Annual Report (ESEF) • Apr 30, 2024
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Download Source File529900CTIUKTEFNNH1572023-01-012023-12-31529900CTIUKTEFNNH1572023-12-31529900CTIUKTEFNNH1572022-12-31529900CTIUKTEFNNH1572022-01-012022-12-31529900CTIUKTEFNNH1572021-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572021-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572021-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572021-12-31ifrs-full:RevaluationSurplusMember529900CTIUKTEFNNH1572021-12-31ifrs-full:OtherReservesMemberiso4217:EURiso4217:EURxbrli:shares529900CTIUKTEFNNH1572021-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572021-12-31529900CTIUKTEFNNH1572022-01-012022-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572022-01-012022-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572022-01-012022-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572022-01-012022-12-31ifrs-full:RevaluationSurplusMember529900CTIUKTEFNNH1572022-01-012022-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572022-01-012022-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572022-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572022-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572022-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572022-12-31ifrs-full:RevaluationSurplusMember529900CTIUKTEFNNH1572022-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572022-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572023-01-012023-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572023-01-012023-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572023-01-012023-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572023-01-012023-12-31ifrs-full:RevaluationSurplusMember529900CTIUKTEFNNH1572023-01-012023-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572023-01-012023-12-31ifrs-full:RetainedEarningsMember529900CTIUKTEFNNH1572023-12-31ifrs-full:IssuedCapitalMember529900CTIUKTEFNNH1572023-12-31ifrs-full:SharePremiumMember529900CTIUKTEFNNH1572023-12-31ifrs-full:StatutoryReserveMember529900CTIUKTEFNNH1572023-12-31ifrs-full:RevaluationSurplusMember529900CTIUKTEFNNH1572023-12-31ifrs-full:OtherReservesMember529900CTIUKTEFNNH1572023-12-31ifrs-full:RetainedEarningsMember LITGRID AB The Company’s financial statements, annual report and independent auditor’s report for the year ended 31 December 2023 CONFIRMATION OF RESPONSIBLE PERSONS 29 th March 2023, Vilnius Following the Law on Securities of the Republic of Lithuania and the Rules on Information Disclosure approved by the Bank of Lithuania, we, Rokas Masiulis, Chief Executive Officer of LITGRID AB, Vytautas Tauras, Head of the Finance Department of LITGRID AB and Asta Vičkačkienė, Head of the Accounting Division of LITGRID AB, hereby confirm that, to the best of our knowledge, the attached financial statements of LITGRID AB for the year 2023 prepared in accordance with the International Financial Reporting Standards adopted by the European Union give a true and fair view of the Company’s assets, liabilities, financial position, profit and loss and cash flows; the annual report for the year 2023 presents a fair overview of the business development and performance, the Company’s financial position together with the description of its exposure to key risks and contingencies. Rokas Masiulis Chief Executive Officer (The document is signed by a qualified electronic signature) Vytautas Tauras Head of the Finance Department (The document is signed by a qualified electronic signature) Asta Vičkačkienė Head of the Accounting Division (The document is signed by a qualified electronic signature) ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 3 Translation note This version of the accompanying documents is a translation from the original, which was prepared in Lithuanian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of the accompanying documents takes precedence over this translation. TABLE OF CONTENTS Annual report 4 Sustainability report 73 The Company’s statement of financial position 122 The Company’s statement of comprehensive income 123 The Company’s statement of changes in equity 124 The Company’s statement of cash flows 125 Notes to the Company’s financial statements 126 Independent auditor’s report 163 The financial statements were approved on 29 th March 2024 Rokas Masiulis Chief Executive Officer (The document is signed by a qualified electronic signature) Vytautas Tauras Head of the Finance Department (The document is signed by a qualified electronic signature) Asta Vičkačkienė Head of the Accounting Division (The document is signed by a qualified electronic signature) ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 4 The Company’s performance Report for 2023 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 5 Statement of the Chairman of the Board Dear all We will remember the year 2023 as the year of one of the most important agreements - in August, the heads of all three Baltic states confirmed that the energy systems of the Baltic countries will be connected to the energy networks of Western Europe in February 2025, almost a year earlier than planned. The Lithuanian electrical energy system is undergoing a transformation: in addition to taking the last steps towards reunification with the synchronous zone of continental Europe, we are creating conditions for the development of electricity production and energy storage from rapidly renewable resources. All this requires large investments in the electricity transmission network and smooth implementation of projects. We are currently carrying out almost 140 different projects - from the construction of the infrastructure required for synchronization and the installation of management systems to works related to the connection of new producers and consumers, railway electrification, innovations. While supervising and managing the electricity transmission system, Litgrid continued to implement the planned goals of electricity supply reliability indicators and made efforts to achieve the goals of renewable energy development in Lithuania. For the first time, the share of electricity produced in power plants from renewable energy sources is about 67 percent. all electricity produced in the country. In 2023 we paid special attention to the sustainable development of operations. When performing work and fulfilling obligations, we conduct our activities in accordance with the principles of sustainable activity. We have taken steps to reduce the impact of Litgrid - we have installed solar power plants in substations and to generate electricity for our own needs, from a renewable source, we are refurbishing devices by replacing them with safer ones for the environment, studying the impact of our devices on the environment, marking lines on bird migration routes, measuring noise levels and we implement mitigating measures. Last year, we continued to provide assistance to Ukraine defending itself against the Russian invasion. During the year, Ukrenergo, the operator of the country's electricity transmission system, received two 330 kV autotransformers from us. These are the main and most important devices used in the substation of the transmission network. We sent other equipment, the support provided by Litgrid to Ukraine ensured electricity supply to Ukrainian cities in extremely difficult conditions. Synchronization of electricity grids is the most important goal for which we mobilized not only the Litgrid team, but also many interested institutions, international partners, and contractors. I am grateful to everyone who contributes to the development of Lithuania's energy independence. Tomas Varneckas, Chairman of the Board of Litgrid ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 6 Statement of the CEO of Litgrid Dear all, I am glad to present you the 2023 Annual Report of Litgrid. In 2023, the Litgrid team implemented key strategic synchronisation projects with continental European grid, ensured reliable electricity transmission, developed innovations, and carried out sustainable operations initiatives, and improved the renewable energy performance. improving conditions for the development of energy sources. Over the past year, we have taken very important steps in the preparation of Lithuania's electricity for the disconnection of the Lithuanian electricity grid from the Russian-controlled system and the connection to Continental Europe's synchronous zone. We successfully completed the Lithuanian Electricity test of the isolated operation of the Lithuanian power system, we implemented the automatic generation control system, brought and started connecting the first synchronous compensators. At the same time, we agreed with the Latvian and Estonian operators on a specific date for synchronisation, which we will do in February next year. To ensure the development of renewable energy sources, at the beginning of the year, the State Agency for Energy Regulatory Council (ERC) approved Litgrid's new A new description of the procedure for the use of electricity transmission networks. During the year, Litgrid In the course of the year, Litgrid signed Letters of Intent with developers for 24 new projects with a total 1.7 GW of permitted generation capacity to connect to the transmission grid onshore. Electricity transmitted through Lithuanian transmission networks In 2023, the amount of electricity transmitted to the country's electricity grids was 9.525 TWh, 6.9% less than the 10.234 TWh in 2022. Transmission The lower amount of energy transferred was due to the growing number of people connected to the distribution grid. The increase in the number of generating consumers connected to the distribution network. By maintaining and managing the electricity transmission system, Litgrid continued to implement the planned goals of electricity supply reliability indicators. In 2023 the average duration of interruptions (AIT) was 0.835 min, and the energy quantity index (ENS) amounted to 23,232 MWh. Comparatively, VERT is having established that AIT should not exceed 0.934 min and ENS should not exceed 27.251 throughout the year MWh. Intersystem connections with Sweden (NordBalt) and Poland (LitPol Link) overall availability were respectively 92.79 and 98.19 percent. In autumn 2023 repair works of on the Swedish side had the biggest impact on connection availability. We are paying particular attention to the sustainability of our operations development. Our activities are carried out in line with our commitments in line with the principles of sustainable operations. In our daily operations We have taken a number of steps to reduce Litgrid's impact by installing solar parks, We will be installing new solar power plants at substations and generating our own electricity, from renewable source, replacing our fleet of cars, upgrading our facilities replacing them with new ones that are safer for the environment, studying the impact of our installations the environment, marking lines on bird migration routes, measuring noise levels and install noise protection equipment. I sincerely believe that the Litgrid team will successfully meet the targets and overcome any challenges. Rokas Masiulis Litgrid CEO ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 7 1. BASIC DETAILS The annual report has been prepared for the period ended 31 December 2023. 1.1. The issuer and its contact details: Name LITGRID AB (Litgrid or the Company) Legal form Public limited liability company Date and place of registration 16 November 2010, the Register of Legal Entities of the Republic of Lithuania Company code 302564383 Registered office address Karlo Gustavo Emilio Manerheimo g. 8, LT-05131, Vilnius LEI code 529900CTIUKTEFNNH157 Registry State registry centre Address for correspondence Karlo Gustavo Emilio Manerheimo g. 8, LT-05131, Vilnius Telephone +370 707 02171 Email [email protected]; www.litgrid.eu Litgrid is part of the EPSO-G group of companies: EPSO-G UAB is a state-owned group of energy transmission and exchange companies. The rights and obligations of the shareholder of holding company EPSO-G UAB are implemented by the Ministry of Energy of the Republic of Lithuania. EPSO-G UAB owns 97.5 % of shares of Litgrid. Shares of other companies owned by Litgrid: The Baltic Regional Coordination Centre (RCC) provides network security services to the electricity transmission system operators of the Baltic countries - Litgrid of Lithuania, Elering of Estonia and AST of Latvia. RCC was established by the electricity transmission system operators of the three Baltic states in accordance with the requirements of the European Union's Clean Energy Package. The Baltic RCC is one of the six regional coordination centers operating in Europe. The RCC carries out five main tasks: calculates cross- country power line bandwidths, assesses system reliability and adequacy, plans line disconnections, and develops an overall network model. All this will ensure the smooth operation of the countries, which are working more closely every day in preparation for synchronization, and after that they will maintain a close relationship by operating within the common network of continental Europe Name Baltic RCC Country of incorporation The Republic of Estonia Registered office address Harju maakond, Tallinn, Mustamäe linnaosa, Kadaka tee 42, 12915 Litgrid’s shareholding 33,3 of shares and voting rights attached thereto Major changes No changes. Minor shareholders ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 8 1.2. Activities of Litgrid Litgrid, the Lithuanian electricity transmission system operator (the TSO). Main activities of Litgrid. The Company is responsible for maintaining the balance between electricity consumed and produced in the Lithuanian electricity system and reliable transmission of electricity, it implements strategic national electricity projects. Its vision and strategic operating guidelines are based on the long-term goals identified in the National Energy Independence Strategy (the NEIS). The most important activity areas and responsibilities of the Lithuanian TSO include the maintenance of the country’s electricity infrastructure and its integration with the electricity infrastructure of Western and Northern Europe; development of the electricity market and participation in the creation of a single electricity market of the Baltic States and the European countries; and integration of the electricity systems of Lithuania and continental Europe for synchronous operation. In implementing the programme on the synchronisation with the European continental networks, the Company carries out 19 projects of strategic importance approved by the Government of the Republic of Lithuania. As the Company systematically carries out its daily functions, ensures uninterrupted and smooth operation of the electricity transmission system and implements projects of national importance, it aims to create value for its customers – the Lithuanian society. Litgrid not only transmits electricity via high-voltage lines, but also takes care of the reliability of the operation of the entire transmission network: it is important for us that electricity is uninterruptedly supplied to electricity consumers and that all breakdowns are eliminated as soon as possible. Reliability of electricity supply guarantees the growth of the economy. 2. BUSINESS ENVIRONMENT 2.1. Business model Litgrid is a Lithuanian-wide electricity transmission system operator. The Company maintains high-voltage electricity transmission networks and secures the stable operation of the country’s electricity system, manages electricity flows, and creates conditions for competition in the free electricity market, it is responsible for the integration of the Lithuanian electricity system into the European electricity infrastructure and the single electricity market. Electricity transmission is an intermediate link between electricity generation and distribution to consumers. The voltage of transmission networks is high or very high (110-440 kV). Electricity transmission networks consist of electricity transmission lines with substations. Electricity lines are connected in the electricity substations that contain the switchyards of a higher and lower voltage and the transformers linking them. In the substation transformers voltage is reduced to the voltage of distribution networks. Electricity transmission is a licensed activity. Prices of the electricity transmission service are regulated by the National Energy Regulatory Council (NERC) that sets the price caps for these services. 2.2. Services provided by electricity transmission system operator Litgrid Electricity transmission over high voltage (110-400 kV) electrical installations The electricity transmission service is electricity transmission over high voltage (400, 330 and 110 kV) electrical installations. The transmission system operator transmits electricity from producers to consumers that are connected to the transmission network, and to the operators of the distribution networks. The main activities of the TSO include the management of the high voltage electricity transmission network and securing reliable, effective, high-quality, transparent and safe transmission of electricity. Additional services To maintain reliable system operations, Litgrid purchases from energy generating companies the services for the capacity reserve assurance at the electricity generation facilities, reactive power and voltage management, and emergency, disruption prevention and response services, isolated work ensurance and provides consumers with system services. The capacity reserve is needed when electricity production suddenly and unexpectedly falls or its consumption increases. Trade in imbalance and balancing electricity Litgrid ensures a balance between production and consumption of electricity in the country. Imbalance electricity is electricity that is consumed or produced outside of established electricity consumption or production schedules. Litgrid organises trade in imbalance electricity, buys and sells imbalance electricity that is necessary to ensure the country’s electricity production and consumption balance. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 9 Balancing electricity is electricity that is bought and/or sold on instruction of the transmission system operator as electricity necessary for performing the function of balancing the country’s electricity consumption and production. Litgrid organises trading in balancing electricity by auction. The auction participants are suppliers of balancing energy and TSOs of other countries possessing technical facilities that enable them to quickly change the electricity generation and consumption conditions and having concluded a relevant agreement with Litgrid. Issuance and cancellation of guarantees of origin Guarantee of origin - a certificate proving that energy is produced from renewable sources or during efficient cogeneration. The guarantee of origin is valid for 12 months from its issuance. Guarantees of origin can be of two types: Guarantee of origin of renewable resources to confirm the origin and quantity of electricity. A guarantee of origin is proof that all or part of the energy has been produced from renewable energy sources. Guarantee of origin of efficient cogeneration, intended to confirm the origin and quantity of electricity produced during the process of high-efficiency cogeneration. 2.3. Customers of the transmission system operator Litgrid’s direct customers are the electricity transmission network’s users and suppliers of imbalance and balancing electricity. The users of the transmission network are as follows: Distribution network operators ESO, Dainavos Elektra UAB; Electricity consumers whose electrical installations are connected to the electricity transmission network and who purchase electricity for use; Electricity producers connected to the electricity transmission network. The suppliers of imbalance and balancing electricity include the electricity producers and suppliers. 2.4. Operating indicators of electricity transmission and the network’s reliability In accordance with the requirements approved by the NERC for reliability and quality of service of electricity transmission, the following indicators are used to determine the transmission reliability level: ENS (energy not supplied), i.e. the quantity of electricity not transmitted due to interruptions, and AIT (average interruption time), i.e. the average interruption duration in electricity transmission. TSO’s operating indicators 2023 2022 2021 Quantity of electricity transmitted, million kWh 9 525 10 234 10 936 ENS (Energy Not Supplied due to interruptions), MWh * 23.232 10.617 3.356 AIT (Average Interruption Time), min. * 0.835 0.356 0.112 * Only due to the operator’s fault or due to undetermined causes. 2.5. Electricity interconnections The reliably functioning interconnections are an essential part of the system enabling it to operate together with the energy systems of other Western and Northern European countries and to develop a single European market. LitPol Link is a double-circuit transmission line from Alytus in Lithuania to Elk in Poland and the Alytus back-to-back converter. The LitPol Link interconnection was available to the market 98.19% of the time throughout 2023. Scheduled works for the implementation of the project on the expansion of the interconnection had a major impact on the unavailability of the LitPol Link interconnection. The NordBalt electricity interconnection is one of the longest submarine cables in the world, the operation of which significantly increases safety of energy supply to Lithuania and the Baltic States. The NordBalt interconnection was available to the market 92.18% of the time throughout 2023. Scheduled repair works had a major impact on the unavailability of the NordBalt interconnection. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 10 2.6. Maintenance of the electricity network Litgrid employees maintain 6966.2 km of overhead lines and 326.4 km of cable kilometres of high-voltage lines, 242 transformer substations and distribution boards, 2 high-voltage direct current converters. In order to maintain the stable service life of the airline lines and ensure the stable operation of the equipment, during 2023, repair and maintenance work of the main equipment, inspection of the operation of the relay protection and automation equipment, and all planned works were completed in 33 110-330-400 kV transformer substations and switchboards , the planned maintenance works of 110 kV and higher voltage overhead lines were carried out (a total of 1165 kilometres), a total of 191 units were replaced during the repair. supports. In order to ensure a stable electricity supply, overhead lines and facilities, 1,828 hectares of overhead lines were cleared in 2023, and 89,172 trees endangering the reliable operation of the lines were removed. The constant repair and maintenance of transmission network facilities directly affects the reliability of the electricity system and the transmission of electricity. Planned works in the transmission network are carried out according to the periodicity established by the legal acts of the Republic of Lithuania, but the evaluation of the quantities and scope of the works is based on the actual condition of the facilities and the need to ensure the reliable operation of the network and the efficient use of financial resources. In order to increase the reliability of transmission network devices, a new unit was established - the Diagnostics Group, which assesses the current condition of devices and lines by performing various measurements (thermovision, electrical measurements, inspections with drones, etc.). The second phase of the investment project Installation of new automated monitoring systems (AMS) dedicated to monitoring the performance and oil quality of autotransformers is also being implemented. in 2023 a contract for the supply of support emergency recovery systems was concluded. These systems are made of lightweight, reusable metal structures that will allow for quick restoration of power transmission during an emergency. Also, these systems will be adapted for repair works, by constructing temporary lines bypassing the repaired sections, thus avoiding long disconnections. In assessing the consequences of the war in Ukraine, new purchases of equipment needed for the emergency reserve are planned, as well as the restoration of the quantities of equipment transferred to the Ukrainian transmission system operator in the reserve. The company successfully uses flying manned aircraft to determine the locations of airline failures and the causes of failure. High-resolution cameras installed in drones allow you to see even minor damage to line wires, supporting structures and other line elements without disconnecting the line. Airline engineers appreciate this innovation as saving their work time and increasing the reliability of line work. 3 drones capable of carrying the necessary equipment are used for inspections of air lines and transformer substations, switchboards. Trained employees of the Company are implementing efforts to increase the reliability of line work and prompt detection of defects. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 11 3. OPERATING AND REGULATORY ENVIRONMENT The strategic goal of Litgrid is the integration into the European market. The Company’s activities are also affected by the development trends of the country’s economy, objectives and targets of the European Union. 3.1. Energy sector environment in the EU Last year, electricity production in Lithuania grew by a third and was the highest since 2010, and renewable energy power plants produced a record amount of electricity – it accounted for 70 percent of the country's total production. Electricity consumption decreased by 1.2 percent during the year. in 2023 it was a historic year for green energy in the country. For the first time, the share of electricity produced by renewable energy power plants accounted for more than two-thirds of the total electricity produced in the country. In 2021, renewable energy power plants produced 48 percent of the country's electricity, in 2022 this share reached 60 percent, and in 2023 it was 70 percent. produced significantly more environmentally friendly electricity. Production in wind power plants increased by 66.8 percent, and in solar power plants - by as much as 131.5 percent. Analyzing the absolute numbers, the growth rate of wind energy is even more impressive, with wind generation increasing by more than one terawatt hour. The latter change was mainly due to the significant increase in the number of wind farms connected to the transmission grid. At the same time, the production of hydropower plants grew by a little less than a third. Wind power generation increased from 1.513 TWh to 2.524 TWh, solar power from 0.273 TWh to 0.633 TWh, and hydro power generation from 0.457 TWh to 0.589 TWh. Compared to 2022, the amount of energy produced by thermal power plants increased by 12.9 percent (from 1,161 TWh to 1,311 TWh). The total energy produced by renewable resources was 3,972 TWh per year. The entire electricity production of Lithuania in 2023 reached 5,664 TWh, 33.3 percent more than in 2022. In general, last year, electricity was produced in Lithuania the most since 2010 - the first year after the closure of the Ignalina nuclear power plant. Evaluating how much electricity Lithuania produces itself, last year the share of local production from the total consumption reached 48 percent. – this is also the highest indicator since 2010. In comparison, production provided 35 percent last year. total consumption. In 2023, 11,056 TWh of electricity was consumed in Lithuania. This is 1.2 percent less than last year, when the figure was 11,192 TWh. Annual data show that electricity consumption increased slightly in the industrial sector, and decreased the most in the residential and service sectors. The decrease in consumption in the population and service sectors is caused by the increasing number of producing consumers - consumers who have installed solar power plants consume part of the energy locally and do not transfer it to the distribution and transmission networks. Compared to 2022, electricity consumption in the industrial sector increased by 1.3 percent - from 3.999 TWh to 4.053 TWh. Electricity consumption in agriculture remained stable at 0.248 TWh. In the transport sector, electricity consumption decreased by 5.9 percent - from 0.096 to 0.091 TWh, in the service sector it decreased by 3.7 percent - from 3.558 TWh to 3.427 TWh. Compared to 2022, residents consumed 4.6 percent less electricity per year - from 3.289 TWh to 3.138 TWh. In 2023, 9,794 TWh of electricity was imported into Lithuania, 12.7 percent less than in 2022, and exported - 2,865 TWh or 8 percent more than in 2022. Imports from Estonia grew by 39.3 percent (0.331 TWh), imports from Sweden decreased by 1.2 percent (4.967 TWh), and imports from Poland grew by 5.1 percent (1.161 TWh). Imports from Latvia decreased by 19.3 percent (3,290 TWh). After the implementation of the provisions of the Law on Necessary Measures to Protect Yourself from the Threats of Unsafe Nuclear Power Plants of Third Countries, Lithuania did not conduct direct commercial transactions with Belarus either last year or the year before. From 2022 in the first half of the year, there is no electricity trade with Russia either. The largest share of electricity exports in 2023 consisted of exports to Poland - 1,694 TWh or 10.5 percent less than in 2022. Exports to Latvia grew the most - 192.3 percent to 0.370 TWh. 3.2. Regulatory environment in Lithuania Electricity transmission activities carried out by Litgrid are licensed activities. The licence grants exclusive rights to provide transmission services in Lithuania, thus the prices of services are regulated by the state. The regulatory function and supervision of the licensed activities in Lithuania are performed by the National Energy Regulatory Council. The decisions taken by the regulator directly affect Litgrid's financial performance, the funds available for necessary operating costs, investments to ensure the reliability of the electricity transmission system, as well as the ability to finance strategic and other development projects with own or borrowed funds. The price of the electricity transmission service shall be regulated by setting a price cap for the five-year regulatory period and a component for the acquisition of ancillary services on top of the price of the transmission service. The price cap shall be adjusted each year in response to changes in the volume of services, inflation and other objective factors beyond the control of the operator and may be adjusted no more than twice a year. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 12 The price cap shall consider the reasonable indispensable costs of the regulated activity and a reasonable return on investment, calculated as the product of the rate of return on investment (WACC) and the value of the regulated assets (RAB). 4. THE COMPANY’S STRATEGY AND STRATEGIC PRIORITIES, PLANNING 4.1. Strategy A client-focused organisation and a centre of competences for the energy sector, state-of-the-art technological and digital solutions, sustainable energy development that will double the current generation volume of electricity, and opportunities for market participants to exchange electricity freely at a competitive price. These are the goals set out in the Litgrid’s strategy that was approved by the Company’s Board in January 2023. The strategy establishes the Litgrid’s long-term vision of becoming one of the smartest electricity transmission system operators in Europe. Litgrid plans to expand its activities by focusing on several priority areas. One of the most important priorities is the fight against climate change through the development and adaptation of the transmission system for electricity generation from renewable energy sources and the reduction of the impact of Litgrid’s own infrastructure on the environment. The strategy pays special attention to the development of renewable energy, sustainability and organizational development. Litgrid aims to become an efficient exchange platform that enables and encourages market participants and consumers to freely exchange electricity, choose to produce or consume climate-neutral energy and receive it at a competitive price. in 2023 Litgrid in 2030 the strategy has been updated, taking into account the internal and external factors affecting the company's operations, aligned with the 2023 results of the Lithuanian energy system transformation study and EPSO-G group strategy changes. In the updated strategy, the focus remains on the implementation of strategic synchronization projects, ensuring successful synchronization with continental European networks in 2025. in February With the acceleration of energy production from the sun and wind, we create conditions for the smooth integration of these renewable energy resources (RES) in the Lithuanian electricity transmission network, with the aim of producing 100% of electricity in Lithuania. electricity is consumed here, while ensuring system stability and network reliability. The transformation of the energy system requires a strong partnership, so our goal is to become a customer-oriented organization that creates innovative and flexible services that meet their expectations. Therefore, a review of customer journeys and a continuous feedback system and tracking of key indicators will enable us to constantly know how well we are meeting customer needs. We aim to work according to global best practices in customer experience management. We will implement digital transformation and enable artificial intelligence solutions in our operations in the future. We will open up data for faster and more advanced decision-making, and ensure sustainable value for shareholders. We have a strong focus on enabling renewable energy sources (RES). in 2022 the established and smoothly developing Center for Renewable Energy Resources (RES) provides relevant data to the market and ensures the availability of the most important data related to RES. The "Litgrid" team contributed to the implementation of an innovative solution - the Procedure Description for Connection to Electricity Networks (PETA). It describes and legalizes a new bandwidth reservation principle that enables developers to connect up to 300% of the existing network bandwidth, separately evaluating solar, wind and storage generation profiles. We are actively looking for IT solutions that will ensure prompt connection of customers to electricity networks. We focus on increasing the satisfaction of RES customers - the RES connection process is reviewed and optimized. We continue the energy transformation process. in 2023 III quarter EPSO-G Group companies, together with the consulting company DNV, prepared the Lithuanian energy system until 2050. transformation study. The study presents scenarios for the possible development of the Lithuanian energy system, assessing development projects, opportunities, changes in energy consumption, and the responsible party. According to the Lithuanian energy system transformation study, in 2024 it is planned to prepare a new Litgrid long-term strategy as an integral part of the company group's strategy. Through its activities, the company aims to directly contribute to the implementation of the United Nations Sustainable Development Goals, focusing on ensuring access to clean and modern energy, combating climate change, developing modern infrastructure and innovation, creating safe and decent working conditions, employee well-being and a sustainable supply chain. In the long-term strategy until 2030 we identified clear areas of sustainable development in the organization, strategic goals, indicators and planned activities to achieve these goals. We will continue to work in a socially responsible manner, giving priority to reducing the impact of our activities on the environment. in 2024 we plan to prepare a plan for measures to reduce GHG emissions and a simulation of GHG reduction goals. The Litgrid’s strategy is available at https://www.litgrid.eu/index.php/apie-litgrid/strategija-vizija-misija-ir-vertybes/452 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 13 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 14 4.2. Stakeholders 4.3. Strategic priorities ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 15 4.4. Measures for the implementation of the strategy The Company’s strategy is reviewed and updated annually referring to the National Energy Independence Strategy (NEIS), the Company’s activities and amendments to the legal acts regulating the electricity sector, the strategy of EPSO-G, a holding company of the group, significant events in the Lithuanian and foreign electricity systems and electricity markets, works performed during the year as well as by assessing new eternal circumstances beyond the Company’s control. The Litgrid’s strategy comprises a ten-year (long-term) implementation period based on the main and long-term objectives in the electricity sector laid down in the NEIS. Each year the Company updates and prepares a ten-year development plan of the transmission network which is an integral part of the strategy. In order to regularly assess the efficiency and application of the measures selected by the Company, the Company’s operational plan is reviewed after the end of each quarter. The implementation of the strategic objectives and the operational plan, performance of the divisions and employees are monitored. The measures stipulated in the operational plan are included in the operating objectives of the divisions and personal performance objectives of employees, the achievement of which at the end of the year determines a variable part of remuneration. The strategic planning and control mechanism at the Company is based on the Integrated Planning and Monitoring Policy of the EPSO-G Group of Companies which is applied in the activities of Litgrid to a full extent. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 16 4.5 Long-term development plan of the electricity transmission networks. According to the Law on Electricity of the Republic of Lithuania, an electricity transmission system operator manages electricity transmission networks, ensures the operation, development, maintenance and long-term capacity of these networks to meet justified electricity transmission needs, and is also responsible for the interconnection of the electricity system of the Republic of Lithuania with electricity systems of other countries, performs balancing and dispatch control of the electricity system and has a corresponding operating licence. From 2023 Litgrid will prepare the long-term development plan once every two years - in 2023. the plan was not updated, the long-term development plan prepared and approved in 2022 is valid. The Ten-Year Electricity Transmission Network Development Plan of Litgrid is available at the Company’s website at: https://www.litgrid.eu/index.php/tinklo-pletra/lietuvos-elektros-perdavimo-tinklu-10-metu-pletros-planas-/3850 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 17 5. IMPLEMENTATION OF PROJECTS One of the fundamental directions of the implementation of the National Energy Independence Strategy of the Republic of Lithuania adopted by the decision of the Parliament on 21 June 2018 establishes the connection of the electricity system of the Republic of Lithuania to the continental European networks for operation in a synchronised mode (the “Synchronisation”). Following a full-fledged integration of Lithuania into the European electricity system in 2025, the European system management standards will be introduced in the electricity sector ensuring management of electricity flows based on market principles and participation in maintaining the system’s frequency. A timely implementation of the synchronisation programme in the most economically efficient manner is one of the most important objectives of Litgrid. The synchronous operation with the continental European networks will ensure: reliable operation of energy systems and secure transmission of electricity; coordinated actions in facility maintenance and network development planning; common rules for the management of energy systems – network codes which will be applied uniformly in all countries in the European Union; availability of electricity from energy systems of Western Europe. In July 2021, the Government of the Republic of Lithuania approved the list of the energy projects carried out in implementing the synchronisation of the electricity system. Litgrid is responsible for the implementation of 19 out of 20 projects included in this list. According to the requirements of the Republic of Lithuania Law on the Protection of Objects of Importance to Ensuring National Security, before the conclusion of transactions that comply with the requirements of this law, in all cases Litgrid informs the Commission for Coordination of Protection of Objects of Importance to Ensuring National Security about such transactions. Such transactions are concluded only upon the receipt of the commission’s conclusions. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 18 5.1. The status of the implementation of the main strategic The stage of completion of the strategic projects under the synchronisation programme reached 75 % in December 31 st 2023 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 19 5.2. Strategic infrastructure projects Reconstruction of the 330/110/10 kV Neris transformer substation The aim of the project is to reconstruct the Neris transformer substation to enable the planned connection of one of three synchronous compensators to the transmission network and the launch of operation of to be constructed 330 kV Vilnius-Neris electricity transmission line. This is one of the most important projects related to the synchronisation with the continental European networks that strengthens the country’s network for electricity transmission. In 2023, the reconstruction works of the substation were carried out, which, according to the contract, are planned to be completed in 2025. Construction of the 330 kV Kruonis PSHP-Bitėnai electricity transmission line The aim of the project is to strengthen the electricity transmission network in the western part of Lithuania and to ensure its reliable operation by forming a new 330 kV transmission line, which is important for the smooth synchronous operation of the Lithuanian electricity system with the continental European electricity networks. The project covers the reconstruction of a part of the already existing line Jurbarkas-Bitėnai by replacing a single-circuit line with a double-circuit line, the construction of a new section between the line Jurbarkas-Bitėnai and the line Kruonis PSHP-Sovetsk and the reconstruction of the Bitėnai transformer substation. In 2023 the construction phase of the 330kV overhead line has been completed. Construction of the 330 kV Darbėnai-Bitėnai electricity transmission line The aim of the project is to strengthen the electricity transmission network in the western part of Lithuania and to ensure its reliable operation by forming a new 330 kV transmission line, which is important for the smooth synchronous operation of the Lithuanian electricity system with the continental European electricity networks. In 2023 the first phase of construction is completed. Installation of new synchronous condensers in the Lithuanian electricity system The aim of the project is to implement the necessary measures for the synchronisation with the continental European networks: installation of three synchronous condensers, thus ensuring the required quantity of inertia and the dynamic stability of the system in the most efficient way. In 2023 delivered power transformers for Alytus, Telšiai and Neris synchronous compensator stations. Construction of the 330 kV Mūša switchyard The project’s aim is to strengthen the electricity transmission network of Western Lithuania and ensure its reliable operation by building a new 330 kV Mūša switchyard and connecting to it three overhead lines to Telšiai, Šiauliai and Viskali. In 2023 the construction works of the 330 kV switchyard Mūša have already started; the design works of the switchyard were completed in 2023. Construction of a new 330 kV Vilnius-Neris electricity transmission line The project’s aim is to strengthen the electricity hub in Vilnius by ensuring the reliability of electricity supply after the synchronisation with the continental European networks and meeting an increasing demand for electricity in the capital, by constructing the 330 kV electricity transmission line linking the Vilnius and Neris 330 kV transformer substations. To this purpose, a part of the existing 330 kV overhead line Vilnius-Molodečno will be reconstructed and a section of the new line to the Neris 330 kV substation will be constructed. Construction of the 330 kV Darbėnai switchyard The project’s aim is to enhance the reliability of the transmission network and security of electricity supply during the synchronous operation of the Lithuanian electricity system with the continental European networks by building a new 330 kV Darbėnai switchyard and connecting to it three overhead lines with the voltage of 330 kV to Bitėnai, Klaipėda, Grobinė and the direct current interconnection to Harmony Link.The interconnections with the wind power parks will also be designed at the 330 kV switchyard. In June n 2023 the construction of the 330kV switchboard began. Construction of the Harmony Link interconnection The project’s aim is to ensure the integration of the electricity market after the synchronisation with the continental European networks by constructing a new submarine HVDC link (Harmony link) with Poland. The Harmony Link interconnection will ensure commercial trade in electricity after the synchronisation of the Baltic States with the continental European networks. Negotiations regarding the procurement for the main converter and the cable for Harmony link were finalised in 2022. Final proposals from the participants in the procurement for the cable were received, the proposal of the converter was still pending in 2023. Litgrid AB implements the project together with the Polish electricity transmission system operator PSE ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 20 5.3. Strategic non infrastructure projects Installation of Automatic Generation Management (AGM) The aim of the project is to automatically activate the frequency restoration reserves and restore the system frequency and power balance by installing an automatic generation management system. In the end of 2023, the project was successfully implemented. This system will ensure the main parameters of the electricity network - production and consumption balance and frequency and will open up additional opportunities for market participants to provide power reserve services. The AGM system will start participating in the balance management of the Lithuanian electricity system in the second half of 2024. Until then, the balance operators will be trained to use this system, and tests of the AGM system will be organized, connecting to it the balancing service capable of providing energy production and storage devices. Isolated operation test of the power system of the Republic of Lithuania An isolated test of the energy system was successfully completed in the April 2023. Installation of the Frequency Stability Assessment System (FSAS) The aim of the project is to install a system to ensure the frequency stability of the Baltic electricity system in the event of an unforeseen disconnection from the continental European grids and in the event of islanding of the Baltic electricity system. The FSAS procurement was started in 2023. Development of a new energy balance and ancillary services management system Litgrid, together with the Estonian and Latvian TSOs, signed the Baltic Power System Connection Agreement with the Continental European Power Grids, which sets out the technical requirements (hereafter referred to as the Catalogue Requirements) that need to be implemented in order to ensure the reliable operation of the Baltic Power Systems and the Continental European Synchronous Area. Most of the balance and system service management processes will be upgraded prior to the final synchronisation with the Continental European grids. As part of the implementation of the European Commission Regulation 2017/2195 of 23 November 2017 laying down guidelines for electricity balancing, Litgrid will update the processes related to balancing and imbalance accounting and balance management. 5.4. Other projects "Litgrid" contributes to the development of Lithuanian green energy through its activities and implements projects for connecting renewable energy resources to the transmission network while performing the functions of the operator of the electricity transmission network. The result of these projects is the connection of green electricity producers to the transmission network, enabling electricity consumers to use clean and sustainable energy. Litgrid in 2023 started 14 wind farm connection projects, the power of the parks to be connected is 987 MW; in 2023 it is planned to start at least 47 projects for connecting wind RES producers. "Litgrid" contributes to the development of the electrification infrastructure of Lithuanian railways by implementing projects for connecting users to the transmission network. Electrification projects of Lithuanian railways, part of which includes connection to the transmission network and ensuring electricity supply, is one of Litgrid's activities for the coming year. After the implementation of these projects, there will be a transition from fossil fuels to the use of renewable energy resources, saving electricity and using green energy, which will allow us to achieve the goals of the European Green Course. in 2023 27 new airline reconstruction projects have been launched, which will contribute to ensuring the stability and reliability level of the transmission network and ensure the necessary bandwidths for the connection of RES to the transmission network. It is also planned for 2023-2031. finish, continue or start execution 102 pcs. 330-110 kV substation reconstruction projects In 2023, 8 transformer substation reconstruction projects were completed, work continued on 30 transformer substation reconstruction projects. The total number of Litgrid network reconstruction projects is increasing rapidly and will reach 132 in 2024. 5.5. Financing of strategic projects A total of EUR 459.9 million has been allocated for financing the implementation of strategic investment projects from the European Infrastructure Networks Facility. EUR support, from which in 2023 received (received) 10.5 million EUR, and a total of EUR 95 million since the beginning of the implementation of the projects. Eur. Other investment projects are financed with own, borrowed and EU structural funds ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 21 5.6. Project portfolio The stability, reliability, power and energy balances of the electrical energy system depend not only on the behavior of market participants, but also on the determination of the appropriate parameters for the work of the connected power plants, the coordination of the work of the power plants, and the timely development. Litgrid, as the operator of the Lithuanian electricity transmission system, plans the operation of the electricity system in the long term, assessing the requirements of electricity supply and safety, reliability, quality, efficiency, consumption, management and environmental protection. For this purpose, a ten-year plan for the development of Lithuanian EES 400-110 kV networks is being prepared, one of the goals of which is to predict the direction of the development of the transmission network, the extent of reconstruction, to determine indicative investments for the development and reconstruction of the network by forming a long- term investment plan. A portfolio of projects is formed in the investment plan. The portfolio consists of projects that are necessary for achieving the strategic goals of the state, ensuring the reliability of the transmission network and electricity supply, updating or installing information technologies, or projects that are initiated at the initiative of the users of the electricity transmission network. 5.7. Innovations Through its actions in the field of innovation, the Company aims to contribute to the effective implementation of Litgrid and National energy independence strategies. This is done by creating an effective innovation ecosystem, where innovative ideas are initiated, experts' time is allocated to their analysis and testing, they are implemented and started to be applied in daily activities. In the field of innovation, the company operates in accordance with the Scientific Research and Experimental Development and Innovation Activity Guidelines of the UAB EPSO-G Group of Companies approved by the Board of UAB EPSO-G (hereinafter - R&D Activity Guidelines). The purpose of the R&D activity guidelines is to ensure the continuity and efficiency of UAB EPSO-G group companies' activities, competitiveness or creation of conditions for competition through research, innovation and new solutions, a significant contribution to the implementation of the National Energy Independence Strategy, and the creation of added value for society. The R&D activity guidelines define the concepts of scientific research and experimental development, innovation and innovative activities common to the entire Group, general directions and priorities of R&D activities, classification principles and recommendations to transmission system operators regarding the allocation of funds for R&D activities that are not classified as regulated activities. Innovation Ecosystem The company has implemented a Research and Experimental Development and Innovation (R&D) system. It defines the basic principles and innovation processes of an environment favorable to creativity and the implementation of innovations. Innovation activities are focused on the implementation of the goals and objectives set out in the Climate Change and National Energy Independence Strategy (NENS), because without innovation it is difficult to imagine or even impossible a reliably functioning electricity system, transitioning from fossil fuel power plants to renewable energy resources and creating a competitive national economy in the Baltics. In the region of Scandinavia and Central and Eastern Europe. More about innovative projects in the "Sustainability Report". . ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 22 6. FINANCIAL INFORMATION 6.1. Revenue In 2023, gross revenue decreased by EUR 50.5 million compared to 2022 and totalled EUR 369.8 million. The highest decrease of revenue was observed in ancillary services, whereas largest increase was in transmission services. Revenue, EUR million 2023 2022 Change Change, % Sales 206.5 72.5 134.0 185% Balancing energy 108.3 175.1 -66.9 -38% Ancillary services 28.0 137.2 -109.2 -80% ITC 14.9 1.6 13.4 838% PSO 0.0 28.9 -28.9 -100% Congestion 3.2 1.9 1.3 68% Reactive energy and administration of guarantees of electricity origin 6.0 1.8 4.2 233% Other activities 3.0 1.4 1.6 114% Total revenue 369.8 420.3 -50.5 -12% Revenue from electricity transmission amounted to EUR 206.5 million, which is a 2.8 times increase compared to 2022 (including EUR 142.3 million congestion management revenue used to reduce transmission tariff for 2023). The main reason for the increase in transmission revenue – at the time of approving electricity transmission price cap for 2023, the compensated costs of regulated activities include 5-times higher costs of compensating losses in the grid due to 5-times higher electricity purchase price. Sales volumes of imbalance and balancing (hereinafter the “balancing”) electricity increased by 46.2%, however, revenue decreased by 38.2% to EUR 108.3 million due to a 55.9% lower average sale price. Change in revenue does not affect the Company’s profitability because according to the regulated imbalance pricing the current year revenue compensates expenses, including the Company’s internal expenses, attributable to this activity according to the description of the regulation accounting. Revenue from ancillary services decreased by 79.6% to EUR 28 million due to a 57.5% decrease in the ancillary services purchasing component to the price of the transmission services and a 5.6% decrease in the volume of services rendered. According to the regulated pricing of the ancillary services, revenue must compensate expenses, including the Company’s internal expenses, attributable to this activity according to the description of the regulation accounting. Difference between revenue and expenses for the N-year is taken into consideration when approving the acquisition component of ancillary services for the N+2 year. Other income related to the transmission activity include: Inter-Transmission System Operator Compensation (ITC) revenue, which is a fee for electricity imported from countries outside the European ITC mechanism (the import activities were discontinued from May 2022) and the transit compensation revenue from ITC fund. The total amount of the revenue was EUR 14.9 million. The revenue does not affect the long-term profitability as is assessed when determining the price of the transmission service and calculating the actual return on investments in the transmission service. PSO – services were discontinued by the Company from 2023. Reactive energy revenue amounting to EUR 5.9 million. The revenue does not affect the long-term profitability as is assessed when determining the price of the transmission service and calculating the actual return on investments in the transmission service. Revenue from congestion management services amounting to EUR 3.2 million. The revenue does not affect the Company’s profitability because revenue compensates expenses incurred in ensuring the use of allocated capacity of the interconnections. Revenue from administration of guarantees of electricity origin amounting to EUR 0.1 million. Other revenue increased more than 2 times to EUR 3 million due to a EUR 0.9 million increase in penalties from the contractors for delays in the performance of works, EUR 0.5 million increase in revenue from sale of material assets, and EUR 0.3 million increase in other income. Transmission 56% Balancing energy 29% Ancillary services 8% Other related to electricity 6% Other activities 1% Revenue structure 2023 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 23 6.2. Expenses In 2023, the Company’s operating expenses totalled EUR 333.2 million, which is 30.3% lower compared to 2022. Expenses, EUR million 2023 2022 Change Change, % Related to electricity 251.3 420.1 -168.8 -40% Balancing energy 108.5 174.8 -66.3 -38% Ancillary services 98.1 111.6 -13.5 -12% Compensation of technological losses 38.3 99.6 -61.3 -62% ITC 3.2 3.4 -0.3 -9% PSO - 28.8 -28.8 -100% Ensuring the utilisation of allocated grid capacity 3.2 1.9 1.3 68% OPEX. 40.3 36.7 3.6 10% Wages and salaries 17.6 15.6 2.0 13% Repair and maintenance 9.4 8.8 0.7 7% Telecommunication and IT systems 2.5 2.2 0.3 14% Taxes 5.2 4.0 1.2 30% Other 5.6 6.1 -0.6 -9% Other 41.6 21.0 20.7 98% Depreciation and amortisation 19.7 20.6 -0.8 -4% Impairment of property, plant and equipment 21.7 - 21.7 Other 0.2 0.4 -0.2 -50% Total expenses 333.2 477.8 -144.6 -30% Expenses of purchase of electricity and related services accounted for a major portion of the Company’s operating expenses: EUR 251.3 million (75.4% of the Company’s total expenses). These expenses decreased by 40.2% compared to 2022. Expenses for ancillary services decreased by 12.1% to EUR 98.1 million. Balancing electricity expenses decreased by 37.9% due to a lower purchase price though the volume acquired was higher. Expenses of compensating for electricity purchase technological losses in the transmission network decreased 2.6 times to EUR 38.3 million due to 2.6 times lower average electricity purchase price. ITC expenses totalled EUR 3.2 million. No expenses for provision of PSO services were incurred as the Company discontinued these services from 2023. The expenses of ensuring the allocated capacity of the interconnections totalled EUR 3.2 million. Operating expenses increased by 9.7% to EUR 40.3 million compared to 2022. Increase in remuneration expenses by EUR 2 million was affected by a 6.4% increase in the average number of employees due to the implementation of the synchronisation project and a higher average salary. Other expenses increased by EUR 1.6 million: the largest increase was observed in tax expenses – by EUR 0.9 million due to higher tax payable to the NERC. The result of revaluation of the property, plant and equipment (PPE) made by the Company is that fair value of PPE on 30 September 2023 is EUR 5.8 million higher than residual balance sheet value of PPE on 30 September 2023. EUR 21.7 million impairment loss were recorded in profit (loss) statement and EUR 27.4 million profit due to PPE revaluation was recorded in other comprehensive income. 6.3. Return and other financial ratios EBITDA = operating profit + depreciation and amortisation + impairment loss + write-offs. Adjusted EBITDA is a recalculated EBITDA by considering temporary regulatory deviations from the regulated profitability indicator approved by NERC. The adjusted EBITDA is calculated by assessing a revenue adjustment for the prior periods, which has already been approved by NERC’s decision when establishing regulated prices for the reporting period, and by assessing deviation of an actual profitability from a reporting period profitability permitted (regulated) by NERC, which will be assessed when establishing regulated prices for the upcoming year by NERC. Balancing energy 33% Ancillary services 29% Compensation ot technological losses 11% Other related to electricity 2% OPEX 12% Other activities 12% Cost structure 2023 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 24 Adjusted net profit is a recalculated net profit by considering: the difference between adjusted EBITDA and EBITDA after income tax; the impairment of property, plant and equipment after income tax, and the income tax incentive for investments for previous periods. Adjusted net profit = actual net profit + (adjEBITDA – EBITDA) x (1-15%) Adjusted net profit for 2022 was calculated by making additional one-time adjustment - adding EUR 2.9 million income tax incentive for investments in 2022 which was recorded in 2023. Adjusted net profit for 2023 was calculated by making additional one-time adjustments: deducting income tax incentive for investments in 2019-2022 which was recorded in 2023 and adding impairment loss after income tax. The reasons for increase in adjusted EBITDA were as follows: - EUR 1.1 million higher return on investments due to the increase in value of regulated assets from EUR 330 million to EUR 351.7 million and the increase in the rate of return on investments from 4.03% to 4.09%; - EUR 1.6 million bigger revenue from non-regulated activities (penalties for the contractors and other revenue). Adjusted EBITDA for 2023 was calculated by making the following adjustments to EBITDA: - deducting EUR 4.1 million, i.e. the difference between the permitted and actual return on investments of transmission activity in 2020-2021, by which revenue from transmission services for 2023 was increased; - deducting EUR 107 million, i.e. the difference between an actual and permitted return on investments of transmission activity in 2023, by which revenue from transmission services should be reduced in future periods. The difference is calculated by the Company, but not yet approved by the Auditor and the NERC; - adding EUR 27.1 million, i.e. the result of ancillary services in 2021 (revenue less expenses), by which revenue from ancillary services for 2023 was reduced; - adding EUR 43 million, i.e. the difference between the expenses and revenue of ancillary services in 2023, of which EUR 29.8 million will be recovered in 2024, and the remaining amount of the difference will be used to increase revenue from ancillary services for 2025. The difference is calculated by the Company, but not yet approved by the Auditor and the NERC. -36.5 78.3 34.6 37.3 2022 2023 EBITDA, adjEBITDA EUR million EBITDA Adjusted EBITDA ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 25 The adjusted net profit for 2023 was calculated by making the following adjustments: - deducting EUR 34.9, i.e. the difference between adjusted EBITDA and financial EBITDA after income tax; - adding EUR 18.4 of impairment loss after income tax; - deducting EUR 10 million income tax incentive for investments in 2019-2022. The adjusted net profit growth was mainly driven by a EUR 5.3 million improvement in financing activities and a EUR 2.7 million change in adjusted EBITDA. The adjusted ROE increased from 7.1% to 10.9%, mainly due to the increase in adjusted net profit. Investments (excluding assets received free of charge from third parties and capitalised wages) improved mainly due to growing investments in strategic and electricity projects of national significance. These investments accounted for 64% of total investments made in 2023. A significant portion of investments was made in the following projects: - EUR 32.4 million - installation of new synchronous compensators; - EUR 32.1 million - construction of the 330 kV line Darbėnai-Bitėnai; - EUR 17.2 million construction of the 330 kV line Kruonis HAE-Bitėnai; - EUR 16 million - reconstruction of the 330 kV Kruonis HAE switchyard. -49.5 48.4 13.8 22.0 2022 2023 Net profit, Adjusted net profit EUR million Net profit Adjusted net profit -25.5% 23.9% 7.1% 10.9% 2022 2023 ROE, Adjusted ROE % ROE Adjusted ROE 22.7 98.5 33.5 55.0 2022 2023 Investments EUR million Reconstruction and development of the electricity transmission network and others projects Strategic electricity projects 56,2 153.5 45.6 39.2 2022 2023 Net financial debt EUR million 1.3 1.1 2022 2023 Net financial debt/Adjusted EBITDA times ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 26 Net financial debt decreased by EUR 6.4 million, as part of the loan was repaid on schedule. The net financial debt to adjusted EBITDA ratio decreased from 1.3 to 1.1 due to lower net financial debt and higher adjusted EBITDA. Balance sheet and cash flows Balance sheet, EUR million 2023 2022 Change Non-current assets 413 384 29 Intangible assets 5 5 -1 Property, plant and equipment 401 367 33 Deferred tax asset 7 11 -4 Current assets 265 335 -70 Receivables and other current assets 93 95 -2 Loan granted to EPSO-Granted to related parties 167 232 -65 Other financial assets 4 7 -3 Cash and cash equivalents 1 0 0 TOTAL ASSETS 677 719 -41 Equity 239 167 72 Issued capital and share premium 155 155 0 Reserves 35 62 -26 Retained earnings 48 -49 98 Non-current liabilities 300 139 161 Financial debts and lease liabilities 33 40 -6 Congestion management revenue 264 64 200 Other non-current liabilities 3 35 -33 Current liabilities 139 413 -274 Current portion of long-term loans and other short-term borrowings 6 6 0 Current portion of congestion management revenue 37 287 -251 Trade payables 56 70 -14 Prepayments received and other current assets 39 49 -9 Total liabilities 439 552 -113 TOTAL EQUITY AND LIABILITIES 677 719 -41 During the year, the Company’s assets decreased by EUR 41 million (-6%) and amounted to EUR 677 million as at 31 December 2023. Non-current assets representing 61% of the Company’s total assets increased by EUR 29 million (+8%), the main reason – the capital investments were higher than depreciation costs even after the investments set off against subsidies. Current assets decreased by EUR 70 million (-21%), mainly due to the EUR 65 million drop in loans granted (temporarily unused accumulated congestion management revenue connected to the Group account and temporary borrowed to EPSO-G). Shareholders’ equity increased by EUR 72 million (+43%) during the year due to the total comprehensive income in 2023 and accounted for 35% of the total assets at the end of 2023. Non-current liabilities increased by 2.2 times, whereas current liabilities decreased by 3 times, mainly due to the reclassification of a EUR 200 million congestion management revenue from a current portion to non-current. Cash flows, EUR million 2023 2022 Change CFO 58.9 -52.6 111.5 CFI -51.6 82.7 -134.3 CFF -7.1 -31.4 24.3 Increase/decrease in cash and cash equivalents 0.1 -1.3 1.5 CFO In 2023, cash from operating activities (CFO) totalled EUR 58.9 million. Compared to 2022, CFO increased by EUR 111.5 million, mainly due to the difference in gross revenue (EUR 121 million). 413 265 239 300 139 Assets Equity and liabilities Balance sheet structure EUR million Current liabilities Non-current liabilities Equity Current assets Non-current assets ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 27 CFI In 2023, cash flows from investing activities (CFI) amounted to EUR (-51.6) million. Compared to 2022, CFI was negative mainly due to increased acquisitions of property, plant and equipment and intangible assets (a EUR 63 million increase) and a EUR 56.4 million decrease in subsidies received. CFF In 2023, cash from financing activities (CFF) totalled EUR (-7.1) million. Compared to 2022, CFF were less negative due to fewer loans repaid in 2023 (EUR - 19.1 million) and the non-payment of dividends (in 2022 EUR 5 million). Free Cash Flows, EUR million 2023 2022 Change Change, % CFO 58.9 -52.6 111.5 -211.8% CFI -51.6 82.7 -134.3 -162.4% Change in provided loans -65.4 188.4 -253.8 -134.7% FCF -58.2 218.5 -276.7 -126.6% The Company’s net cash flows (excluding cash flows from financing activities and from loans granted by the Company and their repayments, i.e. free cash flow (FCF)) were negative due to the increased investments and totalled EUR (-58.2) million in 2023. Congestion management revenue received during 2023 amounted to EUR 108.5 million. In 2023 it have been used as follows: EUR 3.2 million to guarantee the availability of allocated capacities, EUR 15.2 million to finance investments, and EUR 142.3 million to reduce transmission tariff. Accumulated congestion management revenue balance amounted to EUR 297.9 million as at 31 December 2023, of which EUR 130.7 million were temporarily used for the financing of the Company’s activities and EUR 167.2 million were linked to the EPSO-G Group account. 6.4. Five-year summary Key financial indicators 2023 2022 2021 2020 2019 Change in 2023-2022 Change, % Revenue EUR million 369.8 420.4 270.9 208.4 183.9 -50.5 -12.0% EBITDA EUR million 78.3 -36.5 46.2 51.8 22.3 114.8 n/a EBITDA margin % 21.2% -8.7% 17.1% 24.8% 12.1% n/a n/a EBIT EUR million 36,6 -57,5 24,8 31,0 1,9 94,1 n/a EBIT margin % 9,9% -13,7% 9,2% 14,9% 1,0% n/a n/a Net profit EUR million 48.4 -49.5 20.0 26.6 3.0 97.9 n/a Net profit margin % 13.1% -11.8% 7.4% 12.8% 1.6% n/a n/a ROE % 23.9% -25.5% 9.1% 12.9% 1.5% n/a n/a ROA % 6.9% -8.2% 4.4% 6.7% 0.8% n/a n/a Shareholders’ equity / Assets % 35.2% 23.2% 45.2% 52.6% 52.0% 12 pp 51.6% Net financial debt EUR million 39.2 45.6 68.5 84.7 99.1 -6.4 -14.1% Net financial debt/EBITDA times 0.5 -1.2 1.5 1.6 4.4 1.8 n/a Investments EUR million 153.5 56.2 52.0 54.3 45.7 97.3 173.1% Basic earnings per share (EPS) EUR 0.096 -0.098 0.040 0.053 0.006 0.194 n/a Total assets EUR million 677.4 718.5 489.8 414.4 376.2 -41.1 -5.7% Equity EUR million 238.7 167.0 221.5 218.0 195.6 71.7 42.9% Liquidity ratio times 1.91 0.81 1.01 0.59 0.46 1.10 135.4% Assets turnover ratio times 0.53 0.70 0.60 0.53 0.50 -0.2 -23.8% Adjusted indicators Adjusted EBITDA EUR million 37.3 34.6 39.8 32.5 n/a 2.7 7.8% Adjusted EBITDA margin % 10.1% 8.2% 14.7% 15.6% n/a 1.9 pp 23.2% Adjusted net profit EUR million 22.0 13.8 16.4 13.5 n/a 8.2 59.5% Adjusted net profit margin % 6.0% 3.3% 6.1% 6.5% n/a 2.7 pp 82.8% Adjusted ROE % 10.9% 7.1% 7.5% 6.5% n/a 3.8 pp 54.1% Net financial debt/adj. EBITDA times 1.1 1.3 1.7 2.6 n/a -0.3 -20.3% ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 28 7. COMPANY TARGETS AND THEIR IMPLEMENTATION The implementation of the Strategy is measured through the implementation of the Company's 3-year business plan and the Company's annual objectives, which prioritise measures in line with the priorities identified in the Company's Strategy. The evaluation of the achievement of the objectives is carried out by the Company's Board of Directors and the CEO reports to the Board of Directors on the achievement of the objectives. The financial and non-financial performance targets set for the Company are identical to those set for the CEO of Litgrid. The assessment of the achievement of the objectives determines the variable remuneration of all employees and the CEO. Achievement of the 2023 targets is 76%, approved by the Board in the Board meeting on 29 th Feb 2024. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 29 8. INFORMATION ON THE SHARE CAPITAL AND THE SHAREHOLDERS AND THEIR RIGHTS Since 22 nd December 2010, Litgrid’s shares are traded on the Secondary List on the NASDAQ OMX Vilnius exchange, ISIN code of securities: LT0000128415. During the reporting period Litgrid neither acquired nor disposed of its own shares. The share capital of Litgrid amounts to EUR 146,256,100.2, and it is divided into 504,331,380 ordinary registered shares with the nominal value of EUR 0.29 each. EPSO-G UAB (Gedimino pr. 20, LT-01103 Vilnius, company code 302826889), a company wholly owned by the Ministry of Energy of the Republic of Lithuania, controls 97.5% of Litgrid ’s shares. EPSO-G UAB possesses a decisive vote in making decisions at the general meeting of shareholders. The Company has not received any information on mutual agreements between the shareholders due to which restrictions on transfer of securities and/or voting rights may be imposed. There are no restrictions regarding voting rights at the Company. SEB Bankas AB was the provider of accounting and related services for Litgrid ’s securities from september 15th 2020. Data on trading in Litgrid securities on the regulated markets: Indicator 2020 2021 2022 2023 Opening price, EUR 0,59 0.58 0.805 0.702 Highest price, EUR 0.63 0.89 0.805 0.78 Lowest price, EUR 0.49 0.575 0.63 0.65 Closing price, EUR 0.585 0.795 0.7 0.685 Turnover, units 680 371 894 468 435 981 386 009 Turnover, EUR million 0.39 0.67 0.33 0.27 Capitalisation, EUR million 259.51 400.94 353.03 345.47 8.1. Turnover and prices of Litgrid’s shares during the reporting period, in EUR: https://nasdaqbaltic.com/statistics/lt/instrument/LT0000128415/trading ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 30 8.2 Benchmark of LGD1L,OMX Baltic Benchmark GI (OMXBBGI) and OMX Vilnius (OMXV) 8.3. Dividends 18 August 2017 The Board of Litgrid has adopted a decision to apply the dividend policy of UAB EPSO-G Group, approved by the decision of the Board of Directors of UAB EPSO-G on 14 July 2017 (renewed 7 th February 2020), to Litgrid in full. EPSO-G's Dividend Policy regulates the procedure for setting, paying and declaring dividends for all the companies in the group, sets clear guidelines for the expected return on equity and investment for existing and potential shareholders, while ensuring sustainable long-term growth of corporate value, timely implementation of nationally important strategic projects, and purposefully building trust in the entire group of energy transmission and exchange companies. in 2023 April 11 during the ordinary general meeting of shareholders of Litgrid it was decided not to pay dividends. 9. Governance report The Company, together with the parent company EPSO-G UAB and other legal entities directly or indirectly controlled by the parent company form the group of companies. 97.5% of shares in the Company are held by EPSO-G, and the remaining 2.5% by minority shareholders. The Republic of Lithuania, holding 100% of shares in EPSO-G UAB is the shareholder of the company, the rights and obligations of which are implemented by the Ministry of Energy of the Republic of Lithuania. The Company’s issued share capital amounts to EUR 146,256,100.20 and is divided into 504,331,380 units of ordinary registered shares with the nominal value of EUR 0.29 each. One ordinary registered share with the nominal value of EUR 0.29 gives one vote at the General Meeting of Shareholders. 9.1 The Company’s management bodies The Company’s management bodies are set out in the Articles of Association and comprise the General Meeting of Shareholders, the Board and the Company’s director. EPSO-G UAB (the Company’s parent) has the Remuneration and Nomination Committee and the Audit Committee, which act as the Remuneration and Nomination Committee the Audit Committee of the Group as a whole, inter alia, by performing the functions of the Remuneration and Nomination Committee and the Audit Committee of the Company. Information on the Remuneration and Nomination Committee and the Audit Committee is available on website of EPSO-G UAB (the Company’s parent) at www.epsog.lt. Information on the committees is also disclosed in the annual reports of EPSO-G UAB. Litgrid’s management and organisational structure ensures optimal organisation, accountability, process efficiency and responsibility. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 31 9.2. Management principles In 2023, the corporate governance of the EPSO-G Group’s was carried out in accordance with the new version of the Guidelines on Corporate Governance of EPSO-G Group approved by the Ministry of Energy of the Republic of Lithuania, the sole shareholder of EPSO-G, on 29 December 2022. The Guidelines establish uniform principles of corporate governance to be applied to the entire EPSO-G Group of companies and prescribe the purpose of the group of companies, its operational objectives, corporate governance organisation model, governance structure, as well as the system for accountability, supervision and control of operations. The updated version of the Guidelines established 7 main principles of the corporate governance: The principle of establishing assumptions for effective corporate management, which aims to ensure that the management of the Group and the necessary decisions are made efficiently; The principle of proportionality, which aims to ensure that management methods applied by EPSO-G UAB are proportionate, i.e. do not create an unnecessary administrative burden; The principle of realization of shareholders’ rights, which aims to create conditions for the proper realization of rights and legitimate interests of all shareholders; The principle of inclusiveness of all interested parties, which recognizes the rights and expectations of interested parties; The principle of transparency, which aims to ensure that the Group’s activities are organized transparently, with proper disclosure of essential information; The principle of responsibility and accountability of management bodies, which aims to ensure that management bodies perform their functions in a proper and timely manner, actively exercise their rights and properly fulfil their duties; The principle of integrity, which aims to ensure both vertical and horizontal integrity. The EPSO-G Group draws on good governance practices set out in the Good Governance Recommendations published by the Organisation for Economic Co-operation and Development (OECD), the Nasdaq Vilnius Recommendations, and other internationally recognised standards and good governance recommendations, with the overarching aim of ensuring that state- owned companies are governed in a transparent and effective manner. 9.3 Articles of association The Articles of Association of Litgrid are amended in accordance with the procedure set out in the Law on Companies of the Republic of Lithuania, according to which amendments to the Company’s Articles of Association must be approved by a qualified majority vote that must be not less than 2/3 of all the votes carried by the shares held by the shareholders attending the meeting. During the reporting period, the Company’s Articles of Association were revised 1 time. On 11 April 2023, the new wording of Litgrid’s Articles of Association was approved by the decision of the General Meeting of Shareholders and registered in the Register of Legal Entities on 20 April 2023. The main changes to the Articles of Association involve: ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 32 establishing a direct applicability of the group level documents approved by the Board of the parent’s EPSO-G and EPSO-G director; The Company has the power to decide not to apply, or to apply with exceptions, the group level documents subject to the agreement of the Company’s Board or, respectively, the Company’s director, after having informed EPSO-G UAB in advance of the envisaged exceptions; increasing the transaction threshold (from EUR 15 million to EUR 30 million) above which the approval of the Company’s General Meeting of Shareholders is required; the Board will no longer approve the plan of measures for the implementation of audit recommendations. The approval of these plans falls under the Company director’s competence, while the Board of Directors is provided with the power to analyse and evaluate their implementation; refining the transactions subject to the Company’s Board decisions; refining the Company Board’s competence to approve the Company’s key regulatory documents; establishing the Board’s competence to vote in the General Meeting of Shareholders of both, subsidiaries and associates. The Company’s Board is entitled to delegate this function through its decision; setting out the provisions for ensuring business continuity in the absence of the Board; Chief Executive Officer is referred to as a Manager in the Articles of Association; establishing the representation of companies by the Manager in the Group-wide committees. The Company’s Articles of Association are available on its website atwww.litgrid.eu. 9.4 General Meeting of Shareholders The General Meeting of Shareholders is the supreme body of the Company. The competence of the General Meeting of Shareholders, the rights of shareholders and their exercise are provided for in the Law on Companies of the Republic of Lithuania, while additional competence is provided for in the Articles of Association. The additional competence of the General Meeting of Shareholders is the following: Appointment and removal of Board members, fixing the remuneration of Board members, conclusion of contracts with Board members and their standard terms and conditions; Suspension or non-expulsion of members of the Board and the adoption of a decision in the event of a conflict of interest between members of the Board, in the cases provided for in the Articles of Association; Approval of the decisions of the Board, as provided for in the Articles of Association. Based on data as at 31 December 2023, over 5,800 natural and legal persons were shareholders of the Company, including one shareholder holding more than 2% of shares in the Company. EPSO-G UAB, a parent company, is a majority shareholder holding 97.5% of shares in the Company. Each shareholder registered in the Company’s register of shareholders by the record date (the fifth business day prior to the General Meeting of Shareholders) is entitled to attend the General Meeting of Shareholders and to exercise their right to participate in the adoption of decisions on matters within the competence of the General Meeting of Shareholders. Notices of convening of the General Meeting of Shareholders, as well as all necessary information, annexes to the matters to be discussed at the meeting and the decisions of the General Meeting of Shareholders are published on the Company’s website. Notices of meetings are also published through the Information System of Nasdaq Vilnius. During the reporting period, three General Meetings of Shareholders were convened and the following decisions were taken: Date Key decisions 11/04/2023 ● Approval of Litgrid AB financial statements of 2022 ● Approval of Litgrid AB profit (loss) distribution of 2022 ● Approval of Litgrid AB remuneration report of 2022 ● Approval of the new wording of Litgrid AB Articles of Association 12/06/2023 ● Election of Andrius Šemeškevičius as the independent Board member until the end of the term of office of the Company’s Board 30/08/2023 ● Election of UAB PricewaterhouseCoopers as the audit company that will perform the audit of the financial statements of Litgrid AB prepared in accordance with the International Financial Reporting Standards adopted in the European Union for the period of 2023-2025 9.5 The Board The Board is a collegial management body of the Company. The competence of the Board, the decision-making procedure and the procedure for election and removal of members shall be established by laws and the Articles of Association. Under the current version of the Articles of Association, the Board shall consist of five members. The members of the Board shall be elected by the Meeting for a term of office of four years and shall be accountable to the Board. A member of the Board may not serve as a member of the Board for more than two consecutive full Board terms and in any ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 33 case may not serve as a member of the Board for more than 10 consecutive years. Members of the Board are elected in accordance with the Resolution No 631 of the Government of the Republic of Lithuania of 17 June 2015 on the Approval of the Description of the Procedure for the Selection of Candidates to the Collegial Supervisory Body or Management Body of Municipal Enterprise, State or Municipal Company or Subsidiary. The Articles of Association require to ensure that the Board is composed of at least 2 (two) independent members, whose independence shall be determined by reference to the independence criteria set out in the Law on the Management, Use and Disposal of State and Municipal Assets of the Republic of Lithuania. When forming the Board, it must be ensured that at least 3 (three) members of the Board have no employment relationship with the Company and, when possible, that employees of the Company are not appointed to the Board. The Board elects the Chairperson of the Board from among its members. The Chairperson of the Board is elected from among the Board members nominated by the Parent Company. In its activities, the Board follows the laws, the Company’s the Articles of Association, the decisions of the General Meeting of Shareholders and the Rules of Procedure of the Board. The competence of the Board is not different from the competence of the board established in the Law on Companies, except for the additional competence provided for in the Articles of Association. The Company’s Board reserves the competence to: approve the Company’s business strategy (including long-term and short-term, financial and non-financial targets and/or performance indicators); approve the Company’s budget; approve the Company’s annual performance objectives. take decisions on the Company’s significant transactions in an amount exceeding EUR 3 million (three million euros), and approves material terms a condition of such transactions; take decisions on the prices of electricity transmission and other state-regulated services and the procedure for their application; take decisions on the 10 (ten) year plan for the development of the Company’s electricity transmission network; take decisions on the commencement of a new activity of the Company or on the discontinuation of a specific ongoing activity; take decisions relating to the exercise of the Company’s rights as a shareholder at General Meetings of subsidiaries and associates; perform supervisory functions as provided for in the Law on Companies of the Republic of Lithuania; take other decisions within the competence of the Board as provided for in the Articles of Association and the Law on Companies of the Republic of Lithuania. The term of office of the current Board will end on 20/04/2024. CVs of the members of the Board and the Company’s manager (information are available on website at www.litgrid.eu). 9.6 The composition of the Board: During the reporting period, the Board of Litgrid consisted of the following members: Board member Position Term of office Other positions Education Tomas Varneckas Member, Chairman of the Board (elected chairman of the board since 29/12/2022) From 20/04/2022 Head of Infrastructure and Project Management at EPSO-G Group Vilnius Tech, Bachelor in Environmental Engineering, Master in Engineering IT Mindaugas Keizeris Member From 22/12/2022 Manager of EPSO-G UAB Vilnius University, Master in International Business; Baltic Institute of Corporate Governance, the Board member education program Gediminas Karalius Member From 20/04/2022 Senior Advisor of Energy Security Group at the Ministry of Energy of the Republic of Lithuania Mykolas Romeris University, Bachelor in Law and Management, Master in EU Law ISM University of Management and Economics, Master in Business Administration ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 34 Domas Sidaravičius Independent member of the Board From 29/07/2016 (also from 20/04/2020) CEO at Tuvlita UAB Vilnius University, Bachelor in Business Administration and Management, Master in International Trade Andrius Šemeškevičius Independent member of the Board From 12/06/2023 CTO at Telia Lietuva AB Vilnius Tech, bachelor and Master in Engineering IT None of the Board members hold shares in Litgrid. Tomas Varneckas Chairman of the Board Head of Infrastructure and Project Management at EPSO-G UAB (company code 302826889, Gedimino avenue. 20, 01103 Vilnius). Mr. Varneckas does not hold any shares in Litgrid. Mindaugas Keizeris Board member CEO at EPSO-G UAB (company code 302826889, Gedimino ave. 20, 01103 Vilnius). Mr. Keizeris does not hold any shares in Litgrid. Gediminas Karalius Board member Senior Advisor of Energy Security Group at the Ministry of Energy of the Republic of Lithuania Mr. Karalius does not hold any shares in Litgrid. Domas Sidaravičius Independent member of the Board Other positions: Strategy and Development Director at Tuvlita UAB (company code 1105840917, Lentvario st. 7A, LT-02300, Vilnius). Mr. Sidaravičius does not hold any shares in Litgrid. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 35 Andrius Šemeškevičius Independent member of the Board Term of office started on 12/06/2023 Other positions: CTO at Telia Lietuva AB (company code 121215434, Saltoniškių st. 7A, LT-08105 Vilnius) Mr. Šemeškevičius does not hold any shares in Litgrid. 9.7 Board activities and performance assessment In line with the guidelines for the annual performance assessment of the Group's collegiate bodies approved by EPSO-G’s Remuneration and Nomination Committee, Litgrid’s Board of Directors completed its performance assessment for 2023 at the beginning of 2024. In the self-evaluation session of the Board's activities in 2022. February 29 areas of activity to be improved were identified and improvement actions in 2024 were agreed upon. in the field of strategic planning and strategy implementation control. In accordance with the Guidelines for the annual performance assessment of the Group's collegiate bodies, the overall assessment of the performance of all the Group's collegiate bodies shall be summarised by the Remuneration and Nomination Committee of the EPSO-G and submitted to the Board of Directors together with a report. In 2023, 18 meetings of the Board were held in which 6 decisions were adopted by a written vote. Participation statistics of board meetings in 2023: Attended Did not attend Attendance of the meetings of the Board of Litgrid and decisions taken: No Meeting date Tomas Varneckas Mindaugas Keizeris Gediminas Karalius Domas Sidaravičius Andrius Šemeškevičius 1. Jan 10 (not ordinary) Not yet elected 2. Jan 20 Not yet elected 3. Feb 24 Not yet elected 4. 17 March (not ordinary) Not yet elected 5. 23 March Not yet elected 6. 27 April Not yet elected 7. 19 May Not yet elected 8. 16 June (not ordinary) 9. 30 June 10. July 26 11. July 31 (not ordinary) ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 36 No Meeting date Tomas Varneckas Mindaugas Keizeris Gediminas Karalius Domas Sidaravičius Andrius Šemeškevičius 12. Aug 8 (not ordinary) 13. 21 September 14. Oct 5 (not ordinary) 15. Oct 20 16. Nov 14 (not ordinary) 17. Nov 30 18. Dec 22 The Board plans and executes its activities in accordance with the Board’s annual activity plan. On 15 December 2022, the Board approved the Board’s Action Plan for 2023, which was duly implemented in 2023. Key matters discussed and decisions made by the Litgrid’s Board in 2023: January ● Approval of Litgrid’s strategy, action plan for 2030 ● Approval of Litgrid’s goals for 2023 identical to those of the manager ● Approval of Litgrid’s budget for 2023 ● Consent to the generation of fixed assets by concluding the contract with group of suppliers for the design and contract works of cabling and installation of a fibre optic cable in the 110 kV double-circuit OL Šiauliai-Gubernija II, Šiauliai- Meškuičiai section between Šiauliai TP and Zokniai TP, and approval of the material conditions of the contract for the design and contract works. February ● Approval of the implementation of the Company’s goals for 2022 ● Independence assessment of the independent board members ● Approval of the updated list of the Company’s compliance priority areas ● Adoption of the decision to sign the Group’s compliance management policy ● Consent to the amendments to the material special terms of the Loan and Borrowing Agreement between Litgrid and UAB EPSO-G ● Amendments to the Project Management Internal Audit Recommendations ● The Board’s performance assessment session, during which a plan for improvement of the Board’s performance in 2023 was drawn up March ● Approval of the Report on the implementation of the Litgrid’s 2030 Strategy in 2022 ● Approval of the Litgrid’s Annual Report for 2023 and the Litgrid’s Remuneration Report for 2023 ● Adoption of the decisions to approve the Company’s Annual Report for 2023, Remuneration Report (part of the Annual Report), approval of the Company’s Financial Statements for 2023 and the profit/loss appropriation draft, adoption of the decision to convene Litgrid’s General Meeting of Shareholders ● Approval of updates to Litgrid’s list of risks and management measures plan for 2023 ● Consent to the acquisition of contract works for more than EUR 3 million through the conclusion of a contract with Tetas UAB for the operation of 110-330 kV overhead lines in the Western Region, and approval of the material terms of the contract ● Consent to the acquisition of contract works for more than EUR 3 million through the conclusion of the contracts with Tetas UAB for the operation of 110-330 kV transformer sub-stations in the Northern Region and 110-400 kV transformer sub-stations in the Southern Region, and approval of the material terms of the contracts ● Approval of the action plan to address risks identified in the transmission network surveillance audit April ● Consent to the generation of fixed assets by concluding the contract with group of suppliers for the design and contract works of construction of the 110/10 kV Dirvupiai power transformer and 110 kV switchboard, and approval of the material conditions of the contract for the design and contract works. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 37 ● Adoption of the decisions on voting in the General Meeting of Shareholders of Litgrid’s associate Baltic RCC OÜ (approval of the annual financial statement and the profit appropriation for 2022) ● Adoption of the decision on a one-off annual variable remuneration of the Company’s Manager for 2022 May ● Determination of the annual remuneration for Litgrid’s Manager ● Adoption of the decision on convening the Extraordinary General Meeting of Shareholders to elect the member of the Board ● Approval of the standard material terms of the contract for design and construction works June ● Consent to the changes to the 330/110/10 kV Jonava TS reconstruction design and construction works contract ● Independence assessment of the newly elected independent board member ● Consent to the proposal to repeal the methodology for the determination and allocation of interconnection capacity with third parties ● Adoption of the decisions on voting in the General Meeting of Shareholders of Litgrid’s associate Baltic RCC OÜ ● Adoption of the decision on the conclusion of the Management Holding Services Agreement with EPSO-G UAB, and approval of material contract terms ● Approval of the updated list of staff positions and the list (map) of senior and middle management job levels ● Approval of Litgrid’s list of risks and management measures plan for 2023 July ● Consent to the agreement on the amendment of the contract for the construction of the 330 kV overhead line Kruonio HAE-Bitėnai ● Consent to the conclusion of the contract for the operation of 110-330 kV overhead lines in the Northern Region, and approval of the material terms of the contract ● Consent to the conclusion of the agreement with Augstsprieguma tīkls AS and Elering AS for the early synchronization of the electricity system of the Baltic countries in February 2025, and approval of the material terms of the agreement August ● Initiation of the extraordinary General Meeting of Shareholders (regarding the election of the audit company and the terms of remuneration for the audit services for 2023-2025) ● Consent to the conclusion of the contract with Eltirema UAB for the operation of 110-330 kV overhead lines in the Eastern Region and 110-400 kV overhead lines in the Southern Region September ● Consideration of the skill matrix of the newly elected Litgrid’s Board members October ● Adoption of the decisions on voting in the General Meeting of Shareholders of Litgrid’s associate Baltic RCC OÜ (regarding amendments of the articles of association, amendments of the share register, amendment of the shareholders’ agreement, and election of an audit firm) ● Consent to the agreement on amendments of the contract for the design, production and installation of new synchronous condensers in the Lithuanian electricity system ● Proposal on the submission to the National Energy Regulatory Council (NERC) of the differentiated prices for electricity transmission services for 2024, calculated on the basis of the transmission service price cap and the component for the acquisition of ancillary services approved by NERC, and procedure for their application November ● Consent to Litgrid’s, the Lithuanian electricity transmission system operator’s, updated draft strategy 2030 and its submission to the Public Enterprise Management Coordination Centre for review ● Approval of the Company’s updated organisation structure (Stage I) and the list of staff positions December ● Approval of the Company’s updated organisation structure (Stage II) and the list of staff positions ● Approval of Litgrid’s plan of risk management measures for 2024 ● Consent to the conclusion of the contracts with Ignitis Gamyba AB and Kauno Termofikacijos Elektrinė UAB for the electricity generating facilities availability service, and approval of the material terms of the contracts 9.8. Areas of Manager’s activities The Manager is the sole governing body of the Company. The Company manager’s competence does not differ from the competence of the head of the company established by the Law on Companies of the Republic of Lithuania, except for the additional competence provided for in the Articles of Association. The Manager reserves the competence to: ● organise and control day-to-day activities of the Company, take decisions on activities of the Company; ● ensure implementation of the strategy of the Company, implementation of resolutions of the Meeting and the Board in the Company; ● enter into transactions on behalf of the Company in accordance with the procedures established by the Board; ● etc. The manager's remuneration is determined in accordance with the policy Remuneration of the Manager and Board Members. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 38 Rokas Masiulis CEO Other positions: Independent Board Member at Connect Pay UAB (company code 304696889, Algirdo st. 48, LT-03218 Vilnius). Mr. Masiulis does not hold any shares in Litgrid. 9.9.Governance and control The requirements for the governance of the Company are set forth by the Lithuanian laws on the governance of state-owned or state-controlled companies, insofar as they apply to the EPSO-G Group companies, and the Governance Code, insofar as the Company’s Articles of Association do not state otherwise. In accordance with the Integrated Planning and Monitoring Policy of the EPSO-G Group of Companies, which was approved at the meeting of the Board of the Company No 12 held on 19 May 2017 and which is directly applied at the Company in its entirety, the Company is preparing the strategy of the Company for a period of 5–10 years. The period of the strategy must coincide with the period of the parent company’s strategy. The prepared strategy of the Company currently covers the period of 10 years up to 2031. The implementation of the strategic objectives set out in the strategy of the Company is ensured by the Company’s performance, control, and risk management systems. The strategy of the Company is approved, and its implementation is controlled by the Board. A monthly strategy implementation supervision system is introduced at the Company and is linked with the Company’s administrative staff remuneration system. The Company’s activities of the transmission system operator are regulated by the national regulatory authority, i.e. the National Energy Regulatory Council (hereinafter the “Council”). Within its competence, the Council performs the functions of the state regulation in the electricity sector in the Republic of Lithuania, by ensuring, inter alia, the supervision of and control over the performance of regulated activities in the energy sector, as well as the proper implementation of the rights and duties of electricity undertakings and consumers. The strategy and operational plan of the Company are implemented by and the activities of the Company’s administrative staff are organised by the Company’s manager. The Company’s administrative management personnel consists of the Manager, the Head of Finance Department, the Head of System Department, the Head of Transmission Network Department, the Head of Strategic Infrastructure Department, the Head of Strategy Department, and the Head of ITT and the Head of Administration Department. The composition of the Company’s management is disclosed on the Company’s website. Corporate governance accommodates the principles of good governance practice. In its activities, the Company is guided by the EPSO-G Group’s policies which are made available on the Company’s website. The internal control systems of the Company are supported by the organisational structure, management culture and implemented good governance practices, as well as process management which is currently being implemented. It should be noted that the supervisory functions are carried out by the Board of EPSO-G UAB, meanwhile recommendations, proposals and conclusions on matters which are key to the Company’s activities are provided by the Group’s Remuneration and Nomination Committee and the Audit Committee. The internal control system is initiated by the Company’s Board and implemented by the administrative staff, assisted by the Audit Committee of EPSO-G UAB, the external independent audit, and divisions supporting the principal activity. The procedures and policies effective at the Company ensure the reliability of accounting and financial reporting, the compliance of the Company’s activities with legal acts, operational efficiency, and achievement of operational objectives. During the reporting period, the corporate governance of the EPSO-G Group’s was carried out in accordance with the new version of the Guidelines on Corporate Governance of EPSO-G Group approved on 29 December 2022 by the Ministry of Energy of the Republic of Lithuania, the sole shareholder of EPSO-G. The Guidelines establish uniform principles of corporate governance to be applied to the entire EPSO-G Group of companies and prescribe the purpose of the group of companies, its operational objectives, corporate governance organisation model, governance structure, as well as the system for accountability, supervision and control of operations. 10. REMUNERATION REPORT A team of employees of the highest competence helps the company to successfully achieve its goals. It consists of 418 specialists, 95 percent of whom has a higher education. The increase in the number of employees was caused by the acceleration of Synchronization, the development of renewable energy and the concentration of critically important competences. Additional forces are assigned to strategic goals in the field of digitization. We are guided by the following values in our activities: professionalism, cooperation, progress. By implementing the strategic and business goals set by the shareholder, we aim to attract and retain competent, responsible, value-driven professionals who achieve the intended result in their fields. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 39 We constantly encourage employees to improve and raise their qualifications, to develop professional (functional) and general (based on values) competencies, and we encourage managers to improve their leadership competencies. We set strategic goals for employees and evaluate their achievement. We enable all employees to propose and implement innovations in their activities - from innovative work methods and tools that facilitate daily operational processes - to breakthrough innovations that determine new directions of activity. We operate efficiently, ensure optimal operating costs and investments based on the best possible cost-benefit ratio, and responsibly manage the salary budget. We pay employees performance-based wages and encourage achievement of goals that require additional effort. 10.1. Remuneration of collegial management bodies The description of the payment procedure for remuneration to members of the collegial bodies of state-owned enterprises and municipally-owned enterprises, approved in 2015 October 14 By the resolution of the Government of the Republic of Lithuania no. 1092 (the latest amendments were adopted on August 3, 2023), the sole shareholder of the parent company UAB "EPSO- G" - Ministry of Energy of the Republic of Lithuania. October 21 the updated guidelines for determining the Remuneration for activities in the bodies of companies of the EPSO-G and EPSO-G group of companies (hereinafter referred to as the Remuneration Guidelines), which are published on the website of UAB EPSO-G at www.epsog.lt, have been approved. The company is also guided by 2022. July 11 the manager and board remuneration policy approved by the general shareholders' meeting of Litgrid has been updated, which is published publicly on the company's website. The currently valid version of the Remuneration Guidelines establishes that remuneration for activities in collegial bodies of group companies can be paid to such members who meet at least one of the conditions specified below and payment of remuneration to these members is not prohibited by the legal acts in force in the Republic of Lithuania: for independent members, determining independence in accordance with applicable normative legal acts and internal documents for members who are civil servants. Remuneration for work on the board is not paid to employees of UAB EPSO-G group companies and/or employees of shareholders of group companies. Position Mėnesinio atlygio dydis Chairman of the board 1/3 CEO average remuneration * Board member 1/4 CEO remuneration Board member (civil servant)) 1/5 CEO remuneration ** * CEO average remuneration - the average monthly salary of the manager of Litgrid. ** in the event that a board member (civil servant) goes and performs activities in the collegial body of another state-owned company/state-owned company and/or municipal company/municipally-owned company, he is paid 1/8 of the average monthly salary of the company manager. No other bonuses, royalties or other benefits were paid to the members of the Board. Fixed and variable remuneration for the Chief Executive Officer is determined by the Board of Directors, and for the most senior executives by the Chief Executive Officer, in accordance with a remuneration policy approved by the Board. The variable remuneration is paid once a year to the CEO and the senior management after the Board has approved the achievement of the company's objectives. The variable part of the remuneration for the board members is not determined, so the ratio between the variable and fixed part: 100 percent fixed part. On 22 nd of 2022 December By the decision of the general meeting of shareholders of Litgrid, the following fixed monthly remuneration amounts (excluding payable taxes) were established, which apply from 2023 January 1st: Position Monthly fixed amount (Eur) Chairman of the board (independent 3 136 Board member (independent) 2 352 Board member (civil servant if does not undertake individual business) 1 881 Board member (civil servant idf undertakes individual business or job as board member in another state company) 1 176 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 40 5 year remuneration statistics for Litgrid Board: 2023 2022 2021. 2020 2019 Domas Sidaravičius 28 224 17 107 16 800 16 800 8 820 Tomas Varneckas - - - - - Mindaugas Keizeris - - - - - Artūras Vilimas - 22 370 21 000 14 197 - Andrius Šemeškevičius 15 602 - - - - Gediminas Karalius 22 572 607 - - - Total 66 398 40 084 37 800 37 414 18 307 No other bonuses, allowances or other benefits were paid to the members of the board. The fixed and variable remuneration of the company's manager is determined by the board, for top-level managers - by the company's manager, in accordance with the remuneration policy approved by the board. The variable part of the remuneration is paid to the manager and management once a year, after the board approves the implementation of the company's goals, The ratio of men and women in the 2023 Board was: 100 percent. men. Selection and equality policies apply to the election of the company's manager, members of the management and supervisory bodies. The purpose of the EPSO-G selection policy is to establish common principles and practices for the selection of the group of companies in order to transparently select the best candidates who meet the necessary qualifications, skills, experience and values for collegial bodies, management and staff positions at all levels, who would effectively contribute to the individual group achievement of company and company group goals. The equal opportunities policy defines the most important principles that are applied in the companies of the EPSO-G group, in order to ensure that the principles of equal opportunities and non-discrimination are observed in all areas of labor relations. Litgrid's goal is to create an advanced organizational culture that adheres to the principles of sustainability. The elements of this culture are inseparable: caring for the well-being of employees, development, fostering a safe work culture, equal opportunities, creating open and mutually trusting relationships with local communities and ensuring customer satisfaction with the services provided. The company aims to become an organization that the majority of suppliers, producers, consumers, employees, communities and representatives of other interested parties would consider as an organization that adheres to the principles of sustainability. "Litgrid" follows the Employee remuneration, performance evaluation and education policy valid in the "EPSO-G" group of companies, the main principles of which are: Create motivating incentives and prerequisites to encourage employees to achieve better performance, to contribute more actively to the achievement of the Company's and Group's goals, and to perform more than the formal performance of duties; Encourage employees to create innovative, non-standard solutions and improve operations; To ensure equivalent payment for equivalent work in terms of responsibility, competencies and contribution to the result; Attract and retain qualified employees. The principles of remuneration policy are the same for managers and employees. The remuneration fund is approved by the company boards. The Remuneration and Nomination Committee monitors the balance between control of payroll costs and incentives for employees performing their duties appropriately. The remuneration of EPSO-G managers and employees consists of two parts - a monthly remuneration and a financial incentive. The monthly remuneration depends on the level of the employee's position and competences, the financial promotion depends on the achievement of the annual goals of the relevant Group company and on the individual evaluation of the employee's performance. The financial incentive is not paid to the employee in case the performance does not meet the expectations according to the established evaluation criteria. The amount of the financial incentive is estimated in the company's budget and accounted for in the financial result, which is audited and published publicly. The financial promotion of the company's manager depends on the result of the company's annual goals, which are related to the implementation of the company's strategy and are published publicly on the company's website. The severance pay of managers and employees does not exceed the amount determined by the legal acts of the Republic of Lithuania. It is envisaged that a bonus may be awarded for results of special importance. The relevant board of the group company must be informed about the planned financial incentives and bonuses at its next meeting. Prior agreements on the amounts of severance payments, except for company managers, whose working conditions are determined by the board, are not concluded. Severance pay is paid to employees in accordance with the procedure established by the Labor Code and employment contracts. The remuneration policy does not provide for any remuneration that gives the manager, collegial body member or employee the right to shares, stock options or the right to receive remuneration based on changes in the share price or other financial instruments. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 41 Based on these principles, the company's reward system is focused on a set of financial and non-financial reward elements. The elements of the remuneration package are the fixed part of the remuneration (i.e. monthly salary), financial incentives (remuneration paid at the initiative and discretion of the company, depending on the results achieved by the company and the performance evaluation results of the employee(s), one-time bonuses, fringe benefits and emotional rewards. Emotional reward is a non-financial component of the total reward, which enriches the well-being of employees and encourages employee effort, involvement in the company's activities and loyalty. Additional benefits provided to employees are provided to everyone, they are described in the "Litgrid" Collective Agreement and other internal documents of the Company. On December 31 st Litgrid had 410 employees. Remuneration of employees in five years: 3 Average remuneration in 2019-2023, Eur 2023 2022 2021 2020 2019 CEO 13471 11885 9403 13 729 12 980 Top management 9910 8732 8957 8 697 8 560 Middle management 6214 5143 4778 4 482 4 326 Experts and specialists 3884 3269 3041 2 792 2 556 In total 4367 3680 3421 3 167 2 972 Employee remuneration by group, ratio between men and women in 2022-2023: Below are the data on the staff remuneration (incl. variable component, pre-tax) for 2021-2023. Year Employee remuneration Average remuneration Average monthly remuneration by age Average remuneration by position <30 years 30-50 years 50+ years Top Management Middle and First-Line Managers Professionals 2021 3420 2420 3332 3589 8206 4517 2886 2022 3680 2657 3631 4062 8859 5133 3217 2023 4367 3028 4384 4838 10983 6212 3877 Remuneration by category of employees Remuneration by gender Average fixed remuneration (excl. variable component) Men Womens Rate M/V 2022 2023 2022 2023 2022 2023 CEO 9 583 10 796 - - - - Top management 7 209 8 124 - - - - Middle and first line management 4 514 5 515 4 469 5 302 1:0,99 1:0,96 Specialistsi 2 954 3 485 2 776 3 191 1:0,94 1:0,92 total 3 317 3 893 3 051 3 462 1:0,92 1:0,89 Average fixed remuneration by gender compared to local minimum wage 1:0,22 1:0,22 1:0,24 1:0,24 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 42 Average salary in 2022-2023 was increasing. in 2022 it was 7.6 percent. higher than in 2021, and in 2023 - 18.7 percent higher than in 2022 From 2023 the reward system changed - for all employees, a variable part of the reward was added to the main part of the reward, depending on the results of individual performance evaluation. This is what led to a significantly higher wage increase in 2023. The maximum variable financial incentive that can be allocated to the head of the company can be up to 30% of the fixed part of the annual remuneration. The specific amount of the incentive for the head of the Company is determined by the Board of the Company taking into account the fulfillment of the company's goals 10.2 Formulation and monitoring of remuneration and nomination policies The company's board is responsible for formulating and supervising the implementation of the group's remuneration and award policy. In order to ensure proper Remuneration Policy formulation, monitoring and payroll management, EPSO-G has established and operates a three-member Remuneration and Nomination Committee, the majority of which are independent members. In carrying out this function, the EPSO-G Remuneration and Nomination Committee shall: • in the cases provided for in the company's statutes or at the request of the bodies of the company or Group companies, provides them with recommendations regarding the appointment of members of collegial bodies and the conditions of contracts with them, including regarding the amount of remuneration for these persons in accordance with the provisions of the Remuneration Guidelines; • provides recommendations on the appointment of managers of Group companies, typical forms of employment contracts for managers and conditions of contracts with appointed managers, including remuneration and/or the range of the remuneration amount; • evaluates the structure, size, composition and activities of the management bodies of the Group companies at least once a year, can assess the skills, knowledge, and experience of individual members of the management body, and provides recommendations for improving performance; • provides recommendations regarding the remuneration structure, amount of remuneration, main performance evaluation criteria and remuneration review for the Group company managers in implementing the Group's remuneration, performance evaluation and training policy; • can make recommendations regarding the implementation of the Group's remuneration policy and recommend the necessary measures for the implementation of the remuneration policy; • provides recommendations regarding the implementation of the Group's top-level managers' and board members' remuneration policy, including the transparency of the remuneration system; • assesses the size and structure of the remuneration of the members of the Group's collegial management bodies, supervises the implementation of the remuneration guidelines; • at the request of the meeting, may make recommendations on remuneration guidelines; • provides recommendations on the system of rotation of managers and critical positions of Group companies; • provides recommendations on the system of strengthening equal opportunities, inclusion and diversity in the Group; • The bodies of the group companies have the right to apply to the ASK, requesting recommendations and conclusions on the specific issues referred to by them, if these issues fall within the competence of the RNC. 11. SPECIAL OBLIGATIONS There are no special obligations for Litgrid. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 43 12. SIGNIFICANT EVENTS DURING THE REPORTING PERIOD As the Company is executing its duties in accordance with the applicable laws regulating the securities market, it publishes information on significant events and other regulated information on the EU-wide basis. This information is available on the website of the Company (www.litgrid.eu) and on the website of NASDAQ Vilnius stock exchange (www.nasdaqbaltic.com). Summary of Litgrid operations and achievements during 2023 The Company publishes material events and other regulated information on a European Union-wide basis in order to comply with its obligations under applicable securities legislation. This published information is available on the Company's website (www.litgrid.eu) and on the website of the NASDAQ Vilnius Stock Exchange (www.nasdaqbaltic.com). Summary of Litgrid key activities and achievements in 2023 January 5 January 2023 Litgrid received confirmation that the Government of the Kingdom of Sweden has granted permission for the construction of Harmony Link, Lithuania's offshore link to Poland, in its exclusive economic zone. 19 January 2023 Litgrid dispatched a 330/110/10 kV autotransformer to Ukraine on 20/20/20, which will help secure the electricity supply to Russia through the targeted destruction of Ukraine's energy infrastructure. The transformer, weighing almost 200 tonnes, was loaded onto a flatbed semi-trailer at the Šiauliai transformer substation and prepared for its journey to Ukraine. February 2 February 2023 Litgrid, Lithuania's electricity transmission system operator, starts upgrading the equipment at the Šiauliai transformer substation and will soon install a temporary interconnector. These works are important to ensure the continuity of synchronisation with the continental European grid and the reliability of the electricity transmission network. 15 February 2023 Litgrid has started the reconstruction of the switchgear of the 330 kV Bitėnai transformer substation in western Lithuania. The work, which is important for synchronisation with continental Europe, will strengthen the reliability and security of the country's electricity transmission network. 22 February 2023 Litgrid will be the first in the Baltics to test virtual variable capacity technology. The innovative system, which measures and predicts the temperature of overhead lines, is expected to allow more electricity to be transmitted along the same lines. This would allow renewable power plants to operate more without generation constraints. March 8 March 2023 Litgrid, Lithuania's electricity transmission system operator, has started construction of one of the most important projects of the year - the installation of a synchronous compensator in Telšiai. The synchronous compensators will strengthen the reliability of the grid and contribute to the development of renewable energy sources, and will help ensure autonomous frequency management after synchronisation with continental Europe. 16 March 2023 Litgrid has installed new pylons on more than 80 km of 330 kV transmission lines under construction in western Lithuania. This future transmission highway is important for strengthening the reliability of the country's grid and preparing for synchronisation with continental European networks. Following the approval of a new grid connection procedure on 20 March 2023, Litgrid, the Lithuanian electricity transmission system operator, is seeing a huge increase in activity from renewable energy developers. In the first three days of the call, 61 applications for connection of solar, wind and storage plants with a total permitted generation capacity of 7,500 MW were received. 23 March 2023 Litgrid has facilitated the launch of independent demand aggregators connecting electricity consumers, and is the first company to do so to launch its services. Demand aggregators bring together a group of consumers who can use less electricity when needed. In this way, consumers participate in the balance between production and consumption in the electricity system and can reduce their energy costs. 29 March 2023 Litgrid has prepared a design proposal for the reconstruction of the 330 kV switchyard at the Kruonis Hydroelectric Power Plant (HPP). The renovation of this substation will be one of the largest reconstruction projects initiated by Litgrid in recent years to ensure the reliability of power supply in preparation for the expansion of Kruonis HPP and its synchronisation with the Continental European grid. April 5 April 2023 Litgrid started construction of the Alytus synchronous compensator project. The installation of synchronous compensators is one of the most important works in preparation for the synchronisation with the continental European grids. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 44 These installations will strengthen the reliability of the electricity grid and contribute to the development of renewable energy sources, and will help ensure autonomous frequency control after synchronisation with continental Europe. 22 April 2023 Litgrid has successfully completed an isolated operation test. For the first time, Lithuania's electricity system was disconnected from the Russian-controlled IPS/UPS system and operated fully autonomously. During the test, on Saturday from 11 am to 9 pm, the connections to the IPS/UPS system - Latvia, Belarus and Kaliningrad Oblast - were disconnected from the Lithuanian electricity system, which operated in power island mode. Electricity was supplied by power plants in Lithuania, as well as DC connections to Poland and Sweden. For the first time in the history of an independent country, the balance and frequency of the electricity system was managed solely by Litgrid dispatchers. On 24 April 2023, the joint project steering committee of the Lithuanian and Polish TSOs Litgrid and PSE decided not to increase the Harmony Link budget. If the bids submitted exceed the investment, the procurement of the cable will be re- tendered and trade with Poland will continue via LitPol Link until the end of the project. May 4 May 2023 Litgrid has shipped three power transformers to Lithuania. They are needed to connect three synchronous compensators to the transmission grid, which will strengthen the reliability of the grid and contribute to the development of renewable energies, and after synchronisation will allow for autonomous frequency management. 12 May 2023 Litgrid has made public its capacity reservation register, based on requests from developers of solar and wind power plants and storage facilities to connect them to the transmission grid. 18 May 2023 Litgrid switches on 88 km of 330 kV transmission lines in western Lithuania. The reconstruction transformed the single-circuit Grobinė (Latvia)-Klaipėda and Jurbarkas-Bitėnai transmission lines into double-circuit lines, thus increasing the electricity capacity and strengthening the reliability of the grid. June 12 June 2023 The Extraordinary General Meeting of Shareholders of Litgrid, the Lithuanian electricity transmission system operator, appoints Andrius Šemeškevičius as a new independent member of the Management Board. Mr Šemeškevičius is Chief Technology Officer of Telia Lietuva. 14 June 2023 Litgrid starts construction of a 330 kV substation in Darbėnai, Kretinga district. The substation, which is considered to be the future energy hub of Western Lithuania, will increase Lithuania's energy security, commercial trading opportunities and significantly contribute to the growth of renewable electricity generation. . 21 June 2023 "Litgrid has started the reconstruction of the 330 kV substation of the Kruonis Hydroelectric Power Plant (HPP). The upgrade of one of the country's most important distribution substations is aimed at ensuring the reliability of power supply in preparation for the development of the Kruonis HPP and its synchronisation with the Continental European grid. 20 June 2023 Litgrid, the Lithuanian electricity transmission system operator, buys physical smart sensors from Heimdall Power AS of Norway. This innovation will be used to monitor the condition of overhead lines and the indicators that determine their capacity. The sensors are expected to increase the capacity of the lines, which will facilitate the ability of renewable energy plants to generate more electricity without constraints. The new physical sensors installed on the overhead lines will measure weather conditions, temperature of the line wires, current, the strength and frequency of vibrations, and the deflection of the wire. The innovation will be deployed on the LitPol Link international interconnector with Poland in Alytus and on the 110 kV Palanga-Vejas 1 overhead line in the Klaipėda region. 23 June 2023 Litgrid has evaluated new applications from developers of solar and wind power plants and storage facilities to connect to the transmission grid. The 35 approved applications reserve 2,945 MW of capacity for renewable energy projects. 27 June 2023 Litgrid will install noise barriers to reduce noise from the autotransformers at the Alytus transformer substation. A design and project supervision service contract has been signed for the installation of noise barriers at the 330/110/10 kV Alytus transformer substation. This is the second phase of the ongoing project "Installation of noise attenuation measures at the Alytus 330/400 kV power substation. July On July 3 rd 2023 Litgrid completed one of the most important projects in 2023. of projects in Southern Lithuania - after the reconstruction, the 61 km long 330 kV electricity transmission line from Elektrėnai to Alytus was switched on. The renewed line will provide reliability, stability and security to the electrical energy system, it is important for the implementation of synchronization with the networks of continental Europe. On July 28 2023 the company begins the construction of the 330 kV Vilnius-Neris electricity transmission line. The new 81 km long overhead line will increase the stability of the electricity network in the region and will create conditions for the further development of the city and the district. The construction of the Vilnius-Neris power line is underway in preparation for synchronization with the grids of continental Europe. During the construction of the Vilnius-Neris electricity transmission line, a new 58 km long line will be built from the Neris transformer substation in Nemenčinė to a point in the Marijampolis ward, where ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 45 it will connect with the existing Vilnius-Molodečno line. Also, the 23 km long section of the Vilnius-Molodečno overhead line from the junction point to the Vilnius transformer substation in Trakių Vokė, Vilnius city's Panerių ward, will also be reconstructed in the existing engineering corridor. August On 2023 August 2 nd Litgrid, AST and Elering, operators of the electricity transmission system of Lithuania, Latvia and Estonia, have signed an agreement on a new synchronization date. According to the agreement, disconnection from the Russian- controlled system and connection to continental European networks will take place in 2025. February. The agreement also provides that the Baltic countries will jointly refuse to extend the BRELL contract concluded with Russian and Belarusian operators in 2024. in the summer, half a year before synchronization. On August 8 2023 "Litgrid" completed the reconstruction of the 330 kV electricity transmission line Grobinė-Klaipėda in Kretinga district, which is important for synchronization. The Grobinė–Klaipėda line, which was switched on in the spring, changed from a single-circuit line to a double-circuit during the reconstruction, thus increasing the electricity throughput and strengthening the reliability of the network. September On September 5 th 2023 another aid package for Litgrid has arrived in war-torn Ukraine, which will help rebuild the country's energy infrastructure. The package consisted of an autotransformer and other electrical network equipment sent at the beginning of the year. On September 27, 2023 Litgrid started installation of synchronous compensators in Telšiai and Alytus substations. The largest components of these devices are already installed in their dedicated structures, on prepared foundations. Synchronous compensators will increase the reliability of the system, their installation is one of the most important projects in preparation for synchronization with continental European networks October On 2023 October 20 Litgrid, the operator of the Lithuanian electricity transmission network system, has installed the software of the Automatic Generation Management System. This is one of the most important projects to prepare for synchronization with continental European networks. This software will contribute to ensuring the stability of the country's electricity system and will open up additional opportunities for market participants to earn by providing balancing services. November On November 13, 2023 Lithuanian and Polish electricity transmission system operators Litgrid and PSE considered various alternatives for the planned new electricity connection between Lithuania and Poland. Due to a significant increase in costs and orders for cable and converter stations exceeding production capacity, in 2023 In April, the public procurement of the planned high-voltage direct current connection "Harmony Link" was terminated. Immediately after this decision, the Polish and Lithuanian transmission system operators started the process of preparing for new tenders, at the same time considering various alternatives that could reduce costs and be implemented in the shortest possible time. One of the alternatives considered by transmission system operators was an overland cable. According to the initial assessment, the alternative would allow to reduce the project budget and to implement it faster. On 2023 November 29 The Gdańsk branch of the Polish Energy Institute, together with the Baltic and Polish electricity transmission operators Litgrid, AST, Elering and PSE, completed studies to assess the technical possibilities for earlier synchronization with continental European networks. The results of the studies show that synchronization in February 2025 is safe. The Gdańsk branch of the Polish Energy Institute, together with the Baltic and Polish electricity transmission operators Litgrid, AST, Elering and PSE, completed studies to assess the technical possibilities for earlier synchronization with continental European networks. The study results show that synchronization in February 2025 is safe and technically possible. December On December 18 th , 2023, the group of energy transmission and exchange companies EPSO-G has announced the selection for the board of Litgrid. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 46 13. MATERIAL EVENTS IN 2023 (https://nasdaqbaltic.com/statistics/lt/news?num=100&page=1&issuer=LGD&filter=1 ) EVENTS 02.03 LITGRID AB information regarding the publication of interim information and the 2023 investor calendar 02.06 LITGRID AB 2022 12-month unaudited condensed financial statements of the Company 02.17 Regarding the opinion of the Audit Committee 03.17 Correction: LITGRID AB information regarding the publication of interim information and the 2023 investor calendar 03.17 LITGRID AB announces the 2022 audited financial statements and annual report of the Company 03.17 The ordinary general meeting of shareholders of LITGRID AB is called 03.21 Correction: LITGRID AB announces in 2022 audited financial statements and annual report of the Company 04.11 Decisions made at the ordinary general meeting of shareholders of LITGRID AB 04.24 Regarding the purchase of the Harmony Link connector cable installation 05.05 LITGRID 2023 3-month performance results 05.19 An extraordinary general meeting of shareholders of LITGRID AB is called 06.12 Decisions made at the extraordinary general meeting of shareholders of LITGRID AB 07.31 Correction: LITGRID AB information regarding the publication of interim information and the 2023 investor calendar 08.08 Notice on the convening of the extraordinary general meeting of shareholders of LITGRID AB 08.21 Notice of litigation 08.25 LITGRID AB announces the results of the first half of 2023 08.29 Correction: LITGRID AB announces the results of the first half of 2023 08.30 Decisions made at the extraordinary general meeting of shareholders of LITGRID AB 10.02 The State Energy Regulatory Council approved the upper limit of the price of electricity transmission service for the year 2024 10.05 LITGRID AB informs about the initiated arbitration process 11.06 LITGRID AB announces the results of the nine months of 2023 14. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD 3 February 2023 Litgrid, the Lithuanian electricity transmission system operator, has published an update of its strategy until 2030. In addition to the objectives set out above, it focuses on meeting the expectations of renewable energy generators, reducing greenhouse gas emissions and improving customer satisfaction. The strategy, adopted in 2021 and updated in 2023, maintains the objectives of strategic synchronisation, implementation of offshore wind projects, data openness and financial sustainability. 15. TRANSPARENCY REPORT Litgrid complies with the Business Transparency and Communication Policy of the EPSO-G UAB Group (approved by the Board of Litgrid AB on 23 October 2017 in its entirety), which considers in detail the requirements set forth in the Transparency Guidelines and defines their applicability to the companies of the EPSO-G group. The implementation of the Transparency Guidelines is largely ensured by LitgriD AB through disclosure of information in the annual report and on the official website of the Company and through notices on the NASDAQ stock exchange, where information is disclosed in the format that is acceptable and comprehensible to the stakeholders. Article 3 of Resolution No 1052 of 14 July 2010 of the Government of the Republic of Lithuania On the approval of the Description of Guidelines for Ensuring the Transparency of State-owned Enterprises (the Transparency Guidelines) stipulates that a state-owned enterprise (the “SOE”) complies with the provisions of the Corporate Governance Guidelines for the ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 47 Companies Listed on Nasdaq Vilnius AB that are related to public disclosure of information. Structured information on implementation of the Transparency Guidelines is presented below: The following information must be published/other requirements must be implemented on the official website of Litgrid AB www.litgrid.eu: Company’s name, code, registered address, and a register in which data on the Company is compiled and stored Implemented Legal form, in case Litgrid AB is restructured, reorganised (the way of reorganisation is to be indicated), under liquidation, in the process of bankruptcy or bankrupt Not applicable Information on the authority representing the State, i.e. the Ministry of Energy, and link to its official website Implemented Goals, vision and mission of the activities Implemented Structure Implemented Data on the chief executive officer Implemented Data on the chairperson and members of the board Implemented Data on the chairperson and members of the supervisory board Not applicable Names of the committees, data on their chairpersons and members Not applicable Company’s name, code, registered address, and a register in which data on the Company is compiled and stored Implemented Legal form, in case Litgrid AB is restructured, reorganised (the way of reorganisation is to be indicated), under liquidation, in the process of bankruptcy or bankrupt Not applicable Information on the authority representing the State, i.e. the Ministry of Energy, and link to its official website Implemented Goals, vision and mission of the activities Implemented Structure Implemented Data on the chief executive officer Implemented Data on the chairperson and members of the board Implemented Data on the chairperson and members of the supervisory board Not applicable Names of the committees, data on their chairpersons and members Not applicable The following data must be provided: name, surname, start date of the term of office, other executive positions in other legal entities, education, qualification, and professional experience; indication of whether a member of a collegial body has been elected or appointed as an independent member. Sum of the nominal values (in euros and cents) of shares and interest (in percentage) held by the State in the share capital of Litgrid AB under the title of ownership Implemented Information on initiatives and measures of social responsibility, significant ongoing or planned investment projects Implemented If Litgrid AB is a member of other legal entities (not applicable to subsidiaries and second-tier subsidiaries), the name, code, and register in which data on the Company is compiled and stored, registered address, and official websites of such legal entities Implemented A set of Litgrid AB annual financial statements, Litgrid AB annual report, as well as an auditor’s report on Litgrid AB annual financial statements must be placed on Litgrid AB official website within 10 working days from the date of approval of the set of annual financial statements Implemented The sets of Litgrid AB interim financial statements and Litgrid AB interim reports must be placed on the official website not later than within 2 months after the end of the reporting period Implemented The following documents must be provided/other requirements must be implemented on the official website of Litgrid AB www.litgrid.eu: Articles of Association of Litgrid AB Implemented Operational strategy or its summary in cases when the operational strategy contains confidential information or information that is treated as a commercial (industrial) secret Implemented Remuneration policy that covers determination of remuneration for CEO and members of the collegial bodies and the committees of Litgrid AB Implemented ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 48 Annual and interim reports of Litgrid AB Implemented Data disclosure is performed in accordance with the requirements of Lithuanian legal acts and good practice Implemented The sets of annual and interim financial statements for at least 5 years and the auditor’s reports on the annual financial statements Implemented The above-mentioned documents must be provided in a PDF format with a technical possibility to be printed out Implemented The following information must be provided/other requirements must be implemented in the sets of financial statements: Litgrid AB keeps its accounting records in a way that ensures preparation of the financial statements in accordance with the International Accounting Standards Implemented Litgrid AB prepares a set of financial statements for the period of 6 months Implemented In addition to the annual report, Litgrid AB prepares an interim report for the period 6 months Implemented In addition to the content requirements set in the Law on Financial Reporting by Undertakings of the Republic of Lithuania, the following information must be disclosed in the annual report of Litgrid AB 1 : Brief description of the business model of Litgrid AB Implemented Information on significant events occurring during the financial year and after the end of the financial year (until the date of preparation of annual report) that had material impact on the activities of Litgrid Implemented Results of implementation of the objectives set in the operational strategy Implemented Profitability, liquidity, asset turnover, and debt ratios Implemented Implementation of special obligations Implemented Implementation of the investment policy, ongoing and planned investment projects, and investments implemented during the reporting year Implemented Implementation of the risk management policy applied by Litgrid AB Implemented Implementation of the dividend policy Implemented Implementation of the remuneration policy Implemented Total annual wage bill, average monthly salary by category of employees and/or business units Implemented The SOEs that are not required to prepare the social responsibility report, are recommended to provide information related to environmental, social and personnel, human rights, anti-corruption, and anti-bribery matters in their annual report or annual activity report Implemented The consolidated annual report includes the following information: structure of the group, name, code and register in which data on the company is compiled and stored, registered address of each of the group companies, interest (percentage) held in the share capital of a subsidiary, financial and non- financial performance during the financial year Not applicable The interim report of Litgrid AB includes the following information: analysis of financial performance during the reporting period, information on significant events occurring during the reporting period, profitability, liquidity, asset turnover and debt ratios and changes therein compared to the respective period in the previous year Implemented 2 When information is treated as a commercial (industrial) secret or as confidential information of the SOE, the SOE is allowed not to disclose such information; however, in its annual report the SOE must indicate such non-disclosure and provide the reasons for non- disclosure. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 49 17 TRANSPARENCY REPORT In line with Article 12(3) of the Law on Securities of the Republic of Lithuania and paragraph 24.5 of the Listing Rules of Nasdaq Vilnius AB, public limited liability company Litgrid AB (the “Company”) discloses its compliance with the Corporate Governance Code for the Companies Listed on Nasdaq Vilnius and its specific provisions or recommendations. In case of non-compliance with this Code or some of its provisions or recommendations, the specific provisions or recommendations that are not complied with are indicated and the reasons for such non-compliance are specified. Free-form summary of the Company’s corporate governance report Litgrid AB is part of the EPSO-G UAB group of companies. The Company’s corporate governance structure and the governance model are established by the Company’s Articles of Association, the Corporate Governance Guidelines of the EPSO-G Group of Companies approved on 29 December 2022 by the Ministry of Energy of the Republic of Lithuania (ME), the sole shareholder of the parent company EPSO-G UAB, and the Corporate Governance Policy of the EPSO-G Group of Companies. All the above- mentioned documents are published on the Company’s website and EPSO-G UAB website at www.epsog.lt. Fig. 1 Main scheme of the implementation of corporate governance at the Group level. Being part of the Group does not deny the Company’s independence. The Company operates independently aiming to achieve the objectives set in the Company’s Articles of Association and has the obligation to independently assess whether compliance with the Group’s corporate governance documents does not harm interests of the Company, its creditors, shareholders or other stakeholders. The corporate governance structure established in the Company’s Articles of Association is as follows: ● the General Meeting of Shareholders; ● The Board (five members, two of whom are independent members, the other two members are nominated by the shareholder EPSO-G UAB, and one member is a civil servant); ● The committees operating at the Group level: ● The Remuneration and Nomination Committee (mainly composed of independent members); ● The Audit Committee (mainly composed of independent members). ● The Manager. The Group has a centralised internal audit function. In order to ensure the independence of the internal audit, it is established that the head of the internal audit function is appointed and dismissed by the Board of EPSO-G UAB, which is mainly composed of independent members. The internal audit is also accountable to the Audit Committee, which is also mainly composed of independent members. The internal audit recommendations are analysed by the Company’s Board. On the basis of the Risk Management Policy of the EPSO-G UAB Group of Companies, the uniform risk management system of the Group is implemented at the Company according to the COSO ERM standards applicable in the international practice setting out risk identification, assessment and management principles and responsibilities. Risk management coordination is performed at the Group level. The aim of the Group’s operating policies is to introduce a consistent and effective management system of the organisation helping employees successfully implement important strategic projects and create value to people and businesses of the country in a transparent and effective manner. On the basis of the Compliance Management Policy of the EPSO-G UAB Group of Companies, the uniform compliance management system of the Group is implemented at the Company. Compliance management coordination is performed at the Group level. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 50 The policies that are currently effective at the Company are published on the Company’s website at www.litgrid.eu. Structured table: PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 1. Principle: 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 Pursuant to the Law on Companies of the Republic of Lithuania and Chapter X of the Company’s Articles of Association, information on general meetings of shareholders being convened, their draft decisions and decisions made is published on the Company’s website and on NASDAQ Vilnius stock exchange in the Lithuanian and English languages, by indicating location, date and time of the meeting. The Company ensures equal opportunities to its shareholders to vote on the adoption of relevant decisions at the General Meetings of Shareholders (by completing the general voting ballot, representing a shareholder by proxy, etc.). 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 Articles 13–15 of the Company’s Articles of the Association define that all shares of the Company are ordinary registered shares with the nominal value of EUR 0.29 each. All shares are intangible and recorded in the personal securities accounts of the shareholders managed by the securities account manager contracted to manage the share accounting. 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 Please see paragraph 1.2. Chapter IV of the Company’s Articles of Association also establishes shareholders’ rights and obligations. 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. YES Articles 36 and 38 of the Company’s Articles of Association specifies the cases when the Board’s decision regarding the transfer of the Company’s assets is subject to the approval of the General Meeting of Shareholders. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 51 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 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 The Company convenes the General Meetings of Shareholders and implements other meeting- related procedures in accordance with the procedure established in the Law on Companies of the Republic of Lithuania. Each time the General Meeting of Shareholders is convened, the general shareholder rights and time limits for their exercise are published on the Company’s website, including the notice on convening of the General Meeting of Shareholders. 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 to make this information available on the Company’s website. 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 Information on the general meetings of shareholders being convened, their draft decisions and decisions made are published on the Company’s website and on NASDAQ Vilnius stock exchange in the Lithuanian and English languages, by indicating location, date and time of the meeting. 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 A standard notice on convening of the General Meeting of Shareholders always indicates a possibility for shareholders to vote in writing by filling in the attached form of a voting ballot or by authorising another person to represent a shareholder by proxy. 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 Given the challenges in ensuring the security of the information transmitted and the establishment of the identity of shareholders, these options are not yet available to shareholders. However, shareholders are provided with other opportunities to exercise their rights: to vote in the General Meeting of Shareholders in person; to vote by proxy; to vote by concluding voting rights entrustment agreement; voting in writing in advance by completing the general voting ballot. 1.9. It is recommended that the notice on the draft decisions of the general meeting of shareholders being convened should specify YES A standard notice on convening of the General ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 52 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 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. Meeting of Shareholders always indicates draft decisions containing information required by the Law on Companies of the Republic of Lithuania, including candidatures of members of new collegial bodies, their proposed remuneration, a proposed audit company and its proposed remuneration. Information on the collegial body member who is proposed to be elected is not released publicly, however, the standard notice on convening of the General Meeting of Shareholders always specifies that the shareholders may additionally familiarise with documents related to the agenda of the meeting, draft decisions, a general voting ballot at the premises of LITGRID AB at the registered office during specifically indicated hours. 1.10. Members of the Company’s collegial management body, heads of the administration 2 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/NO Relevant competent persons who can provide information related to the agenda of the General Meeting of Shareholders always attend the General Meeting of Shareholders. Meanwhile the proposed candidates to the members of the collegial body not always attend the General Meetings of Shareholders. 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. Not applicable The Supervisory Board is not formed at the Company. 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 Not applicable - 2 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 53 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY 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. 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. Not applicable - 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 3 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. Not applicable - 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. Not applicable - 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. Not applicable - 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. Not applicable - 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. Not applicable - 2.2.3. Chair of the supervisory board should be a person who’s 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. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure Not applicable - 3 For the purposes of this Code, the criteria of independence of members of the supervisory council 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. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 54 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY the impartiality of supervision. 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. Not applicable - 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. Not applicable - 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. Not applicable - 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. Not applicable - 3. Principle: The 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 Article 34 of the Company’s Articles of Association defines that the Company’s Board approves the Company’s strategy. In addition, in carrying out its supervisory function the Board regularly reviews reports on the implementation of the strategy. 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 YES Chapter 7.3 of the Company’s Articles of Association specifies the Board’s competence related to the exercise of oversight functions. By performing the functions ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 55 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY needs of the company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development. assigned to it, the Board takes into account the Audit Committee’s recommendations, as well as the needs of the company’s shareholders, employees and other stakeholders. 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 Article 36 paragraph (xxi) of the Company’s Articles of Association provides that the Board takes decisions on the non-application to the Company or the application with exceptions of the documents applicable at the level of the Group of companies approved by the Board of the parent company. The Board ensures and regularly monitors the implementation of the documents it approves (strategy, budget, etc.) within the Company. 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 4 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. YES The Company applies the following various documents in its activities that ensure implementation of the highest level internal control, ethics and compliance management tools: - a centralized Group-wide internal audit function; - the Group-wide Audit Committee mainly composed of independent members to whom internal audit function is also accountable; The Company applies the Code of Conduct and the Anti-Corruption Policy of the EPSO-G UAB Group of Companies, the Sponsorship and Charity Policy of the EPSO-G UAB Group of Companies, the Policy of Management of Interests of the EPSO-G UAB Group of Companies, the Risk Management Policy of the EPSO-G UAB Group of Companies, the Transparency and Communication Policy of the EPSO-G UAB Group of 4 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti-bribery/44884389.pdf ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 56 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY Companies, the Compliance Management Policy of the EPSO-G UAB Group of Companies, etc. 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 Article 53 of the Company’s Articles of Association establishes that the Company’s manager is appointed by the Board taking into account the recommendations of the Remuneration and Nomination Committee. Article 55 of the Company’s Articles of Association defines that in assessment of suitability of the candidate for the position of the manager, the Board shall consider his/her compliance with the requirements specified by these Articles of Association and the legal acts, and therefore may require that the candidate submit documents supporting this compliance and/or contact competent authorities for obtaining necessary information about the candidate. 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 Members of the Board are elected in accordance with the Resolution No 631 of the Government of the Republic of Lithuania of 17 June 2015 on the Approval of the Description of the Procedure for the Selection of Candidates to the Collegial Supervisory Body or Management Body of Municipal Enterprise, State or Municipal Company or Subsidiary. Article 27 of the Company’s Articles of Association provide that the election of the members of the Board shall ensure that the Board is composed of at least 2 (two) independent members, whose independence shall be determined by reference to the legal requirements; shall ensure that more than half of the Board members have no employment relationship with the Company; and shall endeavour to ensure that the Board members have competences taking into account the areas of ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 57 PRINCIPLES/RECOMMENDATIONS YES/NO/ NOT APPLICABLE COMMENTARY responsibility and functions of the Board. The Board members carry out their performance assessment on annual basis. The Group’s Remuneration and Nomination Committee also assesses the performance of the Board annually and makes generalised recommendations for improving the performance of the Group’s collegial bodies. 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 The indicated information is made public and updated on the Company’s website. 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 The members of the Board are introduced to the structure and activities of the Company during the first sitting. The key corporate documents of the Company are shared. 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 Article 26 of the Company’s Articles of the Association defines that the Board is a collegial management body of the Company consisting of five members. The Board members are elected for a term of four years by the General Meeting of Shareholders, for which the Board is accountable, taking into account recommendations of the Remuneration and Nomination Committee. A member of the Board may not serve as a member of the Board for more than two consecutive full Board terms and in any case may not serve as a member of the Board for more than 10 (ten) consecutive years. 3.2.5. Chair of the Management Board should be a person who’s YES Article 28 of the Company’s ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 58 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 measures it has taken to ensure the impartiality of supervision. Articles of Association provides the criteria according to which a person cannot be elected as a member of the Board. Article 46 of the Company’s Articles of Association provides that the chairperson of the Board should be elected from among the Board members nominated by the parent company. 3.2.6. Each member should devote sufficient time and attention to perform his duties as a member of the Management Board. Should a member of the Management Board attend less than a half of the meetings of the Management Board throughout the financial year of the company, the Supervisory Board of the company or, if the Supervisory Board is not formed at the company, the General Meeting Of Shareholders should be notified thereof. YES Members of the Company’s Board shall actively participate in the Board meetings. The Company’s minutes record the attendance and voting of the Board members during a decision-making process. As provided for in Article 51 of the Company’s Articles of Association, the Board of the Company shall account for its activities by providing the General Meeting of Shareholders with its annual report of activities on the Board, including information about adopted resolutions and the annual self- assessment. The report can be submitted within the framework of the annual report of the Company. 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 5 , 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. YES The Company’s website and the annual report contain information about the members of the Company’s Board specifying the independent members. At each Board meeting, the Board members are required to declare potential conflicts of interest related to the agenda items. 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 Article 25 of the Company’s Articles of Association provides that the General Meeting of Shareholders decides on the appointment and removal of Board members, fixing the remuneration of Board members, conclusion of contracts with Board members and their standard terms and conditions. 5 For the purposes of this Code, the criteria of independence of members of the board are interpreted as the criteria of unrelated parties defined in Article 33(7) of the Law on Companies of the Republic of Lithuania. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 59 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 For the purpose of monitoring the absence of conflicts of interest of the members of the Company’s Board, the members of the Board update their declarations of interests on annual basis, and the independence assessment process of independent board members is carried out. In addition, Article 31 of the Company’s Articles of Association stipulates that the Board members may have another job or occupy another position compatible with their activities in the Board, including but not limited to executive positions in other legal entities, a job in a state or statutory service, duties at the Company and other legal entities (in conformity with restrictions set by Article 28 of the Articles of Association), as well as in legal entities, where the Company or the parent company acts as a participant, only by providing a prior notice to the Company’s Board. The Company implements the EPSO-G Group’s Policy of Management of Interests. The Board members have signed commitments to protect confidential information. No-compete agreements are not concluded with the members of the Board. The need for such agreements was not established because the Company conducts a monopoly business. 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. YES The Board carries out an assessment of its activities every year and prepares a performance improvement plan on its basis. In addition, the Remuneration and Nomination Committee and the Audit Committee, acting at the EPSO-G Group level, evaluate annually decisions made by the Board and provide recommendations on performance improvement ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 60 Information about the Board’s performance assessment is disclosed in the Company’s annual report. 4. Principle: 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 the supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. Not applicable The Supervisory Board is not formed at the Company. 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 Article 45 of the Company’s Article of Association provides that the Board shall adopt its resolutions at the meetings of the Board. The regulation of the convocation of Board meetings and the voting procedure, as well as other procedural issues shall be as provided by the Law on Companies and related legal acts, and shall be defined in detail in the rules of procedure of the Board, which shall be approved by the Board. At the end of each year, the Company’s Board approves the schedule for the next year meetings and the activity plan (preliminary questions for a respective meeting of the Board). 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 The work of the Board is guided by the Rules of Procedure of the Board, governing the convening of meetings, the information of the Board members, the submission of material and other procedural issues. According to the Regulations of the Board, the material is submitted to the Board five working days before the date of the ordinary meeting. The Board follows the recommendation to amend the agenda. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 61 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 of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. Not applicable The Supervisory Board is not formed at the Company. 5. Principle: 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 judgement 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 6 . YES The Company has the Remuneration and Nomination Committee formed by the Board of EPSO-G UAB acting in accordance with the regulations approved by the body that forms it; and the Audit Committee operating at the Group level formed by the sole shareholder EPSO- G UAB and acting in accordance with the regulations approved by the body that forms it. Given that the issues of remuneration and nomination are closely related and experts with the same qualifications are required to deal with these issues, it was decided to form a single Remuneration and Nomination Committee. 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 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. Not applicable Please see par. 5.1.1. 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 YES Chapters 7.7, 7.8 and 7.9 of the Articles of Association of EPSO-G UAB regulate the formation of the committees 6 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). ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 62 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. within the EPSO-G Group of companies and the areas of their competence. The aforementioned Articles of Association stipulate that the Remuneration and Nomination Committee and the Audit Committee shall consist of not less than three members. It is ensured that from among three members there is at least one independent member in the Remuneration and Nomination Committee, and more than half of the members in the Audit Committee. Not all members of the Remuneration and Nomination Committee and the Audit Committee are appointed from the Board of EPSO-G. One member is appointed to each of the committees as independent member, i.e. on the basis of competence and through an external selection of an independent member of the committee. 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 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. YES The authority of the committees is determined in the Articles of Association of EPSO-G UAB and under the decision of the body forming the committee – the Regulations of the Remuneration and Nomination Committee are approved by the decision of the Board of EPSO-G UAB, and the Regulations of the Audit Committee are approved by the decision of the sole shareholder EPSO- G UAB, as it is permitted by the Requirements for Members of the Audit Committee approved by the Bank of Lithuania (Article 10). The Regulations of the committees are published on the EPSO-G website. Information about the composition, activities of the committees and other information is presented in the consolidated Group’s annual report. 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 YES The Regulations of the Committees provide for the right of the members of the Committees to invite, at their ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 63 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. discretion, to their meetings the members of the bodies of the companies of the EPSO- G UAB group of companies, employees, representatives, candidates for certain positions or other persons and to obtain from them the necessary explanations within their competence as well as require for that purpose that necessary actions would be carried out needed for the performance of the functions of the Committees. 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) to 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) to devote the attention necessary to ensure succession planning. YES The Remuneration and Nomination Committee of EPSO-G UAB serves as the advisory body to the Board of EPSO-G UAB and to the Company’s Board. The main functions of the Committee are as follows: – assists in carrying out the selections of candidates to the members of the bodies in all companies of the Group; – makes recommendations to the companies of the Group with regarding the nomination of the members of the management bodies (including sole management bodies), entry into contracts with them and setting remuneration; – makes recommendations on the Group’s corporate governance documents relating to the selection, appointment and determination of independence criteria for the governing bodies, senior management; – makes recommendations on the system for succession of managers and critical positions; – makes recommendations on the system of equal opportunities, inclusion and diversity promotion within the Group; - etc. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company YES The Regulations establish that the right of initiative to ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 64 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. convene the Remuneration and Nomination Committee is exercised by the boards or general managers of the group of companies that also propose the agenda of the meeting by submitting issue- related materials and draft resolutions. Currently, this provision is not practically relevant, as employees of the Company are not included in the composition of the Board. 5.3. Remuneration committee. 5.3.1. 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. YES The Group has one Remuneration and Nomination Committee. Please see par. 5.2.1. 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 7 . YES The Audit Committee of EPSO-G UAB serves as the advisory body to the Board of EPSO-G UAB and to the Company’s Board. The main functions of the Committee are as follows: - supervision of the preparation of the financial statements of the companies of the Group and performance of their audit; - ensuring compliance with the principles of independence and objectivity by the auditors and audit firms of the companies of the Group; - oversight of the effectiveness of the Group companies’ internal control, risk management and internal audit systems and 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. 7 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. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 65 business processes; - control of provision of non-audit services by the auditor and/or audit firm of the companies of the Group; - ensuring the functioning of the complaints system and complaints handling; evaluation of transactions with related parties. 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 The Regulations of the Audit Committee stipulate that the members of the Committee, at their own discretion, may invite to their meetings the members of the bodies of the companies of the group, their employees, representatives, candidates for certain positions or other persons, and obtain from them the necessary explanations within their competence, as well as require for that purpose that necessary actions would be taken for the performance of the functions of the Committee. 5.4.4. The Audit Committee should be informed about the internal auditor’s work programme 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 The Audit Committee is regularly, at least quarterly, informed about the internal audit reports and at least once every six months, with the internal audit plan and it may provide recommendations with regard to them to the boards of the companies of the EPSO-G Group. The Audit Committee organises meetings with the external auditors to discuss the auditors’ work program and uncertainties arising during the audit, and after the performance of the external audit, their conclusions and recommendations are discussed with the external auditors. Each year, before the start of annual audits, the audit firm submits its declaration of independence to the Audit Committee and to the companies. 5.4.5. The Audit Committee should examine whether the Company complies with the applicable provisions regulating the employee’s 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 YES The Regulations of the Audit Committee stipulate that the Audit Committee ensures the effective functioning of the complaints system and the proportionate and ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 66 investigation of such issues and appropriate follow-up actions. independent investigation of submitted complaints. In the implementation of this function, the Chairperson of the Audit Committee is immediately informed about significant complaints received. In addition, the Audit Committee is regularly reported on all complaints received by the companies of the EPSO-G Group, their investigation and decisions made on the basis of the findings of investigations carried out. 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 performance report at least once in every six months, at the time that annual and half-yearly reports are approved. YES The Regulations of the Audit Committee stipulate that the Audit Committee shall submit a quarterly activity report to the Board. In addition, it shall submit a consolidated annual activity report to the Ordinary General Meeting of Shareholders and to the Board of EPSO-G UAB. 6. Principle: 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 stakeholders as established by law and encourage active co-operation 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. 6.1. 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 This obligation is set out in Articles 56-57 of the Company’s Articles of Association, the regulations of the management bodies and the EPSO-G Group’s policy of management of interests. Article 30 of the Company’s Articles of Association stipulates that upon emergence of new circumstances, which may lead to a conflict of interests of a member of the Board, the member of the Board must notify the Board of such new circumstances without any undue delay. 7. Principle: 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 YES The Company applies the Guidelines for Determining the Remuneration for ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 67 strategy. Activities in the Management Bodies of EPSO-G UAB and EPSO-G Group of Companies, which are approved by the sole shareholder of EPSO-G UAB and available in a public domain. The Company is also guided by Litgrid’s CEO and the Board Remuneration Policy approved by the General Meeting of Shareholders, which is made public. The company applies the Remuneration, Performance Assessment and Development Policy of the EPSO-G Group which is made public. 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 All possible forms of remuneration for collegiate bodies and employees are set out in the Guidelines for determining remuneration for activities in the corporate bodies of EPSO-G UAB and EPSO-G Group and in the Remuneration, Performance Assessment and Development Policy of the EPSO-G Group. Both documents are made public. 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 The Company applies the Guidelines for Determining the Remuneration for Activities in the Management Bodies of EPSO-G UAB and EPSO-G Group of Companies that regulate a fixed remuneration for members of the collegial bodies. The members of the Board do not receive remuneration based on the Company’s performance. 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/NO The Remuneration, Performance Assessment and Development Policy of the EPSO-G Group of companies stipulates that there are no pre- agreed severance payments in the group companies (except for the companies’ managers, whose terms of employment are determined by the Board). The amounts of benefits related to the termination of employment relationships are determined by taking into account the mandatory minimum amounts of such benefits established by the norms of ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 68 labour law, except for exceptional cases when there are objective reasons for the agreement on the other benefits. The relevant Board of the Group company shall be informed of the disbursement of such (higher) benefits and the grounds for their payment at its forthcoming meeting. 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. Not applicable The financial incentive scheme is not applied at the Company. 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 General information on the implementation of the Company's remuneration policy and the average remuneration levels of individual groups of employees are disclosed in the Company’s Annual Report, which is published on the Company’s website. According to Article 25(5) of the Law of Energy of the Republic of Lithuania, the Company discloses remuneration established to the members of the Company’s management bodies and other benefits related to the functions of the members of the management bodies. Information on the remuneration of the Board members is disclosed in the Company’s annual report. Information on remuneration of employees is published on the Company’s website on a quarterly basis. 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 The remuneration of the members of the Company’s Board is determined by the General Meeting of Shareholders of the Company. Such schemes are not applied at the Company. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 69 8. Principle: 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 The Company has adopted the Transparency and Communication Policy of the EPSO-G Group of Companies, which establishes goals to increase awareness and understanding of stakeholders about the activities of the EPSO-G Group of companies and individual group companies; to ensure employee engagement; to create and maintain sustainable relationship with stakeholders based on mutual respect. 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 The Company shall consult, negotiate and confer with the Company’s employee representatives on the Company’s business processes. According to the Company’s collective agreement signed with the representatives of the employees of the Company, the Company provides information to the representatives of trade unions about the expected changes in the Company, the Company’s financial situation, etc. Stakeholders can take part in the corporate governance to the extent permitted by law. 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. YES The stakeholders are given access to the necessary information. 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. NO The Trust Line contacts are published on the Company’s website for interested parties to report breaches of occupational health and safety and environmental regulations, ethics, working practices and anti-corruption policies. The Audit Committee operating at the level of the EPSO-G Group of companies ensures the functioning of the system of lodging complaints and their handling. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 70 9. Principle: 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: 9.1.1. The financial and operating results of the company; YES The Company complies with the Transparency and Communication Policy of the EPSO-G Group, which is disclosed in the Company’s interim and annual reports available on its website. 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; YES 9.1.6. potential key risk factors, the company’s risk management and supervision policy; YES 9.1.7. related-party transactions; 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 should be considered as a minimum list and companies are encouraged not to limit themselves to disclosing the information contained in this list. This principle of the Code does not relieve the Company of the obligation to disclose information prescribed by law. YES 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. YES EPSO-G UAB, as a parent company, discloses consolidated information in the consolidated annual report. 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. YES This information is disclosed in the Company’s annual report and on the Company’s website. 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 YES The Company discloses the information via the information disclosure ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 71 disclosed to all parties concerned at the same time. system used by the NASDAQ Vilnius stock exchange in the Lithuanian and English languages simultaneously. The Company publishes information prior to or after a trading session at NASDAQ Vilnius stock exchange and presents it at the same time to all markets in which the Company’s securities are traded. The Company does not disclose the information likely to impact the price of the issued by it securities in its comments, interviews or otherwise by the time such information is announced via the information system of the Stock Exchange. 10. Principle: 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 The independent auditor is appointed by the General Meeting of Shareholders. 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 The Audit Committee operating at the Group level is actively involved in the selection process of an auditor. The Audit Committee provides a recommendation to the Company’s Board on the auditor’s nomination. The final decision is taken by the General Meeting of Shareholders, which is convened and submitted draft decisions by the Board. 10.3. It is recommended that the company should disclose to its shareholders the level of fees paid to the firm of auditors for non- audit services rendered to the company. This information should also be made available to the company's Supervisory Council, if the company does not have a Supervisory Council, to the company’s Board when considering which audit company to propose to the General Meeting of Shareholders. YES The non-audit services provided by the audit company shall be in accordance with the policy approved by the Audit Committee of EPSO-G Group on the purchase of non-audit services from the audit company or from any network to which the audit company belongs. The provision of non-audit services is supervised by the Audit Committee operating at the Group level, which, as mentioned in paragraph 10.2, is actively involved in the selection process of an auditor. Therefore, the Audit Committee, when submitting a recommendation to the Board on the auditor, has all the necessary information on the auditors. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 72 Sustainability report 2023 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 73 Table of Contents Sustainability in the Company: - About the Sustainability Report - Sustainability Principles and Commitments - Sustainability in Long-Term Strategy - Sustainability Management - Risk Management Framework - Stakeholder Engagement - Materiality Assessment of Sustainability Topics - Materiality Matrix and Key Sustainability Topics - Sustainable Development Goals Environmental: - Environmental Sustainability - Energy Consumption - Interaction with Water - Biodiversity - Climate Impact and GHG Emissions - Waste Management - Supplier Environmental Assessment - Facilitating the Growth of RES Social: - Social Sustainability - Market Presence - Employment - Labour Management Relations - Occupational Safety and Health - Training and Education - Diversity and Inclusion. - Non-Discrimination - Freedom of Association and Collective Bargaining - Employee Well-being and Job Satisfaction - Local Communities - Supplier Social Assessment and Human Rights in Supply Chain - Customer Satisfaction - Socioeconomic Compliance Economic (Management): - Sustainable Investment - Infrastructure Development - Strategic Partnership - Compliance management - Data Protection and Privacy - Anti-Corruption and Anti-Competitive Behaviour - Digital Technologies - Innovations Index: - Taxonomy Disclosures - GRI index table - UN Global Compact ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 74 SUSTAINABILITY IN THE COMPANY - About the Sustainability Report - Sustainability Principles and Commitments - Sustainability in Long-Term Strategy - Sustainability Management - Risk Management Framework - Stakeholder Engagement - Materiality Assessment of Sustainability Topics - Materiality Matrix and Key Sustainability Topics - Sustainable Development Goals ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 75 About the Sustainability Report Basis information and the scope of reporting. In preparing the annual Sustainability Report (hereinafter the “Report”), LITGRID AB (hereinafter the “Company”, “Litgrid”) has followed the recommendations of the Global Reporting Initiative (GRI), which help to assess the Company’s performance in terms of relevant economic, environmental, employee, human rights, market and public relations indicators, the Law on Corporate Reporting of the Republic of Lithuania and the European Union’s Non-Financial Information Disclosure Directive, and the recommendations of the Bank of Lithuania and the Public Enterprise Management Coordination Centre. This report is available on the Company’s and NASDAQ Stock Exchange’s websites and is accessible to all stakeholders: shareholders, business partners, investors, employees and their trade union, media representatives, social partners, citizens and local communities, and other relevant organisations. Last year’s Report is available on the Company’s website at https://www.litgrid.eu/index.php/apie-litgrid/darni-veikla/468 This report presents Litgrid’s work and achievements in the field of sustainable development in 2023. The Report 2023 presents sustainability results alongside the previous year’s results, allowing their comparison and disclosure of changes that have occurred. Litgrid’s Sustainability Reports have been prepared from 2021. Information on the sustainability in the EPSO-G Group companies is disclosed in EPSO-G’s Sustainability Report. It should be noted Lithuanian words darnumas and tvarumas are used interchangeably in the Lithuanian version of the Sustainability Report. Given stakeholders’ expectations, the scope of disclosures has been expanded compared to the previous year’s Report, with amendments made to certain data disclosed in previous periods to reflect changes in calculation methodology or new information. The content of the Sustainability Report shall include the most recent information available at the time of publication. The Sustainability Report is unaudited. The Sustainability Report describes our efforts and commitments in implementing the Sustainable Development Goals and the United Nations Global Compact guidelines. The Report complies with the Lithuanian requirements for social responsibility reports and Guidelines on Non-Financial Reporting of the European Commission. The described activities and progress made relate to the environmental, social and governance (ESG) areas. For questions or comments and suggestions on how to improve the Sustainability Report, please contact [email protected] This report is unaudited and is available in both Lithuanian and English. Information on the operating model Litgrid is the electricity transmission system operator in Lithuanian. The Company is responsible for maintaining the balance of electricity consumed and generated in the Lithuanian electricity system and for reliable transmission of electricity, carries out strategic electricity projects in Lithuania, and bases its vision and strategic operational guidelines on the long-term goals set out in the National Energy Independence Strategy (hereinafter “NENS”). Litgrid, as the electricity transmission system operator, plays a key role in ensuring Lithuania's smooth and reliable transition to a RES-intensive energy system, enabling the decarbonisation of the sector, initiating system interconnection projects and facilitating the exchange of climate neutral energy. Litgrid aims to achieve the transformation of the energy sector by striking a balanced balance between environmental, social and economic objectives. Detailed information on activities, services, environment, regulatory environment, objectives and strategy is provided in the Annual Report. Sustainability Principles and Commitments We see sustainability as the impact of our activities on nature, people and the economy. Identifying our sustainability impact and managing the related risks is critical to the long-term success of our business. Litgrid plays an important role in ensuring Lithuania's smooth and reliable transition to an energy system integrating large amounts of renewable energy sources (RES). Litgrid aims to achieve the transformation of the electricity sector by striking a sustainable balance between environmental, social and economic objectives. GRI 2-25 GRI 2-3 GRI 2-4 GRI 2-1 GRI 2-2 GR I2-23 GRI 2-24 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 76 Litgrid aims to achieve the transformation of the electricity sector by striking a sustainable balance between environmental, social and economic objectives. All companies in the EPSO-G Group strive to integrate sustainability principles into their operations and processes. Litgrid also aims to contribute directly to the United Nations Sustainable Development Goals by focusing on ensuring access to clean and modern energy, combating climate change, developing modern infrastructure and innovation, safe and decent working conditions, employee well-being and a sustainable supply chain. The main thrusts of sustainable development stem from the activities defined in the Group's long-term strategy to 2030. The main thrusts of sustainable development stem from the activities defined in the Group's long-term strategy to 2030. • ENVIRONMENTAL– the empowerment of climate-neutral energy by reducing the environmental impact of activities; • SOCIAL – building a progressive, sustainable organisation; • GOVERNANCE – transparent management and development of the company. In our daily operations we are committed to sustainable and responsible business principles: • Strike for a balance between the environmental, social and economic aspects of our activities to create a long-term value, which is also evident from our performance, through comprehensive and sustainable efforts. • Take into account the expectations of all stakeholders and to engage with them in a transparent and fair way when making decisions on the development of the Company. • Contribute to the United Nations Sustainable Development Goals. • Contribute to the European Green Deal and the Paris Climate Agreement, and to commit to becoming a climate-neutral market player by 2050. • Promote and employ in its operations the United Nations Global Compact principles on human rights, labour, environment and anti-corruption. • Carry out environmental, social and economic due diligence. • Set the sustainability targets based on the precautionary principle, i.e. using the best scientific advice on the environment available at the time. The Company’s current provisions and policies are available on its website at https://www.litgrid.eu/index.php/apie- litgrid/valdymas/veiklos-politikos/3807. Sustainability in Long-Term Strategy A client-focused organisation and a centre of competences for the energy sector, state-of-the-art technological and digital solutions, sustainable energy development that will double the current generation volume of electricity, and opportunities for market participants to exchange electricity freely at a competitive price. These are the goals set out in the Litgrid’s strategy that was approved by the Company’s Board in January 2023. The strategy establishes the Litgrid’s long-term vision of becoming one of the smartest electricity transmission system operators in Europe. Litgrid plans to expand its activities by focusing on several priority areas. One of the most important priorities is the fight against climate change through the development and adaptation of the transmission system for electricity generation from renewable energy sources and the reduction of the impact of Litgrid’s own infrastructure on the environment. Litgrid: cooperation, progress and professionalism Litgrid mission – to enable sustainable and efficient electricity exchange. Litgrid’s vision – to become one of the smartest electricity transmission system operators in Europe For more information on the Company’s strategy, see the Annual Report on p. 12. GRI 2-23 GRI 2-24 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 77 Sustainability management Litgrid’s strategy 2030 is updated on annual basis to ensure the successful, sustainable and focused operations of our organisation, taking into account the internal and external factors affecting the Company’s activities and changes in EPSO-G strategy. In accordance with the deadlines and oversight principles for the strategy development set out in the Integrated Planning and Monitoring Policy of the Group, the changes in Litgrid’s strategy 2030 are directly communicated to the Board members, who approve the Company’s business strategy (including sustainable long-term and short-term, financial and non- financial targets and/or performance indicators) in accordance with Clause 34 of the Articles of Association of the Company (registered on 20 April 2023). At EPSO-G Group companies, sustainability principles are integrated into business processes, and the management of sustainability areas by competency covers all levels. The Group Sustainability Development Manager is responsible for monitoring and coordinating the achievement of the Group's sustainability objectives. Meanwhile, within the Group companies, the relevant environmental, social and governance objectives are delegated to individual functional units within the EPSO-G Group companies (e.g. environmental, occupational safety, human resources, risk and compliance management, etc.) according to their respective competences. Litgrid has employees responsible for ensuring equal opportunities within the company, as well as a self-initiated Equal Opportunities Embassy, which organises training and activities for employees. Responsibility for implementing sustainability in daily operations and sustainability reporting is assigned to the Head of Efficiency, who is directly attached to the manager of the Company and, an annual basis, reports to the Board on her duties, and will report to the Executive Board. Litgrid has policies that cover environmental, social and governance management. Litgrid sees sustainable development as an integral and inseparable part of its operations. The Company follows the following policies: - Corporate Governance Policy. Its purpose is to ensure good corporate governance practices within the group by establishing uniform corporate governance principles across the group and ensuring interaction between the parent company and other group companies. - Sustainability Policy. The Sustainability Policy defines the key directions and principles for the development of sustainability to guide the development of the Group’s corporate activities and to create a progressive organisational culture. The implementation of this Policy is the responsibility of the Group's Chief Executive Officers and the Sustainability Functional Area Mentors. - Occupational Safety and Health Policy. This Policy defines the general principles of occupational safety and health and the main guidelines for its implementation. The aim of the Policy is to ensure the health of employees in the workplace and to create a healthy, safe and productive working environment. - Equal opportunities policy. The Equal Opportunities Policy defines the key principles that are applied in the Group's companies to ensure that the principles of equal opportunities and non-discrimination are respected in all areas of the employment relationship. The implementation of the provisions of the Equal Opportunities Policy is the responsibility of the managers of each Group company. - Environmental Policy. This policy defines the key environmental principles that are applied in the Group to reduce the environmental impact of its activities and to establish a culture based on the principles of sustainable development within the Group and its environment. - Transparency and Communication Policy. Its aim is to facilitate more effective communication with each other and with external stakeholders: the public, shareholders, market regulators, etc. - Anti-Corruption Policy. Its objective is to set out the main principles and requirements for the prevention of corruption within the Group and the guidelines for ensuring compliance with these principles and requirements, the implementation of which creates the preconditions and conditions for the implementation of the highest standards of transparent business conduct. - Remuneration, performance appraisal and development policies. The aim is to establish clear and transparent principles and a reward system for the Group's employees, based on which payroll costs can be managed effectively and employees can be motivated to achieve the objectives set for the organisation. - Accounting policy. Its purpose is to ensure that stakeholders are able to assess the performance and prospects of group companies and to make appropriate economic decisions. - Dividend policy. Its objective is to set clear benchmarks for the expected return on equity and investment for existing and potential shareholders, while ensuring sustainable long-term growth in corporate value, the timely implementation of nationally important strategic projects, and thus consistently building confidence in the entire group of transmission and exchange companies. - Interest management policy. The objective is to establish a unified and best practice interest management system within the Group, which will ensure objective and impartial decision-making within the Group companies, as well as create an environment that is not conducive to corruption and enhance confidence in the Group companies. - Policy for the development and exploitation of technological assets. The objective is to consistently apply cost- benefit principles to the management and development of electricity infrastructure, to introduce advanced technologies, GRI2-9 GRI 2-10 GRI 2-12 GRI 2-11 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 78 and to manage and develop the transmission infrastructure in a socially responsible manner, taking into account occupational health and safety and environmental requirements. - Support policy. The aim is to ensure that the support provided is publicly available and does not lead the public to question its appropriateness or the transparency of the allocation process. - Codes of ethics and supplier codes of conduct. Their purpose is to establish uniform general guidelines for behaviour in dealing and cooperating with internal and external stakeholders: service users, contractors, business partners, shareholders, state and municipal authorities, the public, etc. The provisions of the Code are based not only on the employer's duty, but also on the employee's personal understanding that good behaviour enhances the reputation and value of the company, as well as the Group as a whole, and reduces the likelihood of reputational risk. The provisions of the Code are directly derived from the Group's values, leadership principles and complement the related operational policies. - Personal Data Protection Policy. The aim is to set the principles on the protection of personal data processed, and to define key measures for personal data protection management and responsibilities for data protection management. - Compliance Management Policy. The aim is to define the principles of compliance management, to establish the compliance management processes, and to clarify the roles and responsibilities of individuals in the compliance management system. - Risk Management Policy. The aim is to define the key risk management principles and responsibilities for Litgrid to ensure a unified corporate risk management process based on common principles. - Other sustainability-related policies. Litgrid undertakes to review environmental, socio-economic impacts and sustainability priority topics on a regular basis, but at least once every two years, together with the Group companies, through a materiality analysis, ensuring stakeholder involvement. The Group companies report annually on the implementation of their sustainability activities through separate public sustainability reports. The double materiality assessment is scheduled for 2024. Long-term sustainability objectives are integrated into the operational strategy approved by the Board until 2030. Future plans involve further improvement of the Board and management’s knowledge in sustainable development. Staff sustainability training is planned to be conducted 2024. Litgrid conducts an annual employee engagement survey, which helps to assess the overall performance of the organisation through employee engagement, cooperation, interpersonal relationships, organisational governance, communication, strategy understanding, etc. From 2022, it also includes sustainability matters. The following are the engagement survey questions and results related to sustainability. Year Questions Number of employees who responded “Yes” 2022 I see the Company as a sustainable organisation 83 % 2023 I see the organisation as committed to the principles of sustainable development (environmental, social and good governance practices) 81,14% 2023 The organisation provides sufficient knowledge and information on the sustainability practices being implemented 68,77% For more information on the organizational structure and management, see the Annual Report on p, 32 Risk management Framework Litgrid understands risk management as a structured approach to uncertainties management by methodologically evaluating risk effect and probability, and by applying the proper measures of management. Litgrid is guided by the EPSO-G Group Risk Management Policy and Risk Management Methodology. These documents embed a uniform risk management system that is based on common principles and meeting good practice according to COSO ERM (Committee of Sponsoring Organisations of the Treadway Commission Enterprise Risk Management) methodology applicable in the international practice. The Risk Management Policy defines the key risk management principles and responsibilities for Litgrid to ensure a unified corporate risk management process based on common principles. The risk management process comprises the following stages: GRI 2-23 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 79 • Environment understanding. The Company identifies aspects that may have an impact on the Company’s failure to achieve its goals based on the Company’s internal and external environment, planning documents, the Risk Assessment history and the monitoring of the implementation of the risk management measures. Regular environmental assessments are carried out to adapt to changes and to prepare in advance for unexpected threats. • Risk assessment. The Company identifies, analyses and assesses risks on regular basis, identifies Key Risk Indicators, and prepares the List of Risks. The Company also identifies the risk appetite, and categorizes risks according to their priority and the appetite identified. • Developing a Plan on risk Management Measures. The Company develops a Plan on Risk Management Measures for risks exceeding risk appetite. • Monitoring of risks and the implementation of the Plan on Risk Management Measures. This process involves continuous monitoring of the Company’s List of Risks and the Plan on Risk Management Measures. The monitoring results are communicated to the Company’s manager, the Executive Board, the Board, EPSO-G’s Audit Committee, in accordance with the remit of each of them. • Communication and information. Regular and effective sharing of information among the participants in the Risk Management process that has impact on the assessment of the Company’s risks and their management. Relevant information on risks and their management is communicated to the Company’s employees during staff meetings. Each year, Litgrid identifies, assesses operational risks, sets risk monitoring indicators and provides risk management measures. In 2023, as every year, the Board of Litgrid approved the List of Risks and the Plan on Risk Management Measures. For comparison, 58, 48 and 50 key risks were identified in 2021, 2022 and 2023, respectively. On a quarterly basis, EPSO-G’s Audit Committee, Litgrid’s Board and the Litgrid’s Executive Board assess changes in the key risk indicators and the effectiveness of risk management, and make recommendations, based on the approved List of Risks and the Plan on Risk Management Measures. It should be noted that information related to risks, risk indicators and risk management reports is regarded as confidential, and therefore this report contains statistics and general information related to risks. Sustainability risk management Sustainability risks are treated as an integral part of the Company’s day-to-day operations and are integrated into the risk management process. The Company assess all the risks against the criteria set for the sustainability risks. Risks that meet these criteria are assigned to the relevant sustainability risk type. In 2023, the following risks were assigned to sustainability (environmental, social and governance) risks: environmental impact reduction (environmental criterion), occupational safety and health, employee turnover (social criterion), physical protection, cybersecurity, anti-corruption, personal data protection, financial management (governance criterion). In 2023, the need to add the sustainability-related risks to the Company’s List of Risks was identified. Notably, Litgrid’s Board approved the Company’s List of Risks and the Plan on Risk Management Measures in 2024, which, in addition to the above, also includes the risks directly related to sustainability, such as the risk of not ensuring the reliability of the reported ESG data and the risk of not reaching the GHG emission reduction target. The Company, being aware of the importance of the sustainability-related risks for the achievement of the sustainability objectives, pays particular attention to the management of these risks. As mentioned under “Risk Management Framework”, sustainability-related risks are monitored and reported at defined periodicity. If risk indicators are exceeded, additional risk management measures are approved, the risk levels are reviewed and information is analysed. The results of the monitoring of the implementation of the identified risks and the risk management plan are regularly communicated to EPSO-G’s Audit Committee, Litgrid’s Board and Litgrid’s executive Board, in accordance with the remit of each of them. In designing and implementing sustainable development actions, Litgrid seeks the full involvement of stakeholders and promotes transparent and fair cooperation with consumers, producers and suppliers, the public, the owner, employees, the media and other interested parties. Stakeholder engagement In designing and implementing sustainable development actions, Litgrid seeks the full involvement of stakeholders and promotes transparent and fair cooperation with consumers, producers and suppliers, the public, the owner, employees, the media and other interested parties. GRI 2-29 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 80 Stakeholder Our commitment How we cooperate Customers • Build professional and trusted partnerships for mutual benefit. • Group companies initiate and organize timely information events for their clients, taking into account the complexity of their services and economic expectations. Employees • Work in a targeted way to ensure that the uniform corporate culture and remuneration policies promote employee engagement and motivation in the achievement of the objectives of the strategy; • Develop services and/or solutions to meet customer needs. Shareholders • Ensure that the Group’s employees are sufficiently and timely informed about the Group’s values, objectives, activities and developments. • We conduct employee engagement surveys and adjust action plans accordingly; Group companies • Ensure sustainable management, growth and long-term benefits; • We follow the same reward and social responsibility policies for employees; Foreign partners - energy transmission and biofuel exchange operators • Provide relevant, fair and timely information to enable shareholders to assess the Group’s performance and prospects and to make appropriate decisions; • We hold at least quarterly meetings between managers and employees to discuss issues of importance to employees. State representatives • Ensure effective feedback. • We improve the methods and content of internal communication. National regulator • Create value through meaningful management solutions • We hold regular meetings to discuss topical issues; Contractors • Ensure the sustainable management of the Group, its growth and long-term benefits; • At least quarterly, we report on our financial and non-financial performance against the objectives set out in the “Shareholder Expectations Letter”. Suppliers of services and goods • Ensure the combination of mutually beneficial agreements and actions in the implementation of strategic projects. • We ensure the communication of the most important news from the Group's companies on a Group-wide basis in the Daily News column published every working day. Non-governmental organizations (NGOs) • Provide relevant information in a clear and accessible format to provide a reliable basis for assessing the Company’s activities, the results achieved and benefits to society. We are members of the governing bodies of group companies; Trade Unions • Ensure consistent compliance with legal requirements; • We apply the functional leadership operating model. General public and • Establish a culture of open and • We develop and implement uniform operational ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 81 media transparent dialogue with the regulator. policies across the Group, enabling us to coordinate our actions in implementing good governance practices. Local communities • Work with professional and ethical contractors. • We aim to establish and regularly maintain a business-like relationship based on mutual trust; Materiality Matrix and Key Sustainability Topics Environmental protection themes: 1. Reducing environmental impacts and GHG emissions in operations - reducing environmental impacts (air, water, soil quality), pollution and GHG emissions (CO 2 , CH 4 , SF 6 , etc.) in the company's operations. 2. Biodiversity and ecosystem conservation - protection of terrestrial and aquatic wildlife, natural vegetation and habitats of high ecological value in the course of operations. 3. Sustainable and efficient use of resources in the company's operations - use of green energy in the company's operations, efficient use of water and other resources. 4. Waste minimisation, responsible segregation and management - minimising the amount of waste generated by the activities, ensuring safe and proper management of hazardous and non-hazardous waste. 5. Facilitating the growth of RES - ensuring efficient grid connection of renewable energy producers, smooth operation of the Energy Guarantee System. 6. Adapting energy systems to decarbonisation - adapting the transmission grid to reliably transport new and increased volumes of renewable energy sources. SOCIAL TOPICS: 1. Ensuring human rights and equal opportunities for employees - Ensuring human rights, creating a culture based on equal opportunities and non-discrimination within the Company. GRI 3-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 82 2. Ensuring the professional development of employees - providing professional and personal development opportunities for employees, actively developing the necessary competences. 3. Employee well-being and job satisfaction - creating an environment that enhances employee well-being and satisfaction and ensures work-life balance. 4. Occupational health and safety - ensuring that the Company’s and its contractors' employees comply with safety requirements when carrying out their work, and actively ensuring the good health of employees. 5. Dialogue and involvement of local communities - actively informing local communities about the activities taking place in their environment, fostering a culture of dialogue and community involvement. 6. Customer satisfaction - quality of customer service, improvement of customer-oriented services. 7. Social action, volunteering and social partnerships - promotion of volunteering, educational activities and targeted cooperation with NGOs, academia and government. VGOVERNANCE SUSTAINABILITY TOPICS: 1. Transmission network reliability and security - ensuring the safe, reliable and efficient operation of energy transmission systems. 2. Transparent governance and creating an anti-corruption environment - following standards of transparency and business ethics, not tolerating corruption and actively combating all forms of corruption. 3. Cybersecurity and data protection - Ensuring the security of critical data, building a cyber-attack-resistant IT infrastructure and creating an organisational culture. 4. Sustainable value for the economy and financial return for the State - Achieving financial return targets set by shareholders, ensuring return on investment, economic and social returns. 5. Innovation, research, digitalisation - Creating an organisational culture that fosters innovation and ensuring adequate funding for innovation. 6. Sustainable supply chain management - Increasing the share of public procurement of goods and services that meet environmental and sustainability standards, actively encouraging contractors, suppliers and other partners to follow recognised environmental, anti-corruption and social standards. The principles for management of all material sustainability topics are described in accordance with GRI 3-3 in the chapters of this Report, arranged by the topic. The sustainability objectives have been set by assessing the main environmental, social and economic impacts of the Group’s businesses, as well as the actions set out in the Group’s long-term business strategy, the implementation of which will help to ensure the transformation of the energy sector and the transition to climate-neutral energy. The EPSO-G Group’s long-term sustainability targets for 2030, of which the Company is a part, include the following indicators: TOPIC Objectives and indicators Environmental area • Reduction of operational GHG emissions by 2/3 (compared to 2019) • 0 significant environmental incidents in operations • Enabling conditions for connecting green energy producers to infrastructure Social area • 0 cases of human rights violations or discrimination • 0 serious or fatal accidents • Customer satisfaction - at least 80 according to the GCSI methodology Environmental area • 0 cases of corruption • VCC Good Governance Index - A+ • 100% of public procurement is green • Reliable and safe operation of electricity and gas transmission systems • Sustainability criteria integrated into supplier requirements Litgrid is meeting its sustainability targets, i.e. reduced its GHG emissions by -7.28% in 2023 compared to the base year (2019), and there were no environmental, corruption, human rights violation incidents, including discrimination, in 2023. 2023 was a historic year for green energy in Lithuania. For the first time, the share of electricity generated by renewable energy plants accounts for around 67% of the total electricity generated in the country. Sustainable development goals After having identified the main areas of impact of our activities, we have analysed and selected those Sustainable Development Goals (SDGs), to which we can make the most significant contribution in each area. Further in this report, in ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 83 addition to the descriptions of our sustainability topics, we outline which Sustainable Development Goals we support. The sustainable development goals (SDGs) are a new, universal set of targets that set the direction for global economic, social and environmental development to 2030 Litgrid supports five Sustainable Development Goals. We facilitate the connection of renewable energy producers to electricity transmission infrastructure. We maintain the system of the renewable energy guarantee of origin. We apply not only qualitative criteria, but also fairness and sustainability criteria to our partners. We ensure responsible waste sorting and management in the Company. We use green criteria in public procurement We take a proactive approach to employee health and safety. We are building an organisational culture based on human rights. We invest in the professional and personal development of our employees. We ensure clear and transparent remuneration principles. We support the unionisation of workers. We assess the environmental impact of our activities and develop plans to reduce pollution. We implement advanced environmental management systems and preventive measures. We aim to increase the use of green energy in our operations. . We ensure reliable and safe operation of electricity transmission systems. We aim to adapt the Company’s organisational structure and incentive system to promote innovation. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 84 Environmental - Environmental Sustainability - Energy Consumption - Interaction with Water - Biodiversity - Climate Impact and GHG Emissions - Waste Management - Supplier Environmental Assessment - Facilitating the Growth of RES ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 85 Environmental Sustainability In the environmental field, Litgrid’s main objective is to enable climate-neutral energy and to reduce environmental impacts and greenhouse gas emissions from its operations. In the environmental policy approved by Litgrid’s Board of Directors, the company has committed itself to monitoring the environmental impact of its operations, and to introducing state-of-the-art technologies and measures to reduce significant environmental impacts. When operating, expanding or modernising the infrastructure of energy systems, the company undertook to ensure the protection of biodiversity, and to implement environmental management systems in its operations and to ensure that these systems comply with the requirements set. All EPSO-G Group companies have a goal of zero tolerance to environmental pollution and zero environmental incidents. Litgrid also aims to hold contractors and other business partners accountable for the environmental impacts of their activities and to seek to reduce them. The Company also takes a precautionary approach by carrying out environmental impact assessment procedures, either in accordance with legal requirements or on its own initiative, before undertaking projects that may have a significant impact on the environment, biodiversity or society. The implementation of the environmental policy is the responsibility of the environmental staff, who ensure that environmental aspects are identified in a timely manner, environmental objectives are set, plans are developed, tasks are set to improve the environmental status and sufficient resources are allocated to their implementation, results are monitored periodically, and the processes, technologies and working methods used are audited. The implementation of the policy is the responsibility of the Group’s corporate managers and environmental functionaries. In 2022, the Public Health Safety Control Division of the Alytus Department of the National Public Health Centre (NPHC) inspected a residential area in the vicinity of the LitPol Link and Alytus TP and identified that the noise exceeds standard levels (48 dBA). Following the inspection, NVSC requested to implement noise abatement measures. The installation of noise barriers is scheduled for 2025. During 2023, no breaches of environmental legislation were recorded and no fines were imposed. Nor were there any significant environmental incidents reported during the year under review, either by the Company’s employees or by contractors. Energy consumption Litgrid strives to create an organisational culture based on the philosophy of conservation of nature and other resources. In the Group’s environmental policy, the companies are committed to using certified green electricity in their administrative activities, to expanding the use of RES sources to meet the technological energy needs of the transmission network infrastructure, to prioritising and expanding the use of clean transport, and to consistently reducing the use of polluting fuels and energy efficiency measures. Litgrid has already started installing solar power plants in transformer substations under reconstruction. The energy they generate will be used in the transformer substations themselves. In 2023, 21 transformer substations under reconstruction were equipped with solar power plants. The energy generated by the installed solar plants will be sufficient to fully or partially meet the needs of the transformer substations, depending on the solar irradiation, and will increase the reliability of the power supply. The installed capacity of the solar power plants is expected to reach up to 15 kW in each of the transformer substations. The Lithuanian electricity transmission system operator has renewed its car fleet, replacing its predominantly internal combustion cars with electric and hybrid vehicles. Employees will move to 72 electric and rechargeable hybrid cars. This decision is one of the steps towards the Company’s commitment to reduce its greenhouse gas emissions by two-thirds by 2030. Litgrid leases 28 electric cars and 44 plug-in hybrids. Until 2022, 99% of the Company’s car fleet comprised vehicles powered by internal combustion engines. In 2023, the renewed fleet includes 11% of such cars 2021 2022 2023 Number of internal combustion engine vehicles 67 72 9 Number of electric cars 0 0 29 Number of plug-in hybrids 0 0 46 Total number 67 72 84 * The number of cars varies during the year. The use of electric vehicles reduces the Company’s CO 2 emissions by an average of 102 tonnes per year. The switch to less polluting vehicles will result in about 30 thousand litres less fuel consumption per year than would be required to maintain the same fleet of internal combustion engine vehicles. In 2021, the fleet consisted only of internal combustion engine vehicles. The fleet was smaller than in 2022 or 2023. GRI 302-1 GRI 302-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 86 From 2022, the fleet is being renewed, with a focus on electric or hybrid cars, and installation of charging points. At the end of 2023, 8 direct current and 36 alternating current charging points were operational. They were equipped with a total of 79 charging connectors. Electric cars and plug-in hybrids can be charged at our facilities in Vilnius, Panevėžys, Utena, Šiauliai, Kaunas, Alytus, Telšiai and Klaipėda. A head office in Vilnius has both district heating and geothermal heating (electricity). In the heating substation, electricity is consumed by geothermal heat pump, circulator pumps, drives, heater elements, three-way valves, pressure regulators. In Kaunas, a combined heating solution is used: electric radiators and air conditioners, with computers and lighting also added to the electricity consumption. From 1 July to 31 December 2022, the electricity consumption in office premises was 442 084 kWh, backed by the renewable energy guarantee of origin. Litgrid’s office buildings are located at K.G.E. Manerheimo st. 8, Vilnius, and at Pastotės st. 9, Kaunas district. Electricity consumption in 2023 backed by the renewable energy guarantees of origin: Litgrid’s office building at K.G.E. Manerheimo st. 8, Vilnius – 847,323 MWh, and office building at Pastotės st. 9, Kaunas district – 92,750 MWh. Network losses are mainly driven by its operational status. During periods with a high number of disconnections (e.g. due to reconstruction), network losses increase. Year Fuel for vehicles Fuel for production - generators Cooling Electricity production Electricity consumption Heating Diesel fuel Petrol Diesel fuel Quantity of refrigerant used Type of cooling reagents Solar power plants Green electricit y Electricity for own needs Technologic al losses Vilniaus Šilumos Tinklai from networks L L L KG MWH MWH MWH MWH MWH 2021 42171,28 55945,78 1360 n.d. n.d. 0 0 32508837 318 893, 972 n.d. 2022 45368,1 78664,1 2197 0 0 0 442,084 32 349, 703 346 478,214 185,84 2023 42330 81449 1219 2 R410A 20,183 940,073 33 459,379 336 441,979 178,185 In 2022, Litgrid launched installation of solar panels on the roofs of transformer substations. The following facilities were equipped with the solar panels: • Aleksoto TP; • Paberžės TP; • Švenčionių TP; • Priekulės TP; • Markučių TP; • Plastmasės TP; • Cukrus TP. In 2023, these solar power plants produced a total of 20,183 kWh of electricity. These projects have not been complete yet, therefore, a higher energy production from renewable sources is expected in the future. Interaction with water Litgrid’s main water consumption comes from boreholes. The Company’s water consumption is limited to domestic use and the refill of firefighting tanks. In 2021-2023, water consumption remained constant. Tanks are not equipped with individual water metering devices (their water is not discharged into the wastewater system), therefore the quantity of water used to refill tanks is an approximate number. All of the wastewater produced by Litgrid is treated, with the volume remaining constant. Year WATER USAGE WASTEWATER DISCHARGE Minicipal water supply , m 3 Boreholes, m 3 Total , m 3 Untreated, discharged to third party m 3 Treated discharged, m 3 Total , m 3 GRI 303-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 87 2023 220 4870 5090 220 3123 3343 2022 280 4898 5178 280 2713 2993 2021 n.d. 3256 3256 n.d. 3256 3256 Biodiversity Litgrid is committed to protecting biodiversity when operating, expanding or upgrading the infrastructure of energy systems by carrying out biodiversity monitoring where necessary and, in the event of unavoidable objective circumstances, by planning and implementing the necessary mitigation or compensation measures. Based on the data of 2022, a situation analysis was made by estimating that more than 606 km of the Company’s overhead transmission lines and about 21 km of cable lines pass through protected areas. Litgrid applies bird protection measures for the infrastructure it manages. The aim is to reduce the mortality of migratory birds, to improve the environmental conditions for migratory birds by monitoring bird fatalities near the HV transmission network and to respond accordingly. In 2022, special bird guards have been installed on the 110 kV overhead line pylons to prevent birds from gliding over the insulators with “fork” type devices, and the top insulators in the festoons have been replaced with larger diameter ones. These measures reduce the possibility of short-circuiting when large birds (white storks) land, thus reducing mortality. During the bird nesting season, Litgrid takes measures to minimise interference during maintenance and construction works and to delay the cleaning of the lines. Due to the disturbance of birds during the breeding season, the execution of line clearing works shall be restricted from 1 May to 31 July, and this shall be responsibly assessed prior to the scheduling of project works. Litgrid takes a precautionary approach by carrying out environmental impact assessments when undertaking significant development projects. After carrying out EIA procedures and consulting ornithologists, the Company equips power lines with the bird flight diverters to prevent birds from flying into power lines and to increase the visibility of wires to them. Environmental monitoring is carried out in the post-construction period of 3 years to identify the impact of the transmission lines on bird mortality due to collision with the transmission line wires. During the reconstruction of the 330 kV power transmission line from the Lithuanian power plant to Vilnius, environmental impact monitoring was carried out, consisting of monitoring of environmental components, i.e. birds and natural habitats. In 2023, two dead birds were found: a Eurasian blackcap at the end of September, and a Common buzzard at the end of April. No birds were found dead during the bird monitoring in the spring of 2022. During the autumn survey, the remains of a bird’s feathers were found on the Asakiai-Veličkava transmission line. The body of the bird was not found and the cause of death cannot be determined. In 2021, no birds were found dead. In 2023, the projected vegetation cover in the study area ranged from 85 to 90-95%. 24 taxons were identified. In 2022, the projected vegetation cover in the damaged areas was 80-95%. There are no extant habitats in the immediate vicinity that meet the criteria for EU habitat of conservation concern 6270 “Species-rich grassland and grazed grassland”. In 2021, the fields that were not under cereal crops had a projected vegetation cover of 0-30%. The construction of the 110 kV Pagėgiai-Bitėnai transmission line. The monitoring programme covers the following environmental components: soil (only in 2021), landscape (only in 2021), wildlife (birds). In 2023, as in 2022, no bird contacts with wires were observed. Although studies have shown that predators can carry off dead birds before the bird-watcher finds them, there are usually still feathers at the place of the bird’s death, which can be used to identify the species of the birds killed. No such places where birds were killed were identified during the monitoring, although there was a good chance of spotting them. Monitoring included domestic cats, foxes, martens and ravens. The latter animals were constantly checking the monitored areas, leaving a small opportunity to find a killed bird. The likelihood of finding killed birds is reduced by the presence of crop fields under power lines, therefore, to avoid conflicts with crop owners, the crops in the monitored area were inspected by optical means and by taking photos, which were subsequently analysed to obtain evidence of the actual bird mortality. In 2021, the observed sites were undergoing normal renaturalisation. The landscape monitoring in 2021 concluded that the analysis site is too small to have a visual impact on the skyline. Monitoring the visual impact of the overhead power line on the landscape is a completely redundant activity with no added value. GRI 304-3 GRI 304-4 GRI 304-1 GRI 304-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 88 During the reconstruction, when replacing existing or constructing new pylons, the soil recovery monitoring will be carried out in certain areas after the EIA procedures, where appropriate in line with the legislation. However, after the monitoring, the degree of soil compaction is good and vegetation regains the standard lever of cover, as the same topsoil is returned for use to a specific area. No protected plant species were recorded. There are no direct negative impacts on species listed in the Red Data Book of Lithuania, therefore no specific environmental monitoring is carried out for this purpose. Positive impact Although the environmental project “Installation of the bird protection measures on the high voltage electricity transmission grid in Lithuania” has been completed for a few years now, the Company continues to carry out environmental campaigns and care for Lithuania’s birds. The condition of nesting boxes installed in 2015-2018 was inspected in 2021. It was found that out of 580 nesting boxes, 28 needed to be replaced due to their poor condition, and 3 boxes were lost. As a result, in 2021-2022, in cooperation with the Lithuanian Ornithological Society, new nesting boxes were ordered and installed on the pylons. In 2023, we bought additional 40 nesting boxes for kestrels listed in the Red Data Book of Lithuania. These nesting boxes designed for kestrels are installed on the pylons, and repaired or replaced as needed, thus contributing to the enhancement of the population of kestrels. Climate Impact and GHG Emissions Climate change is one of the greatest human challenges of this century and requires the involvement of both the public and private sectors and everyone to limit the average increase in the Earth's temperature to 1.5 degrees Celsius. The energy sector is top-priority sector for climate policy. Litgrid, as an electricity transmission company, plays an important role in ensuring a smooth and reliable electricity supply in Lithuania. This includes integration of renewable sources into the energy system. Although energy is the engine of the economy, the transmission activities account for a significant share of GHG emissions. The calculation of Litgrid’s greenhouse gas (GHG) emissions is based on the GHG Protocol Corporate Accounting and Reporting Standard, the generally accepted international methodology. GHG emissions are classified into three scopes: direct (Scope 1), indirect (Scope 2) and other sources (Scope 3). Topic Source/Category 2019 2020 2021. 2022. 2023. Scope 1 emissions (tCO 2 e) Total Scope 1 emissions 757,4 389,3 660,7 813,6 596,0 Scope 2 emissions (tCO 2 e) Total Scope 2 emissions - location-based method 59 562,6 91 705,6 76 788,5 90 089,1 88 162,9 Total Scope 2 emissions - market-based method 220 873,1 200 301,2 194 329,9 209 261,0 204 506,1 Scope 1 and 2 emissions (tCO 2 e) Total Scope 1 and 2 emissions (tCO 2 e) 221 630,4 200 690,5 194 990,5 210 074,5 205 102,1 Scope 1 and 2 emissions (tCO 2 e) Decrease compared to base year, % 0 – base yeari -9% -12% -5% -7% Scope 3 emissions (tCO 2 e) Total Scope 3 emissions 0,0 0,0 0,0 34 688,5 59 857,6 Total emissions - location-based method (tCO 2 e) 92 094,9 77 449,2 125 591,1 148 616,6 Viso emisijų - rinkos metodu (angl. market- based method), (tCO 2 e) 221 630,4 200 690,5 194 990,5 244 763,0 264 959,8 * Emissions are calculated using the location-based method based on the level of GHG emissions intensity specific to the country's (Lithuania's) electricity grid, which is directly related to the sources of generation and their relative weight in the country's electricity grid. ** For the market-based calculation of emissions, Litgrid and the EPSO-G Group have chosen to use the derived emission factors calculated by “One Click LCA” - Life Cycle Metrics software using the IPCC Emission Factor Database (EFDB) and the AIB reports. The “market -based method” emission factors were provided to the Group by independent third-party consultants licensed to use the One Click LCA software. The same factors have been used for all reporting years presented in the table as updated factor values have not yet been calculated. *** Litgrid and the EPSO-G Group have chosen to calculate Scope 2 emissions using a local based method, using emission factors based on data published by the Association of Issuing bodies (AIB). GRI305-3 GRI305-5 GRI 305-1 GRI 305-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 89 The Company’s GHG emissions are decreasing: a 7% decrease in emissions achieved in 2023 compared to a base year of 2019 In 2023, Scope 1 emissions decreased due to a lower SF 6 leaks, influenced by the quality facility maintenance and the installation of new SF 6 -free circuit breakers. In 2023, Scope 2 comprised the largest portion of GHG emissions (as every year) due to losses in the electricity transmission network. These losses are due to disconnections and reconstruction works on the network, as well as due to fuel costs for transport. Scope 2 GHG emissions also decrease in 2023 due to a reduction in losses (compared to the base year). In 2023, Litgrid together with EPSO-G conducted inventory of Litgrid’s Scope 3 GHG emissions in 2022-2023. The inventory of Scope 3 GHG emissions covered 7 categories of emission sources, i.e. purchased goods and services, non-current assets, fuel extraction and transport, vehicle emissions, waste generation and disposal, business travel, employee commuting. In Litgrid’s operations, non-current assets, fuel extraction and transport are the largest sources of Scope 3 emissions. In 2022, Litgrid prepared a plan of emission reduction measures until 2030 based on the GHG inventory data. The main measures focus on the most GHG-emitting sources in the operations and include investments in the development of RES production for own use and the use of green energy, as well as the electrification of the vehicle fleet and removal of SF 6 circuit breakers. Waste Management Litgrid’s activities are guided by the principles of pollution prevention and aim to reduce the amount of waste generated in its operations and to ensure safe and responsible waste management. Significant amounts of waste are generated during the construction, reconstruction or repair of electricity transmission networks. In its administrative activities, the company sorts household, glass, paper and plastic waste, with special bins for sorting; separate bins in offices have been eliminated. The Company contracts with specialised companies for the safe treatment and disposal of waste generated by its production activities. In 2023, waste volumes decreased. Waste management Litgrid’s activities are guided by the principles of pollution prevention and aim to reduce the amount of waste generated in its operations and to ensure safe and responsible waste management. Significant amounts of waste are generated during the construction, reconstruction or repair of electricity transmission networks. In its administrative activities, the company sorts household, glass, paper and plastic waste, with special bins for sorting; separate bins in offices have been eliminated. The Company contracts with specialised companies for the safe treatment and disposal of waste generated by its production activities. In 2023, waste volumes decreased. . Metai Hazadous waste, t Non hazadous waste, t Total , t 2023 132,925 1311,404 1444,329 2022 136,622 2113,722 2250,344 2021 175,25 2693,3141 2868,564 2020 202,54 1043,54 1246,08 The table shows only the waste generated and transferred by the Company to waste management facilities. The tables exclude demolition waste (e.g. scrap concrete, glass, ceramics, miscellaneous equipment and other waste) transferred by contractors to waste management facilities during operation or reconstruction, as this type of waste is accounted for by the contractors and fall outside from Litgrid’s total waste accounting. Construction and demolition waste (metals) with a positive market value is included in the Company’s total waste accounting and thereby in the following tables. Most of the Company’s waste is generated during the reconstruction of substations, switchgears and overhead lines: GRI 306-1 GRI 306-2 GRI 306-3 GRI 306-4 GRI 306-5 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 90 In 2021, 93% of the total waste transferred by the Company consisted of construction and demolition waste and 100% of miscellaneous metals (metal structures, equipment and wiring). 96% of hazardous waste consists of insulating oils and hazardous components removed from discarded equipment generated during the reconstruction of substations. Other hazardous waste of greater importance in terms of volume was various batteries accounting up to 4% of total hazardous waste. In 2022, 98% of the total waste transferred by the Company consisted of construction and demolition waste and 99% of miscellaneous metals (metal structures, equipment and wiring). More than 99% of hazardous waste consists of insulating oils and hazardous components removed from discarded equipment generated during the reconstruction of substations. The quantities of other hazardous waste were relatively insignificant. In 2023, 90% of the total waste transferred by the Company consisted of construction and demolition waste and 100% of miscellaneous metals (metal structures, equipment and wiring). 97% of hazardous waste consists of insulating oils and hazardous components removed from discarded equipment generated during the reconstruction of substations. Other hazardous waste of greater importance in terms of volume was large office equipment (printing, copying machines, etc.) accounting up to 2% and miscellaneous batteries accounting up to 1% of total hazardous waste. The annual volume of waste generated by the Company depends on the scope of reconstruction and renovation works carried out in a given year, and can therefore vary considerably from one year to the next. Waste from other than reconstruction and repair activities accounts for a very small proportion of the total annual volume of waste, therefore their change has no impact on the overall statistics.. Year Waste transferred for recycling, t Waste transported for disposal, t 2021 2628 1,262 2022 2113 1,318 2023 1311 1,003 Litgrid consistently checks suppliers for environmental compliance. Number of cases of non-compliance detected during suppliers’ environmental inspections, preventive actions taken Year Number of non-compliances Warnings issued Significant non compliances 2023. 7 0 0 2022 6 2 0 2021. 5 0 0 2020. n.d. n.d. No verification of contractor’s compliance with environmental requirements Although the number of recorded non-compliances increased in 2023, there were no warnings issued or significant non-compliances recorded. In 2023, the Company’s operations complied with environmental requirements and the Company received no penalties in 2023. . Supplier Environmental Assessment The Company’s updated procurement policy also integrates green procurement criteria. The Company aims to reduce its environmental impact and is therefore committed to prioritising green procurement, in line with the Green Procurement GRI 308-1 GRI308-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 91 Objectives set out in the Resolution of the Government of the Republic of Lithuania on the Establishment and Implementation of Green Procurement Objectives, and is committed to achieving the following: - At least 50% of green procurement in 2022 (75% achieved). - At least 100% green procurements every year from 2023 (98% implementation rate of contracts awarded by the Company in 2023, including procurements initiated in 2022. From 2023, implementation rate of contracts initiated and awarded by the Company is 100%. The Company awarded contracts for a total amount of EUR 68,034 thousand (excl. VAT) in 2023, where environmental requirements were imposed on suppliers. Litgrid applies the following environmental criteria: - Procurement of works - a universally applicable ISO14001 standard; - Procurement of goods - (notwithstanding the application of minimum environmental criteria) requirements for packaging recyclability and the use of recycled materials in manufacturing, longer warranty periods, off-peak delivery. - Procurement of services - design services are also subject to ISO14001 standard. The procurement of services related to a source of pollution, e.g. rental of buses and coaches with driver, is subject to the requirements for the application of the Euro5/6 standards; the procurement of event organisation services is subject to the requirements for waste sorting, recycling of packaging. However, we usually procure services of intangible nature, and therefore we take advantage of the requirement exemption. The largest contracts by value subject to environmental requirements: construction of the 110/10 kV Dirvupiai TL of 110 KV power transformer (EUR 11,079 thousand excl. VAT); cabling and installation of a fibre optic cable in the 110 kV double-circuit UL Šiauliai-Gubernija II, Šiauliai-Meškuičiai section between Šiauliai TP and Zokniai TL (EUR 6,960 thousand excl. VAT); operation of 110-400 kV transformer sub-stations in Litgrid’s Southern Region (EUR 5,000 thousand excl. VAT); operation of 110-330 kV overhead lines in Litgrid’s Western Region (EUR 4,700 thousand excl. VAT); operation of 110-330 kV transformer sub-stations in Litgrid’s Northern Region (EUR 4,000 thousand excl. VAT). Facilitating the Growth of RES Well-developed electricity grids within the country, ensuring reliable and secure operation of the transmission system, as well as well-developed infrastructural links with neighbouring countries, provide favourable conditions for increasing electricity transmission flows, thus developing a liquid regional market and creating an attractive infrastructure for investment in energy production. By exploiting these opportunities, the company aims to create the preconditions for a more efficient use of the available capacity of the electricity transmission system. Litgrid, the electricity transmission system operator, has set a target to ensure that there are 0 cases of restriction of RES- generated electricity supply to the transmission grid each year due to breaches of the legislation and/or the terms of the connection agreements. In 2022, Litgrid’s target was 0 cases. The year 2023 was marked by important regulatory developments. Litgrid was instrumental in delivering the following innovations of particular importance to the network: - enabled for connecting up to 3 times larger generation capacities to the transmission network, with up to 100% solar, 100% wind and 100% storage in a single network capacity area; - allowing to avoid “hard limits” (e.g. for commercial solar projects of 2 GW) by ensuring the network security by other means. Additional benefits for those investing in electricity storage are created, leading to an increased interest in new storage projects. As a result of these changes, at the end of 2023 we had a record number of projects under development, with letters of intent for the development of 4,083 MW solar, 2,815 MW wind, and 283 MW storage onshore projects. Additional 1,400 MW are earmarked for offshore wind farms, of which 700 MW we have already awarded in 2023 after the first tender. 2023 was a historic year for green energy in Lithuania. For the first time, the share of electricity generated by renewable energy plants accounts for around 67% of the total electricity generated in the country. In 2022, 60% of the country’s electricity (2021: 48%) was generated by renewable energy plants. The increase in the number of renewable power plants connected to the transmission and distribution grids has led to a significant increase in the amount of electricity. Compared to 2022, electricity production in Lithuania’s wind farms increased by 67% (2021: 11%) and in solar farms by 131% (2021: 74%). The latter is due to the rapid addition of new prosumers. Based on Litgrid’s data, the permitted generation capacity of solar power plants connected to Lithuania’s electricity transmission and distribution networks increased by 538 MW (from 570 MW to 1,108 MW) in 2023, while the permitted generation capacity of wind power plants increased by 265 MW (from 963 MW to 1,228 MW). The total generation capacity from solar and wind resources increased by 803 MW, from 1,533 MW to 2,336 MW. The capacity of other renewable energy sources (biomass/biofuels/hydropower) increased by 98 MW (from 99 MW to 197 MW). The total change for all types of renewable energy was 901 MW (from 1,632 MW to 2,533 MW). ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 92 SOCIAL - Social Sustainability - Market Presence - Employment - Labour Management Relations - Occupational Safety and Health - Training and Education - Diversity and Inclusion. - Non-Discrimination - Freedom of Association and Collective Bargaining - Employee Well-being and Job Satisfaction - Local Communities - Supplier Social Assessment and Human Rights in Supply Chain - Customer Satisfaction - Socioeconomic Compliance ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 93 Social Sustainability Litgrid’s social ambition is to create a progressive, sustainable culture. Inherent elements of this culture include: caring for the well-being and development of employees, fostering a culture of safe work, promoting equal opportunities, building open and mutually trusting relationships with local communities, and ensuring customer satisfaction with the services provided. The Company aims to become an organisation that is perceived by the majority of its suppliers, producers, consumers, employees, communities and other stakeholders as a sustainable organisation. Market Presence Employee remuneration by group, ratio between men and women in 2022-2023: No information was collected for 2021. As from next year, this information will be collected in a systematic and comprehensive manner. Below are the data on the staff remuneration (incl. variable component, pre-tax) for 2021-2023. Year Employee remuneration Average remunerati on Vidutinis mėnesio atlygis pagal amžių Vidutinis atlygis pagal pozicijas Upto 30 years 30-50 yeras 50+ Top level Mid and first line managers Proffesional 2021 3420 2420 3332 3589 8206 4517 2886 2022 3680 2657 3631 4062 8859 5133 3217 2023 4367 3028 4384 4838 10983 6212 3877 Remuneration by category of employees Remuneration by gender Average fixed remuneration (excl. variable component) Men Women Men 2022 2023 2022 2023 2022 2023 CEO 9 583 10 796 - - - - Top Management 7 209 8 124 - - - - Middle and First-Line Managers 4 514 5 515 4 469 5 302 1:0,99 1:0,96 Professionals 2 954 3 485 2 776 3 191 1:0,94 1:0,92 Total 3 317 3 893 3 051 3 462 1:0,92 1:0,89 Average fixed remuneration by gender compared to local minimum wage 1:0,22 1:0,22 1:0,24 1:0,24 GRI 202-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 94 Year Employee remuneration Average remuneration Average monthly by age Average remuneration <30 years 30-50 years 50+ years Top Management Middle and First-Line Managers Professionals 2021 3420 2021 3420 2021 3420 2021 3420 2022 3680 2022 3680 2022 3680 2022 3680 2023 4367 2023 4367 2023 4367 2023 4367 * It must be noted that the average monthly remuneration of a female top manager in 2021, which is higher than that of top male management in 2021, for several reasons: 1. The turnover of male top managers in 2021, several highly-paid positions were vacant during the year; 2. One top manager joined the Company in 2021 and the average remuneration for 2021 excluded variable remuneration component, since it was included in 2022. Year Men’s remuneration Average remuneration Average monthly by age Average remuneration <30 years 30-50 years 50+ years Top Management Middle and First-Line Managers Professionals 2021 3368 2021 3368 2021 3368 2021 3368 2022 3736 2022 3736 2022 3736 2022 3736 2023 4459 2023 4459 2023 4459 2023 4459 Average remuneration grew in 2022-2023. In 2022, it was 7.6% higher than in 2021, and, in 2023, 18.7% higher than in 2022. From 2023, the remuneration system has changed, with a maximum variable component added to the basic fixed remuneration for all employees, based on individual performance appraisals. This is what led to a significantly higher increase in remuneration in 2023. The average monthly remuneration of all employees by age also increases in 2022-2023. In 2022, the largest increase in average monthly remuneration was for employees aged 50 and over (13.2%, compared with increases of 9% and 9.8% for other age groups). In 2023, the largest increase in average monthly remuneration was for employees aged 30 to 50 (20.7%), 19.1% for employees aged 50 and over, and 14% for employees aged under 30. The smallest change was recorded for employees aged under 30, those in associate professional position, building up required know-how, knowledge and expertise, learning and improving in their positions. Average remuneration by statistical category (position) in 2022 compared to 2021 shows the highest increase for middle-level and first-line managers (13.6%), followed by 11.5% for professionals and 8% for top managers. In 2023, compared to 2022, the largest increase was for top managers (24%), while the increase for middle and first-line managers, and professionals was rather similar (20-21%). The significant increase in remuneration is associated with the said changes in the remuneration system. Litgrid is guided by the Employee Remuneration, Performance Review and Training Policy of the EPSO-G Group companies. Key principles of the Policy are the following: - Create motivating incentives and prerequisites to encourage employees to achieve better performance results, to contribute more actively to the achievement of the goals of the Company and the Group, and beyond the formal performance of duties. - Encourage employees to develop innovative, out-of-the-box solutions, and to improve performance. - Ensure equal payment for work equivalent in terms of responsibility, competencies and contribution to the result. - Attract and retain qualified employees. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 95 In line with those principles, the Company’s remuneration system focuses on a combination of financial and non-financial remuneration elements. The remuneration package consists of the fixed component (i.e. monthly remuneration), financial incentive (remuneration paid at the Company’s initiative and discretion based on organizational and employee(s) performance assessment), one-off bonuses, additional benefits and emotional rewards. Emotional rewards are a non-financial component of total remuneration that improve employees’ well-being and encourage employee effort, engagement and loyalty. Additional benefits are available to all employees, and they are defined in Litgrid’s collective agreement and other internal documents. Average remuneration in 2022 compared to 2021 increased slightly more for men than for women: by 11% and 7%, respectively. On the contrary, in 2023 compared to 2022, the average remuneration increased by 19% for men and a slightly higher, i.e. 21%, for women. Consequently, the difference in remuneration growth between the genders disappears during the year, resulting in similar wage growth for both genders over the period 2022-2023. Considering the average monthly remuneration by age group it is evident that the remuneration is higher for women aged 30-50 and 50 and over, whereas for men, the best paid age group is those aged 50 and over. Comparing average monthly remuneration in each gender-age group shows that between 2021 and 2023, men in all age groups received higher monthly remuneration than women in the same age groups. This may be due to the higher number of male managers (managers’ remuneration is higher, which increases the average for men compared to women), and the top managers from 2021 to 2023 were men, with the exception of one female top manager in 2021. In 2022 compared to 2021, women’s average monthly remuneration rise by 7-9% across different age groups, with the highest rise (9%) in the 50 and over age group, while men’s average monthly earnings rise by 9-14%, with the highest rise (14%) in the 50 and over age group. In 2023 compared to 2022, women’s average monthly remuneration rise by 18-24% across different age groups, with the highest rise (24%) in the 50 and over age group, while men’s average monthly earnings rise by 15-21%, with the highest rise (21%) in the 30-50 age group. The pay gap is associated with a higher number of men in managerial positions in an organisation. Looking at average monthly remuneration by position, remuneration paid to men is relatively higher than those of women in the same positions, i.e. for middle and first-line managers compared to male managers in the same position, the pay gap was around EUR 110 in 2021 and 2023, and EUR 320 in 2022. Again, the gap arises as a consequence of the relatively higher number of male managers than female managers, and male managers are more likely to be in upper-middle management, where the remuneration is also higher. The gap is somewhat larger for professionals: In 2021, female professionals earned EUR 250 less than male professionals, and EUR 355 less in 2022 and EUR 313 less in 2023. The gap might stem from the fact that women in the Company tend to be in administrative roles, while men are mainly in engineering and IT roles. Women in engineering and IT roles represent a small minority. Employment 55 new employees were hired in 2021, 90 in 2022 and 85 in 2023. In 2023, voluntary staff turnover was 12.4% (8% in 2022; and 9% in 2021). The table below shows the number and distribution of employees by age/gender group. Year Number of Staff at the beginning of the year Number of Staff at the end of the year Average number of staff Full-time equivalent at the end of the year Number of staff under fixed- term contracts Number of part- time staff 2021 306 335 320 333.8 2 3 2022 335 391 369 388.3 3 7 2023 391 418 407 415.6 6 5 Information on the Remuneration, Performance Assessment and Training Policy, remuneration paid and the Company’s objectives is available on Litgrid’s website. Full-time and part-time employees are subject to equal benefits and allowances, i.e. they are treated equally. GRI401-3 GRI 401-1 GRI 401-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 96 Male employees Year N u m be r of m en num ber of men FTE (full-time equivale nt) Aver age num ber of men Men on patern ity leave (long- term) Men return ed from patern ity leave (long- term) Men under fixed- term contrac ts Me n un der a par t- tim e em plo ym ent co ntr act Men working at the end of the year Men employed Men resigned/dismi ssed Men with more than one year service at the end of the year at the beginning of the year at the end of the year at the end of the year <30 years 30-50 years 50+ years <30 years 30-50 years 50+ years <30 years 30-50 years 50+ years <30 years 30-50 years 50+ years 2021 22 9 255 253.5 242 1 0 2 1 36 158 61 14 27 3 7 9 2 25 132 58 2022 25 5 297 293.8 281 0 1 1 5 33 199 65 15 44 4 3 14 4 18 160 61 2023 29 7 307 305 302 0 0 2 4 37 203 67 18 28 3 6 26 6 22 182 65 The predominant type of contract is open-ended, but, where appropriate, fixed-term contracts are also used (e.g. to cover an employee on parental leave or for project work). The type of employment contract is identified without discrimination in terms of gender, age or any other personal aspects, and it is up to the agreement and needs of the Company and/or the employees. The number of employees grows each year. In 2021-2023, the majority of employees were men (73%). In 2021-2023, the majority of working men and women were in the 30-50 age group, with the trend for the other age groups remaining stable. The trend towards an increasing percentage of female employed is encouraging: while 20% of all employed in 2021 were women, in 2022 this figure had already reached 30%, and in 2023 it was 42%. The largest number of employees resigned in 2021-2023 were in the 30-50 age group. Employees are entitled to guarantees under the Labour Code of the Republic of Lithuania: additional days off for raising children, parental leave and paternity leave. During parental leave, employees have access to health insurance and benefits, receive communication and are invited to the Company’s events and initiatives for employees and children. Increasing number of employees of the Company increases, the number of employees on parental leave tends to increase: 1 woman and 1 man were on parental leave in 2021, 3 women in 2022 and 5 women in 2023. Remuneration of an employee on parental leave is subject to review before his/her return to bring it into line with that of others in the same position, thus maintaining fair pay for all. In 2021 and 2023, all employees returned from parental leave to continue working at the Company, with one female employee transferring from leave to EPSO-G. Female employees Year Nu mb er of wo me n Num ber of wom en FTE (full- time equiv alent) Average number of women Wome n on mater nity leave Wome n returne d from matern ity leave Women under fixed- term contract s Wom en under a part- time empl oyme nt contr act Women working at the end of the year Women employed Women resigned/dis missed Women with more than one year service at the end of the year at the beginning of the year at the end of the year at the end of the year <30 years 30-50 years 50+ years <30 years 30-50 years 50+ years <30 years 30-50 years 50+ years <30 years 30-50 years 50+ years 2021 77 80 80.3 78 1 1 0 2 5 59 16 2 9 0 2 6 0 3 50 16 2022 80 94 94.5 88 3 1 2 2 7 70 17 4 23 0 2 9 2 3 48 17 2023 94 111 110.6 104 5 1 4 1 11 82 18 6 27 3 2 15 3 5 61 16 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 97 Labour Management Relations The Company has a collective agreement with the trade union for electricity transmission network workers, which is effective until 18 February 2026. The agreement applies to all employees of the Company. The Company’s Board determines terms and conditions of employment of the Company’s manager. The collective agreement has been concluded with a view to reaching a long-term collective agreement between the team of employees, their representatives and the Company, confirming the existence of a high-level, harmonious and balanced relationship; to regulate labour relations which are import to the parties and which cannot be regulated without a collective agreement; to establish additional rights and obligations of the parties; to agree on a system of additional benefits for the Company’s employees which allows for a fair and efficient allocation of the limited resources available to the Company for these purposes, in addition to those laid down in the law, ensuring socially responsible and market-competitive working conditions, employee engagement, guarantees and the implementation of the company's strategy. The collective agreement sets the time available for information, consultation, notice and negotiation. The time limits for consultations are applied in accordance with the provisions of the Labour Code of the Republic of Lithuania, but can be shorter if the parties so agree. Collective agreement can be terminated by giving three-month written notice, and immediately initiating negotiations for a new collective agreement. Occupational Safety and Health In 2021, the Occupational Safety and Health Policy, approved by the EPSO-G Board of Directors and applicable to all Group companies, sets out the aim of ensuring safe and healthy working conditions for employees in their workplaces, preventing work-related injuries and occupational diseases, and creating a company-wide culture of fostering a safe and healthy working environment that commits every employee to strive for and contribute to this. Occupational risk assessment was carried out in the Company to manage occupational risks. The assessment looked at physical, ergonomic, biological, chemical and psychosocial risk factors, whereas an accredited laboratory assessed occupational exposure to noise, vibration, lighting or electromagnetic fields. The ergonomic risk factors were assessed by looking at employees’ working posture, repetitive motion and other risk factors. The assessment of psychosocial risk factors identified an acceptable general psychosocial environment in the Company. Litgrid provides its employees with access to employee health insurance services. Each year, Litgrid’s employees have the opportunity to get a seasonal flu vaccine at the Company’s expense – more than a third of the Company’s employees are vaccinated each year. All field workers are vaccinated against tick-borne encephalitis and receive preventive health checks. The company has an Occupational Safety and Health Committee (OSHC), composed of representatives appointed by the Company’s employees. The Committee meets to discuss issues on the occupational safety and health. Employees have the opportunity to consult directly with professionals from the Occupational Safety and Environment Department. All relevant information is accessible to employees on the intranet and in the document management system. Litgrid places great emphasis on raising the competence of its employees in occupational safety issues. This includes not only mandatory briefings for both employees and hired contractors, but also additional training (resuscitation, firefighting), certification of employees, organising and conducting periodic drills. All heads of departments are trained in occupational safety and health. Efforts are made to make all training interesting and informative. Number of workers trained in occupational safety, fire safety, first aid, including certifications: - 526 employees were trained in 2021, 743 in 2022 and 882 in 2023. The average number of training hours per worker in 2023 was 2.1 hours. Litgrid’s Sports and Wellness Embassy, which has been organising the traditional Summer Sports Challenge tournament each year since 2020, also contributes significantly to the well-being and health of employees. This initiative engages a large part of the team to be active in the outdoors during the summer by walking, running or cycling. GRI 402-1 GRI403-1 GRI403-2 GRI403-3 GRI403-4 GRI403-5 GRI403-6 GRI403-9 GRI403-10 GRI403-7 GRI403-8 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 98 In 2023, more than 150 employees took part in the tournament, and running enthusiasts took part in the Vilnius Half Marathon, the Vilnius Marathon and the Christmas Run. In the autumn, we hiked and did team challenges in the Neris Regional Park, while the basketball team resumed its training to take part in several energy sector’s basketball tournaments. Furnishing the head office’s gym with equipment is another fitness project implemented by the Sports Embassy in 2023, providing opportunities for staff to exercise outside working hours. Litgrid employees are subject to periodic health checks according to a schedule, they are vaccinated against tick-borne encephalitis in accordance with the approved list of positions, they have the opportunity to get a flu vaccination if they wish. To reduce the risk of work-related injuries or illnesses, internal controls are in place to monitor operations and organisational processes, to identify non-compliance with regulatory requirements, and to develop risk mitigation measures. Given the existing situation, departmental audits are carried out on annual basis. In 2023, a comprehensive occupational risk assessment was carried out and a plan on risk management measures was developed. The requirements of internal health and safety legislation are brought to the attention of all employees, taking into account their roles and work to be done. Employees are trained to use cardiac defibrillators installed in the Company’s buildings. Firefighting and evacuation drills were held for employees will help to respond promptly and properly in the event of a fire. Employees performing work of increased risk are trained in specialised companies: 7 employees were trained in 2023, 13 in 2022 and 22 in 2021. Employees involved in the maintenance, technological control and operation of electrical equipment are certified prior to commencing work and periodically thereafter, in accordance with the procedure established by the legislation. 89 employees were certified in 2023, 46 in 2022 and 35 in 2021. In 2023, the Company certified its occupational safety and health management system to ISO 45001. The area of certification: the activities of an electricity transmission system operator, balancing of the electricity system, and maintenance and development of the transmission network. The management system applies to all employees. One of the most important strengths of Litgrid as a whole is its experienced and competent employees, whose safe working environment, well-being and health are a prerequisite for the implementation of the strategy and goals. Litgrid strives to ensure that no serious or fatal accident occurs each year in the course of its operations, either among its employees or among contractors and subcontractors hired to carry out the work. Accidents at work in Litgrid until 31 December 2023: Light accidents (number) Serious accidents (number) Fatal accidents (number) 2023 0 0 0 2022 0 0 0 2021 0 0 0 Accidents in Litgrid’s facilities involving employees of contractors, subcontractors. Light accidents (number) Serious accidents (number) Fatal accidents (number) 2023 m. 2 1 0 2022 m. 0 0 0 2021 m. 0 0 0 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 99 No work-related health problems or occupational diseases were identified. Training and Education The Company continuously encourages and creates opportunities for employees to develop their skills and qualifications. Average number of training hours per year per employee in structured training and conferences was around 17 hours in 2023, 24 hours in 2022, and 22 hours in 2021. The aim is to develop employees' professional (functional) and generic (values-based) competences. The ratio of investment in the different competency areas over the last three years represent around 70% for training in the professional qualification profile and around 30% for strengthening general, leadership and managerial competences. To support and reinforce the area of people management, and the quality of management processes, a strong emphasis is placed on the development of management’s leadership and managerial excellence. In 2021-2023, the management team training encompassed different topics from (but not limited to) attracting, selecting and adapting team members to emotional intelligence, feedback, performance management, development and career conversations. Staff development is based on the 70-20-10 principle, whereby 70% of development, improvement and learning activities take place through the staff member's work experience, 20% through interaction and collaboration with colleagues and managers with diverse experiences and competences, and 10% through structured training events. Staff development activities are planned in relation to strategy, values, performance appraisal, competency model, shift planning, assessment of professional and technical skills. The company aims to provide its employees with opportunities to learn and develop, to broaden their knowledge and horizons, and to participate as effectively as possible in the implementation of Litgrid’s strategic goals. All employees are given the opportunity to acquire or update the knowledge and skills necessary to perform their direct work. Both the individual employee and the organisation are committed to the development of competences relevant to the employee and the organisation's activities, and the development system includes not only formal training, but other forms of development and learning. The Company does not organise centralised large-scale retraining programmes, as recruits employees on a targeted basis according to the company's needs and functions. In cases of internal career progression, change in responsibilities or recruitment of a less experienced professional, where there is a need to acquire additional competences, an employee, together with his/her line manager, prepares an individual learning plan, encompassing different growth measures. A training programme is organised to strengthen management skills for employees promoted from professional to managerial positions, which includes matters on changes in responsibilities and adaptation to the new position. Based on the Company’s competency model, we focus on strengthening general, managerial and leadership competencies, and periodic assessments of these competencies allow us to monitor our progress for both employees and managers. In key areas of the Company’s operations, we assess not only current professional competences, but also future functional competences that will be required for the company's long-term operations. Engineering employees participate in refresher training and acquire the necessary knowledge and skills related to energy engineering, equipment and technologies used in the company's operations. Project management training helps grow our team of project managers. The programme for preparation for the project management professional certification was implemented in 2023. Particular attention is devoted to training in digitisation, analytics and programming tools. The Company periodically develops the digital literacy of all its employees, both internally and through external consultants. Various educational events held comprise topics of equal opportunities and inclusion, individual efficiency, health and well-being, and social responsibility. The performance and career progression of all the Company's employees is regularly reviewed at least once a year. Employee performance is evaluated on different dimensions and at different intervals, depending on the nature of the employee's activities and responsibilities. An annual performance appraisal, which takes place once a year, in which the employee and the manager discuss and evaluate the achievement of the employee's annual objectives and competences, and the manager determines the overall result of the performance appraisal. Project-based performance appraisal, which assesses the results achieved by staff members in projects or phases of projects, based on established indicators. All employees (100%) are subject to regular performance and career development reviews. Diversity and inclusion At the end of 2023, the majority of employees were men (73%), and women accounted for one quarter (27%). A similar situation has existed in the Company for a number of years due to the stereotypes in society where energy and engineering is considered a masculine profession. The Company contributes to efforts to change this stereotype by taking part in various projects and by communicating on social networks and media that this profession is well suited for both men and women. In all of the Company’s job advertisements we have added feminine wording to attract the best candidates. On the Company’s intranet, we share across the entire organization the stories and interviews of the Company’s women who have become leaders, celebrating their achievements within the Company and encouraging others to follow suit. GRI 404-3 GRI 404-1 GRI 404-2 GRI 405-1 GRI 405-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 100 In 2022, the Company adopted its priorities and indicators for equal opportunities, and set the goal to measure the gender balance in certain positions: to improve or at least maintain the same proportion of women in IT, engineering and managerial roles. In 2022 and 2023, the share of women in IT positions and managerial positions remained the same (14% of women and 86% of men in IT positions and 23% of women managers and 77% of men managers), while in engineering positions the share of women increased from 11% to 12%. Priorities of equal opportunities KPIs of priorities of equal opportunities Indicator achieved in 2022 Indicator achieved in 2023 Improving gender balance in IT positions Number of women (%, share of women) in IT positions 14% 14% Improving gender balance in engineering positions Number of women (%, share of women) in engineering positions 11% 12% Improving gender balance in managerial positions Number of women (%, share of women) in managerial positions 23% 23% From an age perspective, the Company has employees of all ages. The majority of male and female employees are in the 30-50 age group (68% of all the Company’s employees, or 74% of all women and 66% of all men). 16% of all employees are men aged 50 and more, compared to 4% women in this category. 8% of all employees are men aged under 30, compared to 2% women in this category. Litgrid’s Board is a collegial management body of the Company, consisting of five members. The Board members are elected for a term of four years by the General Meeting of Shareholders, taking into account recommendations of the Remuneration and Nomination Committee. EPSO-G (a group of energy transmission and exchange companies) has announced about the election of candidates to the position of Board members of Litgrid. Civil servants and EPSO-G nominees must apply by 8 January of the following year, and candidates for independent board members by 31 January of the following year. Litgrid’s Board consists of five members, is elected for a four-year term. The term of office of the current Board will end in April 2024. Effective corporate governance of Litgrid relies on efficient organizational structure and a competent management team with extensive expertise in business and the energy sector. Rokas Masiulis, CEO, Donatas Matelionis, the Head of System Department, Vidmantas Grušas, the Head of Transmission Network Department, Liutauras Varanavičius, the Head of Strategic Infrastructure Department, Mindaugas Ivanavičius, Deputy Head of Strategic Infrastructure Department, Mindaugas Ivanavičius, the Head of Synchronisation Project Implementation Centre, Ignas Junevičius, the Head of Renewable Energy Resource Centre, Vytautas Tauras, the Head of Finance Department, Apolinaras Škikūnas, the Head of ITT and the Head of Administration Department. In 2022, the overall men/women wage ratio was 1:0.92; and 1:0.89 in 2023. For more information on labour relations, see topics “Market Presence” and “Employment”. Non-Discrimination The Company’s strategy sets a target of 0 justified cases of discrimination from 2023. There were no justified cases of discrimination recorded by Litgrid in 2021-2023. Priorities of equal opportunities KPIs of priorities of equal opportunities 2021 2022 2023 Discrimination prevention 0 justified cases of discrimination (disability, sex, age, etc.) 0 0 0 Litgrid prohibits any form of discrimination and does not tolerate psychological violence, bullying or abuse of position. Group companies respect and protect the rights of every employee, treat them with respect and fairness, provide safe working conditions that meet their needs, promote their personal and professional development, and do not discriminate against employees in any form. GRI 406-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 101 Odeta Zubrienė, the Head of People and Culture, is responsible for the implementation of the provisions of the Equal Opportunities Policy in Litgrid. "Litgrid has in force since October 2022 the Description of Procedures for the Prevention of Discrimination, Violence and/or Harassment and Sexual Harassment, which sets out the main principles of the prevention of discrimination, violence and/or harassment and sexual harassment in the Company and the procedures for their implementation. An Employee who wishes to make a formal report of discrimination, violence and/or harassment or sexual harassment, or any employee who observes or receives information about possible discrimination, violence and/or harassment or sexual harassment, may make a report in the following ways: 1. To a dedicated email address - [email protected]; 2. By completing the online reporting form on the website https://pranesk.epsog.lt; 3. By sending the information by post to the Company's registered office; 4. Directly to the employee directly responsible for equal opportunities or, in his/her absence, to a substitute employee. The Company shall allow the person to submit the report both anonymously, in particular in cases where the identification of the person is not necessary for the investigation of the report (e.g., reporting harassment of another person by specifying the person who has been harassed or assaulted and the alleged violator of the present schedule of procedure), and by disclosing his/her identity. All reports received shall be recorded and must be investigated. The internal investigation shall be carried out within the shortest possible time, but not more than 30 calendar days from the date of receipt of the report, with the possibility of an extension of another 30 calendar days. The findings of the internal investigation committee, as approved by the internal investigation committee, shall be submitted to the company's head of management, who shall decide whether to open an investigation into the breach of labour law or to take other measures, if necessary. The persons concerned (the victim and the complainant) shall be informed in writing of the conclusion. Depending on the nature of the breach, the employee may be subject to disciplinary action for breach of his/her duties. As part of the efforts to train staff to recognise discrimination, in 2022, all employees were provided with the training on equal opportunities and prevention of discrimination, on psychological violence and prevention measures; management was provided with the training on recruitment process and equal opportunities, and the memo was drawn up for managers regarding in/appropriate questions during job interviews. Employees are constantly reminded of the prohibited grounds for discrimination, as set out in Article 26 of the Labour Code of the Republic of Lithuania and the Company’s Description of Equal Opportunities Procedure. From 2024, all existing and new staff will be required to undergo 1.5-hour e-learning on psychological violence. The Company’s strategy sets a target of 0 justified cases of discrimination from 2023. There were no justified cases of discrimination recorded by Litgrid in 2021-2023. For the second year in a row, the engagement survey asks employees their perception of the Company’s commitment to equal opportunities and non-discrimination. The Company is succeeding in creating a climate of tolerance, non-discrimination and equal opportunities, as this was identified by 90.5% of all our colleagues in the engagement survey in 2022. In 2023, 90.29% of our colleagues who took part in the survey supported this statement. Priorities of equal opportunities KPIs of priorities of equal opportunities 2022 2023 Employees see Litgrid as an equal opportunities employer According to employees, Litgrid ensures equal opportunities (% of employees) 90.5 90.29 For several years, the Company has an Equality Embassy, a voluntary group of employees, aimed at encouraging, supporting and, through its activities and initiatives, making Litgrid a great and safe place for everyone to work. In 2023, rounds of discussions were held for meaningful conversations about the principles of equality and diversity culture. The aim of these workshops was to clarify and identify agreements reached by Litgrid team on the internal communication and cooperation culture. We celebrate important dates dedicated to equal opportunities and human rights. November is dedicated to equal opportunities, with initiatives, training and articles on this topic. Every year on 10 December, the Company commemorates International Human Rights Day by organising a training session or issuing an educational article on the intranet, or by engaging in other activities to remind people of their inherent rights and the fight for them. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 102 In 2023, Litgrid was awarded with the highest rating from the Office of the Equal Opportunities Ombudsman – three equal opportunity wings out of a possible three. They were awarded to the Company for the following: - endorsing the Equal Opportunities Policy and the procedures for its implementation; - a transparent and publicly accessible remuneration system for employees; - setting the priorities for equal opportunities; - introducing a procedure for reporting discrimination; - making public appearance as an equal opportunities employer, by indicating this commitment in job advertisements and by actively communicating its equal opportunities initiatives to the public; - an impartial grievance mechanism, integrating equal opportunities into the Company’s code of conduct; - involving managers and employees in equal opportunities initiatives through training and educational events, and consultations with employees and managers in the development of internal policies on equal opportunities. The “three wings” award highlights the organisation’s efforts in creating and actively promoting an equal opportunities culture (the organisation had to meet 12 criteria that measure the organisation’s commitment to equal opportunities). The Company in its activities adheres to universally accepted human rights principles and supports the United Nations Global Compact principles on labour and human rights. The principles on human rights are defined in the Company’s or EPSO-G’s Code of Conduct and the Supplier Code of Conduct. We have a zero-tolerance approach to discrimination in the work environment, or harassment based on age, race, gender, sexual orientation or identity, disability, or any other personal characteristic not directly related to the job. There were no cases of discrimination in the Company during the reporting period. Equal opportunities measure 2022 2023 Provide training to ensure equality and diversity within the organisation Implemented Implemented The organisation has set priorities and indicators for equal opportunities Set for 2022-2025, indicators are monitored Implemented ≥ 3 internal initiatives per year on equality and diversity Implemented 5 internal initiatives Implemented 5 internal initiatives The highest rating (not less than Equal Opportunity Wings) was awarded by the Office of the Equal Opportunities in 2023. - 3 Equal Opportunity Wings Demonstrate leadership in equal opportunities through selected actions Implemented Implemented Freedom of Association and Collective Bargaining Litgrid has a trade union and a collective agreement, which sets out working, remuneration, social, economic and professional conditions and guarantees that are not regulated by law or other normative legal acts. The collective agreement provides employees with additional financial guarantees (benefits in the event of accidents, sickness, death of relatives, support for new- born or adopted (taken from foster care) child, support for raising three or more children or a child with disabilities, for single parenting, additional days of leave (for new-born or adopted (taken from foster care) child, death of a relative, etc.), and other guarantees. Unionised workers and the proportion of workers covered by a collective agreement: Profesinei sąjungai priklausantys darbuotojai Darbuotojų dalis, kuriems taikoma kolektyvinė sutartis 110 100% GRI407-1 GRI 407-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 103 Employee Well-being and Job Satisfaction Litgrid is building an open, progressive and sustainable organisation, where professional partnership between employer and employees prevails, each employee has opportunities for self-development, grows with the organisation and is able to take responsibility for his/her own decisions. Litgrid is guided by the Employee Remuneration, Performance Review and Training Policy of the EPSO-G Group companies. Key principles of the Policy are the following: - Create motivating incentives and prerequisites to encourage employees to achieve better performance results, to contribute more actively to the achievement of the goals of the Company and the Group, and beyond the formal performance of duties. - Encourage employees to develop innovative, out-of-the-box solutions, and to improve performance. - Ensure equal payment for work equivalent in terms of responsibility, competencies and contribution to the result. - Attract and retain qualified employees. In line with those principles, the Company’s remuneration system focuses on a combination of financial and non-financial remuneration elements. The remuneration package consists of the fixed component (i.e. monthly remuneration), financial incentive (remuneration paid at the Company’s initiative and discretion based on organizational and employee(s) performance assessment), one-off bonuses, additional benefits and emotional rewards. Emotional reward is a component of total remuneration that is difficult to measure in monetary terms but improves employees’ well-being and encourage employee effort, engagement and loyalty. Components of an emotional reward at Litgrid comprise: - Meaningful company performance, stability and a sense of security; - A professional team and a working environment that promotes efficiency; - A values-based organisational culture; - Interesting, challenging work content, international projects and unique experiences; - Recognition, growth, and career opportunities. These measures contribute to the well-being of employees and the development of the Company’s culture, maintain organisational integrity, ensure equal opportunities, and transparent and objective appraisal of employee performance. The Company measures emotional well-being. In 2020, with the onset of the Covid pandemic and the shift towards working from home, it was important to learn about the team’s well-being and what could be improved through the Company's initiative. A survey carried out that year showed that employees feel good, with 79% of the employees rated their well-being and emotional state as good. In 2022, the Company set target indicators and priorities for equal opportunities, aiming to improve this indicator every year. The emotional well-being indicator was 82% in 2022, and 83% in 2023. Priorities of equal opportunities KPIs of priorities of equal opportunities 2020 2021 2022 2023 Team emotional well-being measurement Team emotional well-being pulse (employee tolerable emotional state, %) 79% Not measured 82% 83% The Company committed to maximising the involvement and favourable working conditions for remote employees, e.g., efforts are made to replicate, to the greatest extent possible, all ongoing initiatives in Vilnius in remote units, or to find an alternative. Local Communities The Company places great emphasis on engaging with the communities where it has ongoing activities, plans to carry out or carrying out works that affect the environment and quality of life of residents. In the districts where works are scheduled, visits of the Litgrid’s representatives to municipal offices are planned in advance, municipal administrations, mayors, and elders are provided with the plans and deadlines for the works, as well as the contact details in case of any inconvenience to the residents. In 2023, the districts of Joniškis, Kretinga, Vilnius and Šilutė were visited. Once works are commenced, Litgrid contractors inform local communities in advance about projects in their neighbourhood. During the implementation of the projects, the timing of works is coordinated with the residents. The aim is to minimise inconvenience to residents throughout the project. GRI 413-1 GRI 413-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 104 In areas where operating equipment cause noise, Litgrid carries out noise measurements, participates in meetings with residents and resolves any issues that arise. In 2023, an installation of a noise barrier was initiated in the Alytus district near the LitPol Link substation operated by Litgrid. Contributing to causes that are important to society or the local community, the company continued to encourage voluntary, unpaid involvement of employees in charitable activities in 2023. Employee volunteering is encouraged and is allocated 1 day per year in accordance with the collective agreement applicable to all employees. The Company organised a traditional forest planting event, employees volunteered in the initiatives of the Food Bank, and volunteers from Litgrid organised the accommodation and integration of the families of Ukrainian electricity transmission system employees in Lithuania. In 2023, Litgrid organised a traditional forest planting event where, together with Litgrid colleagues, the families of the employees of the Ukrainian electricity transmission system company Ukrenergo planted a forest under the auspices of the company. Since the beginning of the war, Litgrid has organised the accommodation of 100 people in Vilnius, helping them to integrate and deal with the daily challenges of moving to another country. Following a request for assistance from the Ukrainian electricity transmission system operator, the Lithuanian Electricity Transmission System Operator provided support for equipment for the restoration of the electricity grid in Ukraine: it shipped 110-330 kV primary equipment, current and combined transformers, insulators, current transformers and splitters, and a 330/110 kV autotransformer. The equipment available in Lithuania is technologically suitable for the reconstruction of the Ukrainian grid, making Lithuania one of the most important suppliers of equipment to the war-torn country. Supplier Social Assessment and Human Rights in Supply Chain In 2023, the EPSO-G Group Executives’ Committee set a target for at least 5% of THE Group companies’ purchases to include social criteria. In 2023, Litgrid incorporated social criteria into its procurement procedures, in line with the objectives set by the EPSO-G Group Executive Committee. To achieve this 5% target, the following actions were taken: - Integration of social criteria: - new material from the Public Procurement Service (PPS) on social criteria was analysed, structured and narrowed down by preparing the Socially Responsible Procurement Toolkit, a summary document. - The Socially Responsible Procurement Tool was shared with employees of the Group’s companies and additionally uploaded to intranet. - Training on the application of social criteria was recorded on the basis of the PPS material. The training was shared with employees of Group companies. This material will ensure deeper employee understanding and will assist in application and development of social criteria in future procurement. Future plans involve further increase in the application of social criteria, to improve measurement tools and to encourage suppliers to adhere to high standards of social responsibility. Litgrid is committed to reducing negative social impacts in the supply chain. Actions taken in 2023 include: - Screening of suppliers: As part of a rigorous supplier screening process, all potential suppliers were screened for their past activities, including unfair competition, fraudulent misrepresentation, professional misconduct, and breaches of financial reporting and auditing laws. - Informing suppliers: Suppliers were informed about Litgrid’s expectations regarding social criteria and compliance with legislation. Litgrid understands that integrating social responsibility into the supply chain is a process that requires continuous attention and improvement. The Company is committed to further intensify its efforts in this area and reinforce action plans to ensure a positive impact throughout the supply chain. The Company’s procurement is primarily based on transparency, ethical behaviour, equity, promotion of competition and proportionality, enhancing transparency in procurement processes and strengthening anti-corruption measures. The implementation of the ESG policy will not have a significant impact on the financial indicators, as under Lithuanian regulation all reasonable costs of the Company’s regulated activities are reimbursed through the revenue from regulated activities. GRI414-1 GRI 414-2 GRI408-1 GRI407-1 GRI409-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 105 The Company has not identified any supplier companies or activities in its supply chain exposed to forced or compulsory labour, child labour and/or hazardous labour of young workers. The Company has also not identified any cases of violation of employees’ rights to freedom of association or collective bargaining in suppliers’ companies. Litgrid aims to actively contribute to the implementation of the human rights and equal opportunities goals of the United Nations 2030 Agenda for Sustainable Development and the equal opportunities obligations set out in national laws. Customer Satisfaction One of Litgrid’s key objectives is to increase customer orientation in order to create a customer-oriented organisation. Group- wide customer satisfaction surveys based on GCSI and NPS methodologies were conducted for the first time in 2021 (carried out on regular basis since 2021) and, over the last few years, have exceeded a score of 80. This score places it among the market leaders, which are companies with a GCSI score above 80. The GCSI index consists of a score from 0 to 100, calculated by assessing three criteria: overall satisfaction with the company, its compliance with expectations and its comparison with an imaginary ideal company. The survey confirmed that customer satisfaction with Litgrid’s services remains relatively high: Litgrid GSCI results KPI 2021 79 - 2022 84 ≥80% 2023 81 ≥80% In 2023, a separate GCSI survey was carried out for the first time with a new group of customers, RES developers. The overall GCSI score was 57. The survey was aimed at identifying specific needs of this group of customers and tailoring actions to meet those needs best. Socioeconomic Compliance „ Litgrid was not involved in legal proceedings with natural persons from 01/01/2021 to 31/12/2023. Almost in all the proceeding from 2021 to 2023, Litgrid acted as a defendant, and initiated only 1 legal proceeding, which resulted in a settlement agreement in 2023. In 2021, 15 cases were heard, of which: 6 were dismissed, 3 were left unexamined, 2 ended in a settlement agreement, 1 case found Litgrid’s failure to conclude a public procurement contract to be unlawful, 2 were terminated by dismissal of the action, 1 was upheld, and Litgrid was obliged to pay EUR 7,000.57 and 5% interest. In 2022, 8 cases were heard, of which: 1 ended in a settlement agreement, 6 were dismissed, and 1 was upheld, and Litgrid was obliged to pay damages of EUR 672,878.32. In 2023, 8 cases were heard, of which: 5 were dismissed, 1 was terminated by dismissal of the action, and 2 ended in a settlement agreement (in one legal proceeding Litgrid was a plaintiff). GRI419-1 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 106 Economic (management) - Sustainable Investment - Infrastructure Development - Strategic Partnership - Compliance Management - Data Protection and Privacy - Anti-Corruption and Anti-Competitive Behaviour - Digital Technologies - Innovations ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 107 Sustainable investment The strategy, which was renewed in 2023, maintains the focus on the implementation of strategic synchronisation projects that will ensure successful synchronisation with continental European networks. In 2023, the isolated operation of the Lithuanian electricity system was successfully tested, and an agreement was reached at technical and political level on synchronisation with continental Europe in February 2025. Transforming the energy system requires strong collaboration, therefore we set the goal to become a customer-focused organisation developing innovative and flexible services in line with the customer expectations. Therefore, review of customer journeys, a system of continuous feedback and tracking of key indicators will keep us informed of our progress in meeting customers’ needs at all times. Customer satisfaction rating remains stable, keeping us among the companies of the leading standard (GCSI was 84 in 2022, and 81 in 2023). As part of our digital transformation, we aim to open up data for faster and smarter solutions, delivering sustainable shareholder value. In 2022, the technological solution of the data exchange platform ESB (Enterprise Service Bus) was deployed to increase the maturity of data management, and therefore the level of data management and openness is increasing. We have a strong focus on innovation. We are tracking our indicator of the implementation of breakthrough innovation, and have already implemented 8 breakthrough innovations since 2021. One of which is the “Variable Line Capacity” pilot project, implemented in 2022, which has facilitated the application of smart technologies in the electricity transmission network, and is currently being further developed for practical application. In our 2023 long-term strategy, we clearly identified areas for sustainable development in the organisation, strategic goals, indicators and actions for achieving these goals. In 2022, we developed our environmental impact reduction plan for 2030 and integrated related actions into Litgrid’s Operational Plan for 2023-2025 and Procurement Plan for 2023. To ensure the lowest prices for consumers, we use every opportunity to attract support from EU Structural Funds and CEF programmes for investment projects. EUR 8.1 million from the EU Structural Funds and EUR 7.7 million from the CEF were obtained to finance the investments in 2022, while EUR 5.2 million and EUR 8.3 million, respectively, will be obtained in 2023 Investment portfolio approved in 2021 Investment portfolio approved in 2022 Investment portfolio approved in 2023 Category Number of investments Estimated amount (EUR thousand) Actual amount (EUR thousand) Number of investments Estimated amount (EUR thousand) Actual amount (EUR thousand) Number of investments Estimated amount (EUR thousand) Actual amount (EUR thousand) Number of investments Suma (tūkst. Eur) Strategic national projects 12 36 981 33 438 11 71 260 22 605 13 89 796 105 467 13 125 528 New construction 1 44 44 1 2 156 500 2 1 460 645 5 580 ITT projects: Technology Management Network, Physical and Information Security, Information Systems Development (intangible assets) 18 1 215 1 350 17 3 581 1 841 31 2 747 907 34 11 815 ENU initiative. Connection of producers to 110/330 kV TL, connection of consumers to 110 kV TL, reconstruction of TL for ESO, Cabling or replacement of OL 13 1 558 939 6 1 011 646 31 3 342 3 253 65 10 422 Major overhauls. Replacement of 330 kV and 110 kV wires and poles in 330 kV ETL, and 110 kV PPAs, purchase of non-mountable equipment and supplies 26 5 238 3 713 27 8 159 3 314 66 13 886 7 540 108 17 778 Network restoration and modernisation. Restoration and modernisation of 110 kV ETL. 5 160 0 6 1 591 1 293 9 5 379 Network restoration and modernisation. Restoration and modernisation of 110 kV ETL. Southern 11 2 552 1 146 14 2 802 1 961 15 7 533 5 468 18 12 196 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 108 Infrastructure Development. Economic Performance (directly related to the performance) In 2021-2023, the number of Litgrid’s investments increased due to new investments in the main overhauls and electricity network user (ENU) initiatives leading to a significant increase in the number of investments from 123 units to 212 (72%).. Investment plans have also evolved, increasing from EUR 63.97 million in 2021 to EUR 157.02 million in 2023. Strategic national projects (synchronisation programme) and projects in the category of network restoration and modernisation investments constitute a significant part of investments. Once implemented, these projects will benefit the community and the Company by significantly increasing the reliability of the network, reducing electricity losses and thereby financial losses. In 2023, Litgrid generated revenues of EUR 369.8 million. EUR 40.3 million was allocated to direct expenses, of which EUR 17.6 million were payroll expenses, EUR 9.4 million the repair and maintenance of the electricity network, EUR 5.1 million national taxes (including fee payable to the National Energy Regulatory Board), and the remaining amount was allocated to other operating costs. Litgrid is a monopolist which is regulated by the state authorities and which all the expenses necessary for its regulated activities are covered, including the climate change risks. The Company has no influence over these expenses. A climate risk assessment was carried out in Litgrid, findings of which showed that the exposure of Litgrid’s operations to climate risks is very low. In this context, we consider that the Company will not be exposed to climate-related financial risks. In 2023, income tax incentive for investments was introduced in line with legislative requirements. For more information on the Company’s financial data, see the Annual Report on p. 32 Region Network restoration and modernisation. Restoration and modernisation of 110 kV ETL. Eastern Region 14 3 780 2 556 15 5 667 4 017 13 7 186 6 206 17 5 919 Network restoration and modernisation. Restoration and modernisation of 110 kV ETL. Northern Region 6 1 562 1 169 6 1 843 561 9 750 1 299 12 6 900 Network restoration and modernisation. Restoration and modernisation of 110 kV ETL. Western Region 8 2 184 1 173 7 1 011 1 089 10 2 635 3 739 11 5 806 Network restoration and modernisation. Restoration and modernisation of 330 kV ETL. 2 3 607 2 369 5 8 300 14 257 5 2 364 2 265 10 4 231 Network restoration and modernisation. Restoration and modernisation of 330 kV TL. 7 4 801 4 000 4 2 732 4 342 5 22 639 22 391 6 19 056 Network restoration and modernisation. Technological protection and control equipment 3 223 23 2 106 4 342 5 954 65 7 1 384 Research and innovations 2 231 82 1 214 814 1 142 70 13 557 Grand Total 123 63 976 52 005 121 109 004 60 291 212 157 024 160 608 328 227 551 GRI 203-1 GRI201-1 GRI201-4 GRI201-2 GRI 201-3 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 109 Strategic Partnership We understand that some of our strategic sustainability goals will only be achieved through cooperation with partners, sharing of experience and learning from others. Our long-term strategy provides for investments in effective energy-related solutions for implementation of which we are going to join efforts with other energy sector companies, collaborate with energy experts and other partners We will work together to find common solutions for development and improvement of activities and for transition to renewable energy systems which is beneficial both to our partners and the society. In development of strategic partnership, we are guided by the good practices of the country, the region and the neighbouring states: in the future, we plan to assess the quality of our business partners. Litgrid actively shares its experience with foreign colleagues not only through associations or working groups, but also through initiatives of bilateral cooperation with other European and global energy experts. In 2021-2023, we teamed up with colleagues from the US, Japan, Denmark, Belgium, Germany, Ireland, Spain, the Netherlands and other countries, on topics such as sustainability, the integration of renewable energies, and offshore wind development. In 2021 and 2022, we were working with TEPCO, the Tokyo Transmission System Operator, on two studies for onshore and offshore RES integration. In 2023, we completed a smart grid pilot project with our Slovenian colleagues. Since 2021, together with our German colleagues, we have been analysing the need for interconnections in the region, and in 2023 we initiated a project to analyse the concept of the Energy Hub, assessing different possible scenarios for grid development. The analysis is scheduled to be completed in Q1 2024. ENTSO-E The Company actively participates in the activities of ENTSO-E which represents 40 electricity transmission system operators from 36 countries. The Company’s representatives are involved, as permanent members, in the activities of ENTSO-E’s committees and work groups that at the expert level implement joint projects ensuring smooth operation of the European transmission network, prepare and examine legal acts, methodologies and other documents regulating the operation of the electricity system that are relevant to the EU Member States and establish uniform operation conditions and rules for the European TSOs. Participation in the activities of ENTSO-E strengthens cooperation with other European transmission network operators and it’s crucial for Litgrid not only in implementing one of the priority tasks of the Lithuanian energy sector, i.e. integration into the synchronous zone of continental Europe, but also in developing the offshore grid for electricity transmission in a sustainable and integrated manner and ensuring effective implementation of the European offshore wind strategy. In the ENTSO-E format, we are actively involved in the preparation of the European 10-year network development plan (TYNDP 2022 and 2024), the regional long-term adequacy assessment (ERAA 2021, 2022, 2023), the seasonal network adequacy assessment reports, the electricity market design changes, the drafting and updating of the network codes, and other topics. BEMIP (Baltic energy market interconnection plan) The objective of the BEMIP is to create operational and integrated electricity and gas markets, ensure necessary energy infrastructure aiming to create a competitive, sustainable, safe electricity market in the Baltic Sea region. Electricity-related commitments of Lithuania to BEMIP are implemented by Litgrid through the implementation of the projects ensuring integration to the synchronous zone of continental Europe and performance of preparatory works for offshore wind development in Lithuania. In 2021-2023, we participated in the development of the List of projects of common interest (PCI) list, provided information on the Baltic Synchronisation Project and ensured its inclusion in the list. We have also been involved in the activities of the BEMIP Offshore Wind Working Group (WG), monitoring the regional processes of offshore wind development. Steering Committee for the Baltic Sea Transmission System Development In 2020, the Company together with other six transmission system operators of the Baltic Sea region signed the cooperation memorandum on offshore wind energy development in the region. Within the framework of cooperation the Steering Committee for the Baltic Sea Transmission System Development was established which, with the help of the target working groups, will focus on assurance of adequacy of the electricity transmission system of the Baltic Sea region, integrity of the development of the onshore and offshore grid for electricity transmission, and will aim to develop common principles for the planning of the Baltic Sea network and to conduct studies allowing to form a common vision for offshore wind network development in the region ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 110 The Baltic Offshore Grid Initiative (BOGI) is one of the working groups under the auspices of this Committee. In 2023, it was responsible for the preparation of the Baltic Offshore Network Development Plan (BONDP). Litgrid representatives strongly engaged in the working group, provided data on national offshore wind projects and related issues, and contributed to the preparation of joint development scenarios for 2040 and 2050. The Company’s interests are also represented at the following associations: - Polish-Lithuanian Chamber of Commerce - CIGRE - Lithuania’s National Energy Association (Lith. NLEA) - EnergyTech group As a member of the above-mentioned associations Litgrid maintains closer cooperation with the regional and national partners, ensures the representation of the Company’s interests, more effective implementation of the strategic projects and communication with the related parties and stakeholders on issues relevant to the Company. The National Lithuanian Energy Association’s dedicated working group has started to develop a concept for an offshore energy hub in 2023. Together with other organisations of the association, we are evaluating the alternatives of the Energy Hub and looking for the most favourable development scenario for Lithuania. We are also contributing to the development of the innovation ecosystem. In early 2022, we opened the 1MW Battery Energy Storage System (BESS) innovation platform to the public. The aim of the platform is to enable science, business, manufacturers and the market as a whole to benefit from the 1MW BEKS by testing innovative ideas that bring benefits to both Litgrid and the stakeholder. We have created an open and transparent model for the use of the 1 MW battery for new, innovative projects. During 2022, we initiated the following projects, which were successfully completed in 2023 (study reports are available on Litgrid’s website): - Collaboration with KTU to model and demonstrate a hybrid thermal storage system with BEKS; - Cooperation with Ignitis Gamyba to study the technical feasibility of frequency balancing of the Kaunas HPP; - Collaboration with Green Genius to investigate the performance of the BEKS under simulated electricity market conditions and to assess the technical feasibility of the BEKS working in conjunction with a RES source. Litgrid cooperates with higher education institutions. In 2022, Litgrid participated in the Career Days, where a representative of the company gave a presentation on the transformation taking place in the energy sector, future plans and trends to which Litgrid contributes. Other colleagues shared their career experiences with the students, presenting their job positions and inviting them to do internships. Group-wide, academic institutions were given the opportunity to receive support for student incentive scholarships. Litgrid has signed a support agreement with Kaunas Technical University, whose first and second year students will be granted incentive scholarships until 2025 according to an agreed and approved methodology and selection criteria. In 2022, 7 students received incentive scholarships, in 2023, 17 students. Last year, special attention was paid to sharing know-how on energy topics, and Litgrid employees travelled to universities by teleconference and contact to lecture on topics relevant to their studies and complementing them with practical examples. Litgrid welcomes motivated trainees who want to gain knowledge and learn from professionals in their field. In 2022, a comprehensive internship programme has been developed, allowing students to learn not only about the operations of the unit where they are interning, but also to get to know, see and perform real tasks in other Litgrid's core business units. In 2022, the company had 11 such young professionals, in 2023, 13. Compliance management Litgrid has compliance measures in place to ensure the Company’s compliance with the requirements of the legal acts of the European Union and Republic of Lithuania, internal documents, other legally binding instruments, good practices and standards in the energy sector critical to national security. The Company’s compliance activities are governed by the Group’s Compliance Management Policy and the Group’s Compliance Management Methodology. Compliance is based on the Three Lines Principle and principle governing the use of the risk-based approach. It focuses the Company’s attention and resources on priority areas of compliance, i.e. areas where most instances of non-compliance occur or are likely to occur, and/or where there is the greatest likelihood of the realisation of non-compliance risks, which could have a material adverse effect on the Litgrid and/or the Group. In 2023, the following Litgrid’s priority areas were approved: procurement, ensuring requirements for independence and separation of activities, information to be made publicly available by the transmission system operator, personal data protection, anti-corruption and integration of renewable energy sources. These areas have been identified by assessing the potential risk exposure, the multitude of legal requirements and the Company’s objectives. GRI 206-1 GRI 2-27 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 111 The Company’s is guided by the principle that compliance is everyone’s responsibility - each employee has a responsibility to ensure compliance. In addition to complying with and ensuring compliance with applicable requirements in their daily activities, the aim is for employees to participate in compliance training, to report non-compliances observed and to make recommendations for non-compliance process improvement. Training and targeted communication activities (personal data protection, anti-corruption, information security, civil protection, cybersecurity, etc.) are carried out to promote employee contribution to compliance management activities. Both employees and third parties are encouraged to report non-compliances observed to the Helpline. In 2023, no significant non-compliance with laws was identified. During the reporting period, the Company did not pay any penalties for non-compliances identified both for 2023 and for previous periods, i.e. 2022 and 2021. As shown below, the dynamics of material non-compliance is consistent across the Company, with no material non-compliance recorded. 2021 2022 2023 Number of significant non-compliance events 0 0 0 Number of fines imposed for non-compliance 0 0 0 Number of non-pecuniary sanctions imposed for non-compliance 0 0 0 Amount of fines paid for non-compliance (identified during the reporting period) 0 0 0 Amount of fines paid for non-compliance (identified during the previous reporting period) 0 0 0 Data Protection and Privacy Client privacy In ensuring the protection of personal data, Litgrid is guided by the Group’s Personal Data Protection Policy and Litgrid’s Description of the Personal Data Processing and Protection Procedure outlining the basic requirements for the processing of personal data. All employees of the Company are introduced to the Description. The protection of personal data in the Company is ensured by documenting personal data processing activities, conducting a data protection impact assessment, evaluating technical and organisational data security measures in place, and managing risks and incidents related to the protection of personal data. In addition, Litgrid conducts periodic training and knowledge tests for its employees to ensure compliance with personal data protection requirements in practice and to promote a culture of personal data protection. From 2021 to 2023, no any personal data breaches were identified in the Company. Minor personal data-related incidents were recorded, but did not qualify as personal data breaches. Key Personal Data Protection Indicators 2021 2022 2023 Number of significant personal data breaches identified 0 0 0 Complaints from other organisations/authorities 0 0 0 Anti-Corruption and Anti-Competitive Behaviour The Company’s anti-corruption activity is based on the zero tolerance to corruption principle, i.e. Corruption and any related behaviour is not tolerated in the Company and the following anti-corruption measures of the Group are implemented to manage corruption risks: GRI 418-1 GRI 205-3 GRI 205-1 GRI 205-2 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 112 - setting restrictions on the acceptance and provision of Gifts, and procedures for making donations; - using measures to manage interests of employees and members of the collegial bodies to ensure the primacy of interests; - screening of business partners; - ensuring the credibility of staff; - operating a Helpline; - conducting internal investigations; - transactions between Group companies are subject to transparency measures; - Training, communication and other targeted actions are used to raise the anti-corruption awareness of Employees; - ensuring transparency of procurement. In 2023, the Group’s key anti-corruption legislation applicable to the Company was updated: the Group’s Anti-Corruption Policy and the Group’s Policy of Management of Interests of Members of Collegial and Supervisory Bodies and Employees. The Group’s anti-corruption policy has established that the Group’s anti-corruption activities are based on the Anti-Corruption Management System in accordance with the international standard ISO 37001:2016 “Anti-bribery management systems. Requirements with guidance for use”. The anti-corruption management system in the Group companies may vary depending on the context of the operations and the corruption risk. The Company also approved the Corruption Prevention Plan (CPP) for 2023, which aims to consistently and efficiently improve the company's transparency system, to ensure the implementation of prevention and control measures and the continuity of the existing ones, by positively influencing the company's most sensitive areas of activity and by increasing the transparency of the company. Each measure in the Action Plan is evaluated according to a set of evaluation criteria and an outcome. The Company’s key documents on anti-corruption activities are published and made available to all stakeholders and organisations on our website. Key anti-corruption indicators for 2023 are disclosed below. Indicator Number Description (if any) Indicator 0 - Cases of corruption identified 0 - Staff members sanctioned and dismissed for corruption 0 - Corruption-related cases filed against the Company/employees 0 - Corruption risk assessment and management The Company’s anti-corruption activities are based on corruption risk assessment and management. Corruption risks in the Company are identified by establishing adequate management measures on an annual basis, and assessing the implementation of the management measures and the risk status on quarterly basis. In 2023, the Company identified the following corruption-related risks that could have an impact on the Company’s reputation or financial position: - conflicts of private interests; - recruitment of persons who do not meet the requirements of the Law on the Prevention of Corruption and the Law on the Protection of Objects Critical for National Security; - abuse of office or underperformance. These risks are monitored and managed at defined periodicity, using measures provided for in the Group’s Anti-Corruption Policy and the Group’s Policy of Management of Interests of Members of Collegial and Supervisory Bodies and Employees. Training and communication In creating an anti-corruption environment in the Company, a great emphasis is paid one the development of anti-corruption awareness among employees through various means and methods. In 2023, the Special Investigation Service of the Republic of Lithuania delivered the lecture on anti-corruption lecture, including the corruption risks in public procurement. The lecture was attended by 43% of the total number of the Company’s employees. The Company’s employees also participated in a non- traditional training, a lecture on modern corruption. Training on corruption prevention is organised for new colleagues who have ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 113 joined the Company. They also improve their knowledge through internal Company and STT e-learning. Employees also participate in the STT Transparency Academy events (mentoring, etc.). The Company employees’ corruption resilience is also enhanced through other measures, such as internal communication, and by bringing to the attention of employees and members of management bodies to the most important Group’s and the Company’s internal anti-corruption legislation. In 2023, these internal documents were made available to all (100%) employees of the Company, of which 16% were management. All (100%) of the Board members were also communicated on key anti- corruption legislation. In 2023, the Board members did not attend anti-corruption trainings, however, in 2024, the EPSO-G Group is planning to launch a corruption prevention training platform, therefore, it is expected to extend training to the members of the management bodies. Employee and contractor surveys In 2023, as every year, the Company conducted an anonymous employee tolerance to corruption survey to identify the employees’ perception of corruption and their willingness (not) to tolerate any forms of corruption. 218 employees participated in the survey (52%). (219 employees in 2022; 178 employees in 2021). The survey shows that 98% of employees have not encountered any forms corruption in their work in the last 3 years (99% in 2022 98% in 2021), and 94% of them know whom to contact if encounter corruption (95% in 2022, 91% in 2021). Also in 2023, a contractor satisfaction survey was carried asking for their views on the Company and joint cooperation. 25% of the invited contractors took part in the survey. The survey showed that, of all the respondents, none of the contractors encountered or were aware of cases of corruption in the Company. The trend in the survey results shows that the anti-corruption objectives are being implemented purposefully. Helpline The Company also has the Helpline, where employees and other stakeholders can directly or anonymously report, without fear of negative consequences, potential violations, unethical or unfair behaviour. Information on infringements can be submitted via the following helpline channels: In 2023, the Helpline received total of 99 reports, i.e. the highest number of reports in several years. (28 reports in 2022; 13 reports in 2021). However, it should be noted that only 2 of them were due to potential illegal actions (the verification of the information in the report showed that the claims made were unsubstantiated, and no internal investigations were launched), while all the others were of a promotional nature, and therefore no further action was taken. Gift policy At the Company, we do not tolerate any gifts given in connection with employment or position, except for gifts permitted under the EPSO-G Group’s Anti-corruption Policy. Employees are prohibited from accepting any gifts of money, gift vouchers or alcoholic beverages, including gifts of low value, if the circumstances in which they are given or accepted could lead to a misunderstanding or contradiction and create the appearance of a conflict of interest. Employee and partner screening To ensure that the Company employs only persons of impeccable repute, the measures provided for in the Laws on the Prevention of Corruption of the Republic of Lithuania and on the Protection of Objects Important to the National Security of the Republic of Lithuania are implemented to ensure the reliability of personnel (lists of positions for which applicants are screened in accordance with the procedure laid down by law have been approved and made publicly available on the Company’s external website; the responsible authorities have been contacted for each position (contacted in respect of 91 person). The Company also carries out supplier (contractor) employee’s screening procedures as required by law. In all cases, when new contracts are concluded, persons are screened for compliance with the requirements of the Law on International Sanctions of the Republic of Lithuania and the Law of the Republic of Lithuania on the restrictive measures in connection with military aggression against Ukraine, by checking a person’s profile in various public registers (151 companies were screened). It should be noted that all (100%) of the Company’s suppliers/contractors are committed to our Supplier Code of Conduct. Management of interests Email: [email protected] Send by mail (the Company’s address) Fill in form online https://www.litgrid.eu/index.php/apie- litgrid/pasitikejimo-linija/32290 Provide information to the Head of Information Security and Prevention and prevention personnel ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 114 The management of conflicts of interest in the Company is guided by the Group’s Policy of Management of Interests of Employees and Members of Collegial Bodies, which was updated on 2023. The Policy, which aims to ensure the priority of the Group’s interests and the timely identification and appropriate management of potential conflicts of interest, defines three main groups of conflict of interest management measures to be implemented in the Company: the declaration of private interests; the monitoring, surveillance and control of interests; and the management of conflicts of interest (abstention and recusal). These measures are provided in more detail in internal legislation. The Company periodically provides training or other awareness- raising activities to raise awareness of the management of conflicts of interest and related measures. The Company has an integral model of declaration of private interests, which includes declaration via the PINREG, a register managed by the State Ethics Commission, and, where required by the Law on the Harmonisation of Public and Private Interests of the Republic of Lithuania, submission of internal declarations, the form of which has been approved in the Group’s Policy of Management of Interests of Employees and Members of Collegial Bodies. The Company periodically verifies whether all employees have declared their private interests, and whether they have done so properly (by performing content analysis of declarations of private interests), and provides department managers and employees with the preliminary recommendations. In addition, from 2021, periodic preventive checks are carried out of declarations of private interests submitted through PINREG to assess whether the provisions of the Law on the Harmonisation of Public and Private Interests of the Republic of Lithuania are being properly implemented (no breaches identified). The declaration of private interests is one of the critical responsibilities of employees, enabling the Company to ensure early management of conflicts of interest. The Company’s employees avoid situations where their private interests are, or may be, in conflict (conflict of interest), and, if conflict, they recuse themselves. Conflicts of interest between staff members are reported to the parties concerned: the line manager and the head of department. Conflicts of interest arising for the Company’s management and members of the collegiate bodies are disclosed to the Group’s senior management. Key conflicts of interest management indicators of 2023: Indicator Number Description (if any) Ratio of employees declaring their interests to the total number of employees for which the declaration of interests is mandatory 100% - Number of incidents when decisions were adopted due to conflict of interest 0 - Digital Technologies The digitisation of our operations is one of our sustainability priorities to ensure a reliable and secure service delivery. We have dedicated teams to manage and implement digital technology deployment projects. By digitising and automating processes, these teams reduce the likelihood of human error and ensure efficient use of energy resources: equipment is always running at optimal capacity, its condition is monitored, and repairs and maintenance are planned to a high standard. Successful digitalisation of operations depends not only on our strategic decisions, but also on the other players in the value chain, on financing, on creating the adequate business environment. Our key objectives in digitisation of operations are as follows: - Targeted improvements in the reliability and quality of electricity transmission. - Increase the level of digital maturity. - Create data-driven ecosystem. - We aim to become the partner of choice for business in open data, flexible services and reliable infrastructure, thereby increasing transparency and openness to the public. - Improve the IT infrastructure reliability and security. - Build a customer-oriented organisation and enhance cooperation with partners, and focus on consumer expectations and deliver innovative services. - Demonstrate socially responsible conduct, ensure safety and mitigate the impact of our operations on the environment. Changes in 2023: - We undated the Company’s digital transformation indicators. - We carried out inventory of the information systems and infrastructure in operation and prepared plans for the development of IT architecture components. - We introduced automatic generation management and upgraded the entire dispatching control system and infrastructure. - We made changes in the HVDC control systems by upgrading the hardware and virtualising the control systems. - We upgraded the integration platform and closed security gaps. - We introduced Self-Service Analytics across the Company. ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 115 - We opened the first datasets on data.gov.lt and Litgrid AB website. - The first automation solutions were implemented (e.g. automation of PSE forecasts, automation of the solution for connection conditions, automation of e-gift and prize registers, etc.). - We implemented a project to improve the security of data centres. - We created data exchange map. - We conducted pilot projects to assess the operational suitability of cloud services. - We implemented changes to the organisation’s printing solution and upgraded the equipment. - We upgraded employee’s computer workstations. Digital innovation projects carried out in 2023: - Implementation of a centralised IED (Intelligent Electronic Device) database with a suite of advanced applications - A centralised IED database with a suite of advanced applications and a data collection platform is being deployed in the pilot transformer substations to analyse critical events at facilities, and to provide operational and condition information, and to ensure storage and control. The innovation enables: 1. Improving the reliability of the transmission network. 2. Reducing the number of interruptions of electricity transmission services. 3. Reducing the cost and time involved in identifying the cause of failures. 4. Reducing the cost and time to put underground line back into service. Digitisation of RAA telecommand transmission between substations The aim of the project is to test the exchange of RAA telecommands between substations using IEC61850 protocol GOOSE messages. The project allows the elimination of intermediate telecommand transmission equipment and the electrical circuits and contacts used in telecommand transmission. Telecommands are transmitted using IEC61850 protocol. This increases reliability of telecommand transmission, reduces equipment footprint and improves management of telecommand transmission. Innovations The Lithuania energy system transformation to 2050 EPSO-G together with experts from international consultancy DNV have developed Lithuania Energy Vision to 2050. Through cooperation with Lithuanian industry, energy companies and experts, scenarios have developed that open up opportunities for Lithuania to become the hub of next-generation industrial development and a climate- neutral country by 2050. Lithuania would switch from fossil fuels to electricity from renewable energy sources (RES), generate electricity for domestic needs, to produce hydrogen, and export not only energy, but also higher-value sustainable products. Lithuania's energy vision would guide the implementation of energy projects and the development of strategic partnerships, creating a basis for the integration of different sectors. The Vision will also be used as a basis for the update of the National Energy Independence Strategy (NEIS). Experts of EPSO-G, Litgrid and Amber Grid are involved in the development of LT100 modelling study. The LT100 project is a follow-up on the Lithuanian Energy Vision 2050, which includes comprehensive assessment of Lithuania’s energy sector, with the aim of presenting proposals for Lithuania to become a completely self-sufficient in electricity generation and to achieve that 100% of Lithuania’s electricity consumption is generated from renewable energy sources (RES). The first interim results of the Lithuanian energy system modelling study are expected to be submitted in early 2024, on the basis of which the proposals for updating the NENS will be assessed. Demonstration of the synergy between electric and thermal accumulators ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 116 Litgrid, jointly with Kaunas University of Technology (KTU), carried out unique tests on a 1 megawatt (MW) experimental battery and smart energy system with a thermal accumulator. These hybrid system tests are important for the development of the energy system flexibility and RES integration solutions through coupling of power and heat sectors (Power to Heat, P2H). Five demonstrations involved testing of the following: - efficient consumption of surplus electricity generated by solar plant; - system economic efficiency measurement using electricity price forecasting; - system’s power balance management by stabilising the power system frequency; - provision of balancing services where the system is used as a power source for manual frequency restoration reserve (mFRR); - provision of a new flexibility service (congestion management) through geographically distant elements of the system. Variable line capacity pilot project Litgrid tested artificial intelligence and sensor technologies that can contribute to the successful operation of renewable energy plants. Special devices were installed on overhead lines to measure weather conditions, and an innovative model was used to assess current and to predict potential line capacity. Test results show that using this technology, transmission line throughput has increased by an average of 52% compared to the established design. Dynamic Line Rating (DLR) is promising for creating more favourable conditions for renewable energy power plants to generate more electricity without restrictions. New physical sensors mounted on overhead power lines supports measured weather conditions, line temperature, current, vibration strength and frequency, and allowed to test the conductor deflection. The innovation was implemented on 110 kV overhead transmission line Palanga–Vėjas 1 in Klaipėda district. Additionally, an innovative permeability assessment model was developed for the 330kV Kaunas–Šiauliai overhead line. A study on the operation of a battery energy storage system under simulated electricity market conditions and a technical assessment of its operation in combination with renewable energy source Litgrid together with Green Genius, a renewable energy company, completed testing of the first 1 MW battery connected to the electricity transmission network in the Baltic States. Findings show that energy storage has great potential to contribute to the development of renewable energy sources (RES). The 1 MW battery with 1 MWh capacity can not only store and instantly supply energy to the network, but also contribute to the management of frequency and other system parameters. In cooperation with Green Genius, the battery was tested under different scenarios: it was loaded and unloaded according to a pre-planned schedule to simulate its operation in the Day- ahead and Intraday markets of the Nord Pool. The battery was also tested to see how it can complement solar and wind power in different operation modes of RES plants and the battery, and to find the most efficient model of interaction. The tests provided insights into how batteries will enable RES plants to meet network requirements, as energy storage systems greatly extend the RES plant management potential. . GRI LIST Taxonomy disclosure Compliance with the EU Taxonomy Regulation related to Litgrid’s eligible economic activities is disclosed in the consolidated annual report of EPSO-G iNDICATOR Topic Pagei 2-1 About the sustainability report 77 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 117 2-2 About the sustainability report 77 2-3 About the sustainability report 77 2-4 About the sustainability report 77 2-5 About the sustainability report 77 2-23 Principles and obligations of sustainability, Implementation of sustainability in a long-term strategy 80 2-24 Principles and obligations of sustainability, Implementation of sustainability in a long-term strategy 77 2-12 Sustainability management 78 2-9 Sustainability management 78 2-10 Sustainability management 78 2-11 Sustainability management 78 2-29 Stakeholder engagement 82 3-1 Significance matrix and key themes of coherence 84 3-2 Significance matrix and key themes of coherence 84 3-3 Significance matrix and key themes of coherence 84 302-1 Energy consumption 89 302-2 Energy consumption 89 303-1 Company and water 91 304-1 Biodiversity 91 304-2 Biodiversity 91 304-3 Biodiversity 91 304-4 Biodiversity 91 305-1 Impact on climate change and GHG emissions 92 305-2 Impact on climate change and GHG emissions 92 305-3 Impact on climate change and GHG emissions 92 305-5 Impact on climate change and GHG emissions 92 306-1 Waste management 92 306-2 Waste management 93 306-3 Waste management 93 306-4 Waste management 93 306-5 Waste management 93 308-2 Supplier environment check 95 308-1 Environmental assessment of suppliers 95 202-1 Participation in the labor market 98 401-1 Employment 100 401-2 Employment 100 401-3 Employment 100 402-1 Work relations 102 403-1 Employees safety and Health 102 403-2 Employees safety and Health 102 403-3 Employees safety and Health 102 403-4 Employees safety and Health 102 403-5 Employees safety and Health 102 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 118 403-6 Employees safety and Health 102 403-7 Employees safety and Health 102 403-8 Employees safety and Health 102 403-9 Employees safety and Health 102 403-10 Employees safety and Health 102 404-1 Training and education 104 404-2 Local communities 104 404-3 Social assessment of suppliers and human rights in the supply chain 104 405-1 Social assessment of suppliers and human rights in the supply chain 105 405-2 Social assessment of suppliers and human rights in the supply chain 105 406-1 Social assessment of suppliers and human rights in the supply chain 106 407-1 Social assessment of suppliers and human rights in the supply chain 108 413-2 Social and economic compliance 109 413-1 Infrastructure development - Economic performance results (directly related to performance review) 109 414-1 Infrastructure development - Economic performance results (directly related to performance review) 110 414-2 Infrastructure development - Economic performance results (directly related to performance review) 110 407-1 Infrastructure development - Economic performance results (directly related to performance review) 110 409-1 Infrastructure development - Economic performance results (directly related to performance review) 110 408-1 Compliance Management 110 419-1 Compliance Management 111 203-1 Customer privacy 114 201-1 Anti-corruption and anti-corrupt behavior 114 201-2 Anti-corruption and anti-corrupt behavior 114 201-3 Local communities 114 201-4 Social assessment of suppliers and human rights in the supply chain 114 206-1 Social assessment of suppliers and human rights in the supply chain 117 2-27 Social assessment of suppliers and human rights in the supply chain 117 418-1 Social assessment of suppliers and human rights in the supply chain 117 205-1 Social assessment of suppliers and human rights in the supply chain 118 205-2 Social and economic compliance 118 205-3 Anti-corruption and anti-corrupt behavior 118 UN Global Compact ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 119 Earlier in this century, the United Nations drafted and published a set of 10 universal principles (the Global Compact) to which all organisations seeking to conduct their business in a responsible and sustainable manner are invited to voluntarily adhere. In its activities, the Company supports these principles and promotes their implementation in areas where it can exert influence. Below is the list of all the principles and pages where our activities, aspirations and initiatives are described in terms of their implementation are indicated. . Global compact Page in this report 1 We support and respect internationally recognised human rights. 107; 108 2 We are committed not to be complicit in human rights abuses. 107 108 3 We guarantee freedom of association, including trade union membership, and recognise the right of workers to collective bargaining. 110 4 We do not use forced or compulsory labour and seek to contribute to its elimination in an environment where we have influence. 112 5 We do not use child labour and contribute to efforts to eliminate it in an environment where we have influence. 112 6 We do not discriminate, and we seek to contribute to elimination of occupational discrimination in an environment where we can have influence. 107; 108 7 We apply preventive measures and follow the precautionary approach in respect of the environment. 89 8 In our activities, we are environmentally responsible. 89 9 We encourage development and use of environmentally friendly technologies. 115 ANNUAL REPORT (All amounts are in EUR thousands unless otherwise stated) 120 10 We do not tolerate corruption, and we work against corruption in all its forms, including extortion and bribery. 120 THE COMPANY’S STATEMENT OF FINANCIAL POSITION (All amounts are in EUR thousands unless otherwise stated) Balansas Notes At 31 December 2023 At 31 December 2022 ASSETS Non-current assets Intangible assets 5 4,941 5,484 Property, plant and equipment 6 395,157 361,718 Right-of-use assets 7 5,355 5,592 Investments in a joint venture 45 45 Deferred income tax assets 24 7,122 11,085 Total non-current assets 412,620 383,924 Current assets Inventories 9 41 3 Prepayments 1,883 1,622 Trade receivables under contracts with customers 10 18,629 61,080 Other trade receivables 11 8,283 2,558 Other amounts receivable 12 34,867 892 Prepaid income tax 24 28,934 28,598 Loans granted 13 167,082 232,008 Other financial assets 14 4,444 7,361 Cash and cash equivalents 15 634 499 Total current assets 264,797 334,621 TOTAL ASSETS 677,417 718,545 EQUITY AND LIABILITIES Equity Share capital 16 146,256 146,256 Share premium 16 8,579 8,579 Revaluation reserve 17 23,320 - Legal reserve 17 12,105 14,626 Other reserves 17 40 47,003 Retained earnings/(deficit) 48,386 (49,484) Total equity 238,686 166,980 Liabilities Non-current liabilities Non-current borrowings 20 28,143 34,285 Lease liabilities 21 5,038 5,299 Congestion management funds 22 264,173 64,095 Provisions 23 823 941 Other non-current amounts payable and liabilities 1,880 34,392 Total non-current liabilities 300,057 139,012 Current liabilities Current portion of non-current borrowings 20 6,143 6,143 Current borrowings 20 43 - Current portion of lease liabilities 21 455 403 Trade payables 25 56,153 70,146 Current portion of congestion management funds 22 36,901 287,400 Advance amounts received 26 29,602 35,506 Provisions 23 1,607 648 Other current amounts payable and liabilities 27 7,770 12,307 Total current liabilities 138,674 412,553 Total liabilities 438,731 551,565 TOTAL EQUITY AND LIABILITIES 677,417 718,545 121 THE COMPANY’S STATEMENT OF COMPREHENSIVE INCOME (All amounts are in EUR thousands unless otherwise stated) Notes At 31 December 2023 At 31 December 2022 (reclassification) Revenue Revenue from electricity transmission and related services 29 366,822 418,953 Other income 30 3,016 1,355 Total revenue, other and dividend income 369,838 420,308 Operating expenses Expenses for purchase of electricity and related services 31 (251,258) (420,106) Wages and salaries and related expenses (17,630) (15,601) Purchases of repair and maintenance services (9,425) (8,771) Reversal of impairment of inventories and amounts receivable 10 55 Other expenses 32 (13,237) (12,343) Total operating expenses (291,540) (456,766) EBITDA 78,298 (36,458) Dividend income - 43 Depreciation and amortisation 5,6,7 (19,737) (20,582) Revaluation of property, plant and equipment (21,624) - Impairment and loss on write-off of property, plant and equipment (293) (466) Operating profit/(loss) (EBIT) 36,644 (57,463) Financial income 4,853 63 Financial costs (419) (947) Financial income (costs) net 4,434 (884) Profit/(loss) before income tax 41,078 (58,347) Income tax Current year income tax income/(expenses) 24 7,156 16,772 Deferred income tax income/(expenses) 24 152 (7,909) Total income tax 7,308 8,863 Profit/(loss) for the period 48,386 (49,484) Other comprehensive income (expenses) that will not be reclassified to profit or loss Gain on revaluation of non-current assets 17 27,435 - Deferred tax (expenses) 17 (4,115) - Total comprehensive income/(expenses) for the period 71,706 (49,484) Basic and diluted earnings/(deficit) per share (in EUR) 0.096 (0.098) 122 THE COMPANY’S STATEMENT OF CHANGES IN EQUITY (All amounts are in EUR thousands unless otherwise stated) Note Share capital Share premium Legal reserve Revaluation reserve Other reserves Retained earnings/ (deficit) Total Balance at 1 January 2022 146,256 8,579 14,626 - 32,034 20,013 221,508 Comprehensive income/(expenses) for the period - - - - - (49,484) (49,484) Transfer to reserves 17 - - - - 14,969 (14,969) - Dividends 18 - - - - - (5,044) (5,044) Balance at 31 December 2022 146,256 8,579 14,626 - 47,003 (49,484) 166,980 Balance at 1 January 2023 146,256 8,579 14,626 - 47,003 (49,484) 166,980 Comprehensive income/(expenses) for the period - - - 23,320 - 48,386 71,706 Transfer to reserves 17 - - (2,521) - (46,963) 49,484 - Dividends 18 - - - - - - - Balance at 31 December 2023 146,256 8,579 12,105 23,320 40 48,386 238,686 123 THE COMPANY’S STATEMENT OF CASH FLOWS (All amounts are in EUR thousands unless otherwise stated) Notes At 31 December 2023 At 31 December 2022 Cash flows from operating activities Profit/(loss) for the period 48,386 (49,484) Adjustments for non-cash items Depreciation and amortisation expenses 5,6,7 19,737 20,582 Revaluation of property, plant and equipment 6 21,624 - Impairment/(reversal of impairment) of inventories and receivables 9 (10) (55) Loss on disposal of financial assets - 121 Impairment of property, plant and equipment 6 108 - Income tax expenses/(income) 24 (7,308) (8,863) (Gain)/loss on disposal/write-off of property, plant and equipment 174 461 Elimination of results of financing and investing activities Interest income (4,849) (20) Interest expenses 489 678 Dividend income - (43) Other finance costs/(income) (74) 226 Changes in working capital (Increase)/decrease in trade receivables and other amounts receivable 36,593 (22,423) (Increase)/decrease in inventories, prepayments and other current assets (269) 726 Increase/(decrease) in amounts payable, grants, deferred revenue and advance amounts received (167,136) 22,456 Congestion management inflows received 22 108,088 - Changes in other financial assets 2,917 (2,002) Income tax (paid) 380 (14,987) Net cash inflow/(outflow) from operating activities 58,850 (52,627) Cash flows from investing activities (Acquisition) of property, plant and equipment and intangible assets 35 (137,154) (74,157) Grants received 19 15,727 72,086 Loans granted to related parties 13 65,408 (188,414) Congestion management inflows received 22 - 272,502 Acquisition of a joint venture - (45) Interest received 4,389 - Dividends received - 43 Financial assets acquired 8 - (13,090) Financial assets disposed 8 - 13,786 Net cash inflow/(outflow) from in investing activities (51,630) 82,711 Cash flows from financing activities Repayments of borrowings 20 (6,142) (25,249) Settlement of lease liabilities 20 (494) (362) Interest paid 20 (495) (757) Dividends paid (26) (5,036) Other cash flows from financing activities 72 - Net cash (outflow) from financing activities (7,085) (31,404) Increase/(decrease) in cash and cash equivalents 135 (1,320) Cash and cash equivalents at the beginning of the period 15 499 1,819 Cash and cash equivalents at the end of the period 15 634 499 The accompanying notes are an integral part of the financial statements. 124 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 1.General information LITGRID AB (the “Company”) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is Karlo Gustavo Emilio Manerheimo g. 8, LT-05131, Vilnius, Lithuania. The Company was established as a result of the unbundling of Lietuvos Energija AB operations. The Company was registered with the Register of Legal Entities on 16 November 2010. The Company’s code is 302564383. LITGRID AB is an operator of electricity transmission system, operating electricity transmissions in the territory of Lithuania and ensuring stability of operation of the whole electric power system. The Company is also responsible for the integration of the Lithuanian electric power system into the European electricity infrastructure and the single electricity market. On 27 August 2013, the National Energy Regulatory Council (the “NERC”) granted a licence to the Company to engage in electricity transmission activities for an indefinite term. The principal objectives of the Company’s activities include ensuring stability and reliability of the electricity system in the territory of the Republic of Lithuania within the areas of its competence, creation of objective and non-discriminatory conditions for the use of the transmission networks, management, use and disposal of electricity transmission system assets and its appurtenances. As at 31 December 2023, the Company’s authorised share capital amounted to EUR 146,256,100.20 and it was divided into 504,331,380 ordinary registered shares with the nominal value of EUR 0.29 each. All shares are fully paid. Company’s shareholders: Number of shares held Number of shares held (%) At 31 December 2023 At 31 December 2022 At 31 December 2023 At 31 December 2022 EPSO-G UAB 491,736,153 491,736,153 97.5 97.5 Other shareholders 12,595,227 12,595,227 2.5 2.5 Total 504,331,380 504,331,380 100 100 The ultimate controlling shareholder of EPSO-G UAB (company code 302826889, address: Gedimino pr. 20, Vilnius) is the Ministry of Energy of the Republic of Lithuania. As from 22 December 2010, the shares of the Company are listed on the additional trading list of NASDAQ OMX Vilnius Stock Exchange, issue ISIN code LT0000128415. The number of shares held by the Company in the joint venture were as follows: Company name Address of the company’s registered office at 31 December 2023 at 31 December 2022 Profile of activities Baltic RCC OÜ Kadaka tee 42, EE- 12915 Tallinn Eesti 33.33% 33.33% Provision of services ensuring safety and reliability of the electricity system and coordination between the transmission network operators of the Baltic region As at 31 December 2023, the Company had 410 (31 December 2022: 389) employees. 125 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 2.Summary of material accounting policies The material accounting policies adopted in the preparation of the Company’s financial statements for the year ended 31 December 2023 are summarised below. 2.1Basis of preparation The Company’s financial statements for the year ended 31 December 2023 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and meet them. The financial statements have been prepared on a historical cost basis, except for property, plant and equipment which is recorded at revalued amount, less accumulated depreciation and estimated impairment losses, and financial assets measured at fair value through other comprehensive income. Amounts in these financial statements are presented in thousands of euro (EUR), unless otherwise stated. The statement of cash flows is prepared indirectly. The Company's financial year coincides with the calendar year. The Company’s management approved these financial statements on 29 March 2024. The shareholders of the Company have a statutory right to approve or not to approve these financial statements and require that management prepare a new set of financial statements. Accounting policies adopted in the preparation of the financial statements are consistent with those of the previous financial year except as follows: a)Adoption of new and/or amended IFRS and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) For the year ended 31 December 2023 the Company for the first time have been adopted these IFRS and their amendments and IFRIC: IFRS 17 Insurance contracts (issued on 18 May 2017 and amended on 1 January 2021 and effective for annual periods beginning on or after 1 January 2023). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. Based on the Company’s assessment, the adoption of IFRS 17 does not have a significant impact on the Company’s financial statements. Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021 and effective for annual periods beginning on or after 1 January 2023). IAS 1 was amended to require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendment provided the definition of material accounting policy information. The amendment also clarified that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. The amendment provided illustrative examples of accounting policy information that is likely to be considered material to the entity’s financial statements. Further, the amendment to IAS 1 clarified that immaterial accounting policy information need not be disclosed. However, if it is disclosed, it should not obscure material accounting policy information. To support this amendment, IFRS Practice Statement 2 Making Materiality Judgements was also amended to provide guidance on how to apply the concept of materiality to accounting policy disclosures. The Company’s management reviewed accounting disclosures in the notes to the financial statements for 2023. b)Standards, amendments and interpretations that have been endorsed by the European Union, but are not yet effective and have not been early adopted by the Company Amendments to IFRS 16 Leases – Lease Liability in a Sale and Leaseback (issued on 22 September 2022 and effective for annual periods beginning on or after 1 January 2024). The amendments relate to sale and leaseback transactions which satisfy the requirements of IFRS 15 to be accounted for as a sale. Based on the Company’s assessment, the adoption of IFRS 16 will not have a significant impact on the Company’s financial statements. Classification of liabilities as current or non-current – Amendments to IAS 1 (originally issued on 23 January 2020 and 126 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) subsequently amended on 15 July 2020 and 31 October 2022, ultimately effective for annual periods beginning on or after 1 January 2024). These amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a substantive right, at the end of the reporting period, to defer settlement for at least 12 months. The guidance no longer requires such a right to be unconditional. The October 2022 amendment established that loan covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Management’s expectations whether they will subsequently exercise the right to defer settlement do not affect classification of liabilities. A liability is classified as current if a condition is breached at or before the reporting date even if a waiver of that condition is obtained from the lender after the end of the reporting period. Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting date. In addition, the amendments include clarifying the classification requirements for debt a company might settle by converting it into equity “Settlement” is defined as the extinguishment of a liability with cash, other resources embodying economic benefits or an entity’s own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument. The Company’s management is currently assessing the impact of these amendments on its financial statements. 2.2Property, plant and equipment and intangible assets Items of assets with a useful life over one year and the acquisition cost higher than the set minimal capitalisation value for different groups of assets. All property, plant and equipment is shown at revalued amounts, based on periodic (at least every 5 years) property valuations, less the amounts of accumulated depreciation, recognised grants and impairment losses. During the revaluation, each object of the asset and the item within that object are evaluated by indicating the remaining useful life established for that item of the asset. Decreases in the carrying amount arising on the revaluation of property, plant and equipment that offset previous increases of the same asset are charged against the revaluation reserve directly in equity, and all other decreases are recognised in profit or loss. Increases in the carrying amount offset previous decreases of the same asset are recognised in profit or loss. All other increases in the carrying amount are credited to revaluation reserve. Each year, the difference between depreciation based on the revalued carrying amount of the asset charged to the statement of comprehensive income and depreciation based on the asset’s original cost is transferred from revaluation reserve to retained earnings, after considering the effect of deferred income tax. After the sale or write-off of a property unit, any balance of the revaluation reserve related to this property is transferred to retained earnings. Interest on targeted and general loans and other borrowing costs (such as the bank’s administration fee, etc.) are included in the acquisition cost of property, plant and equipment, if they are directly attributable to the acquisition of a qualifying asset. A qualifying asset is regarded to be an asset which is developed on the basis of a project the value of which is not less than EUR 1 million and the preparation of which for its intended use or sale takes no less than 12 months. Borrowing costs that are attributable to the acquisition of a qualifying asset are capitalised as part of the cost of that asset. The capitalisation of borrowing costs is started when costs related to the production or acquisition of the qualifying asset are incurred (a prepayment is made or a payment for works is made according to the signed statement on the works carried out and their respective value) and ended when all the activities necessary for the preparation of the qualifying asset for its intended use or sale in the manner intended by management are substantially complete. While determining the amount of borrowing costs eligible for the capitalisation of costs incurred in the acquisition of qualifying assets, the capitalisation rate is applied. Construction work in progress represents non-current fixed assets under construction. The cost of such assets includes design, construction works, plant and equipment being installed, and other directly attributable costs. Prepayments for non-current assets are classified as non-current assets because they are used in long-term activities and are presented in the balance sheet line item “property, plant and equipment”. Property, plant, and equipment is recorded at acquisition (production) cost, less grants received/receivable for the acquisition of property, property, plant, and equipment. Grants comprise financing from the EU support funds, a portion of congestion management funds designated for the financing of investments, payments for the expenses incurred during the connection of producers to the transmission network and performance of works for the relocation/reconstruction of the transmission network’s installations initiated by customers. 127 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Intangible assets Intangible assets are initially recognised at cost. Intangible assets are recognised only when it is probable that future economic benefits associated with these assets will flow to the Company and the value of assets can be measured reliably. After initial recognition, intangible assets are carried at cost, less accumulated amortisation and accumulated impairment losses, if any. Depreciation and amortisation Depreciation of property, plant and equipment and amortisation of intangible assets, except for land, construction work in progress, statutory servitudes and protection zones of the transmission network, is calculated using the straight-line method over estimated useful lives of the asset. The estimated useful lives, residual values and depreciation/amortisation method are reviewed by the Company at each year-end to ensure that they are consistent with the expected pattern of economic benefits from these assets. The effect of changes in estimates, if any, is accounted for on a prospective basis. Estimated useful lives of property, plant and equipment and intangible assets are as follows: Categories of property, plant and equipment and intangible assets Useful lives (in years) Buildings 20 – 75 Structures and machinery, whereof - Constructions of transformer substations 30 - Structures, machinery and equipment, whereof: - 400, 330, 110, 35 kV electricity transmission lines 40 – 55 - 400, 330, 110, 35, 6-10 kV switchyard’s electrical installations 30 – 35 - 400, 330, 110, 35, 6-10 kV capacity transformers 35 - electricity and communication devices 20 – 25 - electrical installations, whereof: 15 – 35 - relay security and automation equipment 15 – 35 - technological and dispatch control equipment 8 - other equipment 5 – 20 Other property, plant and equipment, whereof: - computer hardware and communication equipment 3 – 10 - inventory, tools 4 – 10 Intangible assets, whereof: 3 – 4 - statutory servitudes and protection zones of the transmission network Not subject to amortisation Statutory servitudes and protection zones of the transmission network have an indefinite useful life because the right to use the established zones is unlimited in time. Gain or loss on disposal of non-current assets is calculated as the difference between the proceeds from sale and the book value of the disposed asset and is recognised in the statement of comprehensive income of the reporting year. Subsequent repair costs incurred when performing major improvements are included in the carrying amount of property, plant and equipment, only when it is probable that future economic benefits associated with these costs will flow to the Company and these costs can be measured reliably. Repair costs for the asset category of overhead lines and cables are accounted for as component of item of assets by estimating the useful life of the new asset. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are recognised as expenses in the statement of comprehensive income during the financial period in which they are incurred. 2.3Impairment of property, plant and equipment and intangible assets At each reporting date, the Company reviews the carrying amounts of property, plant and equipment (including right-of-use assets) and intangible assets to determine whether there are any indications that those assets have suffered an impairment loss. If any such indication exists, the recoverable value of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. In assessing value in use, the expected future cash flows are discounted to their present value using the discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. 128 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying value, the carrying value of the asset (cash-generating unit) is reduced to its recoverable value. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a decrease of revaluation reserve. Where an impairment loss subsequently reverses, the carrying value of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying value does not exceed the carrying value that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase (without exceeding the amount of previous impairment). 2.4Inventories Inventories are initially recorded at acquisition cost. Subsequent to initial recognition, inventories are stated at the lower of cost and net realisable value. Acquisition cost of inventories includes acquisition price and related taxes that are not subsequently recovered from tax administration authorities and costs associated with bringing inventory into their current condition and location. Cost is determined on the first-in, first-out (FIFO) basis. Net realisable value is the estimated selling price, less the estimated costs of completion and selling expenses. Inventories required to be stored as a reserve and the management does not expected these inventories to be used over the normal business cycle of the Company or 12 months are classified as non-current assets. Depreciation is calculated for reserve inventories that are classified as non-current assets. The depreciation rate applied reflects an expected useful life of such inventories. 2.5Trade payables and other financial liabilities, borrowings Financial liabilities, borrowings Financial liabilities, including borrowings, are recognised initially at fair value, less transaction costs. In subsequent periods, financial liabilities are measured at amortised cost using the effective interest rate method. Interest expense is recognised using the effective interest rate method as disclosed in paragraph 2.6 of the notes to the financial statements. If a financing agreement concluded before the date of the statement of financial position proves that the liability was non-current as of the date of the statement of financial position, that financial liability is classified as non-current. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is settled, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts of financial liabilities is recognised in the statement of comprehensive income. Trade payables Trade payables represent commitments to pay for goods and services acquired from suppliers in the ordinary course of business. Trade payables are classified as current liabilities if the term of their settlement is not longer than one year; otherwise they are included in non-current liabilities. 2.6Grants Asset-related grants The government and the EU grants received in the form of non-current assets or designated for the purchase of non-current are treated as asset-related grants. Public service obligation (“PSO”) service fees allocated to the Company for the preparation and implementation of the strategic projects and a part of congestion management funds, designated to finance investments, are recognised as asset-related grants. These grants are accounted for by reducing by the carrying amount of respective non-current assets. In the statement of 129 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) comprehensive income, grants are recognised over the useful life of the asset by reducing depreciation expenses. Grants received in advance related to the acquisition of non-current assets are stated as non-current liabilities until the moment of acquisition of such assets. Grants receivable are included in other receivables under the agreements whereby the European Commission commits to finance the strategic projects, and the costs are incurred which are reimbursed in line with terms and condition of financing agreements. Income-related grants Grants received as a compensation for expenses or unearned income of the current or previous reporting period, also, all grants, which are not grants related to assets, are defined as grants related to income. Income-related grants are recognised as used in parts to the extent of expenses incurred during the reporting period or unearned income to be compensated by that grant. Income-related grants are recognised in profit or loss by increasing other income over the period in which the grant is received or when there is reasonable assurance that the grant will be received and that the Company complies with the conditions for the allocation of the grant established in the grant agreement. 2.7Connection of new consumers and producers The connection of producers is accounted for similarly to the principle applicable to grants by offsetting the acquisition cost of assets created for the connection of the producer against the compensation receivable from the connected producer. In case of relocation works of the electricity transmission network when major improvements are performed and when the assets are created by the Company, the grant principle is applied and the cost of the created assets is offset against the amount of compensations receivable from the customer, and when the assets are created by the customer and transferred to the Company free of charge, the assets received from the third parties are offset against the value of the assets. If the major improvement was not performed during the relocation and the asset was created by the Company, such asset is not recognised, i.e. compensation income from the customer and expenses for the creation of such asset are accounted for. When no major improvement is performed and the asset is created by the customer, the asset received from the customer free of charge is not recognised and accounted for in off-balance sheet accounts. Revenue received from connection of new consumers is accounted for by the Company over the useful life of the created asset because the connection of a new consumer is related to further consumption and related revenue. 2.8Lease liabilities Initial measurement of lease liability The amount of the initial measurement of lease liability is calculated as the present value of lease payments not paid at the commencement date. Lease payments are discounted using the incremental borrowing rate, which is applied when the contractual interest rate is not known. The incremental borrowing rate is determined by the rate at which the Company would be able to borrow funds for the purpose of acquiring certain assets for a respective period. At the commencement date, lease payments included in the measurement of a lease liability include: ‐fixed lease payments less any lease incentives receivable; ‐variable lease payments that depend on an index or a rate; ‐amounts expected to be payable by the Company under residual value guarantees; ‐the exercise price of the purchase option, if exercise of that option by the Company is reasonably certain; ‐fines for the termination of the lease, if it is assumed that the Company will exercise the option to terminate the lease during the lease term. Subsequent measurement of lease liability Subsequent to initial recognition, changes in the value of the Company’s lease liability are reflected by: ‐increasing the value of the liability by the amount of interest charged; ‐reducing the carrying amount by the lease payments made; ‐remeasuring the liability for lease modifications or revised payments. Remeasurement of lease liability Subsequent to initial recognition, the lease liability is remeasured to reflect changes in lease payments. The Company treats 130 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) remeasurements as adjustments to the right-of-use assets. If the carrying amount the right-of-use assets is reduced to zero and the lease liability is reduced as well, the Company recognises any remaining amount of the remeasurement in profit or loss. 2.9Right-of-use assets Right-of-use assets are assets that the Company has the right to manage during the lease term. As of 1 January 2019, the Company recognises right-of-use assets for all types of leases, including the lease of a right-of-use asset in case of sublease, but excluding leases of intangible assets, short-term leases and leases of low value assets. Initial measurement of right-of-use assets At the date of a lease agreement, the Company measures right-of-use assets at cost, which consists of: the amount of the initial measurement of the lease liability; initial costs incurred directly attributable to the underlying asset; lease payments known at the commencement date, less any lease incentives received and receivable; costs to be incurred by the Company in dismantling or removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. The amount of the initial measurement of the lease liability is calculated as the present value of lease payments not paid at the commencement date using the discount rate implicit in the lease. Subsequent measurement of right-of-use assets After the initial recognition, the Company applies a cost method for right-of-use assets: the carrying amount of the asset at the respective date is calculated as the difference between the acquisition cost and the accumulated depreciation, plus any subsequent adjustments for the remeasurement of lease liability. The calculation of depreciation of right-of-use assets is started from the date on which the assets are transferred for the use (the commencement date) until the earlier of these dates: the end of the lease term and the end of the useful life. The Company calculates depreciation of right-of-use assets using the following rates: Land99 years Motor vehiclesfrom 2 to 4 years Buildingsfrom 2 to 3 years Other property, plant and equipmentfrom 2 to 3 years The Company applies the portfolio method for the land lease agreements concluded with the municipalities not by auction, i.e. a set of the agreements of the Company is accounted for as a single agreement due to similar criteria. Regardless of the remaining term of the land lease agreement, in accordance with the requirements of the legal acts, the agreements must be extended for as long as the facilities of the Company’s entities exist on the land plots. When assessing the flow generated by the infrastructure assets of the Company’s entities (for the calculation of the recoverable amount of assets), an infinite flow is projected as the ongoing reconstruction and repair works allow using the assets for a longer period than the established original depreciation rates. For this reason, the lease of land is subject to a substantially infinite rate corresponding to the original term of the agreement – 99 years. 2.10Provisions Provisions are recognised only when the Company has a legal obligation or irrevocable commitment as a result of past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, the amount of provision is discounted using the effective pre-tax discount rate set based on the interest rates for the period and taking into account specific risks associated with the provision as appropriate. Where discounting is used, the increase in the provision due to the passage of time is recognised as borrowing costs. 2.11Employee benefits a)Bonus plans The Company recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation. 131 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) b)Pension benefits to employees of retirement age According to the laws of the Republic of Lithuania and the Collective Agreement effective at LITGRID AB, each employee leaving the Company at the retirement age is entitled to a one-off benefit. A liability for such payments is recognised in the balance sheet and it reflects the present value of these payments at the date of the financial statements. At each reporting date, the long-term employee benefit obligation is estimated with reference to actuary valuations using the projected relative unit method. The present value of the defined long-term employee benefit obligation is determined by discounting the estimated future cash flows using the effective interest rates as set for government debentures denominated in a currency in which payments to employees are expected to be made and with maturity similar to that of the related liability. 2.12Congestion management funds The Company acquires the right to congestion management funds when different electricity market prices occur in Lithuania, Sweden, Poland and Latvia as a result of insufficient capacity of electricity lines. Revenue that was received as a result of price differences at different bidding areas is distributed equally by the power exchange operator (Nord Pool AS) to the transmission system operators of the countries which operate the interconnections. Regulation (EU) No 2019/943 of the European Parliament and of the Council of 5 June 2019 on conditions for access to the network for cross-border exchanges in electricity stipulates that congestion management funds may be used in the following order of priority: a)When revenue is used for guaranteeing availability of the allocated capacity of the interconnections, it is recognised as income in the period during which the related expenses are incurred. In case of unplanned disconnection of the electricity interconnection and when the trade in the interconnection’s capacities has already been completed at the electricity exchange (i.e. when they have already been allocated), the operators of the line ensure that the capacities traded are available to the market participants. In such a case, the operators incur costs that arise as a result of the price difference between the price of electricity traded by the operators and the price of balancing and (or) imbalance electricity purchased/sold by the Company. b)When revenue is used for maintaining or increasing the interconnections’ capacities, congestion management funds is accounted for using the accounting policies applicable to grants, i.e. initially congestion management funds is recognised as liability and recorded by reducing the value of the asset concerned, and subsequently it is recognised by reducing depreciation expenses of the related asset over the useful life of that asset. c)When revenue is used for reducing the tariff, revenue is recognised as income in the period during which the Company generates lower revenue due to lower tariffs and only in case when revenue cannot be efficiently used for the purposes set out in points a) and/or b). Subject to approval by the regulatory authorities of the Member States concerned, they may be used, up to a maximum amount to be decided by those regulatory authorities, as income to be taken into account by the regulatory authorities when approving the methodology for calculating network tariffs and/or fixing network tariffs. In the statement of financial position, unused congestion management funds are presented as non-current and current liabilities, given the planned use of congestion management funds to finance investments or to compensate tariff in the following year. 2.13Revenue recognition The Company’s revenue comprises as follows: ‐Revenue from electricity transmission and related services; ‐Other income. Revenue is recognised when it is probable that economic benefits associated with a transaction will flow to the Company, and when a reliable estimate of the amount of revenue can be made. Revenue is measured at the fair value of the consideration received or receivable, net of value added tax and discounts. Revenue from electricity transmission and related This group of the Company’s revenue comprises revenue from electricity transmission, provision of ancillary services, trade in imbalance and balancing electricity, congestion management revenue, revenue from connection of new consumers, PSO services, congestion management funds used to reduce the tariff and other revenue related to electricity transmission and ancillary services. Revenue from contracts with customers comprises revenue from electricity transmission, ancillary services, trade in imbalance and balancing electricity and revenue from connection of new consumers, PSO services and other related revenue. The Company recognises revenue from contracts with customers over the reporting period in which the performance obligation is satisfied, i.e. the control of the good is transferred or the service is provided, except for revenue from connection of new consumers which is recognised by the Company over the useful life of the created asset (Note 2.3). 132 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) When recognising other income related to electricity transmission and ancillary services the Company takes into consideration the terms of contracts signed with customers and all significant facts and circumstances, including the nature, amount, timing and uncertainty relating to cash flows arising from the contract with the customer. The main sale contracts are signed for the term of one year and coincide with the reporting period. All subsequent value adjustments for previous periods are not made, and contract modifications are rare. Prices of the electricity transmission services are regulated by the Council which establishes the upper limits of the prices for the transmission service. Specific prices and tariffs for the transmission services are established by the Company’s Board within the limits approved by the Council. When establishing prices for the next year, deviations of the current year (the year not yet ended) and deviations of the previous year (the year that already ended) and various forecasts for the upcoming year are assessed, i.e. they increase or decrease the prices for the next year, i.e. the prices are not adjusted retrospectively. All possible price adjustments in the future periods for excess profit/higher loss incurred in the previous/current years are not treated as a variable part of the price under IFRS 15. Such decrease (due to excess profit earned) or increase (due to higher expenses incurred) in future revenue does meet the general accounting criteria for the recognition of liabilities or assets because it depends on the Company’s operations in the future and is treated as the regulated assets or liabilities and therefore, in the opinion of the Company’s management, it does not fall within the scope of IFRS 15. The Company purchases ancillary services from the producers and later provides this service to the distribution network operators and electricity consumers using the tariff established by the Council. The Company recognises the gross amounts of revenue as it acts as a principal in the provision of ancillary services. Other income Interest income is recognised on accrual basis considering the outstanding balance of debt and the applicable interest rate. Interest received is recorded in the statement of cash flows as cash flows from investing activities. Gain from disposal of property, plant and equipment, lease income, income from default charges and fines collected from the contractors as a result of late fulfilment of works, including property, plant and equipment under construction, are recognised by the Company as other income. Default charges and fines collected from the contractors as a result of late fulfilment of works are calculated upon the completion of a project or a stage thereof and upon notifying a supplier, and they are offset against the supplier’s debt. In case of a legal dispute over the amount of default charges or fines and when it is more likely than unlikely that the amounts of default charges or fines will be reduced or annulled, provisions are recognised. Dividend income is recognised when the right to receive payment is established. 2.14Income tax Income tax expense comprises the current income tax and deferred tax expense (income). Income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case income tax is also recognised in other comprehensive income or directly in equity. Income tax The income tax expense for the current year is calculated on the current year’s profit before tax, as adjusted for certain non-deductible expenses/non-taxable income. Tax losses can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Company changes its activities due to which these losses were incurred except when the Company does not continue its activities due to reasons which do not depend on the Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature. Tax losses carried forward can be used to reduce the taxable income earned during the reporting year by maximum of 70%. In addition, the Company can take over tax losses of the group companies, if the requirements laid down in the Law on Corporate Income Tax are met. Deferred income tax Deferred taxes are calculated using the balance sheet liability method. Deferred tax assets and deferred tax liability are recognised for future tax purposes to reflect differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognised on all temporary differences that will increase the taxable profit in future, whereas deferred tax assets are recognised to the extent it is probable that they will reduce the taxable profit in future. 133 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. The Company reviews the carrying amount of a deferred income tax assets at each reporting date and reduces it to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of a part or all of that deferred tax assets to be utilised. Deferred tax assets and liabilities are estimated using the tax rate that has been applied when calculating income tax for the year when the related temporary differences are to be realised or settled. Deferred income tax assets and liabilities are offset only where they relate to income taxes assessed by the same fiscal authority or where there is a legally enforceable right to offset current tax assets and current tax liabilities. Current income tax and deferred income tax Current income tax and deferred income tax are recognised as income or expenses and included in profit or loss for the reporting period, except for the cases when tax arises from a transaction or event that is recognised directly in equity or in other comprehensive income, in which case taxes are also recorded in equity and in other comprehensive income respectively. 3.Accounting estimates and assumptions Significant accounting estimates and assumptions The preparation of financial statements according to International Financial Reporting Standards requires management to make estimates and assumptions that affect the accounting policies applied, the reported amounts of assets, liabilities, income and expenses, and the disclosures of contingencies. Actual results may differ from those estimates. The significant management estimates and assumptions and the main sources for uncertainties used in the preparation of these financial statements that might cause substantial changes in the carrying amounts of the related assets and liabilities in the next financial year are described below: Valuation of property, plant and equipment As described in Note 6, the Company revalued its property, plant and equipment as at 31 December 2023. The determination of the assets’ fair value is mainly affected by assumptions used in assessing the transmission service income for the future periods. The assumptions used in determining the fair value of property, plant and equipment are described in more detail in the above-mentioned note. Depreciation rates of property, plant and equipment The useful life of property, plant and equipment is determined separately for each item (component) of the asset by estimating future economic benefit in view of the expected period of use in the Company’s activities, the intensity of use, the environment of use, changes in the asset’s original standard performance over its entire useful life, technological and economic progress morally outdating the asset, legal and similar factors restricting the useful life of property, plant and equipment. Useful lives are reviewed annually to ensure that the depreciation period would correspond to the expected useful life of property, plant and equipment. The effect of changes in estimates, if any, is accounted for on a prospective basis. Congestion management funds and deferred income tax assets Based on the accounting policies described in Note 2.12, accounting for congestion management funds depends on the purpose for which revenue is used. These purposes are described in Regulation (EU) No 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity. Pursuant to the Council’s decision, congestion funds balance as at 31 December 2023 will be used to finance the synchronisation projects agreed with the Council. Deferred tax assets arising from congestion funds received in 2014-2017 and due to taxation with profit tax at the year as they received will be realised over the useful life of the asset acquired using congestion management funds. In the long term, regulation ensures the Company’s profitability, therefore, in the management’s opinion, deferred income tax assets will be realised in the future by reducing income tax payable. The congestion management funds received from 2018 are subject to profit tax at the time of use of congestion management funds, so there is no difference between financial and tax accounting. Amendment to grant recognition 134 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) In 2023, the Company decided to account for grants relating to assets by deducting the grant from the carrying amount of the related non-current asset, when the costs are incurred which are reimbursed in line with terms and condition of financing agreements, since: the implementation of synchronisation projects result in increased investments and prepayment of considerable amounts of grants in advance; the costs incurred but not eligible for reimbursement under the terms of the grant agreement are usually negligible, and the coordination of documents within the deadlines set in the grant agreements is time consuming; excessive movement is accounted for under the congestion management funds liabilities to give a true view of the acquisition cost of property, plant and equipment. This amendment does not have a significant impact on the comparative information. 4.Change in presentation in the statement of comprehensive income In 2023, to provide the users of the EPSO-G group’s consolidated financial statements with the up-to-date information, the Company decided to change the presentation and classification of items in the statement of comprehensive income. The reason for the changes in the statement of comprehensive income, alternative performance indicators EBITDA and EBIT have been singled out so that the users of the financial statements, including the Company’s management, could see these indicators in the statement of comprehensive income, monitor them and make prompt decisions based on these indicators. EBITDA is profit before interest, taxes, depreciation and amortisation, loss on revaluation, impairment and write-off of property, plant and equipment, and impairment and write-off of inventories and trade receivables. In management’s assessment, loss on impairment and write-off of inventories and receivables should be excluded from calculations of EBITDA, because they do not arise in the ordinary activities, and are non-recurring and incidental. The Company provides information about changes in classification and line items in the statement of comprehensive income for the year ended 31 December 2022. 135 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) At 31 December 2022 (before reclassification) Reclassification At 31 December 2022 (after reclassification) Revenue Revenue from electricity transmission and related services 418,953 - 418,953 Other income 1,355 - 1,355 Dividend income 43 (43) - Total revenue, other and dividend income 420,351 (43) 420,308 Operating expenses Purchases of electricity transmission and related services - (420,106) (420,106) Expenses for imbalance and balancing electricity (203,588) 203,588 - Expenses for electricity ancillary (system) services (111,633) 111,633 - Expenses for electricity technological needs (99,576) 99,576 - Expenses for electricity and related services (5,309) 5,309 - Depreciation and amortisation (20,582) 20,582 - Wages and salaries and related expenses (15,601) - (15,601) Purchases of repair and maintenance services (8,771) - (8,771) Telecommunications and IT system expenses (2,214) 2,214 - Transport expenses (301) 301 - Write-off expenses of property, plant and equipment (461) 461 - Reversal of impairment of inventories and amounts receivable 55 - 55 Other expenses (9,833) (2,510) (12,343) Total operating expenses (477,814) 21,048 (456,766) EBITDA (57,463) 21,005 (36,458) Dividend income - 43 43 Depreciation and amortisation - (20,582) (20,582) Assets write-off expenses (reversal) - (466) (466) Operating profit/(loss) (EBIT) (57,463) - (57,463) Financial income 63 - 63 Financial costs (947) - (947) Other financial income (expenses) in net value (884) - (884) Profit/(loss) before income tax (58,347) - (58,347) Income tax Current year income tax income/(expenses) 16,772 - 16,772 Deferred income tax income/(expenses) (7,909) - (7,909) Total income tax 8,863 - 8,863 Profit/(loss) for the period (49,484) - (49,484) Total comprehensive income/(expenses) for the period (49,484) - (49,484) 136 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 5.Intangible assets Patents and licences Computer software Other intangible assets Statutory servitudes and protection zones Total At 31 December 2021 Acquisition cost 625 7,930 342 2,486 11,383 Accumulated amortisation (564) (5,772) (95) - (6,431) Net book amount 61 2,158 247 2,486 4,952 Net book amount at 1 January 2022 61 2,158 247 2,486 4,952 Acquisitions 86 2,546 - - 2,632 Write-offs - (298) - - (298) Reclassification to/from PP&E - 89 - - 89 Reclassification between categories 239 (239) - - - Value adjustment due to change in assumptions - - - (795) (795) Off-set of grants against intangible assets - - - - - Amortisation charge (70) (941) (85) - (1,096) Net book amount at 31 December 2022 316 3,315 162 1,691 5,484 At 31 December 2022 Acquisition cost 950 10,028 342 1,691 13,011 Accumulated amortisation (634) (6,713) (180) - (7,527) Net book amount 316 3,315 162 1,691 5,484 Net book amount at 1 January 2023 316 3,315 162 1,691 5,484 Acquisitions 7 2,251 - 176 2,434 Write-offs - - - - - Reclassification to/from PP&E 886 (816) - - 70 Reclassification between categories - - - - - Value adjustment due to change in assumptions - - - 201 201 Off-set of grants against intangible assets - (2,415) - - (2,415) Amortisation charge (332) (425) (76) - (833) Net book amount at 31 December 2023 877 1,910 86 2,068 4,941 At 31 December 2023 Acquisition cost 1,785 6,633 342 2,068 10,828 Accumulated amortisation (908) (4,723) (256) - (5,887) Net book amount 877 1,910 86 2,068 4,941 * Assets related to statutory servitudes amounted to EUR 1,302 thousand as at 31 December 2023 (31 December 2022: EUR 1,100 thousand) and assets related to protection zones amounted to EUR 766 thousand as at 31 December 2023 (31 December 2022: EUR 591 thousand). 137 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 6.Property, plant, and equipment Land Buildings Structures and machinery Other property, plant and equipment Construction work in progress Total At 31 December 2021 Revaluated acquisition cost 520 20,731 333,194 15,189 25,311 394,945 Accumulated depreciation - (1,572) (49,466) (5,623) - (56,661) Accumulated impairment - - (233) - - (233) Net book amount 520 19,159 283,495 9,566 25,311 338,051 Net book amount at 1 January 2022 520 19,159 283,495 9,566 25,311 338,051 Acquisitions - - 1,092 804 54,318 56,214 Change in prepayments for PP&E - - - - 18,225 18,225 Revaluation - - - - - - Write-offs - - (1,299) - - (1,299) Impairment - - - - - - Reclassification to inventories - - - (71) - (71) Reclassification to intangible assets - - - - (89) (89) - - - - - - Reclassifications between grant categories - - (4,878) (465) 5,343 - Reclassification between categories - 656 11,782 1,091 (13,529) - Off-set of connection revenue against non-current assets - - (914) - (50) (964) Off-set of grants against non-current assets - - - - (29,182) (29,182) Depreciation charge - (640) (16,599) (1,928) - (19,167) Net book amount at 31 December 2022 520 19,175 272,679 8,997 60,347 361,718 At 31 December 2022 Revaluated acquisition cost 520 21,387 338,384 16,517 60,347 437,155 Accumulated depreciation - (2,212) (65,705) (7,520) - (75,437) Net book amount 520 19,175 272,679 8,997 60,347 361,718 Net book amount at 1 January 2023 520 19,175 272,679 8,997 60,347 361,718 Acquisitions - 492 13,909 4,136 150,991 169,528 Change in prepayments for PP&E - - - - (6,591) (6,591) Revaluation - 543 5,245 23 - 5,811 Write-offs - - (95) 101 - 6 Impairment - - - (108) - (108) Reclassification to inventories - - - (200) - (200) Reclassification to intangible assets - - - - (70) (70) Reclassification off-set of grants against intangible assets - - - - 2,415 2,415 Reclassifications between grant categories - - (47,175) (984) 48,159 - Reclassification between categories - 700 69,004 1,291 (70,995) - Off-set of connection revenue against non-current assets - (492) (13,886) (1,078) (1,417) (16,873) Off-set of grants against non-current assets - - - - (102,021) (102,021) Depreciation charge - (612) (15,937) (1,909) - (18,458) Net book amount at 31 December 2023 520 19,806 283,744 10,269 80,818 395,157 At 31 December 2023 Revaluated acquisition cost 520 19,806 283,744 10,269 80,818 395,157 Accumulated depreciation - - - - - - Net book amount 520 19,806 283,744 10,269 80,818 395,157 There was no interest capitalised during the year ended 31 December 2023 (during the year ended 31 December 2022, the 138 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) capitalised income amounted to EUR 36 thousand). During the year ended 31 December 2023, there was no annual interest capitalisation rate (during the year ended 31 December 2022, the annual interest capitalisation rate was 1.46%). Prepayments for property, plant, equipment (PPE): 2023 2022 Carrying amount at 1 January 22,772 4,547 Prepayments paid for PPE over the period 13,803 23,056 Transfer to construction work in progress (20,358) (4,831) Unused advances repaid (36) - Carrying amount at at the end of the period 16,181 22,772 As at 31 December 2023, the Company’s commitments for the acquisition of property, plant and equipment to be fulfilled in the upcoming periods amounted to EUR 335,761 thousand (31 December 2022: EUR 417,269 thousand). The table below presents the net book amounts of the Company’s property, plant and equipment, which would have been recognised had the historical cost method been used, less grants received and negative revaluations that would be treated as an impairment equivalent, as at 31 December 2023 and 31 December 2022: Land Buildings Structures and machinery Other property, plant and equipment Construction work in progress Total At 31 December 2022 520 19,175 272,679 8,997 37,575 338,946 At 31 December 2023 520 18,746 257,432 10,207 64,637 351,542 Property, plant, and equipment is stated at acquisition cost, less grants received/receivable for the acquisition of property, property, plant, and equipment. Grants comprise financing from the EU support funds, a portion of congestion management funds designated for the financing of investments, payments for the expenses incurred during the connection of producers to the transmission network and performance of works for the relocation/reconstruction of the transmission network’s installations initiated by customers. Had the value of property, plant and equipment not been reduced by the amount of grants, its carrying amount would have been EUR 458,506 thousand higher as at 31 December 2023 (31 December 2022: EUR 354,323 thousand). The following table shows information on property, plant and equipment, the value of which was reduced by the amount of grants received/receivable: 2023 2022 Carrying amount at 1 January 354,323 334,322 Acquisitions 116,479 30,146 Depreciation charge (11,963) (9,889) Write-offs (333) (256) Carrying amount at 31 December 458,506 354,323 Revaluation of property, plant and equipment In 2023, the Company performed the revaluation of its property, plant and equipment using internal resources, without engaging an independent external evaluator. The valuation corresponded to Level 3 of the fair value hierarchy. The Company estimated the fair value of the assets under the income approach, using the discounted cash flows calculation method. The value of assets was determined as the present value of net future cash flows. The Company performed the last revaluation of its property, plant and equipment as at 31 December 2018 and determined that the fair value of the property, plant and equipment is higher than carrying amount by EUR 5.8 million. Recognised in other comprehensive income (revaluation reserve) Recognised through profit or loss Total revaluation impact Increase in net book value as at 31 December 2023 27,435 8,172 35,607 (Decrease) in net book value as at 31 December 2023 - (29,796) (29,796) Total revaluation impact as at 31 December 2023 27,435 (21,624) 5,811 139 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) The decrease in value was largely determined by the review of the useful life of Alytus back-to-back converter due synchronisation projects and a EUR 21,487 thousand impairment loss recognised for the asset. The valuation involved the following steps: (1) The total fair values of the property, plant and equipment was determined using the income method. (2) Determining the fair value of items of property, plant and equipment: The regulatory asset base value was estimated using historical costs. The replacement cost new (RCN) was determined for asset items. The remaining useful life of the asset components was estimated. The total fair value was allocated to individual asset components and items. The Company’s activity is regulated, the property operates as an integral electrical grid. The fair value of the electrical grid is appraised using the income approach, but its assessment excludes all activities related to the transmission network development (i.e. not related to the present assets being assessed), i.e. investments in development projects, connection of new consumers/producers, grants to development projects. Application of discounted cash flow method The value of the assets was calculated using the following main assumptions: The forecast period until 2031. Additional component has been established for the financing of investments increasing the level of revenue from the regulated activities. Additional component was estimated by the Company in the long-term financial forecasts for 2025-2031 based on a sustainable level of debt (assuming that the average debt to EBITDA ratio over the regulatory period is below but close to 4.5). However, given that the regulatory framework did not define the sustainable level of debt, 86% of the requested additional component has been awarded for 2024, the need for additional component would be lower if actual investments were lower than planned, the amount of undiscounted additional component for 2025-2031 has been decreased in the measurement by 25%. The updated LRAIC model for the establishment of the regulated asset base and the cost of capital is applied in the regulatory pricing from 2022. The cost of capital comprises depreciation expenses of the regulated assets and return on investments, which is calculated by multiplying the regulated asset base by the rate of return on investments. Over the regulatory period of five years (current regulatory period covers 2022-2026), the cost of assets under optimisation (planned to be restored) is determined using the present (replacement) value and investments in the optimised assets over the regulatory period of five years are consistent with the value of assets being replaced, which is calculated under the LRAIC model. The cost of capital of the assets that are not optimised is determined using the historical value. The amounts of investments until 2031 are used from the actual ten-year investment plan, which excludes all development investments. All operating expenses attributable to the regulated activities are compensated through transmission revenue, except for the compensation of remuneration expenses, the compensation assumption of which is 96%. The terminal value was calculated based on the assumption that all the costs incurred by the Company will be compensated with revenue. The calculation of cash flows for the years 2024-2025 included a difference between the permitted and actual return on transmission activity investments in 2022-2023 (considering the efficient saving of operating expenses that increases the permitted investment return), which is reimbursed to customers through a lower sale price. Additionally, a difference between additional service revenue and income, included in the calculation of cash flows for 2025, is refunded through a higher component of additional services and revenue of the Company. The rate of return on investments (ROI pre-tax) is equal to 5% for 2024 (equivalent to a 4.25% post-tax) and from 2025 it is the same as the discount rate, i.e. 5.87% (are equal to post-tax WACC 4.99%). Net cash flows generated from the assets were discounted using the discount rate (WACC post-tax) of 4.99% calculated by the Company. 140 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Sensitivity analysis If the additional component for the financing of investments was not awarded, the value of the assets would be additionally lower by EUR 92.1 million, if the total amount estimated in the Company’s long-term financial forecasts was allocated, the value of the assets would be higher by an additional EUR 30.7 million. The sensitivity of asset valuation to the additional component for the financing of investments, the change in the rate of return on investments and the change in discount rate from 2025 is presented in the tables below: Additional component for the financing of investments, % of forecast Change in asset value, EUR million 0% -92.1 33% -61.4 67% -30.7 100% 0 133% 30.7 Change in rate of investment return from 2025, % Change in asset value, EUR million -0.50% -15.2 -0.25% -7.6 0.00% 0 0.25% 7.6 0.50% 15.3 Change in discount rate (return on investments is recalculated from 2025 accordingly), % Change in asset value, EUR million -1.00% 1.5 -0.50% 0.7 0.00% 0 0.50% -0.6 1.00% -1.1 Application of replacement cost method The items of property, plant and equipment were allocated to main components of the technological assets: transformer substations, power transmission lines, back-to-back converters, and autotransformers. Carrying amount of other (unallocated) asset items accounts for only 0.6% of the carrying amount after valuation, therefore the assumption was made that their fair value equals to carrying amount, therefore they were excluded from subsequent stages of measurement. The fair value of construction in progress was also considered equal to carrying amount, because it consisted of recently acquired assets, the value of which approximated current market (fair) value. As at 31 December 2023, EUR 70,391 thousand of property, plant and equipment carrying amount of which is considered equal to its fair value was account for under the line item of acquisition/revaluation amount. The regulatory asset base value was estimated for each asset component by summing discounted historical cost of capital (depreciation expenses and return on investment for forecast period) and discounted residual value of the asset component at the end of 2031. A new replacement cost was calculated for each asset component based on the physical parameters of the asset items (autotransformer capacity, number of transformer substation connectors, number of transmission line circuits and type of poles) and the current purchase and LRAIC model rates and statistical indices. The remaining useful life of the asset components was estimated as follows: If the asset component is included in a 10-year investment plan, i.e. it is scheduled for reconstruction, the remaining useful life is the period before reconstruction; If information on the end of useful life/write-down date of the asset component is available, the remaining useful life is the period before the write-down; If not included in the plan, the remaining useful life is the difference between the asset component’s standard useful life (55 years for lines, 35 years for autotransformers, substations and converters, 60 years for a building) and the functional obsolescence (the period of time from the date of the asset’s entry into operation, after taking into account the reconstruction/replacement of components). 141 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) The replacement cost of each asset component was calculated as a new replacement cost of the asset component multiplied by the component’s remaining useful life and divided by the component’s standard useful life. The increase in value of property, plant and equipment estimated using income approach was allocated to the asset items in proportion to replacement costs, ensuring that the value estimated is not lower than the regulated cash flow of the asset component. Taking into account the ongoing investment programme for synchronisation projects, the Company reviewed the alternative uses of the asset items affected by the synchronisation projects, and the remaining useful life. As a result, a shorter useful life was set for the components of Alytus back-to-back converter, i.e. until 30 June 2025 Based on the estimated remaining useful life, the remaining useful lives of the asset items have been reviewed and updated. The updated useful lives will apply from 1 January 2024. 7.Right-of-use assets As indicated below, the Company leases land, office premises, motor vehicles and other property, plant and equipment. The lease terms of the lease contracts (except for the lease of land) is 2-4 years. The lease terms of the land lease contracts is 99 years. When recognising right-of-use assets and lease liabilities and determining the lease terms the Company assessed extension and early termination options of the lease contracts. As the useful life of the right-of-use assets is longer than the lease term, depreciation is calculated from the commencement date of the lease till the end of the lease term. The Company’s right-of-use assets comprise as follows: Land Buildings Motor vehicles Other property, plant and equipment Total At 31 December 2021 Acquisition cost 4,465 47 720 127 5,359 Accumulated depreciation (135) (16) (572) (127) (850) Net book amount 4,330 31 148 - 4,509 Net book amount at 1 January 2022 4,330 31 148 - 4,509 Acquisitions - - 1,402 - 1,402 Write-offs - - (661) (127) (788) Depreciation charge (45) (16) (258) - (319) Depreciation (write-offs) - - 661 127 788 Net book amount at 31 December 2022 4,285 15 1,292 - 5,592 At 31 December 2022 Acquisition cost 4,465 47 1,461 - 5,973 Accumulated depreciation (180) (32) (169) - (381) Net book amount 4,285 15 1,292 - 5,592 Net book amount at 1 January 2023 4,285 15 1,292 - 5,592 Acquisitions - 70 140 - 210 Write-offs - (47) (59) - (106) Depreciation charge (45) (16) (385) - (446) Depreciation (write-offs) - 48 57 - 105 Net book amount at 31 December 2023 4,240 70 1,045 - 5,355 At 31 December 2023 Acquisition cost 4,465 70 1,542 - 6,077 Accumulated depreciation (225) - (497) - (722) Net book amount 4,240 70 1,045 - 5,355 142 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 8.Financial assets The Company’s financial assets measured at fair value through comprehensive income comprised shares of TSO Holding AS: At 31 December 2023 At 31 December 2022 Carrying amount at 1 January - 781 Financial assets acquired - 13,090 Financial assets disposed - (13,871) Change in impairment - - Carrying amount at the end of the period - - * transfer price EUR 13,786 thousand, and EUR 85 thousand the disposal of the previously held 2% shareholding. In November 2022, 2% of shares of TSO Holding held by the Company at the beginning of the year and 37.6% of shares additionally acquired by the Company in October 2022 all 39.6% were transferred by the Company to parent company EPSO-G UAB for the same price of the one share. The transactions on additional acquisition and disposal of shares did not affect the Company’s results of operations for 2022, whereas the disposal of the previously held 2% shareholding resulted in a loss of EUR 85 thousand. Dividends received by the Company from TSO Holding AS in 2022 amounted to EUR 43 thousand. 9.Inventories At 31 December 2023 At 31 December 2022 Materials, spare parts and other inventories 194 166 Less: impairment (153) (163) Carrying amount at the end of the period 41 3 Movements in write-down allowance for inventories in 2023 and 2022 are indicated below: At 31 December 2023 At 31 December 2022 Carrying amount at 1 January 163 173 Change in impairment (10) (10) Carrying amount at the end of the period 153 163 In 2023 and 2022, the Company reversed additional provisions for inventory write-down to net realisable value in relation to inventories stored at the warehouse and not moving or slow-moving inventories and accounted for in operating expenses in the statement of comprehensive income. The Company’s inventories recognised as expenses in 2023 amounted to EUR 385 thousand (2022: EUR 254 thousand). 10.Trade receivables under contracts with customers At 31 December 2023 At 31 December 2022 Amounts receivable for electricity transmission and related services 18,082 58,414 Accumulated amounts receivable for electricity services 547 2,666 Carrying amount at the end of the period 18,629 61,080 143 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Trade receivables for electricity transmission and related services at 31 December compared to 31 December decreased as the price for ancillary services was 8 times lower and the price for balancing/imbalance services was 4.3 times lower. The fair value of trade receivables under contracts with customers approximates their carrying amount. In 2023, the Company did not recognise any expected credit losses related to trade receivables under contracts with customers. There were no amounts past due as at 31 December 2023 and 2022. 11.Trade receivables At 31 December 2023 At 31 December 2022 Amounts receivable for electricity transmission and related services 49 17 Congestion management funds receivable 770 649 PSO funds receivable - 354 Accumulated amounts receivable for electricity transmission and related services 7,408 1,477 Other trade receivables 56 61 Carrying amount at the end of the period 8,283 2,558 The fair value of trade receivables approximates their carrying amount. Accrued receivables for the services related to electricity transmission consist substantially of the accrued receivables under the Inter-TSO Compensation (ITC) mechanism, which increased due to the significantly higher prices for electricity to compensate for technological losses approved by the Council in 2023. In 2023, the Company did not recognise any expected credit losses related to trade. At 31 December 2023 there were no amounts past due (at 31 December 2022: there were no). 12.Other trade amounts receivable At 31 December 2023 At 31 December 2022 Grants receivable 34,006 302 Other amounts receivable 443 613 VAT receiveble from the budget 441 - Less: impairment of other receivables (23) (23) Carrying amount 34,867 892 The fair value of other amounts receivable approximates their carrying amount. At 31 December 2023 other amounts receivable past due were EUR 23 thousand (at 31 December 2022: EUR 23 thousand). A 100% impairment was formed for them. 13.Loans granted At 31 December 2023 At 31 December 2022 Loan to EPSO-G UAB (under the cashpool agreement) 166,600 232,008 Interest on loans 482 - Carrying amount 167,082 232,008 144 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) After the issuing of the permission by the NERC, the Company and EPSO-G UAB concluded the group account (cashpool) agreement (with a 0% fixed interest rate) on 26 February 2021. The agreement establishes the possibility to temporarily use free congestion management funds for inter-company lending and borrowing purposes. The agreement was valid until 26 February 2022 and contained two possible extensions of 12 months each. In 2022, the agreement was extended until 26 February 2023 and a fixed interest rate was applied from 20 December 2022. The agreement was extended on 26 February 2023. Information is provided in Note 40. Under the group account (cashpool) agreement the Company’s positive funds balance transferred to the disposal of EPSO-G UAB is accounted for as amounts receivable (loans granted) in the statement of financial position and is not included in the line item of cash and cash equivalents. 14.Other financial assets At 31 December 2023 At 31 December 2022 Funds deposited for guarantees 1,500 5,000 Deposits received 2,889 2,334 Other financial assets 55 27 Carrying amount at the end of the period 4,444 7,361 The fair value of other financial assets as at 31 December 2023 and 2022 approximated their carrying amount. 15.Cash and cash equivalents At 31 December 2023 At 31 December 2022 Cash at bank 634 499 Carrying amount at the end of the period 634 499 The fair value of cash and cash equivalents is equal to their nominal and carrying amounts. 16.Share capital and share premium As at 31 December 2023 and 31 December 2022, the Company’s issued capital amounted to EUR 146,256 thousand and it was divided into 504,331,380 units of ordinary registered shares with the nominal value of EUR 0.29 each. All the shares were fully paid. Share premium represents a difference between the nominal value of shares and consideration received for shares, they were formed in 2010 and amount to EUR 8,579 thousand. Capital management Capital consists of the equity capital disclosed in the statement of financial position. According to the Law on Companies of the Republic of Lithuania, the equity of the Company must account for at least ½ of the amount of the authorised share capital. As at 31 December 2023 and 2022, the Company was in compliance with this requirement. No other external capital requirements have been imposed on the Company. Dividends are allocated pursuant to the approved dividend policy, under which dividends payable are directly linked with the effective use of the company’s equity, i.e. the higher benefits created by the Company for the shareholders are, the larger portion of profit can be allocated by the Company for a further development or implementation of other significant projects. The Company’s main objectives when managing capital are to safeguard the Company’s ability to continue as a going concern. 145 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) In order to maintain or change the capital structure, the amount of dividends to be paid to the shareholders may be adjusted, capital may be returned to the shareholders, or new shares may be issued. 17.Legal reserve, revaluation reserve and other reserves Legal reserve A legal reserve is a compulsory reserve under the Lithuanian legislation. The legal reserve should not be less than 10 per cent of the authorised share capital and can only be used to cover the Company’s losses only. In 2023, the legal reserve accumulated by the Company did not comply with the requirements of the legal acts of the Republic of Lithuania, as EUR 2,521 thousand was used to cover a loss of EUR 2022 thousand (in 2022, the legal reserve complied with the requirements of the legal acts of the Republic of Lithuania and represent 10% of the issued capital). Revaluation reserve Pursuant to Article 39(7) of the Law on Companies of the Republic of Lithuania, “the revaluation reserve shall be the amount of increase (decrease) in the value of tangible fixed assets and financial assets resulting after the revaluation of assets in accordance with applicable financial reporting standards. The revaluation reserve or a portion thereof may be used to increase the capital. No part of the revaluation reserve may be distributed, either directly or indirectly.” As at 31 December 2023, the Company revalued intangible assets and created revaluation reserve (there was no revaluation in 2022). At 31 December 2023 Carrying amount at 1 January - Revaluation of property, plant and equipment 27,435 Depreciation of revaluation reserve - Write-off of property, plant and equipment - Deferred income tax (4,115) Carrying amount at the end of the period 23,320 Other reserves Other reserves are formed based on the decision of shareholders and can be redistributed on the distribution of the next year’s profit. On 11 April 2023, the Ordinary General Meeting of Shareholders the decision was made to approve the draft profit (loss) distribution and to cover losses by transferring EUR 2,521 thousand from the legal reserve and EUR 46,828 thousand from other reserves, and through reversal of the reserve for support of EUR 135 thousand. The Ordinary General Meeting of Shareholders of LITGRID AB held on 20 April 2022 approved the proposed profit appropriation and resolved to transfer EUR 14,794 thousand from profit to be appropriated to other reserves and EUR 175 thousand to be appropriated to reserve for support. 18.Dividends On 11 April 2023, the Ordinary General Meeting of Shareholders of LITGRID AB the decision was made to approve the draft profit (loss) distribution for the year ended 31 December 2022. The dividends have not been declared for 2022, as the Company reported a loss at the end of the year. On 20 April 2022, the Ordinary General Meeting of Shareholders of LITGRID AB approved the distribution of the Company’s profit (loss) for 2021. EUR 5 044 thousand was allocated to dividends for the year ended 31 December 2021. Dividends per share amounted to EUR 0.01. At 31 December 2023 At 31 December 2022 Dividends per share - 0.01 146 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 19.Grants The grants at the Company are mainly designated for the acquisition of non-current assets. Movements in grants in 2023 and 2022 were as follows: Opening balance at 1 January Note At 31 December 2023 At 31 December 2022 Grants receivable 12 302 9,900 Grants received in advance (non-current liabilities) 27 (32,802) (1,677) Grants received in advance (current liabilities) 26 (34,896) (9,705) (67,396) (1,482) Recognised grants Transfer to property, plant and equipment 6 118,894 30,146 Grants used for compensation of expenses - 8 118,894 30,154 Grants received Grants received in the form of monetary funds (cash flow statement) 15,727 72,086 Congestion revenue transferred to grants 22 13,457 22,992 Grants received during the previous years (2) 26 29,182 95,104 Grants received in the form of assets 6 16,873 964 Closing balance at the end of the period Grants receivable 12 34,006 302 Grants received in advance (non-current liabilities) 27 - (32,802) Grants received in advance (current liabilities) 26 (28,563) (34,896) 5,443 (67,396) On the basis of accrual and matching principles, grants are recognised when the Company creates an asset to be used for intended purpose or incurs expenses for which the grant is intended to compensate. Having assessed the prepayments received, grants are recognised when they are received or receivable for the reimbursement of the costs incurred in the Synchronisation projects (up to 75%) under the instrument Connecting Europe Facility (CEF). Grants are also recognised when they are received or receivable through the European Union Structural Funds for the reimbursement of the eligible costs incurred under the agreed investment projects. 20.Borrowings The Company’s borrowings comprise as follows: At 31 December 2023 At 31 December 2022 Non-current borrowings Bank borrowings 28,143 34,285 Current borrowings Current portion of non-current borrowings 6,143 6,143 43 49 Total borrowings at the end of the period 34,329 40,477 Non-current borrowings grouped by maturity profile: At 31 December 2023 At 31 December 2022 From 1 to 2 years 6,143 6,143 From 2 to 5 years 12,000 14,142 After 5 years 10,000 14,000 Total 28,143 34,285 147 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) As at 31 December 2023 and 2022, no assets were pledged as collateral by the Company. As at 31 December 2023, the weighted average interest rate on the Company’s borrowings was 0.94% (31 December 2022: 0.94%). As at 31 December 2023, the outstanding balance of the Company’s borrowings with the fixed interest rate amounted to EUR 34,286 thousand (31 December 2022: EUR 40,428 thousand). As at 31 December 2023 and 2022, the Company had no unwithdrawn borrowings or overdrafts. Under the loan agreement signed by the Company with the European Investment Bank, the Company is committed to comply with the net debt to EBITDA ratio, which should not exceed 6.5 and with the interest coverage ratio, which should be above 3, these ratios are calculated two times per year at 31 December and at 30 June. The outstanding balance of a borrowing, which is subject to this requirement, amounted to EUR 34,286 thousand as at 31 December 2023 (31 December 2022: the outstanding balance of a borrowing, which is subject to this requirement, EUR 40,428 thousand (European Investment Bank). At 31 December 2023, the Company comply with the requirements laid down in the loan agreement. At 31 December 2022, the Company did not comply with the requirements laid down in the loan agreement, however, at the Company’s request European Investment Bank sent a notification in December 2022, whereby it informed that the Bank waives its right to demand that Company repay the loan prior to its maturity. Reconciliation of net debt balances and cash flows from financing activities in 2023 and 2022: At 31 December 2023 At 31 December 2022 Cash and cash equivalents 634 499 Non-current borrowings (28,143) (34,285) Lease liabilities (5,038) (5,299) Current portion of non-current borrowings (6,143) (6,143) Interest charged on borrowings (43) (49) Current portion of lease liabilities (455) (403) Net debt (39,188) (45,680) Cash and cash equivalents 634 499 Borrowings with a fixed interest rate (39,822) (46,179) Borrowings with a variable interest rate - - Net debt (39,188) (45,680) Cash Borrowings Other financing Leases Total Net debt at 1 January 2022 1,819 (65,769) - (4,594) (68,544) Increase (decrease) in cash and cash equivalents (1,320) - - - (1,320) New leases - - - (1,402) (1,402) Write – offs and termination of leases - - - - - Lease payments - - - 294 294 Repayment of a borrowing - 25,249 - - 25,249 Interest charged - (621) (25) (68) (714) Interest paid - 664 25 68 757 Net debt at 31 December 2022 499 (40,477) - (5,702) (45,680) Net debt at 1 January 2023 499 (40,477) - (5,702) (45,680) Increase (decrease) in cash and cash equivalents 135 - - - 135 New leases - - - (210) (210) Write – offs and termination of leases - - - 2 2 Lease payments - - - 417 417 Repayment of a borrowing - 6,142 - - 6,142 Interest charged - (360) (52) (77) (489) Interest paid - 366 52 77 495 Net debt at 31 December 2023 634 (34,329) - (5,493) (39,188) 148 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 21.Lease liabilities The Company’s lease liabilities and their movements: At 31 December 2023 At 31 December 2022 Carrying amount at the 1 January 5,702 4,594 Leases 210 1,402 Terminated contracts (2) - Expenses of interest charged 77 68 Lease payments (principal and interest) (494) (362) Carrying amount at the end of the period 5,493 5,702 Non-current lease liabilities 5,038 5,299 Current lease liabilities 455 403 Total liabilities 5,493 5,702 The Company’s lease liabilities comprise as follows: At 31 December 2023 At 31 December 2022 Current portion 455 403 Repayment terms of non-current liabilities: From 1 to 2 years 433 373 From 2 to 3 years 298 370 From 3 to 5 years 29 275 After 5 years 4,278 4,281 Total 5,493 5,702 The Company’s short-term lease (up to 12 months) and low-value lease (up to EUR 4 thousand) expenses amounted to EUR 175,5 thousand in 2023 (2022: EUR 174,8 thousand). The Company had no leases with variable payments. 22.Congestion management funds At 31 December 2023 At 31 December 2022 Non-current portion of congestion management funds included in liabilities 264,173 64,095 Current portion of congestion management funds included in liabilities 36,901 287,400 Total congestion management funds at the end of the period 301,074 351,495 149 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) At 31 December 2023 At 31 December 2022 Congestion management funds at 1 January 351,495 109,087 Congestion management funds received during the period 108,527 267,296 Congestion management funds use to finance property, plant and equipment (13,457) (22,992) Congestion management funds recognised as income during the period (145,491) (1,896) Congestion management funds at the end of the period 301,074 351,495 Under the NERC’s Resolution No O3E-1330 of 30 September 2022 Regarding Adjustment of the Service Price Cap of Litgrid AB in 2023. In 2023, the transmission tariff was reduced, but the congestion management funds of EUR 35,575 thousand were used to compensate for the loss of revenue on a quarterly basis, for a total of € EUR 142,300 thousand per year. The principles of collection and use of congestion management funds are set out in Note 2.12. For the purpose of the statement of cash flows, congestion management funds collected in 2023 were presented under operating activities (2022: investing activities), as congestion management funds collected in 2023 were intended to compensate for the loss of operating income due to the reduction of the transmission tariff (congestion management funds collected in 2022 were intended to finance investments). In April 2023, the EUR 60,590 thousand current portion of congestion management funds was reclassified to non-current portion due to changes related to the Harmony Link project. The current portion of liabilities is expected to be settled (used) within 12 months. 23.Provisions Note At 31 December 2023 At 31 December 2022 Provisions for pension benefits to employees 2.11 477 654 Provisions for servitude liabilities 419 468 Provisions for registration of protection zones 176 367 Provisions for settlement of current liabilities 1,358 100 Carrying amount 2,430 1,589 Non-current provisions 823 941 Current provisions 1,607 648 Movements in provisions were as follows: Provisions for pension benefit obligations to employees Provisions for servitude liabilities Provisions for registration of protection zones Provisions for litigations and claims Total Carrying amount at 1 January 2022 275 277 1,646 661 2,859 Calculated - - - 100 100 Revised estimate 379 260 (1,055) - (416) Payments made - (69) (224) (661) (954) Carrying amount at 31 December 2022 654 468 367 100 1,589 Calculated - - 176 1,358 1,534 Revised estimate (177) 201 - - 24 Payments made - (250) (367) (100) (717) Carrying amount at 31 December 2023 477 419 176 1,358 2,430 150 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) The assumptions applied when calculating provisions for pension benefit obligations to employees were as follows: long-term salary growth rate in 2023 – 3% (2022: 4%), discount rate in 2023 – 1,23% (2022: 0,80%), employee turnover rate in 2023 – 14,5% (2022: 8,7%), benefit rate in 2023 – the amount of 2-4 monthly average salaries (2022: the amount of 2-4 monthly average salaries). In 2023, the Company revised the provision for servitude liabilities taking into account statistics on payment requests, and recognised a new EUR 176 thousand provision of protection zones for the protection of electronic communications infrastructure (the value was estimated according to purchases effected), and utilised the EUR 367 thousand provision of protection zones recognised for completed works designated for the protection of the electricity transmission network installed on the land plot not owned. In the light of ongoing litigation, the provision of EUR 1,358 thousand was recognised for litigations/claims as at 31 December 2023 (EUR 100 thousand as at 31 December 2022). 24.Current and deferred income tax Income tax expenses comprise as follows: At 31 December 2023 At 31 December 2022 Income tax expenses of the current year - - Income tax expenses of the previous year (7,156) (16,772) Deferred income tax income/(benefit) (207) (8,275) Deferred income tax income/(benefit) of the previous year 55 16,184 Income tax expenses/(benefit) of the current year (7,308) (8,863) In accordance with tax legislation of the Republic of Lithuania, the Company’s profit (loss) for the twelve-month period ended 2023 was subject to a 15% income tax (2022: 15%). As at 31 December 2023, the Company’s accrued tax losses and deferred tax asset recognised for such losses amounted to EUR 11,220 thousand and EUR 1,683 thousand, respectively (31 December 2022: EUR 55,374 thousand and EUR 8,306 thousand, respectively). In 2023, given the response from the State Tax Inspectorate on the eligibility to receive tax incentive in respect of the Company’s investment projects received in November 2022, the Company assessed investment projects implemented in 2019-2023, and, in 2023, revised tax returns for 202-2021 reduced income tax payable by EUR 9,952 thousand, and additionally recognised the deferred tax asset of EUR 3,165 thousand. For the purpose of calculating income tax for 2023, the taxable profit was reduced by 70% of the tax losses carried forward from 2022, by reducing the deferred tax asset. Other adjustments During the revision of the tax returns for the year 2020, the Company also surrendered back a tax loss of EUR 2,533 thousand taken over from EPSO-G UAB and recovered 15% from the repaid amount of EUR 380 thousand. The movement in deferred income tax assets and liabilities prior to offsetting the balances related to the same fiscal authority was 151 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) as follows: Deferred income tax assets Impairment of revalued property, plant and equipment and financial assets Impairment of assets Congestion revenue Statutory servitudes and protection zones Tax loss Unutilised investment relief Other Total At 1 January 2022 1,425 138 18,611 288 - - 677 21,139 Recognised in profit and loss (179) (45) (16,233) (163) 8,305 - (51) (8,366) At 31 December 2022 1,246 93 2,378 125 8,305 - 626 12,773 Recognised in profit and loss 2,761 13 (58) (36) (6,622) 3,165 218 (559) Recognised in profit and loss - - - - - - - - At 31 December 2023 4,007 106 2,320 89 1,683 3,165 844 12,214 Deferred income tax liabilities Increase in value of revalued property, plant and equipment and financial assets Differences in depreciation rates Tax relief on acquisition of PP&E Statutory servitudes and protection zones Effect of capitalisation of interest Total At 1 January 2022 - (206) (1,288) (373) (278) - - (2,145) Recognised in profit and loss - 418 (87) 119 7 - - 457 At 31 December 2022 - 212 (1,375) (254) (271) - - (1,688) Recognised in profit and loss - 647 112 (57) 9 - - 711 Recognised in profit and loss (4,115) - - - - - - (4,115) At 31 December 2023 (4,115) 859 (1,263) (311) (262) - - (5,092) Deferred income tax assets, net, at 31 December 2022 12,773 Deferred income tax assets, net, at 31 December 2023 12,214 Deferred income tax liability, net, at 31 December 2022 (1,688) Deferred income tax liability, net, at 31 December 2023 (5,092) Deferred income tax, net, at 31 December 2022 11,085 Deferred income tax, net, at 31 December 2023 7,122 The analysis of movements in deferred income tax assets and liabilities over time is as follows: At 31 December 2023 At 31 December 2022 Deferred income tax assets: Deferred income tax assets to be realised after more than 12 months 6,854 4,285 Deferred income tax assets to be realised within 12 months 5,360 8,488 Total 12,214 12,773 Deferred income tax liabilities: Deferred income tax liabilities to be settled after more than 12 months (4,704) (1,314) Deferred income tax liabilities to be settled within 12 months (388) (374) Total (5,092) (1,688) 152 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) The table below presents reconciliation of income tax expenses reported in the statement of comprehensive income to income tax expenses calculated at a statutory income tax rate on profit before income tax: At 31 December 2023 At 31 December 2022 Profit/(loss) before income tax 41,078 (58,347) Income tax calculated at a rate of 15% 6,162 (8,752) Effect of investment incentive (3,000) (419) Effect of investment incentive of prior years (10,117) - Income tax expenses/(benefit) for the previous year 36 41 Effect of non-allowable deductions and non-taxable income (389) 267 Income tax expenses/(benefit) recognised in profit or loss (7,308) (8,863) The change in prepaid income tax and repayable income tax was as follows: At 31 December 2023 At 31 December 2022 Amount of prepaid income tax (income tax) as at 1 January 28,597 (3,162) Prepaid income tax - 9,938 (Repayable) income tax paid (380) 5,050 Overpaid income tax due to changes in recognition of congestion management funds - 16,212 Additional overpayment of income tax due to utilised investment incentives of prior periods 7,137 629 Realised income tax prepaid (6,420) (70) Prepaid income tax at the end of the period 28,934 28,597 25.Trade payables At 31 December 2023 At 31 December 2022 Amounts payable for electricity 26,684 53,737 Amounts payable for repair works, services 3,190 4,900 Amounts payable for property, plant and equipment 26,279 11,509 Carrying amount at the end of the period 56,153 70,146 In December 2023 compared to December 2022 the debt for electricity decreased by 2 times due to the decrease in exchange electricity price, and increased the debt for property, plant and equipment the projects by 2.3 times due to investment projects of synchronization with the Continental Europe. The fair value of trade payables approximates their carrying amounts. 26.Advance amounts received At 31 December 2023 At 31 December 2022 Deferred revenue 2 13 Advance amounts received from new consumers and producers 217 568 Grants received in advance 28,563 34,896 Other advance amounts received 820 29 Carrying amount 29,602 35,506 153 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Advance amounts received from new consumers and producers include advance amounts received from new consumers and producers for connection to electricity networks and for electricity infrastructure relocation services. 27.Other amounts payable At 31 December 2023 At 31 December 2022 Other non-current amounts payable and liabilities Advance amounts received from connection of new consumers 1,595 1,115 Non-current trade payables - 32,802 Deferred revenue 131 321 Grants received in advance 154 154 Carrying amount at the end of period 1,880 34,392 Other current amounts payable and liabilities Non-financial liabilities Employment-related liabilities 379 303 Accrued expenses relating to vacation reserve 1,758 1,442 VAT payable - 4,055 Real estate tax payable - 622 Total non-financial liabilities 2,137 6,422 Financial liabilities Dividends payable 496 522 Interest payable * - 49 Accrued other expenses 1,481 2,580 Deposits received ** 2,889 2,334 Fee payable to the regulator 618 394 Other amounts payable and current liabilities 149 6 Total financial liabilities 5,633 5,885 Total carrying amount of financial and non-financial liabilities 7,770 12,307 * Starting from 2023, loan interest payable is reclassified to short-term loans. ** Deposits received consist of deposits received from customers under imbalance purchase - sale contracts. The fair value of other amounts payable approximates their carrying amount. 28.Segment information The Company is engaged in electricity transmission and related services activities and operates as one segment. The Company’s chief operating decision-maker, who is responsible for allocating resources, has been identified as the Board of Directors that makes strategic decisions. The Board monitors the key performance indicators: profit before interest, taxes, depreciation (amortisation), loss on impairment and write-off of property, plant and equipment (EBITDA); net profit; operating expenses, excluding electricity and related expenses. These indicators are calculated on the basis of data reported in the financial statements. 154 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) The Board also monitors adjusted performance indicator – adjusted EBITDA, which is non-IFRS alternative performance measure. Adjustments include temporary regulatory differences resulting from the Council’s decisions. All adjustments may have both positive and negative impact on the reporting period results. In Board’s view, adjusted EBITDA more accurately presents results of the operations and enable a better comparison of the results between the periods as they indicate the amount that was actually earned by the Group in the reporting year. At 31 December 2023 At 31 December 2022 Revenue and other income 369,838 420,308 Operating expenses, excluding electricity, gas and related expenses, depreciation, write-off and impairment (40,292) (36,715) EBITDA 78,288 (36,513) Adjusted EBITDA 37,291 34,556 Temporary regulatory differences for previous periods 23,011 19,709 Temporary regulatory differences for reporting period (64,008) 51,360 Overall effect of management’s adjustments on EBITDA (40,997) 71,069 Result of lost control in subsidiary and revaluation (29,619) (12,603) Depreciation and amortisation (19,737) (20,582) Loss on impairment and write-off of non-current assets (21,624) - Total finance costs, net 4,434 (884) Income tax 7,308 8,863 Dividend income - - Net profit (loss) 48,386 (49,484) Total assets 677,417 718,545 Net financial deb (39,188) (45,680) Investments (additions of property, plant and equipment and intangible assets) (165,371) (77,071) All non-current assets of the Company are allocated in Lithuania where the Company conducts its business activities. In 2023, revenue from the Lithuanian clients accounted for 84% of the Company’s total revenue (82% in 2022). In 2023 and 2022, the Company’s revenue by geographical location of customers: At 31 December 2023 At 31 December 2022 Lithuania 306,313 344,221 Estonia 29,534 43,862 Sweden 8,691 15,840 Poland 3,354 5,846 Latvia 2,221 1,448 Norway 4,816 7,838 Other countries 14,909 1,253 Total 369,838 420,308 The Company’s revenue from the major clients: Company name At 31 December 2023 Energijos Skirstymo Operatorius AB 90,767 UAB "Ignitis" 29,812 Elering AS 29,286 Company name At 31 December 2022 Energijos Skirstymo Operatorius AB 200,602 Ignitis UAB 48,486 Ignitis Gamyba AB 27,705 155 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 29.Revenue from electricity transmission and related services At 31 December 2023 At 31 December 2022 Revenue from contracts with customers Revenue from electricity transmission and related services Electricity transmission services 64,180 72,516 Trade in balancing/imbalance electricity 108,264 175,145 Electricity ancillary services 27,992 137,175 Revenue from other sales of electricity and related services 5,867 2,025 Total revenue from electricity transmission and related services 206,303 386,861 Other income from contracts with customers Income from administration of guarantees of origin 78 129 Total other income 78 129 Total revenue from contracts with customers 206,381 386,990 Revenue not attributable to contracts with customers Services under public service obligation (PSO) scheme - 28,893 Electricity transmission services (tariff compensation using congestion management funds) 142,300 - Electricity transmission services (recognised as income) 3,191 1,896 Other electricity-related services 14,937 1,161 Revenue from connection of producers and relocation of electrical installations 13 13 Total revenue not attributable to contracts with customers 160,441 31,963 Total revenue 366,822 418,953 All revenues are recognised over – time. * In 2023, no revenue was generated from PSO services (balancing of electricity produced from renewable energy sources), as the Company no longer provides this service. 30.Other income At 31 December 2023 At 31 December 2022 Income from lease of assets 551 534 Interest on late payment and default charges 1609 696 Gain on disposal of assets 476 0 Other income 380 125 Total 3,016 1,355 156 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 31.Expenses of purchases of electricity and related services At 31 December 2023 At 31 December 2022 Expenses for purchase of imbalance and balancing electricity 108,515 174,786 Expenses for purchase of PSO imbalance and balancing electricity - 28,802 Expenses for electricity ancillary services 98,121 111,633 Expenses for electricity technological needs 38,273 99,576 Expenses for electricity and related services 6,349 5,309 Carrying amount at the end of period 251,258 420,106 32.Other expenses At 31 December 2023 At 31 December 2022 Telecommunications and IT system expenses (2,465) (2,214) Tax expenses (2,670) (2,421) Fee payable to the regulator (2,473) (1,578) Business protection expenses (870) (748) Membership fee (518) (436) Management service cost (505) (242) Business trips (399) (260) Insurance expenses (445) (243) Transport expenses (303) (301) Premise rental expenses (287) (354) Other expenses (2,302) (3,546) Carrying amount at the end of period (13,237) (12,343) 33.Related-party transactions EPSO-G UAB was the parent company as at 31 December 2023 and 2022. The parent entity of this company was the Republic of Lithuania represented by the Ministry of Energy of the Republic of Lithuania. For the purposes of the related-party disclosure the Republic of Lithuania excludes central and local government authorities. The disclosures comprise transactions with the companies of the EPSO-G UAB group, associates and all entities controlled by or under a significant influence of the state (transactions with these entities are disclosed only if the amount of the transactions exceeds EUR 100 thousand during a calendar year) and with the management, and balances arising from these transactions. The list of entities controlled by or under a significant influence of the state, with which the transactions are disclosed, is presented at address: https://vkc.sipa.lt/apie-imones/vvi-sarasas/. The Company’s related parties in 2023 and 2022 were as follows: 157 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) ‐The Company’s parent EPSO-G, which is wholly owned by the Ministry of Energy of the Republic of Lithuania: ‐The companies of the EPSO-G UAB group: ‐Amber Grid AB (jointly controlling shareholders); ‐TETAS UAB (jointly controlling shareholders); ‐Energy Cells UAB (jointly controlling shareholders); ‐BALTPOOL UAB (jointly controlling shareholders). ‐The companies of Ignitis Grupė UAB ‐Other state-owned entities: ‐State Enterprise Ignalina Nuclear Power Plant ‐State Enterprise Centre of Registers ‐Other state-owned companies or those under significant influence. ‐Management. Transactions with related parties are carried out in accordance with the public procurement requirements or the tariffs approved by the legal acts. The Company’s transactions with the state-owned enterprises mainly comprise sales of electricity transmission, balancing, imbalance and electricity ancillary services, purchase of electricity. EPSO-G UAB provides management services, TETAS UAB provides services under construction contracts. The Company’s transactions conducted with related parties in 2023 and balances arising from these transactions as at 31 December 2023 were as follows: Related parties Amounts receivable and accrued revenue Amounts payable and accrued expenses Loans granted Purchases Sales Other sales EPSO-G UAB group companies EPSO-G UAB - 150 167,082 505 - 4,849 TETAS UAB 279 1,526 - 9,811 - 625 BALTPOOL UAB - - - - - - ENERGY CELLS UAB 15 861 - 2,455 535 - State-owned companies Energijos Skirstymo Operatorius AB 13,765 1,145 - 1,656 90,743 - Ignitis Gamyba AB 477 12,592 - 130,303 4,082 - Ignitis Grupės Paslaugų Centras UAB 29 - - - 285 - Ignitis UAB 983 809 - 9,594 29,812 - Vilniaus Kogeneracinė Jėgainė UAB 111 100 - 616 549 - Kauno Kogeneracinė Jėgainė UAB - 36 - 276 79 - Transporto Valdymas UAB - - - - - - State Enterprise Lithuanian Road Administration - - - - 1,086 - STATE ENTERPRISE IGNALINA NUCLEAR POWER PLANT 55 - - - 535 - LTG Infra AB 37 75 - - 295 - State Enterprise Centre of Registers - 1 - 402 - - 15,751 17,295 167,082 155,618 128,001 5,474 Income from other sales comprised as follows: interest charged to EPSO-G UAB on the loan granted (EUR 4,849 thousand), and interest on late payment and default charges from TETAS UAB (EUR 625 thousand). Property free received from UAB ENERGY CELLS (EUR 3 425 thousand). The Company’s transactions conducted with related parties in 2022 and balances arising from these transactions as at 31 December 2022 were as follows: Related parties Amounts receivable and accrued revenue Amounts payable and accrued expenses Loans granted Purchases Sales Other sales EPSO-G UAB group companies EPSO-G UAB 25 79 232,008 242 - 13,850 TETAS UAB 365 2,046 - 9,702 - 180 BALTPOOL UAB 354 - - - 12,279 - UAB ENERGY CELLS 123 48 - 38 200 - State-owned companies Energijos Skirstymo Operatorius AB 33,059 985 - 4,039 200,591 - Ignitis Gamyba AB 3,712 25,387 - 181,932 27,705 - Ignitis Grupės Paslaugų Centras UAB 27 - - - 295 - Ignitis UAB 10,138 - - 11,176 48,486 - Vilniaus Kogeneracinė Jėgainė UAB 8 100 - 579 212 - Kauno Kogeneracinė Jėgainė UAB - 81 - 771 194 - Transporto Valdymas UAB - - - 123 - - State Enterprise Lithuanian Road Administration - 321 - - - - State Enterprise Ignalina Nuclear Power Plant 159 - - - 1,152 - LTG Infra AB 127 15 - - 652 - VĮ Registrų centras - 205 - 240 - - 48,097 29,267 232,008 208,842 291,766 14,030 158 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Income from other sales comprised as follows: sale of shares of TSO Holding AS to EPSO-G UAB (EUR 13,785 thousand); compensation of expenses related to the sale of shares of TSO Holding AS to EPSO-G UAB (EUR 45 thousand); and interest charged to EPSO-G UAB on the loan granted (EUR 20 thousand), and interest on late payment and default charges from TETAS UAB (EUR 180 thousand). Dividends paid to related parties 2023 2022 EPSO-G UAB - 16,129 Total - 16,129 Payments to key management personnel At 31 December 2023 At 31 December 2022 Employment-related payments 1,110 803 Whereof: Termination benefits* 3 - Number of key management personnel (average annual) 9 7 * - including social security contributions paid by the employer. No loans, guarantees or any other benefits were paid or calculated, nor any assets were transferred to the Company’s management in 2023 and 2022. Key management personnel consists of the Company’s head of administration, chiefs of the departments and centers, and members of the collegial management bodies. In 2023, payments to the members of the collegial management bodies amounted to EUR 66 thousand (2022: EUR 40 thousand). 34.Basic and diluted earnings per share In 2023 and 2022, the Company’s basic and diluted earnings/(deficit) per share were as follows: At 31 December 2023 At 31 December 2022 Profit/(loss) for the period attributable to the Company’s shareholders (EUR thousands) 48,386 (49,484) Weighted average number of shares (units) 504,331,380 504,331,380 Basic and diluted earnings/(deficit) per share (in EUR) 0.096 (0.098) 159 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) 35.Additional information on cash flows Changes in the Company’s payables for non-current assets amounting to EUR 12,758 thousand in 2023 (2022: EUR 1,964 thousand) and changes in capitalised interest amounting to EUR 0 in 2023 (2022: EUR 36 thousand) were taken into account when calculating cash flows from investing activities. 36.Financial risk factors The Company is exposed to financial risks in its operations. In managing these risks, the Company seeks to mitigate the effect of factors which could make a negative effect on the financial performance of the Company. Financial risk management is conducted by the Company’s Finance Planning and Analysis Division in accordance with the Treasury and Financial Risk Management Policy of the EPSO-G UAB Group approved by the Board of LITGRID AB which is published on the website of EPSO-G UAB www.epsog.lt. Financial instruments by category (as per the statement of financial position): Financial assets At 31 December 2023 At 31 December 2022 Trade receivables under contracts with customers 18,629 61,080 Trade receivables 8,283 2,558 Other amounts receivable 420 590 Loans granted 167,082 232,008 Other financial assets 4,444 7,361 Cash and cash equivalents 634 499 Financial assets measured at amortised cost 199,492 304,096 Other financial assets Financial assets measured at fair value through other comprehensive income - - Total financial assets 199,492 304,096 At 31 December 2023 At 31 December 2022 Financial liabilities Borrowings 34,329 40,428 Lease liabilities 5,493 5,702 Trade payables 58,033 70,146 Dividends payable 496 522 Accrued other expenses and deferred revenue 1,481 2,580 Guarantee on the fulfilment of obligations 3,507 2,334 Total 103,339 121,712 Credit risk As at 31 December 2023 and 31 December 2022, credit risk was related to the following line items: At 31 December 2023 At 31 December 2022 Financial assets, excluding assets measured at fair value through other comprehensive income 199,492 304,096 160 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) The Company has a significant credit risk concentration, because exposure to credit risk is shared among 10 main customers, amounts receivables from which accounted for about 92% of the Company’s total trade and other receivables as at 31 December 2023 (31 December 2022: 95%). As at 31 December 2023, amounts receivable from the major customer, i.e. distribution network operator Energijos Skirstymo Operatorius AB, accounted for 58% of the Company’s total amounts receivable (31 December 2022: 54%). When entering into imbalance contracts with participants of the electricity market, the Company requires to pay a cash deposit of the established amount ( note 14 and note 27) or to provide a bank guarantee in accordance with terms and conditions set out in the imbalance contract. The Company holds unused cash and cash equivalents at the banks assigned with a credit rating not lower than AA-. The table below shows the long-term credit ratings of the parent banks of the banks at which the Company holds cash and cash equivalents (Note 15): Bank 1A+ Bank 2AA- Bank 3AA- Trade and other receivables are mainly from the state-owned entities and large manufacturers with no history of significant defaults. The Company has granted the loan to EPSO-G UAB, which is wholly owned by the state and has a Baa1 investment rating assigned by rating agency Moody’s Investors Service. Liquidity risk The main objective of the Company’s liquidity policy is to ensure funding of its operations, i.e. to ensure that the Company will have sufficient cash and/or committed credit facilities and overdrafts to meet its contractual obligations at any time. The liquidity risk is managed by making forecasts of cash flows of the Company. The Company’s cash flows from operations were negative in 2022, therefore its exposure to liquidity risk became more significant. The Company’s current ratio (total current assets / total current liabilities) and quick ratio ((total current assets – inventories) / total current liabilities) as at 31 December 2023 were 1.91 (31 December 2022: 0.81). As described in Note 2.12, the Company may temporarily use congestion management funds when necessary. The next year’s liquidity will be ensured by the next year’s operating profit and congestion funds received which, when necessary, will be used for the financing of the activities, and by obtaining additional borrowings from financial institutions. The table below summarise the contractual maturity dates of the Company’s financial liabilities. This information has been prepared based on undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. Balances of trade and other amounts payable with repayment terms up to 12 months are equal to their carrying amounts, because the impact of discounting is insignificant. Up to 3 months Between 4 months and 1 year Within the second year Within third – fifth year After five years Total liabilities Balance at 1 January 2022 Trade and other amounts payable 75,582 - - - - 75,582 Borrowings - 6,509 6,452 14,756 14,267 41,984 Lease liabilities 120 345 442 850 7,588 9,345 Balance at 31 December 2022 75,702 6,854 6,894 15,606 21,855 126,911 Balance at 1 January 2023 Trade and other amounts payable 63,517 - - - - 63,517 Borrowings - 6,452 6,395 12,486 10,143 35,476 Lease liabilities 128 383 511 548 7,549 9,119 Balance at 31 December 2023 63,645 6,835 6,906 13,034 17,692 108,112 161 NOTES TO THE COMPANY’S FINANCIAL STATEMENTS (All amounts are in EUR thousands unless otherwise stated) Market risk a)Interest rate risk The Company’s income, expenses and cash flows from operating activities are substantially independent of changes in market interest rates. From November 2022, the Company has non-current borrowings bearing fixed interest rates. b)Foreign exchange risk To manage the foreign exchange risk, the Company enters into purchase/sale contracts only in the euros. 37.Fair value of financial assets and financial liabilities The Company’s principal financial assets and liabilities not carried at fair value are trade and other amounts receivable, cash and cash equivalents, loans, trade and other amounts payable and other financial assets. The following methods and assumptions are used to estimate the value of each category of financial instruments that are not measured at fair value: The carrying amount of current trade and other amounts receivable, other financial assets, cash and cash equivalents, loans to the related parties, current trade payables and other amounts payable approximates their fair value (Level 3). The fair value of non-current borrowings is based on the quoted market price for the same or similar issues or on the current rates available for borrowings with the same maturity profile. The fair value of the Company’s non-current borrowings with fixed interest rates was approximately EUR 5 593 thousand lower than their carrying amount as at 31 December 2023 (31 December 2022: EUR 4,681 thousand). 38.Services provided by the audit firm The audit firm provided the following audit and non-audit services to the Company. Information on non-audit services is disclosed based on the date of services rendered. Figures in table are in euros. Type of services At 31 December 2023 At 31 December 2022 Audit services 86,000 52,054 Total audit services 86,000 52,054 Assurance and other related services 14,603 14,776 Other services 3,180 3,479 Total non-audit services 17,783 18,255 39.Litigations There is a civil case in the Court based on the Contractor’s action against the Company regarding the increase of contract prices, the award of EUR 2,477 thousand and other Contractor’s claims. The Company contests the claim in full, therefore did not recognise the provision for indemnification obligation. The Court’s decision is expected in May 2024. In October 2023 the legal proceedings have been initiated at the Arbitration Institute of the SCC against multiple transmission system operators, including LITGRID. The legal proceedings have started due to a fact that the operators in compliance with the international sanctions have stopped payments. Taking into account the rules of the Arbitration Institute of the SCC, more detailed information at this point is considered confidential. The Company did not recognise provisions due to the uncertain outcome of the case. 40.Events after the reporting period On 23 February 2024 the company extended the borrowing agreement with EPSO-G UAB until 24 May 2024, applying from 1 March 2023 variable interest rate linked to ESTR (euro short-term rate). _____ 162 PricewaterhouseCoopers UAB, J. Jasinskio str. 16B, 03163 Vilnius, Lithuania +370 (5) 239 2300, [email protected], www.pwc.lt Company code 111473315, registered with the Legal Entities’ Register of the Republic of Lithuania Independent auditor’s report To the shareholders of LITGRID AB Report on the audit of the financial statements Our opinion In our opinion, the financial statements give a true and fair view of the financial position of LITGRID AB (the “Company”) as at 31 December 2023 and of the Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Our opinion is consistent with our additional report to the Audit Committee dated 29 March 2024. What we have audited The Company’s financial statements comprise: ● the Company’s statement of financial position as at 31 December 2023; ● the Company’s statement of comprehensive income for the year then ended; ● the Company’s statement of changes in equity for the year then ended; ● the Company’s statement of cash flows for the year then ended; and ● the notes to the financial statements, comprising material accounting policy information and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) and the Law of the Republic of Lithuania on the Audit of Financial Statements that are relevant to our audit of the financial statements in the Republic of Lithuania. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the Law of the Republic of Lithuania on the Audit of Financial Statements. To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Company are in accordance with the applicable law and regulations in the Republic of Lithuania and that we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014 considering the exemptions of Regulation (EU) No 537/2014 endorsed in the Law of the Republic of Lithuania on the Audit of Financial Statements. The non-audit services that we have provided to the Company, in the period from 1 January 2023 to 31 December 2023, are disclosed in note 38 to the financial statements. Our audit approach Overview Materiality ● Overall materiality: EUR 3,500 thousand Key audit matters ● Property, plant and equipment at revalued amount As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including, among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the financial statements as a whole. Overall Company materiality EUR 3,500 thousand (EUR 2,975 thousand) How we determined it 1% of average annual revenue for the 3-year period Rationale for the materiality benchmark applied We chose revenue as the benchmark for the Company because it is the measure against which the performance of the Company is assessed by the regulatory bodies as well as external creditors and other stakeholders. The Company’s results depend on approved tariffs for regulated activities, therefore the Company‘s profit before tax fluctuate widely year over year, whereas its revenue is more stable and growth-oriented indicator which can be compared to other market participants. Because of 2021-2023 revenue fluctuations due to changes in energy prices, we chose average 3-year revenue figure as the benchmark. We chose 1%, which is within the range of acceptable quantitative materiality thresholds. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above EUR 175 thousand, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Property, plant and equipment at revalued amount (refer to Notes 2.2, 2.3, 3 and 6) The Company applies the revaluation model for subsequent measurement of property, plant and equipment (‘PPE’). As at 31 December 2023 the carrying value of PPE amounted to EUR 395,157 thousand, being its fair value at the date of the revaluation, less subsequent accumulated depreciation and impairment losses recognized until 31 December 2023. The Company’s management performed the PPE revaluation in 2023. The total net revaluation gain for the Company amounted to EUR 5,811 thousand, of which the increase of EUR 27,435 thousand was recognised directly in equity, and the decrease of EUR 21,624 thousand was recognised in profit or loss. The valuation of electricity transmission network assets was carried out in the following stages: (i) replacement costs of new assets (RCN) were estimated; (ii) the physical deterioration and functional obsolescence of the assets was determined; and (iii) the economic obsolescence of the assets was assessed (using the income approach). In determining the replacement costs, the management took into account asset-specific current information such as the cost of materials and works, or overall construction costs. Then physical deterioration and functional obsolescence of the assets was determined to estimate depreciated replacement cost (DRC) for each individual asset. The income approach was used to determine the economic obsolescence of the assets. We obtained an understanding and evaluated management’s policies, processes and controls in determination of fair values of items of PPE. We analysed management’s valuation methodology and their assessment of changes in tariff setting regulations that occurred during 2023. We obtained the model for calculating the RCN and DRC, tested the reasonableness of inputs used and the determination of the physical deterioration and functional obsolescence of the assets for selected items, by comparing to recent construction prices of comparable new assets and verifying formulas and data used to arrive from RCN to DRC. We obtained the cash flow model used by the management to determine the economic obsolescence of PPE. We checked the model and tested whether they are mathematically accurate and that the results were accurately compared to the carrying values of PPE. We examined the management’s assumptions which had material impact on the valuation results: the rate of return on regulated assets and the discount rate, expected capital expenditures, the additional tariff component to finance investments and values of regulated assets. As appropriate, we traced these assumptions to external or to the Company’s internal sources of information. We involved our internal valuation experts to assist us in discount rate assessment and overall assessment of the methodology used in developing the valuation model. Also, we assessed sensitivity of the cash flow model to the changes in the rate of return, the discount rate, and the additional tariff component to finance investments. Based on the results of the economic obsolescence test, the values of the assets determined by DRC method were reduced on a pro rata basis, except for assets for which such allocation would have resulted in a value lower than the asset’s estimated regulated cash flows from individual items (hereinafter – RAB value). For such assets the RAB value was considered to be their fair value. The amount of reduction that would otherwise have been allocated to an asset was allocated pro rata to the other assets. Finally, the management compared previous carrying values of individual assets against revalued amounts determined using the approach described above, and calculated the revaluation gains or losses to be accounted through profit and loss, or other comprehensive income as appropriate. We focused on this area due to the significance of the PPE balance to the consolidated statement of financial position and because the management’s assessment of fair values of PPE is an area of significant management judgement.. We also checked the allocation of the fair value surplus or reduction to individual items based on economic obsolescence principles and performed detailed fair value allocation testing for selected items. We also considered whether or not there was a bias in determining fair value. We have considered the adequacy and completeness of disclosures in Notes 2.2, 2.3, 3 and 6. Reporting on other information including the annual report Management is responsible for the other information. The other information comprises the annual report, including the corporate governance report and the remuneration report and social responsibility (sustainability) report (but does not include the financial statements and our auditor’s report thereon). Our opinion on the financial statements does not cover the other information, including the annual report. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the annual report, including the corporate governance report and the remuneration report, we considered whether the annual report, including the corporate governance report and the remuneration report, includes the disclosures required by the Law of the Republic of Lithuania on Reporting by Undertakings. Based on the work undertaken in the course of our audit, in our opinion: ● the information given in the annual report, including the corporate governance report and the remuneration report, for the financial year for which the financial statements are prepared, is consistent with the financial statements; and ● the annual report, including the corporate governance report and the remuneration report, has been prepared in accordance with the Law of the Republic of Lithuania on Financial Reporting by Undertakings. The Company presented the social responsibility (sustainability) report as a part of the annual report. In addition, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the annual report which we obtained prior to the date of this auditor’s report. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. ● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ● Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. ● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and have communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements Report on the compliance of the format of the financial statements with the requirements of the European Single Electronic Reporting Format We have been engaged based on the amendment to our audit agreement by the management of the Company to conduct a reasonable assurance engagement for the verification of compliance with the applicable requirements of the European single electronic reporting format of the Company’s financial statements, including the annual report, for the year ended 31 December 2023 (the “Single Electronic Reporting Format of the financial statements”). Description of a subject matter and applicable criteria The Single Electronic Reporting Format of the financial statements has been applied by the management of the Company to comply with the requirements of art. 3 and 4 of the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (the “ESEF Regulation”). The applicable requirements regarding the Single Electronic Reporting Format of the financial statements are contained in the ESEF Regulation. The requirements described in the preceding sentence determine the basis for application of the Single Electronic Reporting Format of the financial statements and, in our view, constitute appropriate criteria to form a reasonable assurance conclusion. Responsibility of the management and those charged with governance The management of the Company is responsible for the application of the Single Electronic Reporting Format of the financial statements that complies with the requirements of the ESEF Regulation. This responsibility includes the selection and application of appropriate markups in iXBRL using ESEF taxonomy and designing, implementing and maintaining internal controls relevant for the preparation of the Single Electronic Reporting Format of the financial statements which is free from material non- compliance with the requirements of the ESEF Regulation. Those charged with governance are responsible for overseeing the financial reporting process, which should also be understood as the preparation of financial statements in accordance with the format resulting from the ESEF Regulation. Our responsibility Our responsibility was to express a reasonable assurance conclusion whether the Single Electronic Reporting Format of the financial statements complies, in all material aspects, with the ESEF Regulation. We conducted our engagement in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits and Reviews of Historical Financial Information’ (“ISAE 3000 (R)”). This standard requires that we comply with ethical requirements, plan and perform procedures to obtain reasonable assurance whether the Single Electronic Reporting Format of the financial statements complies, in all material aspects, with the applicable requirements. Reasonable assurance is a high level of assurance, but it does not guarantee that the service performed in accordance ISAE 3000 (R) will always detect the existing material misstatement (significant non-compliance with the requirements). Summary of the work performed Our planned and performed procedures were aimed at obtaining reasonable assurance that the Single Electronic Reporting Format of the financial statements was applied, in all material aspects, in accordance with the applicable requirements and such application is free from material errors or omissions. Our procedures included in particular: • obtaining an understanding of the internal control system and processes relevant to the application of the Single Electronic Reporting Format of the financial statements, including the preparation of the XHTML format and marking up the financial statements; • verification whether the XHTML format was applied properly; • evaluating the completeness of marking up the financial statements using the iXBRL markup language according to the requirements of the implementation of single electronic format as described in the ESEF Regulation; • evaluating the appropriateness of the Company’s use of XBRL markups selected from the ESEF taxonomy and the creation of extension markups where no suitable element in the ESEF taxonomy has been identified; and • evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. Conclusion In our opinion, the Single Electronic Reporting Format of the financial statements for the year ended 31 December 2023 complies, in all material aspects, with the ESEF Regulation. Appointment We were first appointed as auditors of the Company on 24 April 2015 and had an engagement appointment of 3 years for 2015-2017 audits. After a 2-year break our appointment was renewed for 2020-2022 audits and renewed again for 2023 audit on 30 August 2023, representing a total period of engagement appointment of 7 years, out of which 4 years represent the latest uninterrupted period of engagement. The key audit partner on the audit resulting in this independent auditor’s report is Rasa Radzevičienė. On behalf of PricewaterhouseCoopers UAB Rasa Radzevičienė Partner Auditor's Certificate No. 000377 Vilnius, Republic of Lithuania 29 March 2024 The auditor's electronic signature is used herein to sign only the Independent Auditor's Report UAB „PricewaterhouseCoopers“, J. Jasinskio g. 16B, LT-03163 Vilnius, Lietuva +370 (5) 239 2300, [email protected], www.pwc.lt Įmonės kodas 111473315, įregistruota LR juridinių asmenų registre Nepriklausomo auditoriaus išvada LITGRID AB akcininkams Išvada dėl finansinių ataskaitų audito Mūsų nuomonė Mūsų nuomone, finansinės ataskaitos parodo tikrą ir teisingą LITGRID AB (toliau – Bendrovė) 2023 m. gruodžio 31 d. finansinės būklės ir tuomet pasibaigusių metų Bendrovės finansinių veiklos rezultatų ir pinigų srautų vaizdą pagal Tarptautinius finansinės atskaitomybės standartus, patvirtintus taikyti Europos Sąjungoje. Mūsų nuomonė atitinka 2024 m. kovo 29 d. papildomą ataskaitą Audito komitetui. Mūsų audito apimtis Bendrovės finansines ataskaitas sudaro: ● 2023 m. gruodžio 31 d. Bendrovės finansinės būklės ataskaita; ● tuomet pasibaigusių metų Bendrovės bendrųjų pajamų ataskaita; ● tuomet pasibaigusių metų Bendrovės nuosavo kapitalo pokyčių ataskaita; ● tuomet pasibaigusių metų Bendrovės pinigų srautų ataskaita; ir ● finansinių ataskaitų aiškinamasis raštas, apimantis reikšmingą apskaitos politikos informaciją ir kitą aiškinamąją informaciją. Pagrindas nuomonei pareikšti Auditą atlikome pagal Tarptautinius audito standartus (TAS). Mūsų atsakomybė pagal TAS toliau aprašyta mūsų išvados pastraipoje „Auditoriaus atsakomybė už finansinių ataskaitų auditą“. Manome, kad gauti audito įrodymai suteikia pakankamą ir tinkamą pagrindą mūsų audito nuomonei. Nepriklausomumas Esame nepriklausomi nuo Bendrovės vadovaujantis Tarptautinių apskaitos specialistų etikos standartų valdybos parengtu Tarptautiniu apskaitos profesionalų etikos kodeksu (įskaitant Tarptautinius nepriklausomumo reikalavimus) (toliau – TASESV kodeksas) ir Lietuvos Respublikos finansinių ataskaitų audito įstatymu, kurie taikytini atliekant finansinių ataskaitų auditą Lietuvos Respublikoje. Taip pat laikomės kitų TASESV kodekse bei Lietuvos Respublikos finansinių ataskaitų audito įstatyme numatytų etikos reikalavimų. Remdamiesi savo žiniomis ir įsitikinimu, pareiškiame, kad ne audito paslaugos, kurias suteikėme Bendrovei, atitinka Lietuvos Respublikoje taikomus įstatymus ir kitus teisės aktus. Taip pat pareiškiame, kad nesuteikėme ne audito paslaugų, kurios yra draudžiamos pagal Reglamento (ES) Nr. 537/2014 5 straipsnio 1 dalį, atsižvelgiant į Reglamento (ES) Nr. 537/2014 išimtis, patvirtintas Lietuvos Respublikos finansinių ataskaitų audito įstatyme. Ne audito paslaugos, kurias laikotarpiu nuo 2023 m. sausio 1 d. iki 2023 m. gruodžio 31 d. suteikėme Bendrovei, atskleistos finansinių ataskaitų aiškinamojo rašto 38 pastaboje. Mūsų audito metodika Apžvalga Reikšmingumo lygis ● Bendras reikšmingumo lygis Bendrovei yra 3 500 tūkst. Eur Pagrindiniai audito dalykai ● Ilgalaikis materialusis turtas, apskaitomas perkainota verte Planuodami auditą nustatėme reikšmingumo lygį ir įvertinome reikšmingo iškraipymo finansinėse ataskaitose rizikas. Būtent, atsižvelgėme į tas sritis, kuriose vadovybė priėmė subjektyvius sprendimus: pavyzdžiui, sprendimus dėl reikšmingų apskaitinių įvertinimų, kuriems nustatyti buvo remtasi prielaidomis ir atsižvelgta į būsimus įvykius, kurie savo prigimtimi yra neapibrėžti. Kaip ir visų kitų mūsų auditų metu, įvertinome vadovybės vidaus kontrolės procedūrų nesilaikymo riziką, taip pat, be kitų dalykų, įvertinome, ar buvo tam tikrą tendencingumą patvirtinančių įrodymų, kurie liudytų apie reikšmingo iškraipymo dėl apgaulės riziką. Audito apimtį pritaikėme taip, kad mūsų atlikti darbai būtų pakankami, kad galėtume pareikšti savo nuomonę apie finansines ataskaitas kaip visumą, atsižvelgiant į Bendrovės struktūrą, apskaitos procesus ir kontroles, taip pat į sektorių, kuriame Bendrovė vykdo savo veiklą. Reikšmingumo lygis Mūsų audito apimčiai įtakos turėjo mūsų taikomas reikšmingumo lygis. Audito paskirtis – gauti pakankamą užtikrinimą dėl to, ar finansinėse ataskaitose nėra reikšmingų iškraipymų. Iškraipymai gali atsirasti dėl apgaulės ar klaidos. Iškraipymai yra laikomi reikšmingais, jei galima pagrįstai numatyti, kad kiekvienas atskirai ar visi kartu jie turės įtakos finansinių ataskaitų naudotojų priimamiems ekonominiams sprendimams remiantis šiomis finansinėmis ataskaitomis. Remdamiesi savo profesiniu sprendimu nustatėme tam tikras kiekybines ribas reikšmingumo lygiui, įskaitant bendrą Bendrovės reikšmingumo lygį finansinėms ataskaitoms kaip visumai, kuris pateiktas lentelėje toliau. Šios kiekybinės ribos kartu su kokybiniais aspektais padėjo mums apibrėžti audito apimtį bei audito procedūrų pobūdį, atlikimo laiką ir aprėptį, taip pat įvertinti kiekvieno atskirai ir visų kartu iškraipymų, jei tokių buvo, poveikį finansinėms ataskaitoms kaip visumai. Bendras reikšmingumo lygis Bendrovei 3 500 tūkst. Eur (2 975 tūkst. Eur) Kaip mes jį nustatėme 1% nuo paskutinių trejų metų pajamų vidurkio Taikyto reikšmingumo lygio išaiškinimas Kaip kriterijų reikšmingumo lygiui nustatyti pasirinkome pajamas, nes tai yra rodiklis, kuriuo remiasi priežiūros institucijos, išorės kreditoriai ir kitos suinteresuotosios šalys, norėdami įvertinti Bendrovės veiklos rezultatus. Bendrovės veiklos rezultatai priklauso nuo patvirtintų reguliuojamos veiklos tarifų, todėl Bendrovės pelnas prieš apmokestinimą kasmet itin svyruoja, o jos pajamos yra stabilesnis ir į augimą orientuotas rodiklis, kurį galima palyginti su kitais rinkos dalyviais. Kadangi 2021 - 2023 metais pajamos didėjo dėl elektros kainų pokyčių, kaip kriterijų reikšmingumo lygiui nustatyti pasirinkome paskutinių trejų metų pajamų vidurkį. Pasirinkome 1%, kuris yra priimtinose kiekybinio vertinimo reikšmingumo lygio ribose. Sutarėme su Audito komitetu, kad informuosime jį apie audito metu nustatytus iškraipymus, viršijančius 175 tūkst. Eur sumą, taip pat apie iškraipymus, nesiekiančius šios sumos, apie kuriuos, mūsų nuomone, būtina informuoti dėl kokybinių priežasčių. Pagrindiniai audito dalykai Pagrindiniai audito dalykai – tai dalykai, kurie mūsų profesiniu sprendimu buvo svarbiausi atliekant einamojo laikotarpio finansinių ataskaitų auditą. Šiuos dalykus nagrinėjome atlikdami finansinių ataskaitų kaip visumos auditą ir formuluodami apie jas savo nuomonę, todėl apie šiuos dalykus mes nepareiškiame jokios atskiros savo nuomonės. Pagrindinis audito dalykas Kaip audito metu nagrinėjome pagrindinį audito dalyką Ilgalaikis materialusis turtas, apskaitomas perkainota verte (žr.2.2, 2.3, 3 ir 6 pastabas) Po pirminio pripažinimo Bendrovė taiko perkainojimo metodą ilgalaikio materialiojo turto (toliau – IMT) pripažinimui. Bendrovės IMT balansinė vertė 2023 m. gruodžio 31 d. sudarė 395 157 tūkst. Eur ir atitiko jo tikrąją vertę perkainojimo dieną, atėmus vėlesnį sukauptą nusidėvėjimą ir vertės sumažėjimo nuostolius, pripažintus iki 2023 m. gruodžio 31 d. 2023 m. Bendrovės vadovybė atliko IMT perkainojimą. Bendrovės grynasis perkainojimo rezultatas iš viso sudarė 5 811 tūkst. Eur, iš kurių 27 435 tūkst. Eur padidėjimo suma buvo pripažinta tiesiogiai nuosavybės dalyje ir 21 624 tūkst. Eur sumažėjimo suma buvo pripažinta pelno arba nuostolių dalyje. Elektros perdavimo tinklo turto vertinimas apėmė šiuos etapus: (i) naujo turto atkuriamosios vertės (angl. RCN) nustatymą; (ii) turto fizinio ir funkcinio nusidėvėjimo nustatymą; (iii) turto ekonominio nusidėvėjimo įvertinimą (taikant pajamų metodą). Nustatydama atkuriamąją vertę, vadovybė atsižvelgė į turtui būdingą dabartinę informaciją, tokią kaip medžiagų ir darbų kaina arba bendra rangos darbų sąnaudų suma. Tuomet buvo nustatytas turto fizinis ir funkcinis nusidėvėjimas, siekiant įvertinti kiekvieno atskiro turto vieneto nudėvėtąją atkuriamąją vertę (angl. DRC). Mes supratome ir įvertinome vadovybės politikas, procesus ir kontrolės procedūras, kuriuos vadovybė taikė nustatydama IMT tikrąją vertę. Mes išanalizavome vadovybės taikomą vertinimo metodologiją ir vadovybės įvertintus tarifų nustatymą reglamentuojančių teisės aktų pasikeitimus per 2023 m. Mes gavome RCN ir DRC apskaičiavimo modelį, patikrinome modelyje naudojamų duomenų ir pasirinktų turto vienetų fizinio ir funkcinio nusidėvėjimo nustatymo pagrįstumą, palygindami juos su palyginamojo naujo turto dabartinėmis statybos kainomis ir patikrindami formules bei duomenis, naudotus RCN ir DRC vertėms apskaičiuoti. Mes gavome pinigų srautų modelį, kurį vadovybė taikė IMT ekonominiam nusidėvėjimui nustatyti. Mes patikrinome modelį ir įvertinome, ar matematiniai skaičiavimai jame yra tikslūs ir ar rezultatai yra tiksliai palyginami su IMT balansinėmis vertėmis. Mes išanalizavome vadovybės taikytas prielaidas, kurios turėjo reikšmingos įtakos vertinimo rezultatams: reguliuojamo turto grąžos normą ir diskonto normą, tikėtinas investicijas į ilgalaikį materialųjį turtą, papildomą kainos dedamąją investicijų finansavimui ir reguliuojamo turto vertes. Šias prielaidas atitinkamai sutikrinome su išoriniais ar Bendrovės vidaus informacijos šaltiniais. Mes pasitelkėme savo vidaus vertinimo ekspertus, kurie padėjo mums įvertinti diskonto Ekonominis turto nusidėvėjimas buvo nustatytas taikant pajamų metodą. Remiantis ekonominio nusidėvėjimo testo rezultatais, turto vertės, nustatytos taikant DRC metodą, buvo proporcingai sumažintos, išskyrus turtą, kurio vertė dėl ekonominio nusidėvėjimo sumos paskirstymo taptų mažesnė už šio turto įvertintų reguliuojamų pinigų srautų iš individualių turto vienetų vertę (toliau – RAB vertė). Buvo laikoma, kad tokio turto RAB vertė atitinka jo tikrąją vertę. Sumažėjimo suma, kuri kitu atveju būtų paskirstyta tokiam turtui, proporcingai buvo paskirstyta kitam turtui. Galiausiai vadovybė palygino individualių turto vienetų ankstesnes balansines vertes su perkainotomis vertėmis, nustatytomis taikant pirmiau aprašytą metodą, ir apskaičiavo perkainojimo pelną ar nuostolius, pripažįstamus atitinkamai pelno ir nuostolių dalyje arba kitų bendrųjų pajamų dalyje. Pagrindinį dėmesį šiai sričiai skyrėme dėl IMT likučio reikšmingumo konsoliduotojoje finansinės būklės ataskaitoje ir dėl to, kad vadovybės atliekamas IMT vertinimas yra sritis, kuri apima reikšmingus vadovybės sprendimus. normą bei atlikti bendrą vertinimo modelio kūrimo metodologijos vertinimą. Mes taip pat įvertinome pinigų srautų modelio jautrumą grąžos normos, diskonto normos ir papildomos kainos dedamosios investicijų finansavimui pokyčiams. Be to, mes patikrinome tikrosios vertės perviršio arba sumažėjimo paskirstymą individualiems turto vienetams, remiantis ekonominio nusidėvėjimo principais, ir pasirinktiems turto vienetams atlikome išsamų tikrosios vertės paskirstymo testą. Taip pat mes įvertinome, ar buvo tendencingumų nustatant tikrąją vertę. Mes įvertinome 2.2, 2,3, 3 ir 6 pastabose atskleistos informacijos pakankamumą Išvada apie kitą informaciją, įskaitant metinį pranešimą Už kitą informaciją yra atsakinga vadovybė. Kita informacija apima metinį pranešimą, įskaitant bendrovių valdymo ataskaitą, atlygio ataskaitą ir socialinės atasakomybės (darnumo) ataskaitą (tačiau neapima finansinių ataskaitų ir mūsų auditoriaus išvados apie šias ataskaitas). Mūsų nuomonė apie finansines ataskaitas neapima kitos informacijos, įskaitant metinį pranešimą. Mums atliekant finansinių ataskaitų auditą mūsų atsakomybė – perskaityti pirmiau minėtą kitą informaciją ir įvertinti, ar yra reikšmingas nesuderinamumas tarp kitos informacijos ir finansinių ataskaitų ar per auditą mūsų įgytų žinių ir ar kitaip nepaaiškėja, kad šioje kitoje informacijoje yra reikšmingų iškraipymų. Metinio pranešimo, įskaitant bendrovių valdymo ataskaitą ir atlygio ataskaitą, atžvilgiu mes įvertinome, ar metiniame pranešime, įskaitant bendrovių valdymo ataskaitą ir atlygio ataskaitą, pateikta Lietuvos Respublikos įmonių atskaitomybės įstatyme numatyta informacija. Remiantis audito metu atliktu darbu, mūsų nuomone: ● finansinių metų, už kuriuos parengtos finansinės ataskaitos, metiniame pranešime pateikta informacija, įskaitant bendrovių valdymo ataskaitą ir atlygio ataskaitą, atitinka duomenis, pateiktus finansinėse ataskaitose; ir ● metinis pranešimas, įskaitant bendrovių valdymo ataskaitą ir atlygio ataskaitą, yra parengtas laikantis Lietuvos Respublikos įmonių atskaitomybės įstatymo reikalavimų. Bendrovė pateikė socialinės atsakomybės (darnumo) ataskaitą, kuri yra sudėtinė metinio pranešimo dalis. Be to, privalome informuoti, ar, atsižvelgiant į audito metu gautą informaciją ir įgytą supratimą apie Bendrovę bei jos aplinką, nustatėme reikšmingų iškraipymų metiniame pranešime, kurį gavome iki šios auditoriaus išvados išleidimo dienos. Šiuo atžvilgiu nėra nieko, apie ką turėtume informuoti. Vadovybės ir už valdymą atsakingų asmenų atsakomybė už finansines ataskaitas Vadovybė yra atsakinga už finansinių ataskaitų, kurios parodo tikrą ir teisingą vaizdą pagal Tarptautinius finansinės atskaitomybės standartus, patvirtintus taikyti Europos Sąjungoje, parengimą bei už tokią vidaus kontrolės sistemą, kuri, vadovybės nuomone, yra būtina finansinių ataskaitų parengimui be reikšmingų iškraipymų, galinčių atsirasti dėl apgaulės ar klaidos. Rengdama finansines ataskaitas vadovybė privalo įvertinti Bendrovės gebėjimą toliau tęsti veiklą ir atitinkamai atskleisti dalykus, susijusius su veiklos tęstinumu ir veiklos tęstinumo apskaitos principo taikymu, išskyrus tuos atvejus, kai vadovybė ketina likviduoti Bendrovę ar nutraukti jos veiklą arba yra priversta tai padaryti, neturėdama jokios kitos realios alternatyvos. Už valdymą atsakingi asmenys privalo prižiūrėti Bendrovės finansinių ataskaitų rengimo procesą. Auditoriaus atsakomybė už finansinių ataskaitų auditą Mūsų tikslas – gauti pakankamą užtikrinimą dėl to, ar finansinės ataskaitos kaip visuma nėra reikšmingai iškraipytos dėl apgaulės ar klaidos, ir parengti auditoriaus išvadą, kurioje pateikiama mūsų nuomonė. Pakankamas užtikrinimas – tai aukšto lygio užtikrinimas, tačiau jis nėra garantija, kad auditas, atliktas pagal TAS, visada atskleis reikšmingą iškraipymą, jei toks yra. Iškraipymai, galintys atsirasti dėl apgaulės ar klaidos, laikomi reikšmingais, jei galima pagrįstai numatyti, kad kiekvienas atskirai ar visi kartu jie gali turėti įtakos finansinių ataskaitų naudotojų ekonominiams sprendimams, priimamiems remiantis šiomis finansinėmis ataskaitomis. Atlikdami auditą pagal TAS, viso audito metu priimame profesinius sprendimus ir vadovaujamės profesinio skepticizmo principu. Taip pat: ● nustatome ir įvertiname finansinių ataskaitų reikšmingo iškraipymo dėl apgaulės ar klaidos rizikas, suplanuojame ir atliekame procedūras kaip atsaką į tokias rizikas ir surenkame audito įrodymus, kurie suteikia pakankamą ir tinkamą pagrindą mūsų audito nuomonei. Reikšmingo iškraipymo dėl apgaulės neaptikimo rizika yra didesnė nei reikšmingo iškraipymo dėl klaidos neaptikimo rizika, nes apgaule gali būti sukčiavimas, klastojimas, tyčinis praleidimas, klaidingas aiškinimas arba vidaus kontrolių nepaisymas; ● išsiaiškiname su auditu susijusią vidaus kontrolę, kad galėtume parengti esant konkrečioms aplinkybėms tinkamas audito procedūras, tačiau ne tam, kad galėtume pareikšti nuomonę apie Bendrovės vidaus kontrolės efektyvumą; ● įvertiname taikomų apskaitos principų tinkamumą bei vadovybės naudojamų apskaitinių įvertinimų ir susijusių atskleidimų pagrįstumą; ● padarome išvadą dėl vadovybės taikomo veiklos tęstinumo apskaitos principo tinkamumo ir dėl to, ar, remiantis surinktais audito įrodymais, egzistuoja reikšmingas neapibrėžtumas, susijęs su įvykiais ar sąlygomis, dėl kurių gali kilti reikšmingų abejonių dėl Bendrovės gebėjimo tęsti veiklą. Jeigu padarome išvadą, kad toks reikšmingas neapibrėžtumas egzistuoja, auditoriaus išvadoje privalome atkreipti dėmesį į susijusius atskleidimus finansinėse ataskaitose arba, jei tokių atskleidimų nepakanka, privalome modifikuoti savo nuomonę. Mūsų išvados pagrįstos audito įrodymais, surinktais iki auditoriaus išvados išleidimo dienos. Tačiau būsimi įvykiai ar sąlygos gali lemti, kad Bendrovė negalės toliau tęsti savo veiklos; ● įvertiname bendrą finansinių ataskaitų pateikimą, struktūrą ir turinį, įskaitant atskleidimus, ir tai, ar finansinėse ataskaitose pagrindžiantys sandoriai bei įvykiai pateikti taip, kad atitiktų teisingo pateikimo koncepciją. Mes, be kitų dalykų, informuojame už valdymą atsakingus asmenis apie planuojamą audito apimtį, audito atlikimo laiką ir reikšmingus pastebėjimus audito metu, įskaitant visus svarbius vidaus kontrolės trūkumus, kuriuos nustatome audito metu. Be to, už valdymą atsakingiems asmenims patvirtiname, kad laikėmės visų svarbių etikos reikalavimų dėl nepriklausomumo, taip pat informavome juos apie visus ryšius ir kitus dalykus, kurie galėtų būti pagrįstai vertinami kaip turintys įtakos mūsų nepriklausomumui ir, jei reikia, apie veiksmus, kurių ėmėmės siekdami pašalinti grėsmes, ir taikytas apsaugos priemones. Iš visų dalykų, apie kuriuos informavome už valdymą atsakingus asmenis, išskyrėme tuos, kurie buvo svarbiausi atliekant einamojo laikotarpio finansinių ataskaitų auditą ir kurie dėl to laikomi pagrindiniais audito dalykais. Šiuos dalykus aprašome savo auditoriaus išvadoje, nebent pagal įstatymą ar kitą teisės aktą būtų draudžiama juos viešai atskleisti arba, labai retomis aplinkybėmis, nustatome, kad dalykas neturėtų būti pateikiamas mūsų išvadoje dėl to, kad galime pagrįstai tikėtis, jog neigiamos tokio atskleidimo pasekmės nusvers visuomenės gaunamą naudą. Išvada dėl kitų teisinių ir priežiūros reikalavimų Išvada dėl finansinių ataskaitų formato atitikties Europos vieno elektroninio ataskaitų teikimo formato reikalavimams Vadovaujantis mūsų audito sutarties pakeitimu, Bendrovės vadovybė pasamdė mus atlikti pakankamo užtikrinimo užduotį, siekiant patvirtinti, kad finansinės ataskaitos, įskaitant metinį pranešimą, už 2023 m. gruodžio 31 d. pasibaigusius metus atitinka nustatytus Europos vieno elektroninio ataskaitų teikimo formato reikalavimus (toliau – Finansinių ataskaitų vienas elektroninio ataskaitų teikimo formatas). Dalyko ir taikomų kriterijų aprašymas Bendrovės vadovybė pritaikė Finansinių ataskaitų vieną elektroninio ataskaitų teikimo formatą, siekdama vykdyti 2018 m. gruodžio 17 d. Komisijos deleguotojo reglamento (ES) 2019/815, kuriuo Europos Parlamento ir Tarybos direktyva 2004/109 / EB papildoma techniniais reguliavimo standartais, kuriais nustatomas vienas elektroninio ataskaitų teikimo formatas (toliau – ESEF reglamentas), 3 ir 4 str. reikalavimus. Finansinių ataskaitų vienam elektroninio ataskaitų teikimo formatui nustatyti reikalavimai yra numatyti ESEF reglamente. Remiantis pirmiau sakinyje minėtais reikalavimais yra taikomas Finansinių ataskaitų vienas elektroninio ataskaitų teikimo formatas ir, mūsų nuomone, jie yra tinkami kriterijai pakankamo užtikrinimo išvadai pateikti. Vadovybės ir už valdymą atsakingų asmenų atsakomybė Bendrovės vadovybė yra atsakinga už Finansinių ataskaitų vieno elektroninio ataskaitų teikimo formato taikymą laikantis ESEF reglamento reikalavimų. Ši atsakomybė apima tinkamo ženklinimo iXBRL kalba pasirinkimą ir taikymą naudojant ESEF taksonomiją bei parengimą, įgyvendinimą ir palaikymą tokių vidaus kontrolės procedūrų, kurios svarbios Finansinių ataskaitų vieno elektroninio ataskaitų teikimo formato parengimui be reikšmingų ESEF reglamento neatitikimų. Už valdymą atsakingi asmenys yra atsakingi už finansinės atskaitomybės priežiūros procesą, kuris taip pat turi būti suprantamas, kaip finansinių ataskaitų parengimas pagal formatą, pritaikytą vadovaujantis ESEF reglamentu. Mūsų atsakomybė Mūsų atsakomybė buvo pateikti pakankamo užtikrinimo išvadą, ar Finansinių ataskaitų vienas elektroninio ataskaitų teikimo formatas visais reikšmingais atžvilgiais atitinka ESEF reglamentą. Užduotį atlikome vadovaudamiesi 3000-uoju Tarptautiniu užtikrinimo užduočių standartu (persvarstytu) „Užtikrinimo užduotys, išskyrus istorinės finansinės informacijos auditus ir peržvalgas“ (toliau – 3000-asis TUUS (P). Šis standartas reikalauja, kad laikytumėmės etikos reikalavimų, suplanuotume ir atliktume procedūras, kurių pagalba gautume pakankamą užtikrinimą, ar Finansinių ataskaitų vienas elektroninio ataskaitų teikimo formatas visais reikšmingais atžvilgiais atitinka nustatytus reikalavimus. Pakankamas užtikrinimas suteikia aukštą užtikrinimo lygį, tačiau negarantuoja, kad pagal 3000-ąjį TUUS (P) atliktos paslaugos visais atvejais leis nustatyti esamą reikšmingą iškraipymą (reikšmingą neatitikimą reikalavimams). Atliktų darbų santrauka Mūsų suplanuotų ir atliktų procedūrų tikslas – gauti pakankamą užtikrinimą, kad Finansinių ataskaitų vienas elektroninio ataskaitų teikimo formatas visais reikšmingais atžvilgiais parengtas laikantis nustatytų reikalavimų ir kad toks parengimas buvo be reikšmingų klaidų ar reikšmingos informacijos nepateikimo. Mūsų atliktos procedūros apėmė: • supratimą apie vidaus kontrolės sistemą ir procesus, kurie svarbūs Finansinių ataskaitų vieno elektroninio ataskaitų teikimo formato taikymui, įskaitant XHTML formato parengimą bei finansinių ataskaitų ženklinimą; • patikrinimą, ar XHTML formatas buvo taikytas tinkamai; • įvertinimą, ar finansinių ataskaitų ženklinimas naudojant iXBRL ženklinimo kalbą yra pilnas, atsižvelgiant į vieno elektroninio ataskaitų teikimo formato taikymo reikalavimus, aprašytus ESEF reglamente; • įvertinimą, ar Bendrovė tinkamai naudoja XBRL ženklinimą, pasirinktą iš ESEF taksonomijos, ir ar tinkamai sukuria plėtinių ženklinimą, kai ESEF taksonomijoje nėra identifikuojamas tinkamas elementas; ir • įvertinimą, ar plėtinių elementai yra tinkamai susieti su ESEF taksonomija. Manome, kad mūsų gauti įrodymai sudaro pakankamą ir tinkamą pagrindą mūsų išvadai pareikšti. Išvada Mūsų nuomone, Finansinių ataskaitų vienas elektroninio ataskaitų teikimo formatas už 2023 m. gruodžio 31 d. pasibaigusius metus visais reikšmingais atžvilgiais atitinka ESEF reglamentą. Paskyrimas Bendrovės auditoriais pirmą kartą buvome paskirti 2015 m. balandžio 24 d. ir visas nenutrūkstamo užduoties vykdymo laikotarpis 2015-2017 m. auditui sudarė trejus metus. Po dvejų metų pertraukos mūsų paskyrimas buvo pratęstas 2020-2022 m. auditui, o 2023 m. rugpjūčio 30 d. mūsų paskyrimas buvo vėl pratęstas 2023 m. auditui, taigi visas užduoties vykdymo laikotarpis apėmė septynerius metus, iš kurių ketveri metai sudarė naujausią nenutrūkstamo užduoties vykdymo laikotarpį. Audito, kurį atlikus išleista ši nepriklausomo auditoriaus išvada, pagrindinė užduoties partnerė yra Rasa Radzevičienė. UAB „PricewaterhouseCoopers“ vardu Rasa Radzevičienė Partnerė Auditoriaus pažymėjimo Nr.000377 Vilnius, Lietuvos Respublika 2024 m. kovo 29 d. Elektroniniu auditoriaus parašu pasirašoma tik Nepriklausomo auditoriaus išvada.
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