Urenco Annual Report 2022

52 Urenco Annual report and accounts 2022 Strategic report 01 Net income Net income, post-exceptional items, was €1,173.2million in 2022 (2021: €364.5million). Net income, pre-exceptional items, was €285.1million in 2022, a reduction of €79.4million (21.8 % ) compared to the 2021 net income, pre-exceptional items, of €364.5million.This decrease in net income reflects the impact of lower EBITDAand higher depreciation and amortisation, partly offset by lower tax expenses, resulting in a reduced net incomemargin of 16.6 % compared to 21.8 % in the prior year (pre-exceptional items). Depreciation and amortisation for 2022was €370.1million, compared to €331.0million for 2021, an increase of €39.1m.This increase wasmainly due to the commencement of the depreciation of assets associatedwith theTMF. Net finance costs for 2022were higher at €69.5million, compared to €64.3million for 2021 reflecting lower levels of capitalised interest and higher unwinding of discount on provisions, partially offset by higher interest income on deposits andmovements on non-designated derivatives. Capitalisation of interest was €17.1million lower at €25.2million, mainly as a result of the lower assets under construction balance associatedwith theTMF following the commencement of active commissioning in 2022. Where appropriate, foreign currency loan balances are placed in accounting hedge relationships, primarily bymeans of cross currency swaps.Where this is not possible, the retranslation of the relevant unhedged loan balances (denominated in US dollars and euros but held by a sterling functional currency entity) generate gains/losses as a result of foreign exchangemovements in the year. In 2022 the impact of this was a net gain of €18.9million (2021: €15.0million net gain), reflecting relevant unhedged balances andmovements in foreign exchange rates. In 2022 the Group’s post-exceptional tax expense was €122.5 million (an effective tax rate (ETR) of 9.5 % ). The pre-exceptional tax expense was €89.2million (ETR of 23.8 % ), a decrease of €117.8million from the tax expense of €207.0million (pre- exceptional items) for 2021 (ETR: 36.2 % ). The decrease in tax expense predominately arises due to a combination of lower accounting profits in 2022, together with the fact that the 2021 tax expense included a €55.7million non-cash charge resulting from revaluing the Group’s net UKdeferred tax liability from19 % to 25 % that was not repeated in 2022. The decrease in the pre-exceptional ETR from36.2 % to 23.8 % is driven by the following factors : i) 2021 included the revaluation of opening UKnet deferred tax liabilities that was not repeated in 2022 (decrease of 8.2 % ); ii) changes in the value of prior year adjustments (decrease of 1.4 % ); and iii) 2021 also included a derecognition of US deferred tax assets due to changes in the forecast timing of realisation of future profits that was not repeated in 2022 pre-exceptional items (decrease of 1.6 % ). All US deferred tax assets were recognised at 2022 year end, with themovement being recorded as an exceptional tax income in the Income Statement. Plant and machinery decommissioning Urenco has an obligation under its operating licences to decommission enrichment facilities safely once they reach the end of their operational life.The costs associatedwith plant and machinery decommissioning aremonitored on an ongoing basis and are also subject to a detailed periodic review, with themost recent review carried out in 2021. During the year the decommissioning provision increased by €82.6million (2021: €149.3million) due to the installation of additional plant andmachinery of €1.5million (2021: €36.1 million), additional container purchases of €26.2million (2021: €14.5million) and€54.9million due to revised assumptions surrounding the decommissioning of plant andmachinery (2021: €98.7million). Of the €54.9million (2021: €98.7million) resulting fromrevised assumptions, €15.6million (2021: €46.1million) has been expensed to the Income Statement and€39.3million (2021: €52.6million) has been recognised in decommissioning assets. The impact of the revised assumptionsmainly relate to the rebasing of costing assumptions in line with 2022 inflationary increases partially offset by an increase in forward discount rates. The impact of the change in discount rates resulted in a reduction of the decommissioning provision by €33.5million (2021: €0.0 million), of which €2.3million (2021: €0.0million) has been credited to the Income Statement and€31.2million (2021: €0.0 million) has been recognised in decommissioning assets. Further information on nuclear provisions can be found on pages 154 to 156. Nuclear Decommissioning Trust Fund The Group, via its subsidiary LES, has established a Nuclear DecommissioningTrust Fund (“NDT”) inNovember 2022, in order to satisfy the requirements of the USNRC that it provides financial assurance for its decommissioning and tails liabilities. Previously this assurance was achieved through a combination of letters of credit and a surety bond.The NDThas been established under a Trust agreement and in December 2022 LES has contributed funds into the NDT, which have been invested in low-risk US government backed securities that are publicly traded.The fair value of the investments held in the NDTas at 31 December 2022 was €482.1million. See note 31 for further details. Group pension funds Urenco operates pension schemes for our employees in the Netherlands, UK andGermany.These are amixture of defined contribution and defined benefit schemes. The net surplus on the Group’s defined benefit pension schemes at 31 December 2022was €26.0million (2021: €20.3million net surplus).This increase of €5.7millionwas due to a reduction in the retirement benefit obligation of the German pension scheme of €6.5million partly offset by a reduction in the net surplus assets of the UKpension scheme of €0.8million. Themost recent actuarial assessments for the UKdefined benefit pension scheme were carried out at 5April 2021.The Groupmade the last deficit repair payment of £6.6million inH1 2022. It is anticipated that no further deficit repair contributions are required unless future investments conditions or actuarial assumptions will change in an adverse way. Cash flow Cash generated fromoperating activities was €1,133.7million (2021: €1,027.6million).The higher cash flows fromoperating activities primarily reflect the favourablemovement of working capital balances compared to 2021. In the current year, sales deliveries were not as close to the year endwhen compared to the prior year, resulting in lower trade receivables balances at the end of 2022. In addition, creditor balances were higher at the end of 2022when compared to 2021.