Nordic Rcc A/S

Management’s review

ACCOUNTING REPORTFinancialsIncome statementNordic RCC realised revenues for 2023 of DKK 228.4 million which is more than double the revenues for the first financial statements reporting year, 2022, of DKK 97.7 million. This increase is primarily due to the fact that the first financial statements reporting year, 2022, only comprised revenue generating activities in the second half of 2022. In addition, Nordic RCC has experienced an increase in the activity level through both 2022 and 2023. This increase was slightly higher than the expectations for 2023 with revenues in the range of DKK 200-220 million.More than 90% of Nordic RCC’s revenue generat- ing activities are covered by a cost-plus model with the Nordic TSOs, and the increase in revenues is therefore reflecting a parallel increase in costs and depreciations.This revenue model also means that Nordic RCC under normal circumstances will generate a lim- ited operating profit close to 5%.The operating profit for 2023 was DKK 9.7 million (2022: DKK 5.2 million) with profit before tax of DKK 10.9 million (2022: loss of DKK 18.1 million).This profit is in line with the expectations for 2023 which were a profit before tax in the range of DKK 8-12 million.Tax on profit amounts to DKK 1.8 million for 2023 (2022: DKK 3.6 million income caused by recogni- tion of a deferred tax asset).Profit for 2023 was DKK 9.1 million, a material improvement from the loss of DKK 14.5 million in 2022. The loss in 2022 was caused by one-time costs in relation to Nordic RCC’s establishment.Financial position and investmentsNordic RCC has material non-current assets of DKK 317.6 million as per 31 December 2023. The majority of which is comprised by intangible assets related to the development of the NorCap application (described below in the section ‘Research and development activities’). This development was started jointly by the four Nordic TSOs before the establishment of Nordic RCC, and Nordic RCC received an asset contri- bution of DKK 266.2 million as per 30 June 2022. NorCap is gradually released to production. Therefore, while the work on NorCap has been continued through 2023 with total development investments of DKK 56.4 million, depreciations on releases already deployed for production were DKK 60.1 million in 2023.In late 2023, Nordic RCC completed the migration of its IT infrastructure to an entirely new future- ready technical platform. This project was initi- ated in 2022 and 'construction in progress' was DKK 11.1 million as per 31 December 2022. This amount has, together with additions during 2023, been transferred to IT equipment in operations with a net balance of DKK 38.6 million by the end of 2023.Tangible assets were DKK 41.5 million as per 31 December 2023, where IT equipment accounts for the majority with DKK 38.6 million and office equipment for the rest with a balance of DKK 2.1 million.Cash flowThe cash position was DKK 89.8 million as per 31 December 2023, a DKK 36.4 million increase compared to the DKK 53.4 million as per 31 December 2022.The statement of cash flows shows that this is caused by cash flows from operating activities of DKK 120.3 million and net cash flows from investing activities of negative DKK 83.4 million. In 2023, cash flows from operating activities are affected positively by a change in working capital of DKK 43.8 million, largely caused by an increase in trade and other payables from DKK 46.5 million as per 31 December 2022 to a balance of DKK 83.7 million as per 31 December 2023. This is an unusually high trade and other payables balance, which was caused by material milestone invoices received in December 2023, which falls due beginning of 2024. These milestone payments will be settled during the first months of 2024, resulting in both a negative impact on change in working capital and thereby also the cash position.Expected financial developmentDuring 2023, Nordic RCC has experienced an increased activity level which is expected to continue through 2024. Among other activities, Nordic RCC will go into production with the flow- based capacity calculation together with the Nordic TSOs, go into 24/7 operation, and rein- state CSA as a service in operation. Nordic RCC’s financials for 2024 will also include the full-year effect of increased staff and activity level real- ised and maintained during 2023.In addition, depreciations and amortisations are expected to be in the range of DKK 80-90 million, up from DKK 66.7 million in 2023.As a consequence of the increased activity level and higher depreciations, the revenues for 2023 are expected to be in the range of DKK 285-325 million.The profit before tax in 2024 is expected to be in the range of DKK 12-15 million with an expected operating profit of close to 5%.Research and development activitiesThe research and development activities described in this section cover the activities which falls within the definition of research and development activities in the IFRS Accounting Standard as adopted by EU. For more information about the development of services delivered to the TSOs, please read the section ‘Nordic RCC Task Monitoring’.Many of the services in Nordic RCC are highly dependent on specialised IT solutions. In terms of these IT solutions, development in 2023 has especially been performed for the applications NorCap (with a total investment in 2023 on DKK 53.7 million) and the related Visual Domain Validation, VDV, (with a total investment in 2023 on DKK 1.8 million). Both solutions have a relation to the service Coordinated Capacity Calculation (CCC) and the project FB Imp (Flow-based Implementa- tion project). FB Imp is a Nordic project which Nordic RCC participates in together with the Nordic TSOs and NEMOs with the purpose of providing more accurate data on the capacities in the power system to the market participants. This enables a better utilisation of the grid for the benefit of the Nordic and European society. Flow-based go-liveis planned for October 2024 with certain criteria having to be met for the project to go operational.NorCap is an application used both for the CGM and CCC service to create the Common Grid Model (CGM) for the Nordic electricity grid and to calcu- late capacities (CCC) in the flow-based method- ology. The tool had two releases deployed to pro- duction in 2023, Release 5 in May and Release 6 in December. The key functionalities that have been developed in 2023 are functionalities for day-ahead flow-based capacity calculation, improvements re- lated to existing functionalities, and development of long-term capacity calculation for month-ahead and year-ahead time horizons. Some of the criteria for flow-based go-live relates to development of functionalities in NorCap which have been planned for a Release 6.1 in Q1 2024. Release 7 is planned for Q4 2024 following the go-live of flow-based capacity calculation.One of the outputs of NorCap is the calculation of flow-based domains that is to be validated by TSO operators. VDV is an application to support the validation of the flow-based domain calculated in NorCap. This is done by providing the TSO operators with a better overview of the domain through visualisation. The VDV application went live in a first version in January 2023. Several new features have been, and are, being added such as flow-based 2D slide plots, a market map, and a summary dashboard. These features are required for flow-based go-live.Environmental performanceNordic RCC does not currently measure environ- mental performance. However, it is expected that the largest impact on the environment comes from running the office, IT infrastructure, and European travels.The impact was expected to increase during 2023 as it has been a full year of activities compared to last reporting period. Further, the growth in Nordic RCC has required additional office space by the end of 2023. Like the existing office, the additional office space is rented in a building which has a platinum certification (the highest certification possible) on the American LEED rating system (a framework for healthy, efficient, carbon and cost-saving green buildings).Knowledge resourcesThe services provided by Nordic RCC are all novel, in the sense that they have not been done prior to being tasked to the RCCs, at least on a regional basis. Further, the environment Nordic RCC operates within is very complex and requires ahigh level of security. This requires specialised solutions, both within processes and applications to deliver the necessary value from the services Nordic RCC delivers. In order for Nordic RCC to solve these both complex and novel challenges, there is a high dependency on specialised and valuable knowledge resources, especially with knowledge on the Nordic power systems, and power systems in general. Employees working in Nordic RCC need to be, and are, specialised with high educational levels and expert experience.Uncertainty relating to recognition and measurementPlease see note 3 in the section ‘Financial State- ments’ on page 109 for a description of account- ing judgements, estimates and assumptions.Subsequent eventsNo significant events have been experienced since the balance sheet date.