Pieno Zvaigzdes

Annual Report • Apr 30, 2024

AB Pieno Žvaigždės Financial Statements For the Year Ended 31 December 2023, Prepared in Accordance with International Financial Reporting Standards, as Adopted by the European Union, Presented Together with Independent Auditor’s Report and Annual Report AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 Content Company Details 1 Management’s Statement on the Financial Statements 2 Statement of Comprehensive Income 3 Statement of Financial Position 4 Statement of Changes in Equity 5 Statement of Cash Flows 6 Notes to the Financial Statements 22 Confirmation of the Management 45 Annual report for 2023 46 Social Responsibility Report 78 AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 1 Company details AB Pieno Žvaigždės Telephone: +370 5 246 1414 Telefax: +370 5 246 1415 Company code: 124665536 Registered at: Perkūnkiemio St. 3, Vilnius, Lithuania Management: Board Vitalis Paškevičius Voldemaras Klovas Julius Kvaraciejus Aleksandr Smagin Gžegož Rogoža Regina Kvaraciejienė Artiom Smagin General Director Aleksandr Smagin Auditor Ernst & Young Baltic UAB Banks AB SEB bank AB Swedbank Luminor bank AS Lithuanian branch UAB Perlo paslaugos AS SEB Banka AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 (EUR thousand unless otherwise stated) 2 Management’s Statement on the Financial Statements The Board and Management have today discussed and authorised for the issue the set of financial statements (further – financial statements) and signed them on behalf of the Company. The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. We consider that the accounting policies used are appropriate and that the financial statements present fairly the Company’s financial position, financial performance and cash flows in accordance with International Financial Reporting Standards as adopted by the European Union. We recommend the financial statements to be approved at the General Shareholders’ Meeting. Vilnius, 2024 Management and authorised finance department employees: ------------------------ --------------------------- Aleksandr Smagin Laimonas Vaškevičius General Director Finance Director ------------------------ Ramutė Plaušinienė Chief Accountant AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 (EUR thousand unless otherwise stated) 3 Statement of Comprehensive Income EUR thousand Note 2023 2022 Revenue from contracts with customers 1 201,114 204,553 Cost of sales 3 (148,500) (175,930) Gross profit 52,614 28,623 Other operating income 2 318 1,773 Other operating expenses 2 (169) (300) Selling and distribution expenses 3 (17,766) (17,239) Administrative expenses 3 (17,537) (17,926) (Impairment) of receivables 18 (1) (38) Operating profit/(loss) 17,459 (5,107) Finance income 31 38 Finance costs 4 (1,869) (1,134) Profit/(loss) before tax 15,621 (6,203) Income tax (expenses)/benefit 5 (2,366) 883 Profit/(loss) for the year 13,255 (5,320) Other comprehensive income - - Total comprehensive income/(loss) for the period 13,255 (5,320) Basic earnings/(loss) per share (EUR) 6 0.29 (0.12) Diluted earnings/(loss) per share (EUR) 6 0.29 (0.12) The accompanying notes are an integral part of these financial statements. AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 (EUR thousand unless otherwise stated) 4 Statement of Financial Position EUR thousand Note As at 31 December 2023 As at 31 December 2022 Assets Property, plant and equipment 7 43,422 43,984 Intangible assets 53 51 Right-of-use assets 14 841 1,427 Other financial assets 22 22 Other receivables 9 5 411 Deferred income tax asset 16 366 2,337 Total non-current assets 44,709 48,232 Inventories 8 15,939 19,649 Trade receivables 9 8,102 6,907 Prepayments 9 193 162 Other receivables 9 966 457 Cash 10 1,584 272 Total current assets 26,784 27,447 Total assets 71,493 75,679 Equity Issued capital 13,089 13,089 Share premium 7,891 7,891 Reserves 1,570 1,570 Retained earnings (loss) 13,729 474 Total equity 11 36,279 23,024 Liabilities Grants 12 1,365 1,007 Loans and borrowings 13 3,500 - Employee benefits 15 1,619 1,495 Lease liabilities 14 260 638 Total non-current liabilities 6,744 3,140 Loans and borrowings 13 7,860 28,426 Trade and other payables 17 18,624 19,245 Contract liabilities 17 785 474 Employee benefits 15 206 250 Lease liabilities 14 702 1,120 Income tax payable 293 - Total current liabilities 28,470 49,515 Total liabilities 35,214 52,655 Total equity and liabilities 71,493 75,679 The accompanying notes are an integral part of these financial statements. AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 (EUR thousand unless otherwise stated) 5 Statement of Changes in Equity EUR thousand No- tes Issued capital Share premiu m Legal reserve Retained earnings Total equity As at 1 January 2022 13,089 7,891 1,570 5,794 28,344 Net loss for 2022 - - - (5,320) (5,320) Other comprehensive income - - - - - Total comprehensive (loss) for the year - - - (5,320) (5,320) Dividends 11 - - - - - As at 31 December 2022 13,089 7,891 1,570 474 23,024 Net profit for 2023 - - - 13,255 13,255 Other comprehensive income - - - - - Total comprehensive income for the year - - - 13,255 13,255 Dividends 11 - - - - - As at 31 December 2023 13,089 7,891 1,570 13,729 36,279 The accompanying notes are an integral part of these financial statements. AB Pieno Žvaigždės Financial Statements for the year ended 31 December 2023 (EUR thousand unless otherwise stated) 6 Statement of Cash Flows EUR thousand Note 2023 2022 Operating activities Profit (loss) before tax for the year 15,621 (6,203) Adjustments to: Depreciation and amortisation 7, 14 5,739 5,786 Amortisation of grants 12 (170) (167) Gain (loss) on disposal of property, plant and equipment 2, 7 (59) (1,604) Gain (loss) on write-off of property, plant and equipment 7 9 5 Impairment/(reversal) of receivables 18 1 38 Change in vacation reserve 17 579 (127) Impairment/(reversal) of inventories 8 (2,468) 2,944 Income tax paid 5 (396) - Interest income (30) (37) Interest expense 6 1,656 896 20,482 1,531 Changes in inventories 6,186 (5,555) Change in trade receivables, prepayments, other receivables (1,329) (929) Change in trade payables and other payables (514) (2,555) Net cash flows from operating activities 24,825 (7,508) Investing activities Acquisitions of property, plant and equipment 7 (4,105) (2,033) Purchase of intangible assets (38) (22) Proceeds from sale of property, plant and equipment 53 2,829 Interest received 30 37 Collection of loans granted 9, 18 6 6 Grants received 12 528 320 Net cash flow used in investing activities (3,526) 1,137 Financing activities Loan received 13 - 12,146 Repayment of borrowings 13 (17,066) (4,920) Payment of lease liabilities principal amount 14 (1,261) (1,364) Interest paid 18 (1,658) (952) Dividends paid 18 (2) (2) Net cash flow from/(used in) financing activities (19,987) 4,908 Change in cash 1,312 (1,464) Cash as at January 1 10 272 1,736 Cash as at 31 December 10 1,584 272 The accompanying notes are an integral part of these financial statements. 7 2023 1. General information The head office of AB Pieno Žvaigždės (hereinafter “the Company”) is located in Perkūnkiemio St. 3, Vilnius, Lithuania. AB Pieno Žvaigždės was established in 1998 by way of a merger of stock companies Mažeikių Pieninė, Pasvalio Sūrinė and Kauno Pienas. The main office of the Company is located in Vilnius and the branches are in Mažeikiai, Pasvalys, Kaunas and Panevėžys. All ordinary shares of the Company are quoted in the Vilnius Stock Exchange. There is no controlling entity or individual among the shareholders of AB Pieno Žvaigždės. The Company is engaged in production and sales of dairy products to retail stores directly and through distributors. The average number of employees in 2023 was 1,558 (in 2022: 1,601 employees). 2. Material accounting policies 2.1.Statement of compliance The financial statements of AB Pieno Žvaigždės have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS EU). Except for the impact of the new standards and their amendments as well as new interpretations on the financial statements, the Company has consistently applied the accounting policy, set out in the financial statements, to all periods presented in these financial statements. The management of the Company approved these financial statements on 22 March 2024. The shareholders have a statutory right to approve these financial statements or not to approve them and require preparation of new financial statements. 2.2.Basis of preparation The financial statements are presented in the euro being the functional currency of the Company, and are prepared on the historical cost basis. These financial statements have been prepared based on a going concern basis of accounting which assumes that the Company has ability to continue as a going concern for at least 12 months after the approval date of these financial statements. The management of the Company considers that there are no significant climate related matters, which could affect the Company’s ability to continue as a going concern. The current economic situation has impact on the Company’s performance which is disclosed in the Notes to the financial statements. The Company’s main source of credit is credit lines and a long-term credit agreement with SEB Bankas AB and Swedbank AB (as subsequently amended) signed in 2019. The term of the loan is five years with annual instalments of EUR 4.920 million. Securing long-term bank funding allows the Company for better managing of cash flows and planning of long-term investments (Note 13). 8 2023 2. Material accounting policies (continued) 2.2.Basis of preparation (continued) As at 31 December 2023 the Company’s current loans and borrowings from financial institutions amounting to EUR 7,860 thousand, the major part of which is the final instalment of the expiring long-term loan (EUR 4,900 thousand). Consequently, as at 31 December 2023 current liabilities exceeded the current assets by EUR 1,686 thousand (as at 31 December 2022, by EUR 22 068 thousand). To solve the liquidity shortage the management of the Company takes the following actions: 1) As at 31 December 2023 the Company had credit limits of EUR 11 million (credit line and overdrafts). At the year-end, it was all unused and the expected maturity is 30 June 2024 the latest, but the Company's management plans to extend the maturity term until 2025. 2) In 2024, the Company plans to increase sustainably the volume of milk purchased and to increase its sales turnover up to EUR 205,9 million (2023- EUR 201,1 million). In the following years, the Company plans to remain profitable (2023 net profit of EUR 13,2), however lower profit margins are expected due to market challenges and competition, therefore EBITDA (earnings before interest, tax, depreciation and amortization) is planned of EUR 16,4 million (2023 – EUR 22.7 million). 3) The Company’s results for the two first months of 2024 are in line with the budget. The Company generates enough cash flows from operating results to cover liquidity gap. 4) The management intends to refinance the final instalment of the long-term loan due in 2024 (EUR 4,900 thousand) and postpone the maturity term for two years. Considering the above-mentioned plans the Company’s management is of the opinion that the going concern basis of accounting is appropriate and there are no material uncertainties related to going concern. The preparation of financial statements in conformity with IFRS EU, requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical information and factors that reflect the present circumstances. Based on these assumptions and estimates, a conclusion is made about the values of assets and liabilities that cannot be determined from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Judgements and estimates made by management in the application of IFRSs EU that have the most significant effect on the financial statements are discussed on paragraph “Material accounting judgements and estimates”. 9 2023 2. Material accounting policies (continued) 2.3.Property, plant and equipment Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Land is stated at cost less impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment and are depreciated over their expected useful lifetime. Useful lives, residual amounts and depreciation methods are reviewed at each reporting date. Subsequent costs Costs incurred when replacing a component part of an item of property, plant and equipment are capitalised only upon write-off of the carrying amount of the component and if it is probable that the future economic benefits embodied with the item and the cost of the component part can be measured reliably. All other costs are recognised in statement of comprehensive income as an expense as incurred. Depreciation charge Depreciation (except for land which is not depreciated) is charged to statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: • buildings 20–80 years • machinery and equipment 5–40 years • vehicles and other non-current asset 3–20 years 2.4.Right-of-use assets and lease liabilities The Company is a lessee At inception of a contract, the Company assesses whether the contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use assets The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: • Buildings 5 years • Vehicles and other equipment 2–5 years 10 2023 2. Material accounting policies (continued) 2.4.Right-of-use assets and lease liabilities (continued) If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Refer to the accounting policies in sub- section “Impairment of non-financial assets” below. Lease liabilities At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments). Company is not exposed to variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease arrangements entered by the Company does not include lease incentives, purchase or termination options that would require management assessment and assumptions in determining the lease term. In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. Detailed information regarding The Company’s lease liabilities are disclosed in Note 14. Short-term leases and leases of low-value assets The Company applies the recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value (EUR 5 thousand). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. 2.5.Impairment of non-financial assets The carrying amounts of the Company’s assets other than inventories and deferred income tax asset are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the Company makes estimate of the recoverable amount of such asset. For impairment testing, assets are grouped together into the smallest group of assets (as practically possible) that generates cash inflows. The Company’s management considers the entire Company as one cash-generating unit (CGU), as disclosed under Material accounting judgements and estimates note, the management of the Company determines the milk cost allocation ratios in a way that interrelated products margin remains similar. 11 2023 2. Material accounting policies (continued) 2.5.Impairment of non-financial assets (continued) Impairment losses are recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are included in the statement of comprehensive income, on the line other operating expenses. 2.6.Financial asset The financial assets of the Company include cash, trade and other receivable amounts and loans granted. Initial recognition Financial assets are recognised initially when they occur. Financial assets without significant financing component are initially recognised at transaction price. Subsequent measurement Financial assets held by the company are classified as financial assets subsequently measured at amortised cost using the effective interest rate method. Interest income is presented as Finance Income in the statement of comprehensive income. Impairment losses are recognised through the statement of comprehensive income, on the line impairment of receivables. Derecognition Financial assets (or, where appropriate, part of financial assets or part of the group of similar financial assets) are derecognised when: ▪ the rights to receive cash flows from the asset have expired; ▪ when the Company retains the right to cash flows but undertakes an obligation to settle the total amount to a third party as to transfer agreement within a short period of time; ▪ the Company transfers its rights to receive cash flows from the asset and (or): (a) transfers substantially all the risks and rewards of the asset, (b) neither transfers nor retains substantially all the risks and rewards of the asset, but transfers control of the asset. The Company reduces the gross carrying amount of the financial asset if it cannot reasonably expect to recover all or part of the financial asset. Writing down is an event of derecognition. Impairment For trade receivables the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. 12 2023 2. Material accounting policies (continued) 2.6. Financial asset (continued) Impairment (continued) Based on the assessment of the Company’s management, trade receivables do not include significant financing component and, respectively, their impairment is measured using a simplified method, firstly the management performs individual ECL assessment considering the customer’s credit history, future factors and subjective market factors related to the debtor, secondly all overdue balances for more than 180 days are allowed by 100%. Lastly, the Company records an additional allowance of 0,1% for total outstanding accounts receivable balance, which is not overdue or overdue less than 180 days at the year end. Application of 0,1% is based on historical information of the Company on bad debts. 2.7.Financial liabilities The financial liabilities of the Company include loans and borrowings, trade and other payables amounts. Initial recognition Borrowings are initially recognised at fair value of proceeds received, less the costs of transaction. Trade payables are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. Such liabilities are carried at amortised cost using the effective interest rate method. Subsequent measurement Subsequent to initial recognition, loans are stated at amortised cost using the EIR method and the difference between the proceeds received and the amount payable over the loan period is recognised in the statement of comprehensive income for the period. Derecognition A financial liability is derecognised by the Company when the obligation under the liability is discharged or cancelled, or expired. The Company also ceases recognition of a financial liability when its terms are changed, and the cash flows of the amended liability are materially different. In this case, the new financial liability is recognised at fair value in accordance with the amended contractual terms. In the event of derecognition of a financial liability, the difference between the carrying amount written off and the consideration paid (including any transferred non-cash assets or liabilities assumed) is recognised in profit or loss. 13 2023 2. Material accounting policies (continued) 2.8.Factoring The Company alienates rights to receivables due at a future date according to invoices. Factoring transactions of the Company comprise factoring transactions without regress right. The factoring expenses comprise a lump-sum contract fee charged on the conclusion of the contract, commission fees charged for processing the invoices, and interest expenses depending on the duration on the payment term set by the debtor. 2.9.Inventories Inventories are stated at the lower of cost and net realisable value. The costs of inventories are calculated using the FIFO method. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity distributed according to norms calculated considering the use of production capacities. Write down of inventories to net realisable value At least on a quarterly basis, the Company determines whether the carrying amount of its inventory does not exceed the net realisable value. In respect of obsolete or slow moving items this involves comparing the levels of inventory held to future utilisation and sales projections. In addition, all of the Company’s product inventories are tested for potential decline of their expected selling prices below cost (Note 8). 2.10.Cash Cash includes cash in hand and cash at banks. In the statement of cash flows, cash comprise cash on hand, cash at banks. 2.11.Employee benefits Short-term employee benefits are recognised as a current expense in the period when employees render the services. These include salaries and wages, social security contributions, bonuses, paid holidays and other benefits. All pension obligations are borne by the State. Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is firmly committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Under the remuneration plans employees are entitled to jubilee bonuses as well as retirement benefits. Each employee of the Company leaving the Company on the normal retirement date is entitled to a benefit equal to 2 monthly wages, as stipulated in the legal acts of the Republic of Lithuania. The jubilee bonuses are paid to employees who have reached 50 and 60 years old. Provisions for jubilee bonuses and retirement benefits are calculated individually for each entitled individual. The base for the calculation of provision for an employee is expected benefit which the Company is obliged to pay in accordance with internal policy and regulation. The present value of these obligations is estimated at the end of each reporting year. The Company recognizes the liability in the statement of financial position under current and non- current liabilities and reflects the current value of the benefits at the date of the statement of financial position. 14 2023 2. Material accounting policies (continued) 2.12.Revenue from contracts with customers The Company is in the business of production and sales of dairy products to retail stores directly and through distributors. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Considering transfer of control the Company recognises revenue from contracts with customers at a point in time. The Company has generally concluded that it is the principal in its revenue arrangements. The Company also purchases marketing services from its customers. Based on agreements marketing related services acquired from customers (retailers) do not represent distinct services related to various advertising and marketing activities provided to the Company, and therefore all such marketing expenses incurred over the financial period are accounted as revenue reduction in the Company’s statements of comprehensive income (Note 1). Variable consideration If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer by applying the percentage, determined in agreement, from reached monthly turnover. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of dairy products provides retrospective volume rebates to certain customers once the quantity of dairy production purchased during the period exceeds the threshold specified in the contract. Volume rebates give rise to variable consideration. Significant financing component The Company receives advance payments from customers for the sales of dairy products. Such advances considered to be short-term as they are realised in less than one year. The Company applies the practical expedient for short-term advances received from customers. That is, the promised amount of consideration is not adjusted for the effects of a significant financing component as the period between the transfer of the promised good and the payment is one year or less. 2.13. Contract liabilities A contract liability is recognised if a payment is received from a customer before the Company transfers the related goods. Contract liabilities are recognised as revenue when the Company performs under the contract (i.e., transfers control of the related goods to the customer). 2.14.Grants Asset-related government grants comprise grants received for the acquisition of non-current assets. Grants are recognised in the statement of financial position when there is reasonable assurance that it will be received and that the Company will comply with the conditions attaching to it. Grants intended to compensate the Company for the cost of an asset are recorded as a liability and subsequently recognised in the statement of comprehensive income on a proportionate basis over the expected useful life of the asset. The balance of unutilised grants is shown in the caption ‘Grants’ in the statement of financial position. 15 2023 2. Material accounting policies (continued) 2.15. Other operating income and expenses Other operating income and expenses comprises of gains from sale of current asset and other services provided, which are not directly related to the primary activities of the Company. 2.16.Finance costs Finance expenses comprise interest payable on borrowings calculated using the effective interest rate method and foreign exchange losses (net value). The interest expense component of lease payments is recognised in the statement of comprehensive income using the effective interest rate method. 2.17.Income tax Income tax for the period comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the date of the statement of financial position, and any adjustment to tax payable in respect of previous years. The effective income tax rate applicable for companies of the Republic of Lithuania in 2022 and 2021 was 15%. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The following temporary differences are not provided for: differences arising at initial recognition of assets or liabilities that affect neither accounting, nor taxable profit. The amount of deferred tax depends on the expected future use of the asset and the settlement of future liabilities and substantially enacted tax rate expected to apply. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deductible tax losses carried forward can be used to reduce the taxable income earned during the reporting year by maximum 70%. Tax losses can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivatives. Deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. According to legislation on taxation in effect, the Tax Authorities may at any time during 3-5 successive years (depending on tax) after the end of the reporting tax year carry out a tax inspection of the Company and impose additional taxes or fines by reassessing taxes calculations. The Company’s management believe that all the taxes are properly calculated and paid according to the prevailing tax laws and it is not aware of any circumstances that may give rise to a potential material liability in respect of taxes not paid. 16 2023 2. Material accounting policies (continued) 2.18.Basic and diluted earnings per share Basic earnings per share are calculated by dividing net profit attributable to ordinary equity holders by the weighted average number of ordinary shares. As there are no instruments that dilute equity, the basic and diluted earnings per share do not differ. 2.19.Segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including transactions with other segments), whose operating results are regularly reviewed by the entity’s chief operating decision-maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segmentation principles are presented in Note 1. 17 2023 2. Material accounting policies (continued) Adoption of new and/or amended IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations The accounting policies adopted are consistent with those of the previous financial year except for the following IFRS and amendments to IFRS which have been adopted by the Company as of 1 January 2023: • IFRS 17 insurance contracts, • IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (Amendments), • IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (Amendments), •IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments), •IAS 12 Income taxes: International Tax Reform - Pillar Two Model Rules (Amendments). These changes were not relevant to the Company, except for the following: • IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (Amendments) The Amendments are effective for annual periods beginning on or after January 1, 2023. The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. The Company has made adjustments to the accounting policy disclosure. • IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments) The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption permitted. The amendments narrow the scope of and provide further clarity on the initial recognition exception under IAS 12 and specify how companies should account for deferred tax related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement, having considered the applicable tax law, whether such deductions are attributable for tax purposes to the liability or to the related asset component. Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal. The Company has adopted the requirements of IAS 12 and these are disclosed in note 14. 18 2023 2. Material accounting policies (continued) Standards issued but not yet effective and not early adopted The Company has not applied the endorsed but not yet effective standards and amendments described below. The Company plans to apply these amendments from their effective date. 1) The standards/amendments that are not yet effective, but they have been endorsed by the European Union: • IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (Amendments), • IFRS 16 Leases: Lease Liability in a Sale and Leaseback (amendments). • IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (Amendments) The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted, and will need to be applied retrospectively in accordance with IAS 8. The objective of the amendments is to clarify the principles in IAS 1 for the classification of liabilities as either current or non-current. The amendments clarify the meaning of a right to defer settlement, the requirement for this right to exist at the end of the reporting period, that management intent does not affect current or non-current classification, that options by the counterparty that could result in settlement by the transfer of the entity’s own equity instruments do not affect current or non-current classification. Also, the amendments specify that only covenants with which an entity must comply on or before the reporting date will affect a liability’s classification. Additional disclosures are also required for non-current liabilities arising from loan arrangements that are subject to covenants to be complied with within twelve months after the reporting period. The management has not yet assessed the impact of the amendment on the Company's financial statements. • IFRS 16 Leases: Lease Liability in a Sale and Leaseback (amendments) The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted. The amendments are intended to improve the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction in IFRS 16, while it does not change the accounting for leases unrelated to sale and leaseback transactions. In particular, the seller-lessee determines ‘lease payments’ or ‘revised lease payments’ in such a way that the seller-lessee would not recognise any amount of the gain or loss that relates to the right of use it retains. Applying these requirements does not prevent the seller- lessee from recognising, in profit or loss, any gain or loss relating to the partial or full termination of a lease. A seller-lessee applies the amendment retrospectively in accordance with IAS 8 to sale and leaseback transactions entered into after the date of initial application, being the beginning of the annual reporting period in which an entity first applied IFRS 16. The management has not yet assessed the impact of the amendment on the Company's financial statements. 19 2023 2. Material accounting policies (continued) 2) The standards/amendments that are not yet effective and they have not yet been endorsed by the European Union: • IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments Disclosure - Supplier Finance Arrangements (Amendments). • IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability (Amendments). The amendments are effective for annual reporting periods beginning on or after January 1, 2025, with earlier application permitted. Management has made preliminary estimates, the Company does not have any significant foreign currency transactions and therefore no material impact on the financial statements is expected. • Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. . In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. • IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments Disclosure - Supplier Finance Arrangements (Amendments) The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted. The amendments supplement requirements already in IFRS and require an entity to disclose the terms and conditions of supplier finance arrangements. Additionally, entities are required to disclose at the beginning and end of reporting period the carrying amounts of supplier finance arrangement financial liabilities and the line items in which those liabilities are presented as well as the carrying amounts of financial liabilities and line items, for which the finance providers have already settled the corresponding trade payables. Entities should also disclose the type and effect of non-cash changes in the carrying amounts of supplier finance arrangement financial liabilities, which prevent the carrying amounts of the financial liabilities from being comparable. Furthermore, the amendments require an entity to disclose at the beginning and end of the reporting period the range of payment due dates for financial liabilities owed to the finance providers and for comparable trade payables that are not part of those arrangements. The amendments have not yet been endorsed by the EU. The management has not yet assessed the impact of the amendment on the Company's financial statements. 20 2023 2. Material accounting policies (continued) 3. Material accounting judgements and estimates Estimates and underlying assumptions are reviewed on an ongoing basis and based on historical experience and other factors that reflect the current situation and reasonable future events. The Company makes estimates and assumptions concerning future events. Resulting accounting estimates, by definition, will seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below. 3.1. Impairment of property, plant and equipment The Company at the end of each reporting period assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. Recoverable amount is the higher of an asset’s or cash-generating unit's fair value less costs of disposal and its value in use (Note 7). The Company’s management considers the entire Company as one cash-generating unit. The Company’s production branches are not independent units, they all are integrated into a common system and rely on each other activities. When raw milk is purchased on the market, all its ingredients (protein and fat) are used for finished products, which are produced in different branches of the Company. The management measures what returns are being generated from the entire raw milk collected and processed. It is therefore appropriate to consider the entire Company as one cash-generating unit without identifying a separate cash-generating unit. In 2022, the Company has performed impairment assessment of non-current assets (including rights of used assets) with carrying value as at 31 December 2022 amounting to EUR 45,411 thousands in the Company’s financial statements. To assess impairment, the management made estimate of the recoverable amount of such assets. The recoverable value was determined based on value in use by using discounted future cash flows method for the period from 2023 to 2027. The expected increase in sales is 2% in average each year. Expenses and profitability for 2023 – 2027 forecasted based on historical profitability level of the Company. Discount rate of 12% (pre- tax) was applied for cash flow forecasts. Cash flows for a longer than five-year period was extrapolated applying the growth rate of 2%, which reflects the management’s best estimate given the current market situation. As a result, non-current assets of the Company were not impaired as at 31 December 2022. Impairment sensitivity analysis (increasing discount rate by 1% and decreasing EBITDA profitability by 1%) resulted to no impairment of the Company’s non-current asset as at 31 December 2022. As at 31 December 2023 there were no indications, that non-current asset of the Company might be impaired, therefore detailed testing was not performed 3.2. Impairment losses on receivables At the end of each reporting period, the management of the Company makes assumptions, on the basis of which decisions are made on the valuation of expected credit losses (for more information refer to “Impairment of financial assets”). The Company has identified that the loss rates approximates to 0.1% from total receivables (during 2017–2023). Forward looking estimate is applied by accounting for additional allowance for the trade receivables that are yet not overdue based on historic information (Note 18). Management assumes that a default occurs when the amounts receivable are outstanding and loans granted are overdue for more than 180 days (Note 18). 21 2023 2. Material accounting policies (continued) 3. Material accounting judgements and estimates (continued) 3.3. Deferred tax asset The Company recognises deferred tax assets based on the judgement of management that realization of the related tax benefits through future taxable profits is probable. Management’s judgements are based on internal budgets and forecasts (Note 16). 3.4. Employee benefits provision Recognition of provision for employee benefits requires estimate of the probable outflow of economic benefits and defining the best estimate of the expenditure required to settle the present obligation at the end of reporting period. Details of applied estimates and their influence on the financial statements are disclosed in Note 15. 3.5. Non-current asset useful life estimate The useful life of the Company’s property, plant and equipment is established individually for each asset, estimating the future economic benefit, planned period, intensity and environment of use, the changes of the asset’s useful features throughout the useful operation period, technological and economic progress, which may make the asset old-fashioned, as well as legal and other factors, limiting the useful life of non-current tangible assets. In 2023, the Company has revised useful lives of property, plant and equipment according to IAS 16 Property, plant and equipment and adjusted useful lives. New useful lives of property, plant and equipment have been applied prospectively from 30 September 2023 (Note 7). Total acquisition cost of property, plant and equipment items for which useful lives were extended was EUR 800 thousand in 2023 (in 2022- EUR 19,460 thousand). 3.6. Estimation of raw material cost allocation The Company specialises in the production of dairy products, so the largest part of the production cost is the amount paid for the raw milk purchased. The main ingredients in raw milk are fat (cream) and protein (skim milk). Because of the variety of products with different fat and protein contents, the management judgement is involved in identifying what proportion of the raw milk price is attributable to fat and what proportion to protein. The management of the Company determines the milk cost allocation ratios in a way that interrelated products margin remains similar. 3.7.Climate related matters The Company constantly monitors the latest government legislation in relation to climate related matters. The significant accounting estimates made by management incorporate the future effects of the Company’s strategic decisions and commitments on having its set of production adhered to the energy transition targets, short and long-term impacts of climate-related matters and energy transition to lower carbon energy sources. At the current time, no legislation has been passed that will impact the Company. The Company will adjust the key assumptions used in value-in-use calculations and sensitivity to changes in assumptions should a change be required. 22 2023 1. Operating segments Basis for segmentation The Company produces and sells various types of dairy products. Financial performance is analysed as per different types of dairy products. Certain types of dairy products have similar economic characteristics. Given the fact, the dairy product types have been aggregated to reportable segments. Aggregation also includes evaluation of similarities of the dairy product types in respect to production process, customer type and geographical areas, methods of product distribution. The Company has identified the following reportable segments: cheese, dry dairy products, ice cream and fresh dairy products. The management of the Company reviews internal management reports of reportable segments at least on a quarterly basis. Other segments include production of cream, whey, other products and services. None of these segments meet the quantitative thresholds (10% from total) for reportable segments in 2023 and 2022. Information about reportable segments Information on each reportable segment is presented below. The segment performance assessment is based on the segment’s gross profit, since the management believes that this information is the most relevant for performance evaluation of respective segments. Segment information is prepared in accordance with the same accounting principles as used in the financial statements of the Company. Information related with total assets and liabilities, interest income and operating expenses, pre-tax result of the operating segments is not provided to the Board and General Manager. In the management’s opinion, there is no need to allocate these line items to the operating segments. 2023, EUR thousand Cheese Dry dairy products Ice- cream Fresh dairy products Total reportable segments All other segments Total Sales 23,173 11,681 19,552 140,825 195,231 5,883 201,114 Gross profit 3,344 (1,755) 6,821 44,633 53,043 (429) 52,614 Depreciation and amortisation 1,024 62 382 2,285 3,753 20 3,773 Other material non-cash items: Impairment of inventories - 278 - 460 738 - 738 Acquisitions of property, plant and equipment 681 122 1,423 1,916 4,142 1 4,143 23 2023 1. Operating segments (continued) 2022, EUR thousand Cheese Dry dairy products Ice-cream Fresh dairy products Total reportable segments All other segments Total Sales 25,775 13,477 15,459 131,868 186,579 17,974 204,553 Gross profit 2,088 1,171 3,551 22,585 29,395 (772) 28,623 Depreciation and amortisation 1,014 59 388 2,314 3,775 20 3,795 Other material non-cash items: Impairment of inventories - 2,796 - 147 2,943 - 2,943 Acquisitions of property, plant and equipment 412 - 79 1,542 2,033 - 2,033 Geographic information Geographic information specifies revenues and non-current assets of the Company as per Company’s country and other countries. Revenue is presented based on the geographic location of customers, and non-current assets are presented according to their location. Sales revenue, EUR thousand 2023 2022 Lithuania 120,489 113,402 Poland 15,185 23,389 Latvia 7,401 8,236 Estonia 2,455 1,794 Germany 12,651 9,871 Netherlands 2,326 3,322 Ireland 2,052 1,928 United Kingdom 5,395 6,209 USA 4,457 3,863 Indonesia 2,534 6,206 Uzbekistan 2,713 3,429 Kazakhstan 2,281 2,428 Azerbaijan 6,452 6,279 Other countries 9,135 9,243 Revenue, total 201,114 204,553 Non-current assets, EUR thousand 2023 2022 Lithuania 42,624 43,086 Poland 851 949 Total non-current assets 43,475 44,035 Major customers The Company has one customer from which the revenue related to segment of cheese and fresh dairy products in 2023 made 20.6% (in 2022: 17.7%) of the total revenue. Revenue recognition during the year ended 31 December: EUR thousand 2023 2022 Recognised at a point of time 203,040 206,145 Marketing costs reducing the sales (1,514) (1,116) Volume rebates reducing the sales (412) (476) 201,114 204,553 24 2023 1. Operating segments (continued) Set out below is the amount of revenue recognized from: EUR thousand 2023 2022 Amounts included in contract liabilities at the beginning of the year 474 1,000 Performance obligations satisfied in previous years 474 1,000 Contract liabilities consist of received advance payments from customers for the sales of dairy products. There is no variable consideration included in contracts with customers. Advances considered to be short-term as they are realised in less than one year. Performance obligations are satisfied at the time of transfer of control of the goods to the customer and payment is normally due within 30 to 60 days from the moment of transfer of control of the goods. 2. Other operating income and expenses Other operating income: EUR thousand 2023 2022 Income from sales of current asset t and other services 269 169 Net gain on disposal of property, plant and equipment (Notes 7, 14) 49 1,604 318 1,773 Other operating expenses: EUR thousand 2023 2022 Expenses related to sales of current assets and services (169) (300) (169) (300) 3. Cost of sales, selling and distribution, administrative expenses Cost of sales: EUR thousand 2023 2022 Raw materials and consumables (109,812) (128,191) Other costs (15,950) (10,378) Energy costs (electricity, gas, water) (8,996) (14,683) Personnel costs (18,130) (14,555) Right-of-use assets depreciation (113) (126) Depreciation and amortisation (3,660) (3,669) Changes in finished goods and work in progress 8,161 (4,328) (148,500) (178,930) The decrease in cost of sales was largely impacted by decreasing raw milk, electricity and natural gas prices in 2023. 25 2023 3. Cost of sales, selling and distribution, administrative expenses (continued) Selling and distribution expenses: EUR thousand 2023 2022 Personnel costs (8,439) (7,345) Production delivery costs (2,105) (2,121) Marketing and advertising (1,230) (882) Fuel (1,683) (2,001) Consumables and spare parts (1,042) (1,198) Other costs (639) (647) Development of new products (202) (298) Right-of-use assets depreciation (384) (414) Depreciation and amortisation (446) (438) Utilities (428) (1,017) Various services (453) (247) Repair (348) (286) Insurance (207) (185) Taxes (other than income tax) (79) (80) Leases of low value assets (37) (38) Communication expenses (20) (18) Transport (24) (24) (17,766) (17,239) Administrative expenses: EUR thousand 2023 2022 Personnel costs (8,275) (7,115) Other costs (2,043) (1,677) Various services (1,637) (1,361) Marketing and advertising (12) (2) Security services (825) (709) Charity (696) (471) Right-of-use assets depreciation (552) (524) Consumables and spare parts (253) (268) Depreciation and amortisation (471) (490) Utilities (608) (746) Repair (277) (227) Insurance (604) (424) Taxes (other than income tax) (578) (487) Allowance and write down of inventories (377) (3 069) Fuel (211) (245) Communication expenses (62) (63) Development of new products (18) (21) Leases of low value assets (19) (19) Transport (19) (8) (17,537) (17,926) In 2023, personnel costs increased due to growing remuneration paid to the Company’s employees. The decrease in inventory allowance and write-down expenses is due to the sale of production balances that had been impaired in the previous year. 26 2023 4. Finance costs EUR thousand 2023 2022 Interest expenses on loans (1,656) (896) Other* (213) (238) Total finance costs (1,869) (1,134) * Including other interest expenses, factoring account fees, interest on late payments, and fines. 5. Income tax expense EUR thousand 2023 2022 Income tax (396) - Change in deferred income tax (1,970) 883 Total corporate income tax expense (2,366) 883 Reconciliation of effective tax rate EUR thousand 2023 2022 Result before tax 15,621 (6,203) Income tax using the prevailing tax rate 15% (2,343) (15%) 930 Expenses not deductible for tax purposes (0.7%) 116 3.1% (194) Tax incentive (support, investments) 0.7% (139) 2.4% 147 Effective tax rate 15% (2,366) (14.2%) 883 (260) 6. Earnings per share Basic earnings per share is calculated by dividing the net profit for the year by the average number of ordinary shares outstanding during the year. 2023 2022 Number of shares in issue calculated using weighted average method, units ‘000 45,134 45,134 Net result for the year, EUR thousand 13,255 (5,320) Earnings (loss) per share (EUR) 0.29 (0.12) Diluted earnings per share (EUR) 0.29 (0.12) 27 2023 7. Property, plant and equipment Land and buildings Machinery and equipment Other non- current assets Prepayments Construction -in-progress Total Balance as at 1 January 2022 41,861 110,309 18,356 1,266 314 172,106 Additions - 1,263 342 - 428 2,033 Reclassification from right of-use-asset (Note 14) - - 135 - - 135 Disposals and write-offs (2,160) (1,248) (284) - - (3,692) Reclassifications - 1,171 6 (1,177) - - Transferred from construction in progress 13 659 - - (672) - Balance as at 31 December 2022 39,714 112,154 18,555 89 70 170,582 Balance as at 1 January 2023 39,714 112,154 18,555 89 70 170,582 Additions - 3,246 357 - 502 4,105 Reclassification from right of-use-asset (Note 14) - - 19 - - 19 Disposals and write-offs (35) (261) (539) - (7) (842) Reclassifications (1,993) 6 1987 - - Transferred from construction in progress 83 359 - - (442) - Balance as at 31 December 2023 39,762 113,505 18,398 2,076 123 173,864 Depreciation and impairment Balance as at 1 January 2022 24,987 83,352 16,415 - - 124,754 Depreciation charge for the year 1,000 3,057 626 - - 4,683 Reclassification from right of-use-asset (Note 14) - - 20 - - 20 Depreciation of assets disposed and written- off (1,353) (1,245) (261) - - (2,859) Balance as at 31 December 2022 24,634 85,164 16,800 - 126,598 Balance as at 1 January 2023 24,634 85,164 16,800 - - 126,598 Depreciation charge for the year 980 3,036 639 - - 4,655 Reclassification from right of-use-asset (Note 14) - - 19 -- - 19 Depreciation of assets disposed and written- off (34) (260) (536) - - (830) Balance as at 31 December 2023 25,580 87,940 16,922 - - 130,442 Carrying amounts As at 1 January 2022 16,874 26,957 1,941 1,266 314 47,352 As at 31 December 2022 15,080 26,990 1,755 89 70 43,984 As at 31 December 2023 14,182 25,565 1,476 2,076 123 43,422 Pledges of property, plant and equipment Property, plant and equipment with a carrying amount of EUR 39,082 thousand as at 31 December 2023 (2022: EUR 30,434 thousand) have been pledged to secure the bank loans (Note 13). Disposal of property, plant and equipment The Company sold part of its fixed assets in 2022 for EUR 2,770 thousand to a third party. In order to streamline the logistics activities of the Company, the storage and logistics premises and a land in Vilnius were sold. After the sale of the property, the Company signed a lease agreement for these premises for a period of two years, during which all logistics functions will be transferred to other geographical locations (branches of the Company). The transaction was assessed as sale and leaseback transaction. The Company has measured the right-of-use asset arising from the leaseback transaction at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the Company (Note 14). Accordingly, the Company has recognized only the amount of gain that relates to the rights transferred to the buyer (Note 2). 28 2023 7. Property, plant and equipment (continued) Depreciation charge Depreciation is included in the following items of the statement of comprehensive income: thousand EUR 2023 2022 Cost of sales 3,773 3,795 Selling and distribution expenses 446 438 Administrative expenses 436 450 4,655 4,683 The Company’s additions in 2023 and 2022 consists of acquisitions of new machinery, equipment and production lines amounting to EUR 4,105 thousand as at 31 December 2023 (2022: EUR 2,033 thousand). As a result of changes in accounting estimates in 2023, depreciation of the Company for 2023 have decreased by approx. EUR 9 thousand in comparison to 2022 depreciation. In 2024, the effect on depreciation is expected to be approx. EUR 36 thousand less compared to 2023. As a result of changes in accounting estimates in 2022, depreciation of the Company for 2023 have decreased by approx. EUR 251 thousand in comparison to 2021 depreciation. Acquisition cost of fully depreciated property, plant and equipment still in use amounts to EUR 33,621 thousand as at 31 December 2023 (2022: EUR 33,984 thousand). The Company has not capitalised borrowing costs as at 31 December 2023 and 2022, as there were no material projects performed, which comply with the capitalisation criteria. In 2022, the Company has performed impairment assessment of non-current assets (including rights of used assets) with carrying value as at 31 December 2022 amounting to EUR 45,411 thousands in the Company’s financial statements. As a result, non-current assets of the Company were not impaired as at 31 December 2022. Impairment sensitivity analysis (increasing discount rate by 1% and decreasing EBITDA profitability by 1%) resulted to no impairment of the Company’s non-current asset as at 31 December 2022. As at 31 December 2023 there were no indications, that non-current asset of the Company might be impaired, therefore detailed testing was not performed 29 2023 8. Inventories EUR thousand As at 31 December 2023 As at 31 December 2022 Raw materials 6,934 8,399 Production-in-progress 3,211 3,800 Finished goods 5,787 7,442 Goods for re-sale 7 8 15,939 19,649 The acquisition cost of the Company’s inventories accounted for at net realisable value as at 31 December 2023 amounted to EUR 2,490 thousand (31 December 2022: EUR 7,192 thousand). The allowance and write down of the inventories are mostly related with the decrease in finished goods value to the net realisable value and the allowance and/or write-off of obsolete and slow- moving inventory. In 2023 and 2022, the allowance expenses and write off of inventories was included in the administrative expenses. Changes in the allowance for impairment of inventories (EUR thousand): 2023 2022 Balance at beginning of year 3,214 270 Increase 211 2,944 Decrease (2,687) - Balance at end of year 738 3,214 The reduction of the inventory allowance is related to the sale of production remained from 2022. Raw materials include raw milk and other materials used in production. Inventories recognised as costs during the year can be specified as follows: EUR thousand 2023 2022 Cost of sales (manufactured goods sold) (151,187) (175,930) Selling, distribution and administrative expenses (consumption of inventories) (3,188) (3,712) Other operating expenses (sold raw materials, spare parts) (148) (56) (154,523) (179,698) Selling and distribution and administrative expenses include consumed fuel and materials, and spare parts. Other operating expenses include cost of re-sold goods and cost of sold raw materials and other inventories. Inventories with the carrying amount of up to EUR 15,939 thousand as at 31 December 2023 (2022: EUR 19,649 thousand) have been pledged to secure the bank loans (Note 13). The Company had a part of inventories with the carrying amount of EUR 821 thousand as at 31 December 2023 (31 December 2022: EUR 475 thousand) held at warehouses rented from third parties. 30 2023 9. Trade receivables, prepayments and other receivables Trade receivables EUR thousand 2023 2022 Trade receivables 8,110 7,149 Impairment of receivables (8) (242) 8,102 6,907 For trade receivables ageing see Note 18. The Company’s management uses factoring services for faster collection of trade receivables. As factoring is without recourse on the financial statements trade receivables are disclosed net-off factored amount. Prepayments EUR thousand 2023 2022 Advance payments for delivery of milk 56 135 Other prepayments 137 27 193 162 Less: non-current portion - - 193 162 According to agreements with raw milk suppliers, prepayments for delivered milk shall be covered during the period from 1 to 2 years. A fixed rate interest, varying from 5% to 8%, is calculated on the outstanding prepayment balance. Other receivables EUR thousand 2023 2022 Deferred expenses 560 451 Loans to management, employees 411 417 971 868 Less: non-current portion (5) (411) 966 457 In 2020, the Company’s Board made a decision to grant a EUR 500 thousand loan to a general director. The loan will be repaid in instalments, the final repayment date of the loan is 1 July 2024. The annual interest rate under the Loan agreement is 5.83% (interest rate of “Loans to euro are households for other purposes – new agreements” announced by the Bank of Lithuania at the time of concluding the loan agreement). 10. Cash thousand EUR 2023 2022 Cash at banks 1,544 160 Cash on hand 40 112 1,584 272 As at 31 December 2023, cash at bank, comprising EUR 1,584 thousand, is pledged to secure the bank loans (as at 31 December 2022: EUR 272 thousand). The Company has no restrictions on the use of pledged cash, therefore, it is disclosed as cash on these financial statements. 31 2023 11. Equity As at 31 December 2023 and 2022, the issued capital comprised 45,134,419 units of ordinary registered shares at par value of 0.29 EUR each. All the shares are fully paid. There were no changes in issued capital during 2023 and 2022. Holders of ordinary shares have one voting right per share at the shareholders meeting and the right to dividends when they are declared, as well as the right to capital repayment in case of a decrease of a share capital. There is no controlling entity or individual among the shareholders of AB Pieno Žvaigždės. Capital Management For the purpose of the Company’s capital management, capital includes equity. The Board’s policy is to keep the shareholders’ equity over borrowings at the level to maintain the confidence of investors, creditors and the market and to fund business development opportunities in the future. The Board keeps track on the ratios of capital return (debt-to-equity ratio, working capital financing ratio, capital ratio) and makes suggestions regarding payment of dividends, based on the Company’s performance results and strategic plans. The Board also aims to keep balance between bigger return, which could be available if there was higher level of borrowed assets and security, which is provided by higher level of equity. The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2023 and 31 December 2022. According to the Companies Law of the Republic of Lithuania, the Company’s equity shall be not less than 50% of its share capital. The Company complies with this requirement. Legal reserve Under Lithuanian legislation, an annual allocation to the legal reserve should amount to at least 5% of the net profit until the reserve makes up 10% of the share capital. The reserve can be used only to cover the accumulated losses. As at 31 December 2023 and 2022, the legal reserve was fully formed and amounted to EUR 1,570 thousand. Dividends per share 2023 2022 Number of shares in issue calculated using weighted average method, units ‘000 45,134 45,134 Dividends per share (EUR) - - Dividends - - No dividends were paid for 2022 and the interim period 2023. 32 2023 12. Grants EUR thousand 2023 2022 Grants as at 1 January 2,663 2,343 Increase during the period 528 320 Grants as at 31 December 3,191 2,663 Amortisation as at 1 January 1,321 1,154 Charge for the year 170 167 Amortisation as at 31 December 1,491 1,321 Carrying amount as at 1 January 1,342 1,189 Carrying amount at 31 December 1,700 1,342 Less: current portion 335 335 Total non-current portion 1,365 1,007 Amortisation of the asset-related grants is calculated over the depreciation period of the related non-current assets and is recognised in the statement of comprehensive income to reduce the depreciation charge. Amortisation of grants is stated under cost of sales in the statement of comprehensive income. Based on grant agreement signed, the Company has to comply with turnover and profitability covenants. Due to the unfavorable economic situation as at 31 December 2022, the Company had breached profitability ratio set in the grant agreement, therefore EUR 335 thousand was presented under current liabilities (Note 17). The Company’s management provided an explanation of the results to the relevant authorities in 2023 and received confirmation in 2024 that no sanctions would be imposed due to exceptional circumstances beyond the control of the beneficiary. As at 31 December 2023 the Company complied with the covenants set in grant agreements. 13. Loans and borrowings As at 31 December 2023 and 2022, Company’s loans and borrowings are as follows (thousand EUR): The balance of used syndicated credit agreement (between AB SEB bank and AB Swedbank) as at 31 December 2023 was 11,360 thousand EUR (31 December 2022: EUR 16,280 thousand). The syndicated credit limit agreement (between AB SEB bank and AB Swedbank) as at 31 December 2023 was not used (as at 31 December 2022, the balance of used syndicated credit limit was EUR 9,000 thousand). Creditor Maturity date Currency As at 31 December 2023 As at 31 December 2022 AB SEB bankas, AB Swedbank July 2026 (EUR) 11,360 16,280 AB SEB bankas, AB Swedbank June 2024 (EUR) - 9,000 AB SEB bankas June 2024 (EUR) - 706 AB Swedbank June 2024 (EUR) - 759 Luminor Bank AS June 2024 (EUR) - 1, 681 Total liabilities 11,360 28,426 Less: current portion (7,860) (28,426) Total non-current portion 3,500 - 33 2023 13. Loans and Borrowings (continued) The overdraft facility (AB SEB bankas, AB Swedbank, Luminor Bank AS) as at 31 December 2023 was not used (as at 31 December 2022, the balance of used overdraft facility was EUR 3,146 thousand). Reconciliation of movement in interest bearing loans and borrowings EUR thousand 2023 2022 Balance as at January 1 28,426 21,200 Loan received - 12,146 Repayment of borrowings (17,066) (4,920) Loan and factoring interest accrued 1,628 896 Loan and factoring interest paid (1,622) (888) Balance as at 31 December 11,374 28,434 The balance of factoring interest payable as at 31 December 2023 was EUR 14 thousand (31 December 2022: EUR 8 thousand). All loans and borrowings as at 31 December 2023 and 2022 were denominated in EUR. All loans bear variable interest rates that are calculated as EURIBOR plus fixed margin. Interest rates are restated every 3 or 6 months depending on the loan contract, and for this reason the carrying amounts of the mentioned loans are assumed to approximate their fair values. The bank loans are secured by pledging property, plant and equipment (Note 7), inventories (Note 8), part of current and future cash flows in bank accounts (Note 10) and the right of rent of commercial land. All interest calculated during 2023 and 2022 is recognised in profit or loss of a respective year. Special terms and conditions of the loan agreement As at 31 December 2022 the Company has not complied with capital financing ratio of the syndicated loan agreement. Therefore, syndicated loan amounting to EUR 16,280 thousand was classified as short-term in the Company’s financial statements as at 31 December 2022. For some of the covenants breached during 2022 (net debt/EBITDA), amendments to the agreements between the Company and the banks were executed and values of covenants ratios were reviewed and adjusted by the end of 2022. As at 31 December 2023, the Company complied with all special covenants of loan agreements. Main special terms and conditions of the loan agreement Ratio Condition 2022.12.31 2022.12.31 Condition 2023.12.31 2023 12 31 Net debt/EBITDA not applicable - < 3 0.5 Debt service coverage ratio not applicable - > 1,3 2.9 Working capital financing ratio < 85% 92% < 70% 0% Capital ratio >28% 30% >35% 51% 34 2023 13. Loans and Borrowings (continued) Effective interest rates of the loans can be presented as follows: % 2023 2022 Long-term loans 5.85% 2.7% Loan repayment schedules The contractual repayment of loans is as follows: EUR thousand 2023 2022 Within a year (Note 18 Liquidity risk) 7,860 28,426 From one to five years 3,500 - Total liabilities 11,360 28,426 14. Right-of-use assets and lease liabilities The Company has lease contracts for various assets (buildings and vehicles) used in its operations. The Company’s liabilities under its leases are secured by the lessor’s title to the leased assets. The Company also has certain leases with lease terms of 12 months or less and leases of office equipment with low value. The Company applies the “short-term lease” and “lease of low-value assets” recognition exemptions for these leases. There are no covenants set in the lease agreements. Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: Buildings Vehicles Total EUR thousand EUR thousand EUR thousand As at 1 January 2022 393 1,622 2,015 Additions 206 422 628 Depreciation charge (224) (840) (1,064) Termination of lease - (37) (37) Reclassification to non-current assets (Note 7) - (115) (115) As at 31 January 2022 375 1,052 1,427 As at 1 January 2023 375 1,052 1,427 Additions 87 376 463 Depreciation charge (Note 7) (287) (762) (1,049) As at 31 December 2023 175 666 841 35 2023 14. Right-of-use assets and lease liabilities (continued) Depreciation expense of right-of-use assets EUR 1,049 thousand is presented in the statement of comprehensive income as follows: - The amount of EUR 936 thousand is recorded in selling and distribution and administrative expenses (2022: EUR 938 thousand). - The amount of EUR 113 thousand is recorded in cost of sales (2022: EUR 126 thousand). Set out below are the carrying amounts of lease liabilities (included under the caption “Lease liabilities”) and the movements during the period: 2023 2022 EUR thousand EUR thousand As at 1 January 1,758 2,068 Additions 465 1,054 Interest 36 50 Payment (fees) (1,261) (1,364) Payments (interest) (36) (50) As at 31 December 962 1,758 Current 702 1,120 Non-current 260 638 In 2022 the Company has sold premises in Vilnius to a third party for EUR 2,770 thousand and signed lease agreement for two years for the same premises. The transaction was assessed as sale and leaseback transaction. Related right of used asset in EUR 188 thousand was recognised in proportion to the right of used asset retained, whereas related lease liabilities in EUR 584 thousand - based on present value of discounted future payments. Accordingly, the Company has recognized only the amount of gain that relates to the rights transferred to the buyer (Note 2). The following are the amounts recognised in profit or loss: 2023 2022 EUR thousand EUR thousand Depreciation expenses of right-of-use assets 1,049 1,064 Lease liability interest expenses 36 50 Expenses relating to short-term leases (included in cost of sales) 54 129 Expenses related to low-value assets (included in administrative selling and distribution expenses) 56 58 Total amount recognized in profit (loss) 1,195 1,301 36 2023 15. Employee benefits provision Employee benefits comprise liabilities to employees leaving the Company on normal retirement date, provisions for anniversary bonuses and severance payments to the management. The present value of these obligations is estimated by the Company at the end of each reporting year. The provision amount equals discounted future payments, taking into account the employee rotation, and relates to the period ended at the last day of the reporting year. thousand EUR Net defined benefit liability 2023 Balance as at January 1 1,745 Retirement benefit 586 Provision for anniversary bonus 186 Severance payments 973 Total non-current employee benefits as at 1 January 1,745 Changes during the year Recognised in profit or loss: Used provision (170) Increase (decrease) in provision during the period 250 Amounts recognised in other comprehensive income - Balance as at 31 December 1,824 Retirement benefit 629 Provision for anniversary bonus 40 Severance payments 1,155 Total employee benefits provision as at 31 December 1,825 Current 206 Non-current 1,619 The following main assumptions were used for the calculation of benefit obligation in 2023: discount rate 3.1%; inflation of 3%; employees’ turnover of 32.5% (2022: discount rate 4.2%; inflation of 3.00%; employees’ turnover of 30%). Sensitivity of the changes in discount rate, wages and salaries and employee turnover rate to the defined benefit obligation (thousand EUR): 2023 2022 Discount rate +0,5% (4) (9) Discount rate -0,5% 5 9 Salary change +0.5% 4 5 Salary change -0.5% (4) (5) Employee turnover rate +5% (55) (65) Employee turnover rate -5% 72 86 37 2023 16. Deferred tax assets and liabilities The deferred tax assets and liabilities calculated applying the 15% tax are attributed to the following items: EUR thousand Assets Liabilities Net value 2023 2022 2023 2022 2023 2022 Property, plant and equipment - - 10 12 10 12 Write off of inventories (111) (482) - - (111) (482) Non-utilized investment incentive - (1,351) - - - (1,351) Impairment of receivables (1) (36) - - (1) (36) Lease liabilities - - 132 - 132 - Right-of-use asset (114) - - - (114) - Vacation reserve and employee benefits provision (281) (269) - - (282) (269) Tax loss carried forward - (211) - - - (211) Tax (asset)/liability (508) (2,349) 142 12 (366) (2,337) Movements in temporary differences during the year can be presented as follows: EUR thousand As at 1 January 2023 Stated in profit or loss As at 31 December 2023 Property, plant and equipment 12 (2) 10 Write off of inventories (482) 371 (111) Non-utilized investment incentive (1,351) 1,351 - Impairment of receivables (36) 35 (1) Lease liabilities - (114) (114) Right-of-use asset - 132 132 Vacation reserve and employee benefits provision (269) (13) (282) Tax loss carried forward (211) 211 - Tax (asset)/liability (2,337) 1,971 (366) EUR thousand As at 1 January 2022 Stated in profit or loss As at 31 December 2022 Property, plant and equipment 14 (2) 12 Write off of inventories (41) (442) (482) Non-utilized investment incentive (1,205) (145) (1,351) Impairment of receivables (33) (3) (36) Vacation reserve and employee benefits provision (189) (80) (269) Tax loss carried forward (211) (211) Tax (asset)/liability (1,454) (883) (2,337) As of 31 December 2023 and 2022, the Company recognised deferred tax asset. 38 2023 17. Trade and other payables EUR thousand 2023 2022 Financial instruments Payable to suppliers 11,933 13,735 Other payables 394 396 12,327 14,131 Non-financial instruments Contract liabilities 785 474 Vacation reserve 3,196 2,617 Payable taxes and social security 1 644 1,252 Wages and salaries payable 1,122 910 Grants (Note 12) 335 335 7,082 5,588 19,409 19,719 Less: non-current portion - - 19,409 19,719 The balance of the contract liability as at 31 December 2023 and 2022 reflects the balance of advances paid by customers which should be recognised as revenue in the next financial year. 18. Financial instruments Included below is a change in liabilities arising from cash flows of financial activities: Borrowings Lease liabilities Grants Dividends Total As at 31 December 2022 28 434 1 758 1 342 363 31 897 Dividends paid - - - (2) (1) Grants received - - 528 - 528 Grants amortisation - - (170) - (170) Loans received - - - - - Loans repaid (17 066) - - - (17 066) New lease agreements - 465 - - 465 Lease payments - (1 261) - - (1 261) Interest expenses accrued 1,620 36 - - 1 656 Interest paid (1,622) (36) - - (1 658) As at 31 December 2023 11 360 962 1 700 361 14 389 Borrowings Lease liabilities Grants Dividends Total As at 31 December 2021 21 200 2 068 1 189 365 24 822 Dividends paid - - - (2) (2) Grants received - - 320 - 320 Grants amortisation - - (167) - (167) Loans received 12 146 - - - 12 146 Loans repaid (4 920) - - - (4 920) New lease agreements - 1 054 - - 1 054 Lease payments - (1 364) - - (1 364) Interest expenses accrued 896 64 - - 960 Interest paid (888) (64) - - (952) As at 31 December 2022 28 434 1 758 1 342 363 31 897 39 2023 18. Financial instruments (continued) Credit, interest rate risks arise in the course of the Company’s activities carried out on normal business conditions. Financial risk management In its activities the Company is exposed to various financial risks: market risk (including interest rate risk), credit risk and liquidity risk. General risk management policy establishment and supervision is the responsibility of the Board. Risk management policy was set up in order to identify and analyse risks facing the Company, and determine risk acceptance limits. Risk management policy and processes are reviewed regularly considering changes in the markets and activities of the Company. The Company, applying learning and management standards and procedures, aims to establish constructive control environment where all employees clearly realise their functions and responsibilities. The Company’s management pays the greatest attention to unpredictability of financial markets and aims to decrease its eventual impact on the Company’s financial performance. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty fails to meet the contractual obligations of a financial instrument. Credit risk relates principally to amounts receivable from the Company's customers and cash balances held in banks. The Company has procedures in place to ensure that goods are only sold to customers with a satisfactory credit history and do not exceed an acceptable credit risk limit set by management. The Company has established a credit policy and credit risk is being monitored on a continuous basis. The Company applies factoring to major trade receivables, which is non-recourse factoring, i.e. the Company does not assume the risk of non-payment by its customers and all amounts received under factoring agreement are immediately accounted for as a decrease in trade receivables. As at 31 December 2023 and 2022 the Company had no customers from which outstanding trade receivables were higher than 10% calculated from total gross trade receivables. 2023 2022 Customer No 1 6.8% 8.5% Customer No 2 6.7% 7.2% The carrying amount of financial assets represents the maximum credit exposure, which was as follows at the date of the statement of financial position: EUR thousand Carrying amount 2023 2022 Non-current receivables 5 411 Current receivables (Note 9) 8,102 6,907 Cash 1,584 272 9,691 7,590 40 2023 18. Financial instruments (continued) Credit risk (continued) The maximum credit risk related to amounts receivable (both current and non-current) at the reporting date could be distributed per geographic zones in the following way: EUR thousand Carrying amount 2023 2022 2,063 Lithuania 2,080 European Union countries 3,641 2,739 Other countries 2,386 2,516 8,107 7,318 Impairment losses The following impairment losses of financial assets were recognised in profit or loss: Impairment losses of Trade receivables 2023 2022 Impairment (reversal) of trade receivables (233) 22 Bad debts write-off 234 16 Total 1 38 The Company’s exposure to credit risk is mainly determined by individual characteristics of each customer. However, the management considers also the factors that may affect the credit risk base of the customers, including the default risk related to the customer’s country of operation and etc. Information about expected credit losses of trade receivables as at 31 December 2023 is presented in the table below: EUR thousand Average loss amount As at 31 December 2023 Impairment recognised Total Not past due 0.10% 6,731 (6) 6,725 Overdue 0–30 days 0.10% 1,334 (1) 1,333 Overdue 30–60 days 0.10% 33 - 33 Overdue 61–90 days 0.10% 3 - 3 Overdue 90–180 days 0.10% 8 - 8 Overdue more than 180 days 100.00% 1 (1) - 8,110 (8) 8,102 EUR thousand Average loss amount As at 31 December 2022 Impairment recognised Total Not past due 0.10% 6,182 (6) 6,176 Overdue 0–30 days 0.10% 699 (1) 698 Overdue 30–60 days 0.10% 31 - 31 Overdue 61–90 days 0.10% 1 - 1 Overdue 90–180 days 50.00% 2 (1) 1 Overdue more than 180 days 100.00% 234 (234) - 7,149 (242) 6,907 41 2023 18. Financial instruments (continued) Impairment losses (continued) Although the economic circumstances may have an impact on the recoverability of trade and other receivable amounts, as to the management, the Company is not exposed to material risk to incur losses which would exceed the impairment that has already been recognised. Majority of granted loans are issued to the member of management of the Company. A suretyship agreement is signed between the Company, one of the Company’s managers and one of the Company’s shareholders (Surety), based on which Surety has a liability to redeem all possible losses in case of default. Therefore, according to the management, the credit risk related to the granted loans is minimal, because the potential losses from non-compliance are insignificant. Cash include cash at bank. The banks are belonging to international financial groups with high credit ratings assigned by international credit-rating agencies, therefore, the related credit risk is minimal. See S&P ratings below: Banks Short-term funding Long-term funding SEB A-1 A+ Luminor A-1 AA- Swedbank A-1 A+ Liquidity risk Adequate liquidity risk management allows the Company to maintain needed cash levels as well as funding through agreed sufficient credit facilities. The Company’s liquidity (total current assets/total current payables and current liabilities) and quick ratios ((total current assets – inventories) / total current payables and current liabilities) as at 31 December 2023 were 0.94 and 0.38 (respectively as at 31 December 2022, 0.55 and 0.16,). Actions made by the management to solve the shortage of liquidity are presented in Basis of preparation note of these financial statements. The following are the contractual maturities of financial liabilities, including the estimated interest payments (undiscounted): As at 31 December 2023 Carrying amount Contractual net cash flows Up to 6 months 6–12 months 2–5 years EUR thousand Financial liabilities Loans 11,360 12,035 2,776 5,530 3,729 Lease liabilities 962 1,081 427 290 364 Trade and other payables (Note 17) 12,327 12,327 12,327 - - 24,649 25,443 15,530 5,820 4,093 42 2023 18. Financial instruments (continued) Liquidity risk (continued) As at 31 December 2022 Carrying amount Contractual net cash flows Up to 6 months 6–12 months 2–5 years EUR thousand Financial liabilities Loans 28,426 29,926 21,444 8,481 - Lease liabilities 1,758 1,805 598 553 654 Trade and other payables (Note 17) 14,131 14,131 14,131 - - 44,315 45,862 36,173 9,034 654 The Company’s policy is to have sufficient liquidity to meet current operating settlements including repayment of financial liabilities (see “Material Accounting Policies”, “Basis of preparation”). The Company also has a credit facility agreement (Note 13, “Basis of preparation”) to obtain additional financing when needed. Market risk Market risk - the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company's performance or the value of financial instruments held. The objective of market risk management is to manage open positions at risk in order to optimise returns. The Company is subject to interest rate cash flow risk because interest-bearing loans are subject to variable interest, related to EURIBOR. The Company did not have any significant loans granted or receivables as at 31 December 2023 and 31 December 2022 for which fixed interest rate would be applied. Interest rates applied on the Company’s financial instruments as at the reporting date were as follows: EUR thousand Carrying amount 2023 2022 Financial instruments bearing variable interest rate SEB bankas AB, Swedbank AS, Luminor AS (long-term loan) 11,360 28,426 11,360 28,426 Factual annual interest rate applied is 5,85% (2022- 2,5%) 43 2023 18. Financial instruments (continued) Cash flow sensitivity analysis for variable interest rate instruments A change of 100 basis points in interest rates on the reporting date would increase (decrease) profit or loss by amounts stated below. This analysis assumes that all other variables remain constant. An analysis for 2023 and 2022 is made on the same basis. Sensitivity effect on equity equals to effect on profit (loss) less tax effect. Effect in EUR thousand Profit (loss) for the year 100 bp increase 100 bp decrease As at 31 December 2023 Financial instruments on which variable interest rate was applied (114) 114 As at 31 December 2022 Financial instruments on which variable interest rate was applied (284) 284 19. Purchase commitments As at 31 December 2023 and 2022, the Company did not have any material purchase commitments. 20. Related party transactions A related party to the Company considered as SSK VŠĮ and Company‘s key management personnel. Transactions with related parties can be presented as follows: EUR thousand 2023 2022 Support, sales and interest income Loans receivable Support, sales and interest income Loans receivable SSK VŠĮ (1) 650 - 390 - Management (2) 23 400 23 417 673 400 413 417 Management consists of General Director and Board members. The Company’s Board consists of seven members. (1) AB Pieno Žvaigždės is the sole participant of the basketball club SSK VŠĮ to which the Company’s support is provided. During the year 2023, the Company granted EUR 650 thousand of support (in 2022: EUR 390 thousand). (2) On 11 June 2020, the Company grated a loan of EUR 500 thousand to a General Director. A suretyship agreement is signed between the Company, General Director and one of the Company’s shareholders (Surety), based on which Surety has a liability to redeem all possible losses in case of default (Note 18). Interest rate applied is 5.83%. 44 2023 20. Related party transactions (continued) Remuneration to management is included under the selling, distribution and administrative expenses category “Personnel costs” (refer to Note 3): EUR thousand 2023 2022 Expenses of remuneration to management (including payroll taxes) 1,979 1,646 Remuneration to management comprises calculated salaries (including annual vacation pay) and social security payable by the Company. The Company is liable to pay compensation up to 12 average monthly salaries for the members of management and eligible employees. The Company recognised provision for this increased defined benefit obligation (Note 15). EUR thousand 2023 2022 Employee benefits liability to management (including vacation reserve) (Note 15 and Note 17) 1,268 1,141 The Audit Committee consists of three members. Remuneration for work in the Audit Committee in 2023 was EUR 16 thousand (including payroll taxes), in 2022 – EUR 15 thousand (including payroll taxes). 21. Contingencies The Company has no contingent liabilities as at 31 December 2023 and 2022. In accordance with the applicable tax legislation, the tax authorities may at any time perform investigation of the Company’s accounting registers and records for the period from three to five years (depending on tax) preceding the accounting tax period, as well as calculate additional taxes and penalties. The Management of the Company is not aware of any circumstances which would cause calculation of additional tax liabilities. 22. Events after the reporting period No significant events after the end of the financial year occurred, which could have material influence on or require disclosure in these financial statements as at and for the year ended 31 December 2023. 45 2023 Vilnius, 2024 AB „Pieno žvaigždės“ Confirmation of the Management Financial statements and the Annual Report for the year 2023 We, Aleksandr Smagin, General Director, and Laimonas Vaškevičius, Finance Director of AB Pieno Žvaigždės, hereby confirm that, to the best of our knowledge, the Financial Statements prepared in accordance with IFRS, as adopted by the European Union, give true and fair view of the assets, liabilities, financial position, profit or loss and cash flow of the Issuer. Annual report includes a fair review of the development and performance of the business, together with description of major risks and contingencies incurred by the Issuer. General Director / Aleksandr Smagin Finance Director / Laimonas Vaškevičius 46 2023 Annual report for the year 2023 (The present Report has been prepared for the financial year 2023) GENERAL INFORMATION ABOUT THE ISSUER Key Data on the Issuer Name AB Pieno Žvaigždės Legal and organizational status Stock Company Registration date The Company was registered on 23 December 1998 Company code 124665536 VAT payer‘s code LT246655314 Authorized capital 13,088,981.51 euros, comprising 45,134,419 ordinary registered shares at par value of 0.29 euro each. Address Perkūnkiemio St. 3, LT-12127 Vilnius, the Republic of Lithuania Telephone (+370 5) 246 14 14 Fax (+370 5) 246 14 15 E-mail address info@pienozvaigzdes.lt Internet website www.pienozvaigzdes.lt Type of the Issuer’s main activities The Company’s main activity is production of dairy products. Agreements with intermediaries of public trading in securities The company has an agreement with AB Šiaulių Bankas (the bank license No.: 7, dated 4 February 1992), located at Tilžės St. 149, Šiauliai, the municipality of Šiauliai, telephone (8-5) 2102477 concerning management of securities accounting. Securities admitted to the trading lists of the stock exchanges Ordinary shares of AB Pieno Žvaigždės, were admitted to the official trading list of Nasdaq Baltic Stock Exchange. Type of shares – ordinary registered shares; Number of shares – 45,134,419; Total nominal value – 13,088,981.51 euros; VP ISIN code – LT0000111676. As at 31 December 2023, AB Pieno Žvaigždės, did not acquire any own shares. 1. The objective review of the Company’s state, activity performance and development; the description of the main risk types and uncertainties encountered by the enterprise AB Pieno Žvaigždės, was established on 23 December 1998 after merger of independent milk processing companies operating in Lithuania: AB Mažeikių Pieninė and AB Pasvalio Sūrinė. Later, AB Kauno Pienas and in 2004 AB Panevėžio Pienas were also merged into AB Pieno 47 2023 Žvaigždės. The current structure of the Company enables to specialize production in separate branches and reach the highest efficiency as well as even distribution of raw milk collection capacities in the country. AB Pieno Žvaigždės, is one of the largest milk processing companies in Lithuania, which currently produces more than 500 different products. The Company operates not only in the local market but also exports production to the countries of the European Union, CIS, and Asia. Different types of ferment cheese, whey flour and fresh milk products produced by AB Pieno Žvaigždės, are the main products produced for export which are well known for their irreproachable quality. The products are awarded with quality certificates. The main activity of the Issuer is processing of milk. The mentioned business is risky due to eventual changes in product and raw materials markets, competition as well as eventual legal, political, technological and social changes, which are directly or indirectly related to the Issuer’s business and may have a negative influence on the Issuer’s cash flows and operating results. The main raw material used by the Issuer is milk, the supply of which, due to short validity period, is conditionally limited. Limitations put on supply of raw milk may result in lack of raw milk and an increase in prices for raw milk. These changes may have a negative influence on the cash flows and operating results of the Issuer. The Issuer’s business (especially collection and transportation of milk) is a labour consuming activity. The lack of human resources and an increase in salary costs may negatively affect the operating results of the Issuer. Information on financial risks is presented in the annual financial statements (note 20 of the explanatory information). AB Pieno Žvaigždės, has integrated the quality and environment management system as to the requirements of ISO 9001:2008 and ISO 14001:2004. As of March 2012 the Company is implementing the food safety management system as to ISO 22000:2005, which will be integrated into the existing management system. In December 2013, the affiliate Pasvalio Sūrinė received the certificate confirming the implementation of food safety management system complying with requirement of FSSC 22000. Other three affiliates of AB Pieno Žvaigždės, have finalized the implementation of the food management system and received certificate according to the requirements of FSSC 22000 at the beginning of the year 2015. Assurance of the quality of dairy products, especially of their safety, i.e. harmlessness to consumers, is one of the major tasks of the Company. The functioning food safety system allows to monitor risk factors and important control points that are related to milk production processes, transportation, and consumption and improves the quality control. The Company has prepared, implemented and operate the programs which provide for conditions, measures and behavior rules to prevent biological, chemical, allergic and physical contamination and ensure high quality and safety of the dairy products. During the years 1998–2002 the State Food and Veterinarian Office assigned the affiliates of AB Pieno Žvaigždės, with certificates for export to EU, which allow exporting dairy products bearing identification marks to the EU countries. Primary certification of the quality management system in the Company’s affiliates was performed in 2002. The granted certificates proved that the establishment, documentation and maintenance of the quality management system complied with the ISO 9001 standard. The certification audit in the affiliates and issuance of the certificates was performed by an international certification firm TUV CERT. During 2005–2006, the environment management system complying with the requirements of ISO 14001 standards was integrated into the quality management system, and in February 2007 AB Pieno Žvaigždės, received the certificate confirming the integrated quality and environment management system complying with the requirements of ISO 9001 and ISO 14001 standards operates in the Company. Every year, the certifying firm performs supervision audits of the Company, and every 3 years the recertification takes place. AB Pieno Žvaigždės, aims to continuous improvement and better efficiency of its operations and processes, thus, for the purpose of more efficient use of external audit results for 48 2023 company improvement, in 2013, AB Pieno Žvaigždės, changed the certification firm. As of 2013, external audit of management systems is performed by certifying firm DNV. In order to further improve the quality control, in September 2016, the branch Pasvalio Sūrinė and in September 2017, the branch Mažeikių Pieninė were certified as to the IFS Food Standard requirements. This International Food Standard (IFS) was introduced by the retail trade association IFS Food of Germany, France and Italy to meet the requirements of private retailers in Germany, France, Italy, the Benelux and other countries. A company that complies with the IFS requirements ensures that it can manage the risks throughout all the stages of food production process, can produce a safe and high-quality product. The greatest attention is paid to the products that must meet the expectations of the ultimate customer and, most importantly, the consumer. Meanwhile, in April 2017, the branch Kauno Pienas was granted a BRC certificate (Global Standard for Food Safety). In 1998, the British Retail Consortium (BRC) established and implemented the BRC food technical standard, which is used for evaluation of foodstuff manufacturers. The purpose of the standard is to assist the food processing companies in the production and supply of safe and high quality foodstuff. This ensures consumer confidence in the company’s food safety. Due to clarity and versatility of the BRC standard requirements and control, they are acknowledged globally. The Company’s affiliates Kauno Pienas and Panevėžio Pienas are certified for production of ecological products (ecological yogurts, ecological sour cream, ecological curd and cottage cheese). After each annual review, a public company Ekoagros issues a new certificate on the Company’s compliance with the requirements. Production of ecological dairy products requires adhering to strict requirements set not only for production processes but also for their compound parts. The certified ecological products are marked with the following additional information: certification mark of ecological products, code of the certifying firm, and reference to the growth place of agricultural goods used for production. Certain products of the Company are assigned with specific quality certificates HALAL (whey powder and cream) and KOSHER (whey powder). The Company’s management has undertaken to produce safe and high-quality dairy products that satisfy the clients’ needs and expectations, with low impact on environment to the maximum extent, all being defined in the Company’s policy on the safety and quality of food and environment protection. The company continuously monitors the market and considers all development opportunities. There are no planned development projects for 2024. 2. Analysis of financial and non-financial activity results, information related to environment, personnel, corruption and bribery issues Key figures, million EUR 2023 12 31 2022 12 31 Turnover 201,1 204,6 Gross profit 49,9 28,6 Profit before tax, interest, depreciation and amortization (EBITDA) 23,0 0,5 Profit (loss) before tax 15,6 (6,2) Investment in property, plant and equipment 4,6 2,7 Average number of employees 1 558 1 601 Raw milk purchased (natural milk), thousand tons 204,7 219,4 Milk purchased as to basic ratios, thousand tons 251,7 272,4 Explanation of key operational indicators: Turnover – all sales of goods and services carried out during the reporting period. More specified analysis of sales is presented in Note 1 to the financial statements. 49 2023 Gross profit is calculated by deducting cost of sales from the total sales of the Company‘s goods and services. Specification of the cost of sales is presented in Note 3 to the financial statements. Profit before tax, interest and amortisation (EBITDA) is calculated as the total of operating profit before the financial activity result, depreciation and amortisation costs. Profit (loss) before tax – the total result earned by the company before calculation of the income tax. The income tax specification is presented in Note 6 to the financial statements. An amount of investments in property, plant and equipment is presented in the manner it is calculated and reflected in the statement of financial position of the Company. Detailed information on the investments (or non-current assets acquisitions) is presented in Notes 8 and 9. The average conditional number of employees is the sum of the average number of full-time and part-time employees recalculated to full-time employees. Quantity of purchased natural milk – actual quantity of purchased raw milk. Quantity of purchased milk according to basic indicators - restatement of actually purchased raw milk quantities as to baseline indicators. Basic rate of milk fat (R) – 3.4%, protein (B) – 3.0%. Formula for calculating the basic quantity of milk: kp = 1 + (Rf-Rb) x k1 + (Bf-Bb) x k2 where: kp – restatement of raw milk quantities into baseline ratio; Rf – fat content in purchased milk, %; Rb – baseline fat of milk, % (3.4); Bf - protein content in purchased milk, %; Bb – baseline protein of milk, % (3.0); k1 - coefficient showing the change in the amount due to change in fat by 1 percent (0.178); k2 - coefficient showing the change in the amount due to change in protein by 1 percent (0.267). Main quality management and environmental principles: • The quality management system is oriented towards a customer, thus a lot of attention is devoted to fulfilling customers’ needs and expectations; • Principles of cleaner production must be adhered to; the aspects that significantly influence the environment must be identified and managed, and proper preparation for emergency situation must be insured; • Management of the Company sets united aims and goals. Heads of the Company create environment where all employees take part in order to achieve aims; • Employees of all levels are involved in Company’s activities; • All activities of the Company, as well as the recourses related to them are managed as a process; • Interconnected processes are defined, understood and managed as a system, and this increases Company’s capacity and efficiency; • Company’s target is constant improvement. Improvement activities are integrated with Company’s strategy and every worker seeks improvement of a product, process and systems; • High-scoring solutions are based on data and information analysis; • A lot of attention is devoted to connections with suppliers. Possession of the ISO 9001 and ISO 14001 certificates proves that the structure, responsibilities and granted authorities are strictly defined in the Company, that processes and procedures are established, major documents are controlled and constantly updated, inspections and control procedures are regularly performed, discrepancies are identified, analyzed and corrected, the prevention of non-conformities and accidents is ensured, and negative impact on the environment is minimized. The Company’s management annually reviews and confirms food safety, quality and environmental policies. 50 2023 Code of Business Ethics, Corruption and Bribery Prevention Policy: According to the code of ethics and business conduct approved by the Company, our relations with employees, customers, partners and the state are based on honesty and transparency. We believe that honest partnerships allow us to build lasting and meaningful relationships. We comply with legislation governing labour relations. We only compete on the market in accordance with legislative requirements, and we do not engage in prohibited anti-competitive activities. We strongly oppose any form of corruption, bribery and extortion. In conducting business, we do not provide, offer or promise any undue reward to individuals for the purpose of directly or indirectly influencing individuals in performing their functions and taking decisions. In order to ensure transparency and objectivity in our cooperation with suppliers and business partners, we do not accept any commercial offers which cast doubt on their legitimacy. We openly set out the requirements and evaluation criteria for potential partners, and define the principal terms of cooperation in the contracts: the price, quality, and delivery and payment terms of the product or service. The company pays the taxes established by the state, settles accounts with employees in a transparent manner, and encourages other market participants to act in a transparent manner as well. The Company cooperates with public authorities and provides them with information in accordance with legislative requirements. 3. The number of the shares acquired by the entity and the entity’s own shares as well as nominal value thereof and a part of the authorized capital made up by these shares During the year 2023, AB Pieno Žvaigždės did not acquire any own shares. 4. The number of the own shares acquired and transferred during the reporting period, and the share of the capital, which the mentioned shares constitute During the year 2023, the Company did not acquire nor cancel any own shares. 5. Information about payment for own shares, where they are acquired or transferred against payment During the year 2023, AB Pieno Žvaigždės did not acquire any own shares. 6. Reasons for acquiring the entity’s own shares during the reporting period - 7. Information about branches and representative offices AB Pieno Žvaigždės, comprises four production branches: Branch Kauno Pienas, Taikos pr. 90, LT-51181 Kaunas; Branch Mažeikių Pieninė, Skuodo St. 4, LT-89100 Mažeikiai; Branch Pasvalio Sūrinė, Mūšos St. 14, LT-39104 Pasvalys; Branch Panevėžio Pienas, Tinklų St. 9, LT-35115 Panevėžys. 8. Significant events occurred after the end of the financial year No significant events have occurred after the end of the financial year, except those, which are disclosed in the note 24 of the explanatory note in the financial statements. 9. Operational plans and forecasts of the Company AB Pieno Žvaigždės, expected turnover for the year 2024 about 206 million EUR. 51 2023 10. Information about research and development activity The Company continuously makes investments and searches for new ways how to ensure a constant and better efficiency growth of its activity. 11. The goals of financial risk management, hedging instruments used for expected transactions on which hedging accounting is applied, and the scope of price risk, credit risk, liquidity risk and cash flows risk The scope of market (price) risk, credit risk, liquidity risk and cash flows risk is presented in the note 20 of the explanatory note in the financial statements. The Company is not using derivative financial instruments. The goals of financial risk management: Ensure fair and reliable financial reporting reflecting the company's financial position, operating results, and cash flows; Minimize the risk of financial losses that could have a negative impact on the company's profitability and financial condition; Ensure compliance with applicable laws and regulatory requirements related to financial reporting and risk management processes; Enhance investor and other stakeholders’ confidence in the company’s leadership and financial accountability; Ensure financing availability and stability to ensure that the company has sufficient financial resources to carry out its operations and invest in the future. 12. Information about other executive positions held by the company’s supervisory and management members of the board (head of the legal entity (form, name, code, address), member of the governing or supervisory body (form, name, code, address) and key information about their main employers (position held, legal form, name, code, address of the entity). Positions held by the supervisory and boards members and the head of administration in AB Pieno Žvaigždės and other companies: Name, surname Position held in AB Pieno Žvaigždės Position held in other companies Stanislav Kozel Chairman of the supervisory board AD Rem UAB (Jurgio Dobkevičiaus 7, LT-02189 Vilnius, code 110537569) general manager Rolandas Petkus Mamber of the supervisory board Finrosta UAB (Austėjos 37, Vilnius. code 300051777) director; Manpetra UAB (Tilto 27-10 Vilnius. code 302570557) director Rokas Kvaraciejus Mamber of the supervisory board; Deputy Executive director None Julius Kvaraciejus Chairman of the board; Director for Business Development. None Aleksandr General Director; None 52 2023 Smagin Member of the board. Regina Kvaraciejienė Member of the board; Consultant. None Voldemaras Klovas Member of the board; Deputy General Director. None Gžegož Rogoža Member of the board; Executive director. None Artiom Smagin Member of the board; Deputy Executive director Director of Cats.vc, UAB (Konstitucijos pr. 21A, LT-08130 Vilnius, company code 305376625) Vitalis Paškevičius Member of the board; Director of Logistics Director of UAB Bobketa (company code 302808827, Kelpių st. 25-1, Tarandė, Vilnius dis.) ESEF Reporting Company prepared the set of financial statements for the financial year ended on 31 December 2023 using extended hypertext markup language (XHTML). 53 2023 Corporate Governance Report of the Company for 2023 1. Reference to the applicable corporate governance code Information about compliance with the corporate governance code is presented in the annex to this Corporate Governance Report (Annex No.1). 2. Explanation of deviations from the corporate governance code Information about the reasons of non-compliance with the corporate governance code is presented together with the provisions of the corporate governance code in the annex to this Corporate Governance Report (Annex No.1). 3. Information about the scale of risk and risk management associated with financial statements, risk mitigation measures and internal control system established in the company The Company maintains its financial accounting and prepared its financial statements in accordance with International Financial Reporting Standards, as adopted in EU. Annual financial statements are subject to audit by external auditors, elected by the general shareholders meeting. The Company’s audit committee evaluates independence of the auditors. This procedure ensures relevance and transparency of the data presented in the financial statements of the Company. 4. Information about directly and indirectly governed material shareholdings According to the most recent data (as of 31 December 2023), the total number of the shareholders in the Company was 4 475. The shareholders holding more than 5 per cent of the Company’s authorized capital and votes are as follows: Shareholders Number of shares, units Share of the capital % Share of votes held personally and together with related persons, % Kvaraciejus Julius 7 085 907 15.70% 15.70% / 20.74% Kvaraciejienė Regina 2 275 086 5.04% 5.04% / 20.74% ŽŪKB „Smilgelė“ J. Tumo Vaižganto 8/27-3. Vilnius, company code 124906528 6 677 200 14,79% 14,79% UAB „Agrolitas Imeks Lesma“ Laisvės ave.125, Vilnius, company code 121918558 6 228 459 13,80% 13,80% Suvet Commoditities DMCC, Office L, Silver Tower, JLT, Dubajus, JAE 5 122 022 11.35% 11.35% Klovas Voldemaras 3 142 567 6.96% 6.96% / 7.61% Klovienė Danutė 291 811 0.65% 0.65% / 7.61% 54 2023 5. Information about transactions with related parties The information about transactions with related parties is provided in the explanatory notes of the financial statements (Note 22) 6. Information about shareholders holding special control rights and description of such rights There are no shareholder holding special control rights in the Company. 7. Information about all existing limitations on voting rights, such as limitations on voting rights of persons holding a certain percentage or amount of the voting rights, deadlines by which voting rights can be exercised, or systems where the property rights granted by securities are segregated from the securities holder There are no such limitations on the voting rights in the Company. Furthermore, the Company is not aware about any agreements concluded among the shareholders due to which the securities transfer and (or) voting rights may be restricted. There are no shareholders having special control rights in the Company. 8. Information about rules regulating election and replacement of the supervisory and management boards members as well as amendments to the company’s articles of association The Articles of Association of AB Pieno žvaigždės shall be amended and the Supervisory Board and the Management Board of the company shall be elected in accordance with the procedure laid down by the legislation of the Republic of Lithuania. The governing bodies of the Company are the General Meeting of Shareholders, the Supervisory Board, the Management Board and the Chief Executive Officer of the Company. The Supervisory Board are the Company's collegial management body. The Supervisory Board consist of three members for a period of four years. The Supervisory Board elect a Chairman from among its members. The Executive Board are the collegiate management body of the Company. The Management Board of the Company are composed of 7 (seven) members for a period of 4 years. The Management Board elect the Chairman of the Management Board from among its members. Articles of Association can be amended based on a decision of the general shareholders meeting, adopted by a majority of not less than 2/3 of the total votes, except for the exceptions provided for in the Companies Law of the Republic of Lithuania. Upon the decision of the general shareholders meeting to amend the Articles of Association, the whole text of the amended articles is drawn up and signed by the person authorized by the general shareholders meeting. The amended Articles of Association and the decision confirming their replacement shall be submitted by the Company’s Head of Administration within the time limits specified by legislation to the Register of Legal Entities. The amended Articles of Association of the Company shall come into effect only upon their registration with the Register of Legal Entities in accordance with the procedure established by the legislation. 9. Information about the authorities of the supervisory and management board members The authorities of the supervisory and management board members are prescribed in the Companies Law of the Republic of Lithuania. The Articles of Association of the Company do not prescribe any restrictions or additions to the authorities. 55 2023 10. Information about the competence of the general shareholders meeting, shareholder rights and their implementation, if such information is specified in the laws The competence of and procedure of announcement of the General shareholders’ meeting and all other issues related to the activities of the General shareholders’ meeting and their decisions are regulated by the Companies Law of the Republic of Lithuania. 11. Information about the composition of management and supervisory bodies and their committees, spheres of their activity The governing bodies of the Company are the general shareholders meeting, the supervisory board, the management board and the general director. The Supervisory Board Name, surname Official duties Number shares, units Share of the capital % Term of office from Term of office until Stanislav Kozel Chairman - - 2022 04 28 2026 04 28 Rolandas Petkus Member - - 2022 04 28 2026 04 28 Rokas Kvaraciejus Member 1 348 920 2.99 2022 04 28 2026 04 28 The Management Board Name, surname Official duties Number shares, units Share of the capital % Term of office from Term of office until Julius Kvaraciejus Chairman 7 085 907 15.70 2022 05 04 2026 05 04 Artiom Smagin Member 550 000 1.22 2022 05 04 2026 05 04 Voldemaras Klovas Member 3 142 567 6.96 2022 05 04 2026 05 04 Aleksandr Smagin Member 773 536 1.71 2022 05 04 2026 05 04 Regina Kvaraciejienė Member 2 275 086 5.04 2022 05 04 2026 05 04 Gžegož Rogoža Member 46 150 0.10 2022 05 04 2026 05 04 Vitalis Paškevičius Member - - 2022 05 04 2026 05 04 56 2023 Administration Name, surname Official duties Number shares, units Share of the capital % Aleksandr Smagin CEO 773,536 1.71 Laimonas Vaškevičius CFO - - The authorities of the chairman of the board are prescribed in the Companies Law of the Republic of Lithuania. The Articles of Association of the Company do not prescribe any restrictions or additions to the authorities. Information about the remuneration to governing bodies as well as amount transactions carried out with members of the governing bodies is disclosed in Note 22 of the explanatory notes to the financial statements. Audit Committee in the Company Name, surname Official duties Number shares, units Share of the capital % From Until Aušra Joniūnienė Chairman - - 2023 05 05 2024 04 30 Rolandas Petkus Member - - 2023 05 05 2024 04 30 Danutė Kairevičienė Member - - 2023 05 05 2024 04 30 Positions of the members of the Audit Committee in AB Pieno Žvaigždės and other companies Name, surname Position in AB Pieno žvaigždėse Positions in other companies Aušra Joniūnienė (independent member) - UAB Gražina Buckiūnienė ir partneriai deputy director Rolandas Petkus (independent member) - Finrosta UAB (Austėjos 37, Vilnius. code 300051777) director; Manpetra UAB (Tilto 27-10 Vilnius. code 302570557) director Danutė Kairevičienė Senior Accountant - 57 2023 12. Description of the variety of policies related to such aspects as e.g. age, sex, education, professional experience, applicable for election of the Company’s chief executive officer, governing and supervisory bodies; objectives and methods of realization of these policies and results for the period. Explanation of the reasons if the variety of policies is not applicable. The variety of policies is not applied in the Company when electing the Company’s chief executive officer, the members of managing and supervisory bodies, since the Company has not adopted such a policy. The main criterion for candidates to supervisory or management bodies is their competence. 13. Information about remuneration of each member of a management body (average salaries paid during the period, segregating bonuses, additions, tantjemes and other benefits). Information about the calculated amounts to management bodies and transactions with the members of the management bodies is disclosed in Remuneration Report below. 14. Information about all agreements among the shareholders (their essence, conditions). The Company is not aware of any agreements among the shareholders that could result in limitations on disposal of securities and (or) voting rights. There are no shareholders with special control rights in the Company. 15. Employees 2023 12 31 2022 12 31 Average number of employees 1 558 1 601 With university education 426 420 With college education 262 336 With secondary education 784 711 With not completed secondary education 86 134 Average number of employees 1 558 1 601 Management 85 84 Specialists 279 285 Workers 1 194 1 232 Average gross salary, EUR Management 4 166 3 531 Specialists 1 792 1 533 Workers 1 480 1 241 58 2023 Remuneration Report (Report is prepared for the financial year 2023) The Management Remuneration Policy of AB Pieno žvaigždės (hereinafter – the Company) was approved by the decision of the Annual General Shareholders Meeting dated 28 April 2022. The Remuneration Policy sets out the principles, structure, forms of remuneration, the basis for awarding additional benefits and the procedure for payment and review of the remuneration, and other requirements that the Company follows when determining and paying the remuneration to the Company’s General Director and the members of the Supervisory and Management Boards of the Company (hereinafter-the management). The Management Remuneration Policy is publicly available on the Company’s website. 1. The remuneration of the members of the company's board The members of the company's board receive a fixed part of the remuneration, which is 7,000 (seven thousand) euros per month, including all applicable taxes. During the period from January to April 2022, a fixed salary of 5,000 (five thousand) euros per month was paid. This fixed part of remuneration is paid monthly. There is no quarterly variable part of remuneration paid to the board members. The table presents the remuneration paid to the members of the Company's Board for their work on the board (thousand euros). Position in the Company Position in the Board Full name Remuneration for work on the Board 2023 Remuneration for work on the Board 2022 Note Business Development Director Chairman of the Board Julius Kvaraciejus 84 76 Additionally, compensation is received for the positions held within the company General Director Member of the Board Aleksandr Smagin 84 76 Deputy Chief Executive Officer Member of the Board Voldemaras Klovas 84 76 Executive Director Member of the Board Gžegož Rogoža 84 76 Logistics Director Member of the Board Vitalis Paškevičius 84 76 Consultant Member of the Board Regina Kvaraciejienė 84 76 Deputy Executive Director Member of the Board Artiom Smagin 84 76 2. The remuneration of the company's supervisory board members. The members of the company's supervisory board receive a fixed part of the remuneration, which is 5,000 (five thousand) euros per month, including all applicable taxes. This fixed part of remuneration is paid as a monthly salary. 59 2023 The table presents the remuneration paid to the members of the company's supervisory board for their work on the supervisory board (thousand euros). Position in the Company Position on the Supervisory board Full name Remuneration for work on the Supervisory board 2023 Remuneration for work on the Supervisory board 2022 - Chairman of the Supervisory board Stanislav Kozel 60 40 - Member of the Supervisory board Rolandas Petkus 60 40 Deputy Executive director Member of the Supervisory board Rokas Kvaracijeus 60 40 3. The remuneration of the company's audit committee members The table presents the remuneration paid to the members of the company's audit committee for their work on the audit committee (thousand euros). Position in the Audit Committee Name, surname Remuneration for work on the audit committee 2023 Remuneration for work on the audit committee 2022 Chairwoman Aušra Joniūnienė 6,0 5,6 Member of the Committee Danutė Kairevičienė 5,0 4,7 Member of the Committee Gražina Buckiūnienė 5,0 4,7 4. The remuneration of the company's General manager (CEO). The table presents the remuneration paid to the company's General manager (CEO) in 2023 (thousand euros). Position in the Company Position in the Board Full name Remuneration for work on the Board Basic salary Bonuses Contributions into the pension fund Total in 2023 General Director Member of the Board Aleksandr Smagin 84 249 114 57 504 Below is the information provided in the table regarding the remuneration paid to the company's General manager (CEO) over the last five years. The remuneration includes the base salary, compensation for board work, variable remuneration, and contributions to pension funds. All amounts are in thousands of euros. 60 2023 Position in the Company Position on the Board Full name 2019 2020 2021 2022 2023 General Director Member of the Board Aleksandr Smagin 334 258 285 483 504 5. The company's results and average employee remuneration The table below provides information on the average annual remuneration of the Company’s employees, a comparison of the remuneration with the Company’s performance and the change in remuneration during the past five years. EUR thousand 2019 m. 2020 m. 2021 m. 2022 m. 2023 m. The Company’s sales 170 596 171 061 176 692 204 553 201 114 EBITDA 10 787 14 337 7 259 511 23 027 Net profit (loss) 4 110 7 712 1 223 (5 320) 13 273 The Company’s remuneration fund 26 845 27 334 28 750 28 902 32 883 Average number of employees in full-time units 1 672 1 696 1 711 1 601 1 558 Average remuneration of all employees in the Company (for a full year) 16,1 16,1 17,1 17,2 20,2 Change in the average remuneration of all employees in the Company (each year) 9,4% 0,4% 6,3% 0,6% 17,3% Change in the average remuneration of all employees in the Company (over five years) - - - - 25,4% AB Pieno Žvaigždės is not a member of any group of companies, its financial statements are not consolidated. AB Pieno Žvaigždės has implemented neither policy on management incentive scheme, nor policy on employee share based scheme. As a result there are no shares or share options granted or offered to the management and other employees of the Company. The Company has no rules for recovering, in part or in full, a variable remuneration from the Company’s management and/or employees. No deviations from the Management Remuneration Policy approved by the Annual General Meeting of Shareholders occurred in 2023. 61 2023 Addendum No. 1 Disclosure by AB Pieno Žvaigždės, of compliance with the Governance Code for the companies listed on Nasdaq Baltic PRINCIPLES/ RECOMMENDATIONS YES/NO /NOT APPLICABLE COMMENTARY Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes The Company presents forecasts announcing significant events through the centralized information system, however due to competition in the market, the Company cannot publicly disclose certain strategies in advance. 1.2. It is recommended that the company’s capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders. Yes Company’s capital consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders. 1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. Yes 1.4. Exclusive transactions that are particularly important to the company, such as transfer of all or almost all assets of the company which in principle would mean the transfer of the company, should be subject to approval of the general meeting of shareholders. Not applicable 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. Yes 62 2023 1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the general meeting of shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the general meeting of shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the company. Such documents may be published to the extent that their public disclosure is not detrimental to the company or the company’s commercial secrets are not revealed. Yes 1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the general meeting of shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot. Yes 1.8. With a view to increasing the shareholders’ opportunities to participate effectively at general meetings of shareholders, it is recommended that companies should apply modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured and it must be possible to identify the participating and voting person. No Currently, the Company does not yet provide such voting opportunities 1.9. It is recommended that the notice on the draft decisions of the general meeting of shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit company if these issues are included into the agenda of the general meeting of shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes 1.10. Members of the company’s collegial management body, heads of the administration 1 or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes 1 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. 63 2023 Principle 2: Supervisory board 2.1. Functions and liability of the supervisory board The supervisory board of the company should ensure representation of the interests of the company and its shareholders, accountability of this body to the shareholders and objective monitoring of the company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company. The supervisory board should ensure the integrity and transparency of the company’s financial accounting and control system. 2.1.1. Members of the supervisory board should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. Yes 2.1.2. Where decisions of the supervisory board may have a different effect on the interests of the company’s shareholders, the supervisory board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the company’s strategy, risk management and control, and resolution of conflicts of interest. Yes 2.1.3. The supervisory board should be impartial in passing decisions that are significant for the company’s operations and strategy. Members of the supervisory board should act and pass decisions without an external influence from the persons who elected them. Yes 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent 2 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Yes 2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks. Yes 2.1.6. The company should ensure that the supervisory board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the supervisory board and its committees. Yes 2 For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania. 64 2023 2.2. Formation of the supervisory board The procedure of the formation of the supervisory board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the supervisory board elected by the general meeting of shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Yes 2.2.2. Members of the supervisory board should be appointed for a specific term, subject to individual re- election for a new term in office in order to ensure necessary development of professional experience. Yes 2.2.3. Chair of the supervisory board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. Where the company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. Yes 2.2.4. Each member should devote sufficient time and attention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board attend less than a half of the meetings of the supervisory board throughout the financial year of the company, the shareholders of the company should be notified thereof. Yes 2.2.5. When it is proposed to appoint a member of the supervisory board, it should be announced which members of the supervisory board are deemed to be independent. The supervisory board may decide that, despite the fact that a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or company-related circumstances. Yes 2.2.6. The amount of remuneration to members of the supervisory board for their activity and participation in meetings of the supervisory board should be approved by the general meeting of shareholders. Yes 65 2023 2.2.7. Every year the supervisory board should carry out an assessment of its activities. It should include evaluation of the structure of the supervisory board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the supervisory board, and evaluation whether the supervisory board has achieved its objectives. The supervisory board should, at least once a year, make public respective information about its internal structure and working procedures. No The Supervisory Board does not publish information on its internal organization and operational procedures. Principle 3: Management Board 3.1. Functions and liability of the management board The management board should ensure the implementation of the company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. 3.1.1. The management board should ensure the implementation of the company’s strategy approved by the supervisory board if the latter has been formed at the company. In such cases where the supervisory board is not formed, the management board is also responsible for the approval of the company’s strategy. Yes 3.1.2. As a collegial management body of the company, the management board performs the functions assigned to it by the Law and in the articles of association of the company, and in such cases where the supervisory board is not formed in the company, it performs inter alia the supervisory functions established in the Law. By performing the functions assigned to it, the management board should take into account the needs of the company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development. Yes 3.1.3. The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 3 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes 3 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti-bribery/44884389.pdf 66 2023 3.1.5. When appointing the manager of the company, the management board should take into account the appropriate balance between the candidate’s qualifications, experience and competence. Yes 3.2 Formation of the management board 3.2.1. The members of the management board elected by the supervisory board or, if the supervisory board is not formed, by the general meeting of shareholders should collectively ensure the required diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance in terms of the current qualifications possessed by the members of the management board, it should be ensured that the members of the management board would have, as a whole, diverse knowledge, opinions and experience to duly perform their tasks. Yes 3.2.2. Names and surnames of the candidates to become members of the management board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of personal data at the meeting of the supervisory board in which the management board or individual members of the management board are elected. In the event that the supervisory board is not formed, the information specified in this paragraph should be submitted to the general meeting of shareholders. The management board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the company’s annual report. Yes 3.2.3. All new members of the management board should be familiarized with their duties and the structure and operations of the company. Yes 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re- election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. Yes 3.2.5. Chair of the management board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the Yes 67 2023 measures it has taken to ensure the impartiality of supervision. 3.2.6. Each member should devote sufficient time and attention to the duties of a board member. If a board member attended less than half of the board meetings during the financial year of the company, the company's supervisory board should be informed or, if the company is not formed, the general meeting of shareholders. Yes 3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will be independent 4 , it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company-related circumstances. No The shareholders did not elect any independent members in this tenure of the Board. 3.2.8. The general meeting of shareholders of the company should approve the amount of remuneration to the members of the management board for their activity and participation in the meetings of the management board. Yes 3.2.9. The members of the management board should act in good faith, with care and responsibility for the benefit and the interests of the company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to no-compete agreements and they should not use the business information or opportunities related to the company’s operations in violation of the company’s interests. Yes 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the management board, and evaluation whether the management board has achieved its objectives. The management board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. No The Management Board does not publish information on its internal organization and operational procedures. 4 For the purposes of this Code, the criteria of independence of the members of the board are interpreted as the criteria of unrelated persons defined in Article 33(7) of the Law on Companies of the Republic of Lithuania. 68 2023 Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform he supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. Yes 4.2. It is recommended that meetings of the company’s collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. Yes 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. Yes 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members Yes 69 2023 of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. Principle 5: Nomination, remuneration and audit committees 5.1. Purpose and formation of committees The committees formed at the company should increase the work efficiency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company-related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees 5 . No Currently only the audit committee is formed in the company 5 The legal acts may provide for the obligation to form a respective committee. For example, the Law on the Audit of Financial Statements of the Republic of Lithuania provides that public-interest entities (including but not limited to public limited liability companies whose securities are traded on a regulated market of the Republic of Lithuania and/or of any other Member State) are under the obligation to set up an audit committee (the legal acts provide for the exemptions where the functions of the audit committee may be carried out by the collegial body performing the supervisory functions). 70 2023 5.1.2. Companies may decide to set up less than three committees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three different committees. Yes In the company, no appointment and remuneration committees are formed because, in the company’s opinion, the board, while performing its functions, partially fulfills the functions of the specified committees. The company’s board selects the candidacy of the company’s manager and appoints them, provides recommendations to the company’s manager regarding the appointment of senior management. The board provides proposals regarding the approved remuneration policy in the company. The company’s board approves the company’s strategic plans, budget plans, and oversees their implementation 5.1.3. In the cases established by the legal acts the functions assigned to the committees formed at companies may be performed by the collegial body itself. In such case the provisions of this Code pertaining to the committees (particularly those related to their role, operation and transparency) should apply, where relevant, to the collegial body as a whole. Yes The Audit Committee performs its functions, while the functions of the Nomination and Remuneration Committees are partly performed by the Board of the Company 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the management board should not serve as the chair of committees. Yes 5.1.5. The authority of each committee formed should be determined by the collegial body itself. Committees should perform their duties according to the authority delegated to them and regularly inform the collegial body about their activities and performance on a regular basis. The authority of each committee defining its role and specifying its rights and duties should be made public at least once a year (as part of the information Yes 71 2023 disclosed by the company on its governance structure and practice on an annual basis). In compliance with the legal acts regulating the processing of personal data, companies should also include in their annual reports the statements of the existing committees on their composition, the number of meetings and attendance over the year as well as the main directions of their activities and performance. 5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee. Yes 5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. Not applicable There is no Nomination Committee in the Company 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. Not applicable There is no Nomination Committee in the Company 5.3. Remuneration committee 72 2023 The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned; 3) review, on a regular basis, the remuneration policy and its implementation. Not applicable There is no Remuneration Committee in the Company 5.4. Audit committee 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 6 . Yes 5.4.2. All members of the committee should be provided with detailed information on specific issues of the company’s accounting system, finances and operations. The heads of the company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. Yes 5.4.3. The audit committee should decide whether the participation of the chair of the management board, the manager of the company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present. Yes 6 Issues related to the activities of audit committees are regulated by Regulation No. 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, the Law on the Audit of Financial Statements of the Republic of Lithuania, and the Rules Regulating the Activities of Audit Committees approved by the Bank of Lithuania. 73 2023 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the company and its group. Yes 5.4.5. The audit committee should examine whether the company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. Yes 5.4.6. The audit committee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half- yearly reports are approved. No Only annual reports are reviewed Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. The corporate governance framework should recognize the rights of the stakeholders as established by law and promote active cooperation between the company and its stakeholders in creating the company's well- being, jobs and financial stability. In the context of this principle, the term “interest holders” includes investors, employees, creditors, suppliers, customers, the local community and others with interests in a particular company. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. Yes 74 2023 Principle 7: Remuneration policy of the company The remuneration policy and the procedure for review and disclosure of such policy established at the company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the company’s remuneration policy and its long-term strategy. 7.1. The company should approve and post the remuneration policy on the website of the company; such policy should be reviewed on a regular basis and be consistent with the company’s long-term strategy. Yes 7.2. The remuneration policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as the conditions specifying the cases where the company can recover the disbursed amounts or suspend the payments. Yes 7.3. With a view to avoid potential conflicts of interest, the remuneration policy should provide that members of the collegial bodies which perform the supervisory functions should not receive remuneration based on the company’s performance. Yes 7.4. The remuneration policy should provide sufficient information on the policy regarding termination payments. Termination payments should not exceed a fixed amount or a fixed number of annual wages and in general should not be higher than the non-variable component of remuneration for two years or the equivalent thereof. Termination payments should not be paid if the contract is terminated due to inadequate performance. Yes 7.5. In the event that the financial incentive scheme is applied at the company, the remuneration policy should contain sufficient information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. Yes 75 2023 7.6. The company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the company’s remuneration policy, compared to the previous financial year. Yes 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the general meeting of shareholders. Yes Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. Yes 8.2. The corporate governance framework should create conditions for stakeholders to participate in corporate governance in the manner prescribed by law. Examples of participation by stakeholders in corporate governance include the participation of employees or their representatives in the adoption of decisions that are important for the company, consultations with employees or their representatives on corporate governance and other important matters, participation of employees in the company’s authorized capital, involvement of creditors in corporate governance in the cases of the company’s insolvency, etc. Yes 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes 76 2023 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the supervisory function. Yes Principle 9: Disclosure of information The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the company. 9.1. In accordance with the company’s procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the company should include but not be limited to the following: Yes 9.1.1. operating and financial results of the company; Yes 9.1.2. objectives and non-financial information of the company; Yes 9.1.3. persons holding a stake in the company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; Yes 9.1.4. members of the company’s supervisory and management bodies who are deemed independent, the manager of the company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence and remuneration; Yes 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; No Some information not fully disclosed 9.1.6. potential key risk factors, the company’s risk management and supervision policy; Yes 9.1.7. the company’s transactions with related parties; Yes 9.1.8. main issues related to employees and other stakeholders (for instance, human resource policy, participation of employees in corporate governance, award of the company’s shares or share options as incentives, relationships with creditors, suppliers, local community, etc.); Yes 9.1.9. structure and strategy of corporate governance; Yes 9.1.10. initiatives and measures of social responsibility policy and anti-corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information Yes 77 2023 included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. 9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, it is recommended that the company which is a parent company in respect of other companies should disclose information about the consolidated results of the whole group of companies. Not applicable The company is not a group company. 9.3. When disclosing the information specified in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifications of members of the company’s supervisory and management bodies and the manager of the company as well as potential conflicts of interest which could affect their decisions should be provided. It is further recommended that the remuneration or other income of members of the company’s supervisory and management bodies and the manager of the company should be disclosed, as provided for in greater detail in Principle 7. No Some information not fully disclosed 9.4. Information should be disclosed in such manner that no shareholders or investors are discriminated in terms of the method of receipt and scope of information. Information should be disclosed to all parties concerned at the same time. Yes Principle 10: Selection of the company’s audit firm The company’s audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm. 10.1. With a view to obtain an objective opinion on the company’s financial condition and financial results, the company’s annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm. Yes 10.2. It is recommended that the audit firm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company. Yes 10.3. In the event that the audit firm has received remuneration from the company for the non-audit services provided, the company should disclose this publicly. This information should also be available to the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company when considering which audit firm should be proposed to the general meeting of shareholders. Yes The audit firm will be paid 1.5 thousand. euros for the translation services. 78 2023 Environmental, Social, and Governance Report for 2023. Prepared in accordance with Nasdaq's ESG Reporting Guide 79 2023 Contents About Us .............................................................................................................................. 80 Management Commitments ................................................................................ 82 Quality ...................................................................................................................................83 Company Policy ............................................................................................................ 84 Export .................................................................................................................................... 85 Production ......................................................................................................................... 86 Business Risks ................................................................................................................... 87 Environmental Protection ........................................................................................ 88 ESG Compliance ............................................................................................................. 92 Social Data ........................................................................................................................ 94 ESG Compliance ............................................................................................................. 97 Company Management ......................................................................................... 100 ESG Compliance ........................................................................................................... 102 80 2023 About Us We are a modern, advanced Lithuanian company that has been operating successfully for 25 years: We follow deep-rooted dairy production traditions; We are one of the largest dairy processors in the Baltic States; We have four specialised factories; We produce a wide range of products to meet the needs of even the most demanding customers; We export our products to more than 40 countries; We have been awarded for the highest quality both in Lithuania and abroad; Turnover in 2023 amounted to EUR 201 million; We have our own distribution network, including trucks and warehouses; We are developing our own milk collection network covering the entire country; Over the past 10 years, we have invested more than EUR 100 million. 81 2023 AB Pieno Žvaigždės was established in 1998 after the merger of AB Mažeikių Pieninė and AB Pasvalio Sūrinė, two dairy processing companies operating independently in Lithuania. This was followed by the merger of AB Kauno Pienas, as well as AB Panevėžio Pienas in 2004. Today, this structure makes it possible to specialise production at separate branches, achieving the highest level of efficiency and evenly distributing raw milk collection capacity in the country. AB Pieno Žvaigždės is now one of the largest and most modern dairy processing companies in the Baltic States – one that not only takes business aspects into account, but social and environmental aspects as well, and takes responsibility for the short-term and long-term effects of its activities and the consequences of its actions, as a market participant, employer and member of society. AB Pieno Žvaigždės has been operating successfully for 25 years, and not just in the Lithuanian market – it also exports its products to more than 40 countries around the world. Every year, we relish new achievements, awards and excellent consumer ratings. We hold ourselves to the highest standards and strive to anticipate the future needs of the modern consumer – today. Our motto: Natural dairy products for healthy living! Our vision: To be a modern company with strong positions in Lithuanian and foreign markets. Our mission: To anticipate the future needs of the modern consumer – today. 82 2023 Management Commitments According to the approved AB Pieno Žvaigždės quality, food safety and environmental policy, the Company's management undertakes to: Promote respect for the person, the employee, the supplier and the partner; Continuously improve product manufacturing technologies and logistics solutions; Educate and train company employees by constantly improving their qualification, awareness and consciousness, updating their knowledge on quality management, environmental management and food safety, and demanding accountability for performance outcome, and to work closely with suppliers and partners; Ensure the sustainable use of natural, energy and other resources, proper and responsible waste management, and adequate preparedness for possible emergencies; Protect the environment at every step, throughout the entire cycle; Comply with the legal requirements that the Company is subject to. The quality, food safety and environmental policy is available on the AB Pieno Žvaigždės website at: https://pienozvaigzdes.lt/lt/content/22-kokybes-politika 83 2023 Quality Top quality is our top priority. We are certified according to all major quality, management and safety systems and standards: BRC EKO IFS KOSHER ISO 9001 ISO 14001 FSSC 22000 HALAL EKOAGROS 84 2023 Company Policy According to the approved AB Pieno Žvaigždės quality, food safety and environmental policy: Use the most advanced production technology and work organisation and logistics solutions which ensure the highest production quality, authenticity, hygiene level and safety; Ensure that 100% of production meets the Company's quality and food safety standards. Apply at least 30% stricter target values for product safety indicators in the Company's quality standards than those stipulated in legislation and/or regulatory documents; Continuously improve the food safety, quality management and environmental management systems; Conserve the environment and prioritise clean technology, both company-wide and throughout the entire cycle; Deliver the final product to the consumer based on the lowest cost principle. The quality, food safety and environmental policy is available on the AB Pieno Žvaigždės website at: https://pienozvaigzdes.lt/lt/content/22-kokybes-politika 85 2023 Export We export our products to more than 40 countries. In 2023, exports accounted for 40% of AB Pieno Žvaigždės revenue. The majority of these countries are in the EU. We aim to grow in export markets every year, so we are constantly looking for innovations, actively interacting with potential partners, and participating in exhibitions. 86 2023 Production Our products are inspired by nature and traditions, and made using the latest technology. We keep up with trends and produce products that meet consumer needs. Healthy lifestyle is one of the most pressing goals in today's society. AB Pieno Žvaigždės was the first company in Lithuania to start producing Bios and Biola organic yoghurt, which appeared on the market in the summer of 2006. The BIOS EKO product line is special in that the balance of nature and human farming activities is not compromised during the production process. Only organic milk is used for production – no herbicides or pesticides are used, and the cows graze freely and are not treated with antibiotics – and the milk and jam in the natural yoghurt are certified organic products. In the interest of consumer well-being, AB Pieno Žvaigždės is constantly updating its products. It is important to us that every product carrying the Pieno Žvaigždės brand is natural and has as many essential nutrients as possible. Due to its high product quality and good customer ratings, AB Pieno Žvaigždės wins various awards every year. 87 2023 Business Risks The Company's core business is milk processing. This business is risky due to potential changes in the markets for raw materials and products, competition, as well as possible legal, political, technological and social developments that are directly or indirectly related to the Company's business, which may adversely affect the Company's cash flows and operating results. The Company's primary raw material is milk, the supply of which is relatively limited due to its short shelf life. Raw material supply restrictions may lead to a shortage of raw materials or an increase in raw material prices. These changes may adversely affect the Company's cash flows and operating results. This risk is managed by diversifying the purchase of raw milk from different (different sized) suppliers in Lithuania and by additionally importing raw milk from other countries (mainly from Latvia and Estonia). The Company's business (especially milk collection and delivery) is a labour-intensive activity. Staff shortages and increases in their salaries may adversely affect the Company's operating results. The risk is managed by investing in modern equipment, which makes it possible to reduce the number of employees. Remuneration and employee motivation systems are constantly reviewed in order to retain existing employees and attract new ones. We keep up with trends and produce products that meet consumer needs. Healthy lifestyle is one of the most pressing goals in today's society. 88 2019 Environmental Protection 89 2023 Environmental Protection AB Pieno Žvaigždės follows sustainable production criteria. In the quality, food safety and environmental policy, the Company's management is committed to ensuring the sustainable use of natural, energy and other resources, proper and responsible waste management, and adequate preparedness for possible emergencies. New products are developed and new technologies are adopted based on these provisions. At AB Pieno Žvaigždės, energy consumption control, water conservation, packaging production control, wastewater control, control of stationary sources of ambient air pollution, waste management, and transport fuel consumption control are conducted, and action plans are drawn up to reduce the use of these resources. Monitoring of significant environmental aspects is conducted at AB Pieno Žvaigždės branches: AB Pieno Žvaigždės only purchased 100% renewable energy from UAB Ignitis. An emission inventory was taken for the AB Pieno Žvaigždės compressor room, boiler room and mechanical workshops on 22 April 2021 at the branch of Mažeikių pieninė, on 21 May 2020 at the branch of Pasvalio sūrinė, on 29 April at the branch of Kauno pienas, on 13 May 2022 at the branch of Panevėžio pienas. An economiser system has been newly installed in the AB Pieno Žvaigždės steam boiler room, allowing for more efficient use of the heat that has already Type of monitoring Industrial wastewater Surface runoff Emissions from stationary sources of ambient air pollution Frequency 1 time per month 4 times per year 1 time per year 90 2023 been produced and, as a result, a reduction in fuel consumption and related emissions. In 2018, renovation of the ice water treatment equipment made it possible to reduce the amount of ammonia used in the system by about 20%. Water reuse is practiced in the production process at AB Pieno Žvaigždės branches. All AB Pieno Žvaigždės branches reuse wash/rinse water. Water is conserved in this way. At the Kauno Pienas, Mažeikių Pieninė and Panevėžio Pienas branches of AB Pieno Žvaigždės, the condensate that forms in the equipment is returned to the steam boiler, and clean rinse water is collected in the CIP stations which is then used for initial rinsing of the equipment during the next cycle. An energy water system has been installed at the Pasvalio Sūrinė branch of AB Pieno Žvaigždės, i.e. a heat exchange between raw milk heating/cooling and whey cooling/heating. The introduction of a milk protein concentration line (UF) has reduced operating costs and reliance on raw materials purchased from other countries. The introduction of an acid whey concentration line has reduced animal by-products, with whey from the production of curd products being concentrated and sent for further processing. The waste generated at AB Pieno Žvaigždės factories is sorted, accounted for in GPAIS system, and taken away for recycling or disposal. There are sorting containers in the administrative premises, and the employees at AB Pieno Žvaigždės have contributed to environmental preservation for years by gladly sorting their waste. AB Pieno Žvaigždės consistently invests in environmentally significant energy efficiency improvement projects: Project Year Energy source Economy Steam boiler room modernization KP 2017 Natural gas +9% Heat distribution room modernization KP 2019 Natural gas +3% Steam boiler room modernization PS 2019 Natural gas +10% Compressor room modernization MP 2020 Electricity +10% Sterilizer modernization PP 2020 Natural gas +5% Secondary use of condensate PS 2021 Water +4.5% 91 2023 AB Pieno Žvaigždės constantly invests in more environmentally friendly vehicles. The vehicles used by the company comply with the European Union's Euro IV, Euro V and Euro VI standards, according to which CO2 emissions are minimised: 92 2023 ESG Compliance E1. GhG Emissions The Company does not yet have targets and a procedure for calculating GhG emissions. E2. Emissions Intensity The Company is always looking for ways and taking steps to reduce GhG emissions. E3. Energy Usage In 2023, the Company consumed 456.245 GJ of energy. Energy source Energy GJ 2020 Energy GJ 2021 Energy GJ 2022 Energy GJ 2023 Diff 2023/2022 Natural gas 262.188 265.605 137.294 214.403 +56% LPG gas 392 301 239 231 -3% Diesel 120.830 117.933 222.388 122.068 -45% Petrol 2.663 2.885 3.083 3.281 +6% Heat 447 526 394 388 -1% Electricity 114.924 114.333 125.349 115.874 -8% Total 501.443 501.582 488.747 456.245 -6.7% E4. Energy Intensity Indicator Unit of measurement Value 2020 Value 2021 Value 2022 Value 2023 Diff 2023/2022 Turnover GJ/EUR 0,003 0,003 0,002 0,002 -5.1% Milk purchased GJ/tonne 2,019 2,128 2,233 2,229 -0.2% Employees GJ/employee 295,662 293,151 305,276 292,840 -4.1% 93 2023 E5. Energy Mix Energy source Unit of measur. Quantity 2020 Quantity 2021 Quantity 2022 Quantity 2023 Diff 2023/2022 Natural gas kWh 72.829.889 73.779.214 38.137.359 59.556.439 +56% LPG gas L 15.693 12.024 9.542 9.254 -3% Diesel L 3.155.618 3.079.966 5.807.941 3.187.948 -45% Petrol L 79.400 86.005 91.919 97.821 +6% Heat kWh 124.237 146.089 109.407 107.769 -1% Electricity kWh 31.924.142 31.760.105 34.820.262 32.188.153 -8% E6. Water Usage In 2023, the company consumed 911,472 m3 of water, which is 3% less than in 2022 and 15% less than in 2021. All the water is purchased from water suppliers. E7. Environmental Operations In the Company's approved quality, food safety and environmental policy, the Company is committed to ensuring the sustainable use of natural, energy and other resources, proper and responsible waste management, and adequate preparedness for possible emergencies, and to protect the environment at every step, throughout the entire cycle. E8. Climate Oversight In 2023, the Company had no legal disputes concerning negative impact on the environment. 94 2023 Social Data 95 2023 Social Data Employees are our future The average number of full-time employees at AB Pieno Žvaigždės in 2023 was 1558 (compared to 1601 in 2022). Employees are our greatest asset, so we are investing in their continuous growth, safety and well-being: We organise periodic career development and personal competence development courses for employees; All employees are insured against accidents (24/7); In order to incentivise and motivate employees, we provide a significant number of them with health insurance; We have canteens at all of our factories and subsidise staff meals; In our branded stores, employees have the opportunity to buy products with a discount; We give employees gift baskets of the Company's products for various occasions; 96 2023 Science and Education We are constantly commissioning research and participating in its development at Lithuanian and foreign institutes. The KTU Food Institute is our long-standing partner. Consumer awareness is important to us, so we support the educational events and lectures organised for children at schools by the Dietetic Society about the principles of healthy eating. 97 2023 ESG Compliance S1. CEO Pay Ratio Remuneration policy of executives approved by decision of the Annual General Meeting of Shareholders in 2022: https://www.nasdaqbaltic.com/statistics/lt/issuer_documents/downl oad/1477 In 2023 General manager pay ratio versus the employee average salary was 16,9 (compared to 18.5 in 2022). S2. Gender Pay Ratio In 2023, the ratio of salaries between men and women was 1,16, compared to 1,12 in 2022. The difference was due to the employees' qualifications, competencies and positions rather than their gender. S3. Employee Turnover In 2023, employee turnover at the Company was 32.5%, compared to 29.8% the previous year.. S4. Gender Diversity At the end of 2023 as in the previous year, 50% of the Company’s total employees were women. Women held 41% of senior positions (compared to 43% in 2022), 68% of entry-level and mid-level positions (compared to 69% in 2022), and 46% of various skilled worker positions (compared to 43% in 2022). S5. Temporary Worker Ratio 98 2023 In 2023, an average of 6% of the people working at the Company had fixed-term employment contracts, compared to 5% in the previous year. S6. Non-Discrimination According to the code of ethics and business conduct approved by the Company, we do not tolerate any form of direct or indirect discrimination or instruction to discriminate on the basis of gender, race, nationality, language, origin, social status, belief, convictions or views, age, sexual orientation, disability, ethnic origin or religion. S7. Injury Rate In 2023, the Company registered 31 injuries (all of them were mild injuries). This amounts to 0.02 injury per employee. In comparison, in 2022, there were 25 accidents registered, also resulting in 0.02 accidents per employee. S8. Global Health & Safety According to the rules of procedure and the code of ethics and business conduct approved at the Company, every employee at the Company is provided with safe and healthy working conditions, regardless of the type of employment contract, the workplace, the work environment, the nature of work, the duration of the working day (shift), or the employee's nationality, race, nationality, gender, sexual orientation, age, social status, and political or religious beliefs. S9. Child and Forced Labour According to the code of ethics and business conduct approved by the Company, we respect and guarantee the human rights enshrined in international and Lithuanian legislation, and the Company does not tolerate harassment, psychological violence, bullying or abuse of a 99 2023 position that may take any form. We do not employ persons below the minimum age stipulated by the laws of the Republic of Lithuania. We do not use forced or compulsory labour. 100 2023 Company Management 101 2023 Code of Business Ethics In carrying out its activities, AB Pieno Žvaigždės takes economic and social aspects into account, and takes responsibility for the effects of its activities and the consequences of its actions, as a market participant, employer and member of society. The code of business ethics approved by the Company sets out the basic operating principles on which the business is based and which the Company's employees follow in building and maintaining relationships with customers, suppliers, partners and public authorities, as well as in interacting with each other. The Company's business ethics are based on the following principles: Respect for human rights and freedoms; Safe working conditions; Honesty and transparency; Avoiding conflicts of interest; Confidentiality. In order to ensure the effectiveness of business ethics, the Company's employees can submit reports of breaches of this code as well as questions related to this code of business ethics to their immediate supervisor, the human resources department or management, or put them in special anonymous boxes at the Company’s manufacturing branches. The management of the Company is responsible for implementation of the provisions of this code and for not tolerating actions that do not comply with the provisions of this code. 102 2023 ESG Compliance G1. Board Diversity One of the Company's board seats (of seven) is occupied by a woman. This represents 14% of the Company's board members. G2. Board Independence There is no separation between the CEO and the board in the Company. There are no independent members on the board, but there is a supervisory board. G3. Incentivised Pay All employees receiving financial incentives work in accordance with the AB Pieno Žvaigždės quality, food safety and environmental policy. G4. Collective Bargaining A work council is elected at the Company. G5. Supplier Code of Conduct The Company does not have an approved supplier code of conduct. G6. Ethics and Anti-Corruption According to the code of ethics and business conduct approved by the Company, our relations with employees, customers, partners and the state are based on honesty and transparency. We believe that honest partnerships allow us to build lasting and meaningful relationships. We comply with legislation governing labour relations. We only compete on the market in accordance with legislative requirements, and we do not 103 2023 engage in prohibited anti-competitive activities. We strongly oppose any form of corruption, bribery and extortion. In conducting business, we do not provide, offer or promise any undue reward to individuals for the purpose of directly or indirectly influencing individuals in performing their functions and taking decisions. In order to ensure transparency and objectivity in our cooperation with suppliers and business partners, we do not accept any commercial offers which cast doubt on their legitimacy. We openly set out the requirements and evaluation criteria for potential partners, and define the principal terms of cooperation in the contracts: the price, quality, and delivery and payment terms of the product or service. The company pays the taxes established by the state, settles accounts with employees in a transparent manner, and encourages other market participants to act in a transparent manner as well. The Company cooperates with public authorities and provides them with information in accordance with legislative requirements. Having regard to item 12 of the Description of the Procedure for Ensuring the Introduction of Internal Channels for Reporting Irregularities and the Functioning Thereof approved by Resolution No 1133 of 14 November 2018 of the Government of the Republic of Lithuania on Implementation of the Republic of Lithuania Law on Whistle-blower Protection, the Company makes the information below regarding the competent person and the whistleblowing procedure publicly available on its website. The entire procedure is available on our website: https://pienozvaigzdes.lt/lt/content/23-praneseju-apsauga G7. Data Privacy The Company has an approved employee data retention policy and rules for applying implementing measures for the employee data retention policy. The Company also adheres to the privacy policy, which establishes the protection of personal data and privacy for its customers, website visitors and other individuals. The privacy policy is available on the Company's website: https://pienozvaigzdes.lt/lt/content/18-privatumo-politika 104 2023 G8. ESG Reporting The report was prepared in accordance with the ESG Reporting Guide: (https://www.nasdaq.com/ESG-Guide) G9. Disclosure Practices At present, the Company only prepares an Environmental, Social and Governance Report in accordance with Nasdaq's ESG Reporting Guide. G10. External Assurance The Company's Environmental, Social and Governance Report is not audited by third parties. 105 2023 Address: Perkūnkiemio st. 3, LT-12127, Vilnius, Lithuania Telephone number (+370 5) 246 14 14 E-mail info@pienozvaigzdes.lt Website www.pienozvaigzdes.lt