension expenses and other long-term employee benefits are recog- nized in the income statement based on actuarial estimates and financial expectations at the start of the year. Actuarial gains or losses are recog- nized in other comprehensive income. 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. Actuarial gains related to the pension liabilities are recognized in other comprehensive income. The pension liability also include other long term benefits relating to anniversary bonuses, etc., amounting to EUR 2.0m (EUR 1.9m in 2021). At the end of 2022, there were no plan assets to be offset in the present value of the liability. Actuarial assumptions applied 2022 2021 Discount rate 3.4% 1.1% Future salary increases 3.0% 3.0% Future pension increases 2.2% 2.0% Sensitivity analysis 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. Amounts in EURm 2022 2021 +0.5%-point in discount rate -2.2 -3.5 -0.5%-point in discount rate 2.5 3.9 +0.5%-point in future pension increase -0.5%-point in future pension increase 2.2 3.4 -2.0 -3.1 A change in the salary increase of 0.5%-points is not considered to have a material effect. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 75 Section 4 – Working capital NKT Group’s working capital 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. 4.1 Changes in working capital in cash flow Amounts in EURm 2022 2021 Inventory -62.0 -40.7 Trade receivables and other receivables -71.2 -69.3 Contract assets and contract liabilities 225.2 57.0 Trade payables and other liabilities 93.1 99.6 Effect of discontinued operations 0.0 4.1 Total 185.1 50.7 The numbers in the table above cannot be derived directly from the balance sheet. Amounts in EURm 2022 2021 Reconciliation to change in working capital in cash flow Working capital 1 January -59.6 -137.1 Reclassification of discontinued operations 1 January -33.6 0 Working capital 31 December -303.0 -59.6 Change in working capital based on balance sheet -209.8 77.5 Effect of unrealized hedges reported on Equity 18.7 -127.3 Effect of discontinued operations 0.0 4.1 Effect of changes in current tax 4.6 4.2 Effect of changes in exchange rates, etc. 1.4 -1.0 Change in working capital based on cash flow statement -185.1 -50.7 Working capital -303.0m (-93.2m in 2021) 4.2 Inventories Amounts in EURm 2022 2021 Raw materials, consumables and goods for resale 154.5 127.9 Work in progress 73.2 69.7 Finished goods 107.2 89.8 Inventories, 31 December 334.9 287.4 Write-down of inventories, 1 January 17.0 21.8 Write-down of inventories for the year 1.0 3.0 Disposals from sales 0.0 -1.6 Scrapping -7.1 -6.2 Transfer to assets held for sale -3.5 0 Write-down of inventories, 31 December 7.4 17.0 Solutions Working capital 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 written down to this lower value. Raw materials, consumables and goods for resale are measured at cost, comprising purchase price plus delivery costs. Finished goods and work in progress are measured at cost, comprising direct costs and production overheads. - 437.2m (-152.8m in 2021) Applications Working capital 89.7m (64.3m in 2021) Service & Accessories Working capital 36.2m (22.6m in 2021) Introduction / Group review and markets / Business lines / Governance / Financial statements Section 4 – Working capital 4.3 Receivables 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 2022 2021 Trade receivables 208.7 212.6 Other receivables incl. derivatives 283.1 266.7 Prepayments 30.7 49.6 Receivables 522.5 528.9 Of the receivables, EUR 0.1m are expected to be received later than 12 months (EUR 1.3m in 2021). Annual Report 2022 NKT A/S 76 Development in provision for bad debt Amounts in EURm 2022 2021 Trade receivables, gross 211.4 215.8 Provision for bad debt Provision for bad debt, 1 January 3.2 3.8 Additions during the year 0.6 1.4 Reversed during the year -0.6 -1.2 Used during the year -0.3 -0.9 Transferred to assets held for sale -0.2 0.0 Exchange rate adjustments 0.0 0.1 Provision for bad debt, 31 December 2.7 3.2 Trade receivables, net 208.7 212.6 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 characteris- tics and is based on historical experience and, when applicable, adjusted for factors that are specific to the debtors and general economic con- ditions. 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. When there is an indication of impairment, expected credit losses are calculated at individual level and when there are no reasonable expecta- tions of recovering, the receivable is written off in part or entirely. The allowances for expected credit losses and write-offs for trade receiv- ables are recognized in the income statement as Other costs. Impairment on trade receivables amounted to 1% of trade receivables unchanged from 1% in 2021. For further information on credit risks, please see Section 5.6. In 2022, credit losses recognized in the income statement count for 0.0% of total revenue (0.1% of total revenue in 2021). The expected loss rates are updated at every reporting date. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 4 – Working capital 4.4 Contract assets and liabilities Contract assets comprise the sales value of work performed on con- struction contracts, where NKT Group does not yet possess an uncon- ditional 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. Amounts in EURm 2022 2021 Construction contracts Contract value of work in progress 1,614.3 1,859.9 Progress billing -2,155.4 -2,156.9 -541.1 -297.0 Recognized as contract assets 98.2 97.3 Recognized as contract liabilities -639.3 -394.3 -541.1 -297.0 Construction contracts 639.3 394.3 Prepayments for construction contracts 19.9 27.0 Other prepayments from customers 18.4 38.0 Total contract liabilities 677.6 459.3 Annual Report 2022 NKT A/S 77 Accounting policy Construction contracts Construction contracts are measured at the selling price of the work performed less progress billings and anticipated losses. If the value of work performed exceeds progress billings, the excess is recognized as contract assets. and if progress billings exceed the value of work per- formed, the deficit is recognized as contract liabilities. Prepayments from customers are recognized under contract liabilities. 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 anticipated loss on the contract is immediately recognized as a provision. When income and expenses on a construction contract cannot be determined reliably, the contract value is measured as the costs incurred which are likely to be recoverable. Amounts in EURm 2022 2021 Contract assets, 1 January 97.3 21.3 Addition from revenue recognized 40.1 85.6 Transferred to receivables -30.5 -13.0 Transferred to assets held for sale -2.1 0.0 Exchange rate adjustments -6.6 3.4 Contract assets, 31 December 98.2 97.3 Contract liabilities, 1 January 459.3 296.5 Decrease from revenue recognized -331.7 -179.2 Prepayments received 562.3 344.6 Transferred to assets held for sale -0.5 0.0 Exchange rate adjustments -11.8 -2.6 Contract liabilities, 31 December 677.6 459.3 Expected recognition of revenue: Within 1 year 468.4 281.0 Within 1-5 years 209.2 178.3 After 5 years 0.0 0.0 677.6 459.3 Significant estimates Construction contracts are measured based on Management’s judge- ment 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 78 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). Financial risk management mainly relates to managing the risks related to currency, commodities and interest rate risks relating to the financing. 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 owner- ship or voting right, and Group Management is unaware of any agreements in this regard. Distribution of dividend to shareholders of NKT A/S has no tax consequences for the company. As per 31 December 2022 share capital comprised 42,976,036 shares of nominal value of DKK 20 per share. Share capital has been unchanged in 2022 and 2021. During 2022, 75,000 treasury shares were purchased of which 16,055 are held at 31 December 2022. 5.2 Earnings per share Amounts in EURm 2022 2021 Profit attributable to equity holders 53.8 -4.0 Weighted average number of ordinary shares adjusted for the effect of dilution 43,094,255 43,090,596 Basic earnings - continuing operations, EUR, per share (EPS) 1.1 0.1 Diluted earnings - continuing operations, EUR, per share (EPS-D) 1.1 0.1 Basic earnings per share, EUR 1.3 -0.1 Diluted earnings per share, EUR 1.2 -0.1 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. Mandates issued by the shareholders at the General Meeting in relation to the Group’s capital structure: 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 period 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. Solvency ratio 41% 2. For the period until 31 March 2026 the Board of Directors is authorized to arrange for ac- quisition 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 Copenhagen at the time of acquisition. The price quoted at the time of acquisition shall mean Nasdaq Copenhagen closing price - all transactions at 5 p.m. (45% in 2021) Operational EBITDA leverage 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 mil- lion new shares). This mandate is equally capped to DKK 41,119,820 due to the capital increases in 2020. -0.4x (0.1x in 2021) Accounting policy Dividend is recognized as a liability at the date of 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. Acquisition costs, consideration received, and dividends relating to treasury shares, are recognized directly in retained comprehensive income in equity. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 5 – Capital structure and financial risk management 5.3 Hybrid capital For 2022, hybrid capital comprise issued bonds from September 2022 of EUR 150m. For 2021, hybrid capital comprose issued bonds from Sep- tember 2018 of EUR 150m. In 2022, the hybrid capital from September 2018 was called and settled and a new hybrid bond was issued. The issued hybrid capital in both 2022 and 2021 have been accounted for as a hybrid capital reserve in equity. 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. Any deferred coupons outstanding in 3022 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. For further details on the hybrid capital for 2022 and 2021 please see table below. As the principal of the securities ultimately falls due in 3022 (3018 in 2021), its discounted 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. Annual Report 2022 NKT A/S 79 In connection with the issue of the new hybrid capital in 2022, holders of the previous hybrid capital had the option to roll-over their investment in the new hybrid capital without any cash transactions. Therefore, the cash flow from the issue and repurchase of hybrid capitals are less than the nominal amount of the hybrids. Below is a specification of the cash flow related to the hybrid capital transactions in 2022. Accounting policy Hybrid capital is treated in accordance with the rules on compound financial 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. Coupon payments are accounted for as dividends and are recognized directly in equity when the obligation to pay arises. 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. 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. Cash flow from new hybrid capital 2022 Issue of new hybrid capital 150.0 Costs associated with new hybrid capital -1.6 Transferring of former hybrid holders to new hybrid capital -86.7 Proceeds from issurance of hybrid capital 61.7 Repayment of previous hybrid capital -150.0 Transferring of former hybrid holders to new hybrid capital 86.7 Repurchase of hybrid capital -63.3 On 11 August 2022, NKT A/S announced the notice of early redemption of all of its outstanding hybrid securities due 3018 with redemption date 12 September 2022. As per 11 August 2022, the hybrid was there- fore treated as an interest-bearing liability and no longer as an equity instrument. Consequently, the interests on the hybrid for the period up until 11 August 2022 are treated as dividend on the equity and interests for the period after 11 August 2022 until redemption date are treated as financial items. Hybrid bonds 2022 2021 Nominal value of hybrid capital EUR 150.0m EUR 150.0m Classification in financial statement Equity Equity Issued Sept. 2022 Sept. 2018 Maturing July 3022 Sept. 3018 First call date 1 July 2026 12 Sept. 20221 Interests: For the first four years 7.240% 5.375% For the following years Resets to the Resets to the 4-year EUR 4-year EUR swap rate swap rate prevailing prevailing at at that time that time plus plus 5% 10.225% The hybrid capital in 2021 was called and settled in 2022. 1 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 80 Section 5 – Capital structure and financial risk management 5.4 Net interest-bearing debt Net interest-bearing debt Net interest-bearing debt incl. liabilities associated with assets held for sale end 2022 was EUR -54.8m (EUR 13.2m end-2021), corresponding to an decrease of EUR 68.0m. The decrease was driven by the improved result as well as improved working capital. 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 139.8m (EUR 154.3m in 2021). Net interest-bearing debt includes debt related to capitalized lease contracts of EUR 37.6m (EUR 50.2m in 2021). Of this amount, EUR 32.1m was recognized as non-current (EUR 42.5m in 2021), and EUR 5.5m as current debt (EUR 7.7m in 2021). In 2022, payments related to capitalized lease contracts amounted to EUR 7.1m (EUR 9.4m in 2021), of which EUR 5.3m was installments on the debt (EUR 7.3m in 2021) and the remaining amount, EUR 1.8m (EUR 2.1m in 2021), was interest expenses recognized in financial items in the income statement. Amounts in EURm 2022 2021 Net interest-bearing debt comprise: Non-current loans 180.9 196.4 Current loans 14.9 17.5 Interest-bearing debt, gross 195.8 213.9 Interest-bearing receivables 0.2 0.2 Cash at bank and in hand 258.5 200.5 Net interest-bearing debt -62.9 13.2 Net interest-bearing debt presented as assets held for sale 8.1 0.0 Net interest-bearing debt incl. assets held for sale -54.8 13.2 Changes in current loans, non-current loans and lease liabilities Liabilities Effect of Changes associated changes in from Changes Acquisitions with assets exchange Amounts in EURm 1 January cash flow in leases of business held for sale rates 31 December Current and non-current loans1, 2022 213.9 -5.9 -4.5 5.5 -8.6 -4.6 195.8 Current and non-current loans1, 2021 213.4 -5.6 4.1 0.0 0.0 2.0 213.9 1 Current and non-current loans include leasing liabilities Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 81 Section 5 – Capital structure and financial risk management 5.4 Net interest-bearing debt – continued The items in the table do not include interest. The forward contracts are recognized at fair value and the discount element is considered insignifi- cant because of short maturity. 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. Changes in current loans, non-current loans and lease liabilities Less than More than Amounts in EURm 1 year 1-3 years 3-5 years 5 years Total 2022 Interest-bearing loans and borrowings1 14.9 35.6 24.1 121.2 195.8 Hereof leasing liabilities 5.5 8.0 6.0 18.1 37.6 Trade payables 351.0 351.0 Prepayments 18.4 18.4 Derivative Financial liabilities 76.6 76.6 Other payables 147.1 147.1 Total 608.0 35.6 24.1 121.2 788.9 2021 Interest-bearing loans and borrowings1 17.5 39.0 36.6 120.8 213.9 Hereof leasing liabilities 7.7 12.3 7.9 22.3 50.2 Trade payables 341.8 341.8 Prepayments 7.8 7.8 Derivative Financial liabilities 14.6 14.6 Other payables 155.8 155.8 Total 537.5 39.0 36.6 120.8 733.9 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. Accounting policy 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 recog- nized in the income statement under financial expenses over the term of the loan. Interest-bearing loans and borrowings also include the capitalized residu- al lease obligations on finance leases measured at amortized cost. 5.5 Financial items Financial income Financial expenses Net financial items Amounts in EURm 2022 2021 2022 2021 2022 2021 Interest etc. relating to financial assets/liabilities measured at amortized cost 2.2 4.8 -6.4 -9.1 -4.2 -4.3 Interest expenses on leases 0.0 0.0 -1.8 -1.8 -1.8 -1.8 Total interest 2.2 4.8 -8.2 -10.9 -6.0 -6.1 Foreign exchange gains/losses 50.4 20.5 -53.1 -17.3 -2.7 3.2 Gain/loss on derivative financial instruments 19.7 40.5 -1.9 -45.8 17.8 -5.3 Total currency gain/losses 70.1 61.0 -55.0 -63.1 15.1 -2.1 Total financial items 72.3 65.8 -63.2 -74.0 9.1 -8.2 Financial income and expenses comprise interest, dividends, gain/loss on securities, receivables and transactions denominated in foreign cur- rencies, 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. Accounting policy 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 82 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. 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 defined at a level, that insure NKT is sufficiently pro- tected against any risk, while providing Group Treasury room for managing risks efficiently. NKT uses financial instruments, such as forwards, swaps and interest rate caps to hedge exposures relat- ing to currency, interest rates, and commodities. While options are also available as instruments, no option contracts are active at the end of 2022 (none in 2021). The financial risks, as described further below, are divided into: 1. Currency risks 2. Interest rate risks 3. Raw material price risks 4. Credit risks 5. Liquidity risks 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. 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. 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. 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 to the right. 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, through possi- ble if changes in expected cashflows from projects are not reflected correctly in the hedges. Sensitivity analysis - financial instruments EURm 2022 2021 Effect on Effect Effect on Effect earnings on equity earnings on equity Risk Price change before tax before tax before tax before tax SEK 10% -43.7 62.5 11.4 -3.1 -10% 43.7 -62.5 -11.4 3.1 GBP 10% 0.3 -22.8 0.0 3.1 -10% -0.3 22.8 0.0 -3.1 NOK 10% 0.0 2.6 0.2 -3.8 -10% 0.0 -2.6 -0.2 3.8 USD 10% 0.0 -29.4 -0.2 2.6 -10% 0.0 29.4 0.2 -2.6 CZK 10% -0.8 -0.4 3.4 0.0 -10% 0.8 0.4 -3.4 0.0 PLN 10% 3.6 0.0 -7.2 0.0 -10% -3.6 0.0 7.2 0.0 Copper 10% 0.0 54.5 0.0 62.3 -10% 0.0 -54.5 0.0 -62.3 Lead 10% 0.0 1.9 0.0 1.5 -10% 0.0 -1.9 0.0 -1.5 Aluminium 10% 0.0 -1.1 0.0 0.9 -10% 0.0 1.1 0.0 -0.9 Gas-oil 10% 0.0 2.3 0.0 1.8 -10% 0.0 -2.3 0.0 -1.8 Interest rate 1%-point 0.0 0.8 0.0 0.8 -1%-point 0.0 -0.8 0.0 -0.8 The table above shows a sensitivity analysis of the exposures in currency, commodities and interest rates assuming effective hedge accounting is continued to be applied. The presented effects are from the financial instruments only (all things being equal). When also considering the development of the underlying exposure the future income statement effects, will be fully or partially offset as hedge accounting is applied. 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. 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. Interest rate risks Interest rate risks refer to the influence of changes in market interest rates on future cash flows concerning interest-bearing assets and liabilities. In 2022 no interest rate swaps were made. In 2021 an interest rate hedge of EUR 30m was made in form of an interest rate swap with a fixed rate of -0.3375 maturing in March 2026. As of end-2022, the market value of the interest rate derivatives was EUR 7.6m (EUR 0.8m in 2021). Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 83 Section 5 – Capital structure and financial risk management 5.6 Financial risks and financial instruments – continued Cash flow hedges related to Notional value Notional value Fair value the most significant currencies Average exchange rate1 Local currency in million EURm EURm Local currency 31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021 SEK2 Buy Less than 1 year 0.0943 0.0927 7,661.54 334.18 722.30 30.99 -35.8 1.3 More than 1 year 0.0938 0.0915 8,963.35 23.82 840.94 2.18 -37.8 0.1 Sell Less than 1 year 0.0926 0.0963 6,873.45 6.96 636.51 0.67 20.6 More than 1 year 0.0940 3,431.63 322.62 15.1 USD Buy Less than 1 year 0.9410 0.8445 562.29 25.43 529.13 21.48 -9.5 0.7 More than 1 year 0.9486 0.8631 281.06 19.70 266.62 17.00 -10.6 Sell Less than 1 year 0.9697 0.8494 542.51 64.73 526.09 54.98 25.1 -1.6 More than 1 year 0.9341 0.8382 617.35 10.35 576.67 8.68 15.8 -0.2 Less than 1 year 1.1522 1.1570 104.12 42.90 119.97 49.63 -3.3 1.0 GBP Buy More than 1 year 1.1626 1.1458 35.24 31.32 40.97 35.98 -1.7 0.6 Sell Less than 1 year 1.1551 1.1398 144.55 80.20 166.98 91.41 5.1 -3.1 More than 1 year 1.1702 1.1364 196.46 19.93 229.90 22.64 9.8 -0.5 NOK Buy Less than 1 year 0.0975 0.0980 329.04 130.00 32.08 12.74 -1.7 0.1 More than 1 year 0.1028 0.0975 151.65 295.00 15.59 28.76 -1.4 -0.3 Sell Less than 1 year 0.1020 191.14 19.49 1.6 More than 1 year 0.0988 0.0988 14.75 40.00 1.46 4.00 0.1 0.1 CAD Buy Less than 1 year 0.7137 24.00 17.13 -0.7 More than 1 year Sell Less than 1 year 0.7413 67.96 50.38 4.0 More than 1 year 0.7500 45.30 33.98 3.4 Cash flow hedges reported as assets 74.5 4.4 Cash flow hedges reported as liabilities 76.4 6.2 EUR/Local currency 1 2 For hedges in Local currency/SEK the SEK part has been tranferred to EUR, and a value of the SEK part has been calculated. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 84 Section 5 – Capital structure and financial risk management 5.6 Financial risks and financial instruments – continued Raw material price risks 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. NKT hedge raw material via LME. Changes in the fair value of the hedging instrument should offset changes in the value of the underlying item be- cause the reference prices are the same for the hedging instrument and the hedged item. NKT applies cost of hedging, whereby the forward points are recognized in other comprehensive income and transferred with the effective hedge when the hedged transaction occurs.. For the hedge of plastic, inef- fectiveness will arise as this is hedged via a gas-oil proxy hedge. Ineffective- ness because of differences in the change between gas-oil and plastic are considered insignificant. As at 31 December 2022, NKT A/S had current financial hedging instru- ments relating to future raw material supplies of a value of EUR 908.6m (EUR 468.6m in 2021) with a positive fair value of EUR 170.6m (positive value of EUR 225.2m in 2021). Sensitivity to the development (+/- 10%) in raw material prices was present- ed in the table on page 82. The table to the right provides an overview of the cash flow hedges related to raw materials. Average rate Notional value Fair value Cash flow hedges related to raw materials EUR/ton EURm EURm Commodity 31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021 Copper Buy Less than 1 year 5,961 5,882 528.6 321.0 169.6 147.3 More than 1 year 7,485 5,516 301.2 231.7 15.6 123.7 Sell Less than 1 year 6,421 5,733 -119.4 100.5 -26.9 -47.4 More than 1 year 5,371 14.9 -8.9 Lead Buy Less than 1 year 1,843 1,677 20.0 18.6 4.0 4.3 More than 1 year 1,897 1,721 10.2 3.1 1.7 0.7 Sell Less than 1 year 1,885 1,647 -3.2 8.0 -0.5 -1.9 More than 1 year 1,872 1.4 Aluminium Buy Less than 1 year 2,349 1,778 13.3 9.2 -0.8 4.0 More than 1 year Sell Less than 1 year 2,312 1,563 -24.9 2.7 1.1 -1.6 More than 1 year Gas-oil Buy Less than 1 year 620 420 20.4 6.6 5.5 2.6 More than 1 year 613 412 13.0 8.3 1.5 2.5 Sell Less than 1 year 634 578 -2.0 2.1 -0.6 -0.1 More than 1 year 847 573 -2.9 0.3 0.6 Cash flow hedges reported as assets 171.0 225.8 Cash flow hedges reported as liabilities 0.2 0.6 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 principle, as Group Treasury here determine the ratio necessary to hedge the price risk for plastic. 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. 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 state- ment in the same line as the hedged item. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 85 Section 5 – Capital structure and financial risk management 5.6 Financial risks and financial instruments – continued Foreign exchange Interest rate Commodity Amounts in EURm risk hedging risk hedging risk hedging Total Balance at 1 January 2021 -0.4 -0.1 72.4 71.9 Gain arising from changes in fair value of hedging instruments 5.7 0.9 220.2 226.8 Income tax related to gains recognized in other comprehensive income -1.3 -0.2 -55.7 -57.2 Gain reclassified to profit or loss - hedged items have affected profit or loss -8.9 0.0 -68.3 -77.2 Income tax related to amounts reclassified to profit or loss 1.8 0.0 16.6 18.4 Exchange rate adjustments -0.2 0.0 -0.5 -0.7 Balance at 31 December 2021 -3.3 0.6 184.7 182.0 Gain/(loss) arising from changes in fair value of hedging instruments during the period 0.9 6.7 72.9 80.5 Income tax related to gains/(losses) recognized in other comprehensive income during the period -0.2 -1.5 -10.2 -11.9 (Gain)/loss reclassified to profit or loss - hedged items have affected profit or loss 3.0 0.0 -125.8 -122.8 Income tax related to amounts reclassified to profit or loss -0.6 0.0 27.5 26.9 Exchange rate adjustments -0.1 0.0 -9.0 -9.1 Balance at 31 December 2022 -0.3 5.8 140.1 145.6 Cash flow hedge reserve Categories of financial instruments Amounts in EURm 2022 2021 Financial assets Measured at amortized costs: Receivables 273.2 308.8 Contract assets 98.2 97.3 Interest bearing receivables 0.2 0.2 Measured at fair value through profit /loss: Other investments and receivables 0.8 0.8 Cash at bank and in hand 258.5 200.5 Derivative financial instruments 249.3 220.1 Financial liabilities Measured at amortized costs: Trade payables and other liabilities 502.1 497.6 Interest-bearing loans and borrowings 195.8 213.9 Measured at fair value through profit /loss: Derivative financial instruments 76.6 14.6 In the table above, financial instruments are presented in the categories which determine, how they will be recognized in the financial statements. Foreign exchange Interest rate Commodity Amounts in EURm risk hedging risk hedging risk hedging Total Balance at 1 January 2021 0.0 0.0 0.0 0.0 Loss arising from changes in fair value of hedging instruments -1.4 0.0 -23.4 -24.8 Income tax related to loss recognized in other comprehensive income 0.4 0.0 5.8 6.2 Loss reclassified to profit or loss - hedged items have affected profit or loss 0.0 0.0 3.3 3.3 Income tax related to amounts reclassified to profit or loss 0.0 0.0 -0.8 -0.8 Exchange rate adjustments 0.0 0.0 -0.1 -0.1 Balance at 31 December 2021 -1.0 0.0 -15.2 -16.2 Gain/(loss) arising from changes in fair value of hedging instruments during the period 1.3 0.0 0.4 1.7 Income tax related to gains/(losses) recognized in other comprehensive income during the period -0.3 0.0 -0.1 -0.4 (Gain)/loss reclassified to profit or loss - hedged items have affected profit or loss 0.0 0.0 2.9 2.9 Income tax related to amounts reclassified to profit or loss 0.0 0.0 -0.7 -0.7 Exchange rate adjustments 0.0 0.0 0.0 0.0 Balance at 31 December 2022 0.0 0.0 -12.7 -12.7 Of the fair values recorded in other comprehensive income, EUR 0.6m is expected to be recorded in Revenue (EUR 3.6m in 2021) and EUR 132.3m (EUR 161.5m in 2021) is expected to be recorded in Cost of raw materials, consumables and goods for resale. Cost of hedging reserve Accounting policy - continued 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. 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 86 Section 5 – Capital structure and financial risk management 5.6 Financial risks and financial instruments – continued Measuring fair value 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’): Level 1: Listed prices (unadjusted) in active markets for identical assets and liabilities 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) Level 3: Input for the asset or liability which is not based on observable market data (non-observable input) Financial instruments measured at fair value consist of derivative financial instruments. The fair value at 31 December 2022 and 2021 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. No financial instruments was moved from one level to another in the year (no move in 2021 either). Liquidity risks 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). The current RCF of EUR 200m has in 2022 been extended with one year, so it matures in November 2025. The mortgage loan portfolio matures in 2032 and 2033. 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. It is Group Management’s opinion, that the financial headroom is suffi- cient to manage the level of activity expected in 2023 for the NKT Group. Liquidity resources Amounts in EURm 2022 2021 Committed facilities (>3 years) 0.0 0.0 Committed facilities (1-3 years) 200.0 200.0 Committed facilities (<1 year) 0.0 0.0 Total commited facilities 200.0 200.0 Uncommitted facilities 0.0 0.0 Total facilities 200.0 200.0 Cash 258.5 200.5 Utilized facilities -9.0 -5.4 Cash classified as assets held for sale 3.7 0.0 Liquidity recources 453.2 395.1 Credit risks 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 87 Section 6 – Group structure 6.1 Acquisition and divestment of businesses Amounts in EURm 2022 Acquisitions Non-current assets 20.9 Current assets 6.7 Non-current liabilities -7.3 Current liabilities -3.3 Acquired net assets 17.0 Gain on business acquisition -1.2 Purchase price 15.8 Acquired cash and cash equivalents -0.1 Cash flow used for acquisition 15.7 6.2 Group companies Group companies Domicile NKT Group Denmark NKT Cables Group A/S Denmark NKT (Denmark) A/S Denmark NKT Invest A/S Denmark Europe NKT Group GmbH1 Germany NKT Verwaltungs GmbH Germany NKT GmbH & Co. KG Germany NKT GmbH Germany Zweite NKT GmbH Germany NKT s.r.o. Czech Republic NKT (Ibérica) S.L. Spain NKT (Sweden) AB Sweden NKT HV Cables AB Sweden NKT AS Norway NKT HVC AS Norway NKT (U.K.) Ltd. UK NKT HVC Ltd. UK Ventcroft Ltd. UK NKT S.A. Poland NKT HVC B.V. Netherlands NKT HV Cables GmbH Switzerland NKT Lithuania, UAB Lithuania America NKT, Inc US Group companies Domicile Middle East NKT Middle East DMCC Dubai Asia/Pacific NKT Pty Ltd Australia NKT South Asia Private Limited India NKT Operations India Private Limited India NKT Photonics Group Denmark NKT Photonics A/S Denmark Europe NKT Photonics Technology GmbH Germany Advanced Laserdiode Systems A.L.S. GmbH Germany NKT Photonics Switzerland GmbH Switzerland NKT Photonics Holding Ltd UK NKT Photonics Ltd UK NKT Photonics AB Sweden America NKT Photonics Inc. US Asia/Pacific NKT Photonics (Zhenzhen) Co., Ltd. China Republic of NKT Photonics Korea Co., Ltd. Korea Fianium Asia Ltd. Hong Kong Acquisitions: On 10 January 2022, NKT acquired 100% of the shares in Ventcroft Ltd, a UK based company. The considerations were transferred in full and there is no contingent considerations. Ventcroft Ltd are special- ized in fire-resistant building wires and low-voltage power cables, and the acquisition was made in order to strengthen the product portfolio and is an important step in the NKT strategy to grow the business. Vent- croft Ltd will be a part of the Applications segment. a revenue of EUR 22.2m and a profit of EUR 0.4m. Had the acquisition occurred on 1 January 2022, the impact for the period until 31 December 2022 on revenue and profit would in all material aspects have been similar. There were no acquisitions in 2021. Divestments: On 10 March 2022 NKT Photonics divested its sensing business, LIOS. The proceeds from the sale were EUR 19.7m, and the gain was EUR 8.0m, which is recognized in Other operating income in the income statement. The business was a part of the NKT Photonics segment prior to the divestment, and the gain is accordingly included in this segment, why reference is made to note 6.3. The acquisition consists of net assets of EUR 17.0m predominantly related to tangible assets and working capital. No intangible assets have been recognized from the acquisition. As the purchase price is below the net asset value, as well as below the equity value of the company at the time of acquisition, a gain of EUR 1.2m has been recognized in the Income Statement in the line Other Operating Income. Acquisition-related costs of EUR 0.2m are recognized in Other costs etc. in the income statement of the Applications segment. From the acquisition date to 31 December 2022, Ventcroft Ltd contributed positively to the results with 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. 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. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 6 – Group structure 6.3 Discontinued operations and assets held for sale Amounts in EURm 2022 2021 Profit for the year – discontinued operations Revenue 86.5 80.1 Costs and other income, net -79.9 -72.6 Gain from sale of business 8.0 0.0 Earnings before interest, tax, depreciation and amortization (EBITDA) 14.6 7.5 Depreciation and amortization -6.6 -14.6 Earnings before interest and tax (EBIT) 8.0 -7.1 Financial items, net 0.1 -4.2 Earnings before tax (EBT) 8.1 -11.3 Tax -0.8 3.5 Net result - discontinued operations 7.3 -7.8 NKT' share hereof 7.3 -7.8 Basic earnings - discontinued operations, EUR, per share (EPS) 0.2 -0.2 Diluted earnings - discuntinued operations, EUR, per share (EPS-D) 0.2 -0.2 Earnings before interest, tax, depreciation and amortization (EBITDA) 14.6 7.5 One-off items 5.8 0.0 Operational EBITDA 8.8 7.5 One-off items for discontinued operations in 2022 comprise costs associated with the divestment of EUR 2.2m and the accounting gain of EUR 8.0m related to the divestment of the LIOS sensing business recognized in Q1 2022. Cash flows from discontinued operations Cash flow from operating activities -22.1 -1.0 Cash flow from investing activities 2.5 -14.3 Cash flow from financing activities 21.5 15.6 Net cash flow from discontinued operations 1.9 0.3 Annual Report 2022 NKT A/S 88 Amounts in EURm 2022 2021 Balance sheet items Non-current assets 100.7 0.0 Current assets 63.3 0.0 Assets held for sale 164.1 0.0 Non-current liabilities 13.3 0.0 Current liabilities 22.4 0.0 Liabilities associated with assets held for sale 35.6 0.0 Intangible assets held for sale related to NKT Photonics amount to EUR 69.7m and property, plant and equip- ment amount to EUR 30.7m. In connection with the classification to discontinued operations and assets held for sale no impairment was recognized. Accounting policy Discontinued operations represent a separate major line of businesses intended to be disposed within 12 months. The results of discontinued operations are presented separately in the income statement and the cash flow statement with restatement of comparative figures. Assets and liabilities held for sale from discontinued operations are presented as separate items in the balance sheet with no restatement of comparative figures. Elimination between continuing and discontinued operations is presented to reflect continuing operations as post-separation, which includes elimination of interest and loans. Assets and liabilities from discontinued operations and assets held for sale are measured at the lower of carry- ing amount and fair value less cost of disposal. Impairment test is performed immediately before classification as held for sale. Non-current assets held for sale are not depreciated or amortized. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 89 Section 7 – Other notes 7.1 Fees to the auditor elected at the Annual General Meeting Amounts in EURm 2022 2021 Deloitte: Statutory audit 1.2 1.0 Other assurance 0.0 0.1 Other service 0.0 0.0 Total 1.2 1.1 In 2022, audit fee for other services of EUR 0.1m related to issue of the new hybrid capital has been reported directly to retained earnings on the equity. This amount is not included in the table above. 7.3 Contingent assets and liabilities and pledges 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. NKT Group is jointly liable for Danish corporate taxes on dividend, inter- est 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 December 2022 these conditions were complied with. Guarantees 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. At 31 December 2022 the value of issued guarantees was EUR 1,231.2m (EUR 1,014.6m in 2021). At the balance sheet date none of the issued guarantees are expected to materialize. Pledges Non-current assets with carrying amount of EUR 388.0m (EUR 368.8m in 2021) have been pledged as security for mortgage loans of total EUR 146.0m (EUR 152.1m in 2021). Amounts in EUR 2022 2021 Carrying amount of assets pledged as collateral for credit institutions: Land and buildings 197.0 207.0 Plant and machinery 50.9 47.7 Property, plant and equipment under construction 140.1 114.1 Total 388.0 368.8 Liabilities related to pledged assets 146.0 152.1 7.2 Events after the balance sheet date Management is not aware of any subsequent matters that could be of material importance to NKT Group’s financial position. Significant judgments 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 opinions obtained from external advisors, including lawyers. Introduction / Group review and markets / Business lines / Governance / Financial statements Section 7 – Other notes 7.4 Definitions Annual Report 2022 NKT A/S 90 The Group operates with the following performance measures which are calculated in accordance with the Danish Finance Society’s guidelines: 8. Net interest-bearing debt – Cash and interest-bearing receivables 12. Solvency ratio (equity as a percentage of total assets) – Equity less interest-bearing debt. Specified in Section 5.4. Hybrid capital is not included in net interest-bearing debt. incl. hybrid capital as a percentage of total assets. Performance measures defined by IFRS: 13. Return on capital employed (RoCE) – Operational EBIT for continuing operations as a percentage of average of the last five quarters of capital employed for continuing operations. 9. Capital employed – Group equity plus net interest-bearing debt. 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 interest-bearing items and provisions). 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. 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 for continuing operations 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 Annual Report 2022 NKT A/S 91 Parent company financial statements 92 Statement of comprehensive income 92 Balance sheet 93 Statement of changes in equity 94 Cash flow statement 95 Notes Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 92 Statement of comprehensive income Balance sheet 1 January – 31 December 31 December Amounts in EURm Note 2 2022 2021 Amounts in EURm Note 2022 2021 Other costs -7.9 -5.9 Assets Earnings before interest and tax (EBIT) -7.9 -5.9 Investment in subsidiaries Receivables from subsidiaries Deferred tax 6 9 5 377.1 1,384.8 0.4 402.7 1,226.5 0.4 Financial income 3 4 148.2 -26.8 113.5 112.0 -55.4 50.7 Financial expenses Earnings before tax (EBT) Total non-current assets 1,762.3 1,629.6 Tax 5 -24.0 -9.4 Receivables from subsidiaries Other receivables 14.3 281.0 176.7 28.3 6.8 72.6 0.3 Net result 89.5 41.3 9 Cash at bank and in hand Assets held for sale Other comprehensive income Items that may be reclassified to income statement: Foreign exchange adjustment 0.0 Total current assets 500.3 79.7 0.0 6.7 0.7 1.0 Value adjustment of hedging instruments Tax Total assets 2,262.6 1,709.3 -1.4 5.3 -0.2 1.5 Total other comprehensive income for the year Equity and liabilities Comprehensive income for the year 94.8 42.8 Share capital 115.4 -0.9 115.4 0.0 Treasury shares Foreign exchange reserve Hedging reserve 1.0 1.0 5.9 0.6 Retained comprehensive income Equity attributable to equity holders of NKT A/S Hybrid capital 1,296.5 1,417.9 153.6 1,571.5 1,216.1 1,333.1 152.4 1,485.5 Total equity Interest-bearing loans 9 0.4 54.7 Total non-current liabilities 0.4 54.7 Payables to subsidiaries 9 9 434.2 256.5 690.7 92.8 76.3 Trade payables and other liabilities Total current liabilities 169.1 Total liabilities 691.1 223.8 Total equity and liabilities 2,262.6 1,709.3 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 93 Statement of changes in equity 1 January – 31 December Foreign exchange reserve Retained compreh. income Share capital Treasury shares Hedging reserve Proposed dividends Hybrid Capital Total equity Amounts in EURm Total Equity, 1 January 2021 115.4 0.0 0.3 0.7 0.7 0.7 -0.2 1,181.4 0.0 1,296.9 152.4 1,449.3 Other comprehensive income: Other comprehensive income for the year Tax on other comprehensive income Total other comprehensive income Net result 1.0 -0.2 0.8 1.7 -0.2 1.5 1.7 -0.2 1.5 0.0 0.0 0.0 0.0 0.0 33.2 33.2 0.0 0.0 0.0 8.1 8.1 33.2 34.7 41.3 42.8 Comprehensive income for the year 0.8 Transactions with the owners: Capital increase 0.0 0.0 0.0 0.0 0.0 0.0 1.5 1.5 0.0 -8.1 0.0 Coupon payments, hybrid capital Exercise of warrants -8.1 0.0 1.5 1.5 Share based payment 1.5 Total transactions with owners in 2021 0.0 0.0 0.0 0.0 1.0 0.0 0.6 0.0 0.0 -8.1 -6.6 Equity, 31 December 2021 115.4 1,216.1 1,216.1 1,333.1 1,333.1 152.4 1,485.5 1,485.5 Equity, 1 January 2022 115.4 0.0 1.0 0.6 0.0 152.4 Other comprehensive income: Other comprehensive income for the year Tax on other comprehensive income Total other comprehensive income Net result 6.7 -1.4 5.3 6.7 -1.4 5.3 6.7 -1.4 5.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 80.9 80.9 0.0 0.0 0.0 8.6 8.6 80.9 86.2 89.5 94.8 Comprehensive income for the year 5.3 Transactions with the owners: Coupon payments, hybrid capital Issue of hybrid capital 0.0 -1.6 0.0 -7.4 150.0 -150.0 -7.4 148.4 -150.0 -2.5 -1.6 Redeem of hybrid capital Purchase of treasury shares Excercise of performance shares Share based payment -2.5 1.6 -2.5 0.0 -1.6 2.7 0.0 2.7 2.7 Total transactions with owners in 2022 0.0 -0.9 -0.9 0.0 1.0 0.0 5.9 -0.5 0.0 0.0 -1.4 -7.4 -8.8 Equity, 31 December 2022 115.4 1,296.5 1,417.9 153.6 1,571.5 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 94 Cash flow statement 1 January – 31 December Amounts in EURm 2022 2021 Earnings before interest and tax (EBIT) Changes in working capital -7.9 -5.9 -7.8 -32.1 Cash flow from operations before financial items -40.0 -13.7 Financial income received Financial expenses paid Income tax paid/received Cash flow from operations 167.6 -46.4 -22.0 59.2 104.1 -47.5 0.7 43.6 Change in loans to/from subsidiaries 237.5 -202.4 Cash flow from investing activities 237.5 -202.4 Changes in interest-bearing loans Purchase of treasury shares -108.8 -2.5 -8.0 0.0 Coupon payments on hybrid capital Repurchase of hybrid capital -7.4 -8.1 0.0 -63.3 61.7 Proceeds from issuance of hybrid capital Cash flow from financing activities 0.0 -120.3 -16.1 Net cash flow for the year 176.4 -174.9 Cash at bank and in hand, 1 January Net cash flow for the year 0.3 176.4 176.7 175.2 -174.9 0.3 Cash at bank and in hand, 31 December The above cannot be derived directly from the income statement and the balance sheet. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 95 Notes 1 Accounting policies, estimates and judgements 2 Other costs Amounts in EURm 2022 2021 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 have been prepared in accordance with International Financial Reporting Standards, IFRS, as 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 recognized 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 equiv- alent 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). Wages and salaries Bonus 1.1 0.9 0.8 2.8 1.1 0.8 0.4 2.2 Long-term incentive programs Total staff costs The changes, as described in the consolidated financial statements, have not influenced recognition and measurement in the financial statements of the parent company in 2022. See the description of the changes in note 1.2 to the consolidated financial statements. Statutory audit 0.2 0.1 Fees to the auditor elected at the Annual General Meeting 0.2 0.1 Legal services Other costs 3.3 1.6 7.9 1.9 1.8 5.9 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: Total other costs In 2022 audit fee for other services of EUR 0.1m related to issuing of the new hybrid capital has been reported directly to retained earnings on the equity. This amount is not included in the figures above. Foreign currency translation ■ 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 5.3 Hybrid capital 7.2 Events after the balance sheet date ■ ■ For remuneration for the Board of Directors reference is made to note 2.2. Average number of employees in 2022 comprise 1 person (1 person in 2021), being the CEO of NKT A/S. ■ Dividend from investments in subsidiaries NKT A/S (parent company) operates as a holding company for the Group’s activities and undertakes the tasks related thereto. For de- scription of the enterprise’s activities, etc., please refer to the Group Management’s review. 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. 3 Financial income Accounting estimates and judgements Amounts in EURm 2022 2021 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 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 recoverable amount. Interest from banks 19.0 68.3 0.0 59.4 Interest from subsidiaries Foreign exchange gains Gains on derivatives 24.5 10.3 36.4 42.3 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. 148.2 112.0 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 96 Notes 4 Financial expenses 6 Investments in subsidiaries 7 Contingent liabilities Amounts in EURm 2022 2021 Amounts in EURm 2022 2021 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. Interest to subsidiaries Foreign exchange losses Loss on derivatives -1.6 -19.0 -0.6 -0.9 -7.9 Cost, 1 January 445.7 2.7 444.2 1.5 Addition from share-based payments Transferred to assets held for sale Cost, 31 December -42.5 -28.3 420.1 0.0 Interest, etc. relating to financial liabilities measured at amortised cost 445.7 -5.6 -4.1 -26.8 -55.4 Impairment, 1 January -43.0 -43.0 -43.0 -43.0 The parent company has issued guarantees for subsidiaries of EUR 3,999.0m (EUR 2,632.6m in 2021). 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 1,571.3m (EUR 581.7m in 2021). Impairment, 31 December Book value, 31 December 377.1 402.7 5 Tax Amounts in EURm 2022 2021 Subsidiaries Domicile Current tax 24.0 0.0 9.4 0.0 9.4 Deferred tax NKT Cables Group A/S NKT Photonics A/S NKT Invest A/S Brøndby, Denmark Birkerød, Denmark Brøndby, Denmark 8 Related parties Income tax for the year 24.0 In addition to the comments in note 2.2 to the consolidated financial statements, the parent company’s related parties comprise subsidiar- ies 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: Reconciliation of tax: The above subsidiaries are all owned 100% by NKT A/S. Tax at 22.0% of earnings before tax Tax effect: 25.0 11.2 For information regarding assets held for sale, please refer to note 6.3 in the consolidated financial statements. Adjustments for previous years Non-deductable expenses 0.0 -1.0 24.0 -0.1 -1.7 9.4 Amounts in EURm 2022 2021 Interest received, net Paid joint tax contribution, net Receivables, non-current Receivables, current Payables 66.7 -16.8 1,384.8 14.3 58.5 0.0 1,226.5 6.8 434.2 -4.4 92.8 -3.5 Management fee Hedging 17.4 6.6 Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 97 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 Amounts in EURm 1-2 years 2-3 years 3 years Total 2022 In September 2022 NKT A/S has repaid the former hybrid capital of EUR 150m and issued a new hybrid capital of EUR 150m. Both the former and the new hybrid capital have been accounted for as part of equity. For more information refer to note 5.3 in the consolidated financial statements. Interest-bearing loans and borrowings Payables to subsidiaries Trade payables and other liabilities 0.4 434.2 256.5 691.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 434.2 256.5 691.1 2021 Categories of financial instruments: 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 Amounts in EURm 2022 2021 76.3 0.0 76.3 169.1 54.7 223.8 Financial assets Measured at amortized cost: Receivables from subsidiaries 1,384.8 281.0 1,226.5 72.6 10 Payables to credit institutions and other liabilities Measured at fair value through profit/loss: Derivative financial instruments1 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. Financial liabilities Measured at amortized cost: Interest-bearing loans and borrowings Payables to subsidiaries Changes in current and non-current loans: 0.4 434.2 6.7 54.7 76.9 2.9 Effect of changes in exchange rates 31 December Changes from cash flow Trade payables and other liabilities Amounts in EURm 1 January Measured at fair value through profit/loss: Derivative financial instruments2 249.8 73.3 Current and non-current loans, 2022 Current and non-current loans, 2021 54.7 62.2 -54.3 -8.0 0.0 0.5 0.4 1 Included in Other receivables 54.7 2 Included in Trade payables and other liabilities Annual Report 2022 NKT A/S 98 Statements Group 99 Group Management’s statement 100 Independent auditor’s report Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 99 Group Management’s statement The Board of Directors and the Executive Man- agement have today considered and adopted the Annual Report of NKT A/S for the financial year 1 January – 31 December 2022. Executive Management Alexander Kara Line Andrea Fandrup President & CEO CFO The Annual Report has been prepared in ac- cordance with International Financial Reporting Standards which have been adopted by the EU, Danish disclosure requirements for listed compa- nies and, with the file nkt-2022-12-31-en.zip, in all material respects, in compliance with the ESEF Regulation. Board of Directors Jens Due Olsen René Svendsen-Tune Nebahat Albayrak Chair Deputy Chair In our opinion the consolidated financial state- ments and the Company’s financial statements give a true and fair view of the Group’s and the Company’s assets, liabilities and financial posi- tion at 31 December 2022 and of the results of the Group’s and the Company’s operations and cash flow for the financial year 1 January – 31 December 2022. Christian Dyhr
Jens Maaløe Stig Nissen Knudsen Andreas Nauen Karla Lindahl Pernille Blume Simonsen* 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 finan- cial 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 ap- proved at the Annual General Meeting. Brøndby, 22 February 2023 * Employee-elected member Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 100 Independent auditor’s report To the shareholders of NKT A/S Basis for opinion cance in our audit of the consolidated financial statements and the parent financial statements for the financial year 01.01.2022 - 31.12.2022. These matters were addressed in the context of our audit of the consolidated financial 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. We obtained from Management an overview of the Group’s construction contracts at 31 December 2022 relating to high voltage offshore contracts covering both in progress contracts as of year-end and contracts completed during the year. Based on assessed project risks and mate- riality, we selected a sample of contracts where we obtained the underlying 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 corresponding risk provi- sion, where deemed relevant by us. We conducted our audit in accordance with In- ternational Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the “Audi- tor’s responsibilities for the audit of the consoli- dated financial statements and the parent finan- cial statements” section of this auditor’s report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these require- ments and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Report on the consolidated financial statements and the parent financial statements Opinion We have audited the consolidated financial statements and the parent financial statements of NKT A/S for the financial year 01.01.2022 - 31.12.2022, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes, including a sum- mary of significant accounting policies, for the Group as well as for the Parent. The consolidat- ed 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. Valuation of construction contracts Refer to notes 1.3, 2.1 and 4.3 in the consolidat- ed financial statements. Significant judgements are required by Man- agement 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 completion and specific project risks can have a significant impact on the valuation and recognition of con- struction contracts and revenue for the year. For the selected contracts, we assessed and challenged Management’s assumptions for determining stage of completion with due con- sideration to its assessment of project risks and risk provisions and estimated profit/loss through interviews with project controllers, project man- agement, legal department and management representatives as well as our understanding and assessment of the contract terms, associ- ated project risks, including valuation of change orders under discussion 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 materialis- ing, were discussed and assessed in detail. 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. In our opinion, the consolidated financial state- ments and the parent financial statements give a true and fair view of the Group’s and the Parent’s financial position at 31.12.2022, and of the results of their operations and cash flows for the finan- cial year 01.01.2022 - 31.12.2022 in accordance with International Financial Reporting Standards as adopted by the EU and additional require- ments of the Danish Financial Statements Act. Accordingly, the valuation of construction con- tracts especially relating to high voltage offshore contracts (Solutions) is considered to be a key audit matter. 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 contig- uous engagement period of 10 years up to and including the financial year 2022. How the matter was addressed in our audit Based on our risk assessment, we have as- sessed and tested the relevant internal controls for construction contracts primarily relating to contract acceptance, change orders, monitor- ing of project development, costs incurred and estimation of costs to complete and assessment of specific project risks. For the selected completed contracts, we Our opinion is consistent with our audit book comments issued to the Audit Committee and the Board of Directors. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signifi- performed retrospective reviews of assessment of project risk and development and utilisation of risk provisions to assess the completeness and Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 101 estimation accuracy of Management’s assump- tions applied throughout the contract period. growth, investments and margin assumptions Accordingly, the valuation of deferred tax assets is considered to be a key audit matter. In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the man- agement commentary and, in doing so, consider whether the management commentary is mate- rially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or other- wise appears to be materially misstated. to the latest Board approved budget for 2023 and financial forecasts for 2024-2028. We used our valuation specialists to assist us in evaluat- ing the appropriateness of key market-related assumptions in Management’s valuation models, including discount rates and terminal growth rates. We assessed and challenged key assump- tions applied in Management’s future forecasts of growth, investments and margins included in the cash flow forecasts. Impairment test of non-current assets Refer to notes 1.3, 3.1, 3.2, and 3.3 in the consol- idated financial statements. How the matter was addressed in our audit Based on our risk assessment, we have, in assessing the valuation of deferred tax assets, obtained and evaluated Management’s ex- pectations of generating future taxable profits in the foreseeable future in Germany, and the underlying process by which they were drawn up, including the mathematical accuracy of the models, and agreeing future growth and margin assumptions to the latest Board approved budget for 2023 and financial forecasts for 2024- 2027 as well as the expected related utilisation of the deferred tax asset. We assessed and challenged the reasonableness of Management’s determination of expected future taxable profits in the light of Management’s plans for improving the operational results in Germany. The recoverable amount of non-current assets in the Group’s high voltage power cable busi- ness (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 for the coming years and free net cash flows from the terminal period. Significant judgement is required by Manage- ment in determining value-in-use, including cash flow projections based on financial budgets for 2023 and financial forecasts for 2024-2028, and growth rate in the terminal period and the discount rate to be applied. Moreover, it is our responsibility to consider whether the management commentary provides the information required under the Danish Finan- cial Statements Act. In assessing the level of headroom at Solutions level we performed downside sensitivity analyses around the key assumptions, using a range of higher discount rates, lower terminal growth rates and lower EBITDA levels. 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 misstate- ment of the management commentary. Valuation of deferred tax assets Refer to notes 1.3 and 2.5 in the consolidated financial statements. In assessing the valuation of deferred tax assets, we performed downside sensitivity analysis around the key assumptions by using a range of lower growth rates and margins. Majority of the Group’s deferred tax assets relates to the German subsidiaries tax unit. The valuation of the German deferred tax asset is based on an assessment of the recoverable value of tax losses carried forward as well as the part of deductible temporary tax differenc- es expected to be utilised within a foreseeable future. Significant judgement is required by Man- agement in determining the recoverable value, including projections of future taxable income, based on financial budgets for 2023 and financial forecasts for 2024-2027. Accordingly, the carrying value of non-current assets for Solutions is considered to be a key audit matter. Management's responsibilities for the consolidated financial statements and the parent financial statements Statement on the management commentary Management is responsible for the management commentary. Management is responsible for the preparation of consolidated financial statements and parent financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act, and for such internal control as Management determines is necessary to How the matter was addressed in our audit Based on our risk assessment, we have obtained and evaluated Management’s determination of future cash flow forecasts for Solutions and the underlying process by which they were drawn up, including the mathematical accuracy of the valuation models applied and agreeing future Our opinion on the consolidated financial state- ments and the parent financial statements does not cover the management commentary, and we do not express any form of assurance conclusion thereon. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 102 ■ enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error. influence the economic decisions of users taken Conclude on the appropriateness of Man- agement’s use of the going 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 the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. on the basis of these consolidated financial state- ments and these parent financial statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: 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. In preparing the consolidated financial state- ments and the parent financial statements, Man- agement 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 operations, or has no realistic alternative but to do so. going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial state- ments and the parent financial statements or, if such disclosures 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, future events or conditions may cause the Group and the Enti- ty to cease to continue as a going concern. ■ Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial state- ments, 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, inten- tional omissions, misrepresentations, or the override of internal control. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding inde- pendence, and to communicate with them all relationships and other matters that may reason- ably be thought to bear on our independence, and, where applicable, safeguards put in place and measures taken to eliminate threats. Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. ■ Our objectives are to obtain reasonable assur- ance about whether the consolidated 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. Rea- sonable assurance is a high level of assurance, 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. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to Evaluate the overall presentation, structure and content of the consolidated financial state- ments 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. ■ Obtain an understanding of internal con- trol relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent’s internal control. We describe these matters in our auditor’s report unless law or regulation precludes public dis- closure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report ■ 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 financial statements. We are responsible for ■ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Introduction / Group review and markets / Business lines / Governance / Financial statements Annual Report 2022 NKT A/S 103 ■ ■ Report on compliance with the ESEF Regulation For such internal control as Management de- Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and termines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. As part of our audit of the consolidated financial statements and the parent financial 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 01.01.2022 - 31.12.2022 with the file name nkt-2022-12-31-en.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic For- mat (ESEF Regulation) which includes require- ments related to the preparation of the annual report in XHTML format and iXBRL tagging of the consolidated financial statements including notes. ■ Reconciling the iXBRL tagged data with the audited consolidated financial statements. Our responsibility is to obtain reasonable assur- ance 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 auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: In our opinion, the annual report of NKT A/S for the financial year 01.01.2022 - 31.12.2022 with the file name nkt-2022-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Copenhagen, 22.02.2023 ■ Management is responsible for preparing an annual report that complies with the ESEF Regu- lation. This responsibility includes: Testing whether the annual report is prepared Deloitte in XHTML format; Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56 ■ Obtaining an understanding of the company’s ■ The preparing of the annual report in XHTML iXBRL tagging process and of internal control over the tagging process; format; Kirsten Aaskov Mikkelsen Niels Skannerup Vendelbo ■ ■ The selection and application of appropriate Evaluating the completeness of the iXBRL State-Authorised Public Accountant Identification No (MNE) mne21358 State-Authorised Public Accountant Identification No (MNE) mne34532 iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to ele- ments in the taxonomy, for financial informa- tion required to be tagged using judgement where necessary; tagging of the consolidated financial state- ments including notes; ■ Evaluating the appropriateness of the compa- ny’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; ■ Ensuring consistency between iXBRL tagged data and the Consolidated Financial State- ments presented in human readable format; and NKT is signatory to: NKT A/S Vibeholms Allé 20 DK-2605 Brøndby Denmark Company Reg: 6272 5214 T: +45 43 48 20 00
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