Kauno Energija

529900RB20XIQK6NOQ502023-01-012023-12-31iso4217:EURxbrli:shares529900RB20XIQK6NOQ502023-12-31iso4217:EUR529900RB20XIQK6NOQ502022-12-31529900RB20XIQK6NOQ502022-01-012022-12-31529900RB20XIQK6NOQ502021-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502021-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502021-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502021-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502021-12-31529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502022-01-012022-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502022-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502022-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502022-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502022-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502023-01-012023-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502023-01-012023-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502023-01-012023-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502023-01-012023-12-31ifrs-full:RetainedEarningsMember529900RB20XIQK6NOQ502023-12-31ifrs-full:IssuedCapitalMember529900RB20XIQK6NOQ502023-12-31ifrs-full:StatutoryReserveMember529900RB20XIQK6NOQ502023-12-31ifrs-full:OtherReservesMember529900RB20XIQK6NOQ502023-12-31ifrs-full:RetainedEarningsMember AB Kauno Energija Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania THE SET OF CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR 2023 PREPARED IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION, SUBMITTED WITH THE CONSOLIDATED ANNUAL REPORT 2 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) TABLE OF CONTENTS Page Management's approval of the financial statements………………………………. 3 SET OF CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS FOR 2023 ............................................................................................................ 4 – 53 Statements of financial position .......................................................................... 4 – 5 Statement of profit (loss) and other comprehensive income................................ 6 – 7 Statement of Changes in Equity .......................................................................... 8 Cash Flow Statements ........................................................................................ 9 – 10 Notes to the set of financial statements……………………………………………. 11 – 53 CONSOLIDATED ANNUAL REPORT ................................................................ 54 – 107 3 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Management's approval of the financial statements In accordance with the provisions of Article 23 of the Law on Securities of the Republic of Lithuania and Disclosure Rules approved by Resolution of the Board of the Bank of Lithuania No. O3-223 of 13 December 2019, we hereby certify that the individual and consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for application in the European Union. In our opinion, the accounting principles applied are appropriate and the financial statements give a true and fair view in all material respects in accordance with the International Financial Reporting Standards adopted for application in the European Union. The Consolidated Annual Report of 2023 provides a fair review of the development and performance of the business and the overall position of the Company and the consolidated entities, together with a description of the principal risks and uncertainties encountered. We recommend that the Annual financial statements be approved by the General Meeting of Shareholders. Kaunas, 28 March 2024 On behalf of the management: Director General of AB Kauno energija Tomas Garasimavičius Financial Director of AB Kauno energija, acting as Chief Accountant Virgilijus Motiejūnas 4 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Statements of financial position Group Company Notes 2023-12-31 2022-12-31 2023-12-31 2022-12-31 ASSETS Fixed assets Intangible fixed assets 3 249 98 241 98 Property, plant and equipment 4 Land and buildings 6 201 6 468 6 122 6 403 Buildings 134 610 127 521 134 610 127 521 Machinery and equipment 13 824 15 020 13 779 14 975 Vehicles 975 397 975 397 Plant and tools 3 263 2 763 3 217 2 761 Constructions in progress and prepayments 23 483 13 519 23 483 13 477 Investment property 1 114 1 114 - - Total property, plant and equipment 183 470 166 802 182 186 165 534 Right of use assets 6 1 083 1 141 916 884 Non-current financial assets Investments in subsidiaries 5 - - 2 763 2 763 Amounts receivable after one year 128 39 - - Other financial assets 7 75 75 75 75 Financial fixed assets, total 203 114 2 838 2 838 Non-current assets, total 185 005 168 155 186 181 169 354 Current assets Inventories and prepayments Inventories 8 1 777 2 694 1 429 1 879 Prepayments 1 019 2 162 942 1 851 Total inventories and prepayments 2 796 4 856 2 371 3 730 Amounts receivable Short-term deposits - 2 000 - 2 000 Trade receivables 9 14 437 18 169 13 621 17 978 Other amounts receivable 9 2 755 5 156 2 757 5 130 Amounts receivable within one 17 192 25 325 16 378 25 108 year, total Cash and cash equivalents 10 8 547 5 550 7 315 4 891 Current assets, total 28 535 35 731 26 064 33 729 Assets, total: 213 540 203 886 212 245 203 083 (continued on the next page) 5 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Statements of financial position (continued) Group Company Notes 2023-12-31 2022-12-31 2023-12-31 2022-12-31 EQUITY AND LIABILITIES Property Capital 11 74 476 74 476 74 476 74 476 Legal reserve 11 7 447 7 447 7 447 7 447 Other reserves 11 50 3 000 50 3 000 Profit (loss) of the reporting year 4 505 6 356 3 881 6 299 Profit (loss) of the previous year 11 128 4 822 10 869 4 620 Total retained profit (loss) 15 633 11 178 14 750 10 919 Total equity 97 606 96 101 96 723 95 842 Amounts payable and liabilities Amounts payable after one year Financial debts 12 54 736 43 949 54 736 43 949 Lease (financial lease) 13 1 121 1 151 950 887 Deferred profit tax liabilities 22 6 516 5 819 6 516 5 819 Grants and subsidies 14 30 850 32 211 30 850 32 211 Employee benefit liabilities 15 385 374 365 363 Amounts payable after one year, total 93 608 83 504 93 417 83 229 Accounts payable within one year Financial debts and leasing 12,13 3 269 2 891 3 265 2 889 Trade debtors 24 14 105 18 548 14 136 18 487 Employee related liabilities 715 695 701 686 Received prepayments 840 773 815 660 Tax payable 804 500 612 435 Employee benefit liabilities 15 163 90 162 89 Other provisions 16 1 652 78 1 652 78 Accrued costs and deferred income 440 337 425 322 Other amounts payable and liabilities 338 369 337 366 Accounts payable within one 22 326 24 281 22 105 24 012 year, total Total accounts payable and liabilities 115 934 107 785 115 522 107 241 Total equity and liabilities 213 540 203 886 212 245 203 083 The following notes to the financial statements are an integral part of these financial statements. 6 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Statement of profit (loss) and other comprehensive income Group Notes 2023 2022 Operating income Sales revenue 17 85 048 87 992 Other operating income 19 2 860 1 441 Total operating income 87 908 89 433 Operating expenses Fuel and purchased energy (53 778) (58 119) Salaries, social insurance (8 968) (7 931) Depreciation and amortisation (6 682) (6 447) Repair and maintenance (902) (870) Change in impairment of receivables 442 111 Taxes, other than income tax (2 441) (2 249) Electricity (1 628) (2 537) Raw materials and goods used (1 405) (1 460) Water (1 970) (1 048) Change in realisable value of inventories and impairment of fixed assets 318 (44) Other costs 18 (2 777) (2 122) Other operating expenses 19 (486) (747) Operating expenses, total (80 277) (83 463) Operating profit (loss) 7 631 5 970 Other interest and similar income 20 694 247 Loss from disposal of securities 21 - - Interest and other similar expenses 21 (1 348) (299) Income from financing and investment (654) (52) activities, net value Profit before taxation 6 977 5 918 Income tax 22 (202) (75) Deferred income tax income (loss) 22 (697) 15 Profit for the reporting period 6 078 5 858 Other provisions that will/may be reclassified 16 (1 573) 498 subsequently to profit (loss) Other provisions that will not be reclassified to profit (loss) - - Total comprehensive income 4 505 6 356 Profit attributable to: Owners of the Company 6 078 5 858 Non-controlling interests - - Total comprehensive income attributable to: 4 505 6 356 Owners of the Company Non-controlling interests - - 23 0,14 0,14 Earnings per share (EUR) The following notes to the financial statements are an integral part of these financial statements. 7 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Statement of profit (loss) and other comprehensive income (continued) Company Notes 2023 2022 Operating income Sales revenue 17 85 048 87 013 Other operating income 19 1 044 903 Total operating income 86 092 87 916 Operating expenses Fuel and purchased energy (53 778) (57 847) Salaries, social insurance (8 494) (7 798) Depreciation and amortisation (6 625) (6 293) Repair and maintenance (872) (859) Change in impairment of receivables 442 114 Taxes, other than income tax (2 381) (2 182) Electricity (1 628) (2 529) Raw materials and goods used (843) (682) Water (1 970) (1 048) Change in realisable value of inventories and impairment of fixed assets 318 (44) Other costs 18 (2 872) (2 420) Other operating expenses 19 (492) (754) Operating expenses, total (79 195) (82 342) Operating profit (loss) 6 897 5 574 Other interest and similar income 20 688 250 Loss from disposal of securities 21 - 258 Interest and other similar expenses 21 (1 344) (296) Income from financing and investment activities, net value (656) 212 Profit before taxation 6 241 5 786 Income tax 22 (90) - Deferred income tax income (loss) 22 (697) 15 Profit for the reporting period 5 454 5 801 Other provisions that will/may be reclassified subsequently to profit (loss) 16 (1 573) 498 Other provisions that will not be reclassified to profit (loss) - - Total comprehensive income 3 881 6 299 Earnings per share (EUR) 23 0,13 0,14 The following notes to the financial statements are an integral part of these financial statements. 8 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Statement of Changes in Equity Group Notes Capital Legal Other Retained Total reserve reserves earnings Balance on 31 74 476 7 447 3 000 4 822 89 745 December 2021 Formed reserves 11 - - - - - Profit for the reporting period - - - 5 858 5 858 Other comprehensive income - - - 498 498 Balance on 31 74 476 7 447 3 000 11 178 96 101 December 2022 Formed reserves 11 - - 50 (50) - Reversed reserves - - (3 000) 3 000 - Dividends - - - (3 000) (3 000) Profit for the reporting period - - - 6 078 6 078 Other comprehensive income - - - (1 573) (1 573) Balance on 31 74 476 7 447 50 15 633 97 606 December 2023 The following notes to the financial statements are an integral part of these financial statements. Company Notes Capital Legal reserve Other reserves Retained earnings Total Balance on 31 December 2021 74 476 7 447 3 000 5 367 90 290 Formed reserves 11 - - - - - Result of legal merge with AB Petrašiūnų katilinė 5 - - - (747) (747) Profit for the reporting period - - - 5 801 5 801 Other comprehensive income - - - 498 498 Balance on 31 December 2022 74 476 7 447 3 000 10 919 95 842 Formed reserves 11 - - 50 (50) - Reversed reserves 5 - - (3 000) 3 000 - Dividends - - - (3 000) (3 000) Profit for the reporting period - - - 5 454 5 454 Other comprehensive income - - - (1 573) (1 573) Balance on 31 December 2023 74 476 7 447 50 14 750 96 723 9 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Cash Flow Statements Group Company 2023 2022 2023 2022 Cash flows from operating activities Comprehensive income 4 505 6 356 3 881 6 299 Adjustments to non-cash items: Depreciation and amortisation 8 615 8 560 8 591 8 360 Write-offs and changes in impairment of receivables (442) (111) (442) (114) Interest income/expense 660 299 656 296 Loss (gain) on sale and write-down of fixed (16) (17) 16 (17) assets and value of shares Grants and subsidies (amortisation) (1 361) (1 778) (1 361) (1 291) Change in realisable value of inventories (318) 44 (318) 44 and impairment of fixed assets Change in employee benefits liability 84 (91) 75 (125) Change in value of lease liability (56) 71 31 (66) Profit tax expense 899 60 787 (15) Change in accruals 103 (172) 103 10 Change in provision liabilities 1 574 (313) 1 574 (499) Revere of other results of financing and investing activities (153) (247) (147) (502) Adjustment to total non-cash items 9 589 6 305 9 565 6 081 Changes of working capital: Decrease (increase) in inventories 1 235 (982) 768 (516) Decrease (increase) in prepayments 1 143 2 245 909 2 204 Decrease (increase) in trade receivables 4 027 (6 529) 4 652 (6 011) Decrease (increase) in other amounts 2 401 (3 323) 2 373 (3 336) receivable Increase (decrease) in long-term trade (89) 72 - - debts Increase (decrease) in trade debtors and advances received (3 205) 7 405 (3 115) 8 276 Decrease (increase) in liabilities related to employment relations 20 46 15 54 Increase (decrease) in taxes payable 102 (109) 87 (153) Decrease (increase) in received 67 203 155 196 prepayments Increase (decrease) in other current (31) 34 (29) 97 liabilities Total changes in working capital 5 670 (938) 5 815 811 Net cash flows from operating activities 19 764 11 723 19 261 13 191 (continued on the next page) 10 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Cash Flow Statement (continued) Group Company 2023 2022 2023 2022 Cash flows from investing activities Acquisition of intangible fixed assets and property, plant and equipment (25 457) (20 252) (25 439) (20 220) Sale of property, plant and equipment 97 56 5 61 Interest received on overdue receivables 147 252 147 255 Sale (acquisition) of investments 2 000 (2 000) 2 000 (3 539) Net (used) cash flows from investing (23 213) (21 944) (23 287) (23 443) activities Cash flows from financing activities Loans received 14 000 14 000 14 000 14 000 Loans repaid (2 793) (2 816) (2 793) (2 532) Interest paid (1 745) (285) (1 745) (284) Lease payments (16) (98) (12) (96) Dividend paid (3 000) - (3 000) - Subsidy received - 1 274 - 1 273 Net cash flows from (used in) financing 6 446 12 075 6 450 12 361 activities Net increase (decrease) in cash flows 2 997 1 854 2 424 2 109 Cash and cash equivalents at the beginning of the period 5 550 3 696 4 891 2 782 Cash and cash equivalents at the end of the period 8 547 5 550 7 315 4 891 (end) The following notes to the financial statements are an integral part of these financial statements. 11 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) Explanatory notes to financial statements 1. General information AB Kauno energija (hereinafter referred to as the Company) is a public limited liability company registered in the Republic of Lithuania . It’s headquarters address: Raudondvario pl. 84, Kaunas, Lithuania. Data about the Company is collected and stored in the Registry of Legal Entities. The Company is engaged in the supply of heat and hot water, production and sale of electricity and maintenance of collector-tunnels. The Company also provides heating system maintenance services. The Company was registered on 1 July 1997 following the reorganisation of AB Lietuvos energija. The Company's shares are traded on the Baltic Additional Trading List of the Nasdaq Vilnius Stock Exchange. As at 31 December 2023 and 31 December 2022 the Company's shareholders were: 2023-12-31 2022-12-31 Number of Number of held shares, Ownership held shares, Ownership units (%) units (%) Kaunas city municipality 39 736 058 92,84 39 736 058 92,84 Kaunas district municipality 1 606 168 3,75 1 606 168 3,75 Jurbarkas district municipality 746 405 1,74 746 405 1,74 Other small shareholders 713 512 1,67 713 512 1,67 42 802 143 100,00 42 802 143 100,00 The Company's authorised capital is equal to EUR 74,475,728.82 and is divided into 42,802,143 ordinary shares with a nominal value of EUR 1.74 each. As at 31 December 2023 and 31 December 2022, the Company had no own shares. As at 31 December 2023 and 31 December 2022, all shares were fully paid up. On 31 December 2023 the Company and its subsidiary UAB GO Energy LT form a group (the Group): Company Part of the Profit (loss) Company's Company home Company- Cost of for the Equity main address owned investment reporting activities shares period Innovative UAB GO Savanorių 100 per energy Energy LT pr. 347, cent. 2 763 620 3 653 projects, Kaunas consultations , lease During 2022, the Company's shareholding in the Group companies changed as a result of the reorganisation of AB Petrašiūnų katilinė, which was merged into the Company (Note 5). The average listed number of employees of the Group in the reporting period was 375 (383 in 2022). The average list number of employees of the Company in the reporting period was 338 (354 in 2022). 12 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 1. General information (continued) Legal regulation Pursuant to the Law of the Republic of Lithuania on the Heat Sector, the Company's activities are licensed and regulated by the State Energy Regulatory Council (hereinafter referred to as the Council). On 26 February 2004 the Council granted the Company a heat supply licence. The licence is valid for an unlimited period, but may be revoked by an appropriate decision of the Council depending on compliance with certain conditions. The Council also sets price caps for heat supply. On 13 September 2018 the Council, by Resolution No. O3E-283, established new components of the basic heat price for the Company, which were in force during the audited period. In accordance with the price-setting methodology, the Council recalculates the price components after the first year of the basic price and the rate is adjusted prospectively. The recalculated components became applicable on 1 November 2020. Economic activities The Company's production capacities consist of the Petrašiūnai power plant, 5 boiler houses in Kaunas integrated network, 7 regional boiler houses in Kaunas district, 1 in Jurbarkas, 14 isolated network and 26 local (household) boiler houses in Kaunas city, as well as 8 boiler houses for water heating in Sargėnai district. In March 2022 The Petrašiūnų boiler house under the ownership of AB Kauno energija became a division of the Company. In July 2022, the Petrašiūnai power plant's capacity was reduced due to environmental requirements. The total installed thermal capacity of the Company as at 31 December 2023 is approximately 596 MW (of which 53 MW are condensing economizers), electrical, 8.75 MW, including 220 MW thermal capacity of the Petrašiūnai power plant (of which 17.8 MW is condensing economizer) and 8 MW electrical capacity, in Jurbarkas 39.4 MW thermal capacity (including 4.4 MW – a condensing economizer). The total power generation capacity of the Company as a whole is approximately 605 MW (of which 53 MW are condensing economizers). The Company makes investments based on an assessment of the economic situation, the competitive environment and the availability of financing. Investment plans are approved by the shareholders and coordinated by the Board. The Company's management approved these financial statements on 28 March 2024. The Company's shareholders have a statutory right to approve these financial statements or disapprove them and require the management to draft new financial statements. 2.1. Confirmation of Conformity The separate and consolidated financial statements (hereinafter the "financial statements") have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and interpretations thereof. Standards have been issued by the International Accounting Standards Board (IASB) and interpretations have been issued by the International Financial Reporting Interpretations Committee (IFRIC). 13 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2.2. Basis of preparation of the financial statements These financial statements are prepared on an historical cost basis, except for financial assets and liabilities for which changes in fair value are recognised as profit or loss. Historical cost is essentially based on the fair value of the consideration paid for an asset. These financial statements have been prepared on a going concern basis, on the assumption that the Company and the Group will be able to continue in business for the foreseeable future. The financial year of the Company and other Group companies coincides with the calendar year. All amounts in these financial statements are recorded and presented in euro (rounded to the nearest thousand euro, unless otherwise stated) – the functional and presentation currency of the Group and the Company. 2.3. Application of new and/or amended IFRS International Financial Reporting Interpretations Committee’s (IFRIC) interpretations (a) New and/or amended standards and interpretations applicable from 1 January 2023: The following amended standards issued by the International Accounting Standards Board (IASB) and adopted by the EU, as well as additions and clarifications to existing standards, are currently in force and have been applied by the Company and the Group during this year: • IFRS 17 Insurance Contracts; including Amendments to IFRS 17 (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023); • Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 12 “Income taxes”: International Tax Reform – Pillar Two Model Rules (effective for annual periods beginning on or after 1 January 2023). The application of the standards, amendments and interpretations listed above did not materially affect the financial statements of the Company and the Group. (b) Standards, amendments to existing standards and interpretations issued by the IASB, adopted by the EU but not yet in force: As at the date of these consolidated financial statements, the Company and the Group has not early adopted the following new and revised IFRS standards, amendments and interpretations that have been endorsed but not yet effective: • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current Date; Classification of Liabilities as Current or Non-current – Deferral of Effective date; Non-current Liabilities with Covenants (effective for annual periods beginning on or after 1 January 2024); • Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (effective for annual periods beginning on or after 1 January 2024). The management of the Company and the Group does not expect that the adoption of these standards, amendments and interpretations will have a material impact on the Company's and the Group's financial statements in the period of initial application. 14 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) (c) Standards, amendments to existing standards and interpretations that have not yet entered into force and have not yet been endorsed by the EU: Currently, IFRS adopted in the EU are almost identical to standards adopted by the IASB, with the exception of the standards, amendments to standards and interpretations currently in force which have not yet been adopted in the EU (dates of validity apply in full to IFRS). The following standards, amendments and interpretations are set out below: • Amendments to IAS 7 “Statement of Cash Flows” and IFRS 7 “Financial Instruments”: Disclosures: Supplier Finance Arrangements (effective for annual periods beginning on or after 1 January 2024); • Amendments to IAS 21 “The Effects of Changes in Foreign Exchange Rates”: Lack of Exchangeability (effective for annual periods beginning on or after 1 January 2025). The management of the Company and the Group does not expect that the adoption of these standards, amendments and interpretations will have a material impact on the Company's and the Group's financial statements in the period of initial application. 2.4. Consolidation principles Consolidation principles The consolidated financial statements of the Group include AB Kauno energija and its subsidiaries. The financial statements of the subsidiaries are for the same reporting period as those of the Parent Company. The consolidated financial statements are prepared on the basis of uniform accounting principles for like transactions and other events in similar circumstances. Businesses acquired or disposed of during the year are included in the consolidated financial statements from the date of the transfer of control or until the date on which control is lost. Intercompany transactions, balances and unrealised gains and losses are eliminated on consolidation. The gross income of subsidiaries is attributable to the owners of the enterprise and to the non-controlling interest, even if the result of the non-controlling interest is negative. A subsidiary is an undertaking controlled, directly or indirectly, by its parent undertaking. Typically, a company is controlled when the Group directly or indirectly owns more than 50 per cent of the company's share capital carrying the voting rights and/or when it is able to control the financial and operating activities so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements at the beginning and end of the control dates. Changes in the Group's equity interest in subsidiaries Changes in the Group's equity interest in subsidiaries that do not result in a loss of control of the Group by the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interest and non-controlling interest are adjusted to reflect changes in their respective interests in subsidiaries. Any difference between the adjustment for the non-controlling interest and the fair value of the consideration paid or received is recognised directly in equity and attributable to the owners of the entity. When the Group loses control of a subsidiary, the gain or loss on disposal is calculated as the difference between (i) the sum of the fair value of the consideration received and the aggregate of the fair value of any retained interest; and (ii) the previous carrying amounts of the subsidiary's assets (including goodwill) and liabilities and non-controlling interests. When a subsidiary's assets are accounted for by re-measuring the fair value amount and the related gain or loss has been included in comprehensive income and accumulated in equity, the amounts previously included in other comprehensive income and accumulated in equity are accounted for in the same way as the disposal of the related asset (i.e. reclassified to profit or loss or transferred directly to retained earnings, as specified in the relevant IFRS). 15 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.4. Consolidation principles (continued) The fair value of the remaining investment in the former subsidiary at the date of the loss of control is treated as the fair value at initial recognition for subsequent accounting purposes in accordance with IFRS 9 Financial Instruments, or, if appropriate, as the acquisition cost of the investment in an associate or jointly controlled entity at initial recognition. 2.5. Investments in subsidiaries In the statement of financial position of the company, investments in subsidiaries are accounted for using the acquisition cost method. Dividends received from subsidiaries are recognised in profit or loss and other comprehensive income. IAS 36 “Impairment of Assets” applies impairment criteria to determine whether it is necessary to recognise impairment losses in respect of the Company's investment in a subsidiary. When necessary, the full carrying amount of an investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (the higher of its value in use and its fair value less costs to sell) with its carrying amount. Any impairment losses recognised shall form part of the carrying amount of the investment. Any reversal of an impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. 2.6. Intangible Assets Intangible assets acquired separately Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over the estimated useful lives. The useful life and depreciation method are reviewed at each reporting date, prospectively recording any changes in the estimate assessment. The amortisation calculation shall be discontinued from the first day of the month following the disposal of the asset or when the total cost of the acquisition of an intangible asset is transferred to cost or to the value of another asset. Intangible assets with an indefinite useful life acquired separately are carried at cost less impairment losses. Derecognition of intangible assets An intangible asset is derecognised when it is sold or when no future economic benefit is expected from the use or sale of the asset. Gains or losses arising from derecognition of an intangible asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. Licenses Amounts paid for licenses are capitalized and amortized over the term of validity. (3 to 4 years). Software The new software acquisition costs are capitalized and recognized as an intangible fixed asset if these costs are not an integral part of the hardware. Software is amortized over a period no longer than 3 years. Costs incurred in order to restore or maintain the future economic benefits that the Company expects from the originally assessed standard of performance of existing software systems are recognised as an expense when the restoration or maintenance work is carried out. 16 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.7. Accounting for emission allowances Emission allowances received shall be accounted for using the net commitment method. Under this approach, the Group and the Company account for emission allowances at nominal value. Commitments to acquire additional emission allowances are recognised when they arise (e.g. commitments are not accounted for on the basis of expected future emissions) and are accounted for only when the actual emissions of the Group and the Company exceed the amount of available emission allowances. Under the net commitment approach, the Group and the Company assess the lack of emission allowances by comparing the quantity of emission allowances available with the actual annual emissions. Sales of emission allowances are recorded at the amount of the sales transaction. Any differences between the fair value of the sale and the carrying amount of the allowances held shall be recognised as profit or loss, regardless of whether there is an actual or expected shortfall in the allowances at the time of the transaction. Where the sale of emission allowances results in an actual shortfall of emission allowances, the financial position reports shall recognise additional liabilities, including profits or losses that affect the relevant costs. 2.8. Property, plant and equipment Property, plant and equipment is carried at acquisition cost, which does not include routine maintenance costs, less accumulated depreciation and estimated impairment losses, if any. The cost of acquisition includes the cost of replacing property, plant and equipment when they are incurred, provided that these costs qualify for the recognition of the asset. Property classified as construction in progress, under construction for production, supply or administrative purposes, or for other purposes not yet determined, is carried at acquisition cost less impairment losses. The cost includes professional fees and capitalised borrowing costs of long run assets in accordance with the accounting policies of the Group and the Company. Depreciation of these assets shall begin using the same method of depreciation as for other immovable property when the property is ready for its intended use. Depreciation is recognised in such a way that, over the useful life of the asset, its cost (excluding land and construction in progress) less its residual value is written off on a straight-line basis. The estimated useful lives, residual values, and depreciation methods are reviewed at each year-end, with any changes in the accounting estimate accounted for prospectively. The useful service lives are reviewed every year to ensure that the period of depreciation is consistent with the expected useful life of the long-term tangible asset. Depreciation is computed on a straight-line basis over the following estimated useful lives: Years Buildings 15 – 50 Investment property 50 Buildings 15 – 70 Machinery and equipment 5 – 20 Vehicles 4 – 10 Plant and tools 3 – 16 Land is not depreciated. 17 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.8. Property, plant and equipment (continued) An asset is recognised as non-current when it has a useful life of more than one year and the acquisition cost exceeds EUR 144.81. Property, plant and equipment are derecognised when they are sold or when no future economic benefits are expected from the use or sale of the asset. Any gain or loss arising on the sale or write- down of an item of property, plant and equipment is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in profit or loss in the profit (loss) statement and other comprehensive income. Subsequent repair costs are added to the cost of an asset if it is probable that future economic benefits will flow to the Group and the Company from the expenditure and the cost of the expenditure can be measured reliably. The carrying amount of the modified portion is derecognised. All other repair costs are recognised as an expense that affects profit or loss for the period when they are incurred. Construction-in-progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Depreciation is not charged on construction in progress until the asset is placed in service or is ready for use. Fixed assets for resale Property, plant and equipment, or groups of saleable assets that consist of assets and liabilities that are expected to be recovered primarily through sale and not through continuing use, are classified as held for sale. Immediately before classifying an asset as held for sale, the asset (or parts of a pool of available-for-sale assets) is measured in accordance with the applicable International Financial Reporting Standards as adopted for application in the European Union. (Non-current assets held for sale are accounted for at the lower of their carrying amount and fair value less the cost of selling such assets). Impairment losses on assets held for sale measured at the time of initial classification and subsequent gains and losses related to the revaluation of assets shall be included in profit or loss. Revenue from the reversal of depreciation is not recognised at a higher amount than accumulated impairment losses. When property, plant and equipment is recorded as held for sale, depreciation is no longer charged. 2.9. Impairment of property, plant and equipment and intangible assets other than goodwill At each date of preparation of the statement of financial position, the Group and the Company shall review the residual value of property, plant and equipment and intangible assets to determine whether there is any indication that these assets are impaired. If any such indication exists, the Group and the Company assesses the recoverable amount of the asset in order to be able to assess the impairment loss (if any). Where it is impossible to assess the recoverable value of assets, the Group and the Company estimates the recoverable amount in the cash-generating group to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, the assets of the Group and the Company are also allocated to separate income-generating groups of assets, or alternatively, they are allocated to the lowest income-generating group of assets for which a reasonable and consistent basis of allocation can be identified. 18 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.9. Impairment of property, plant and equipment and intangible assets other than goodwill (continued) The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments conditions, time value of money and the risks associated with the assets, which was not taken into account in estimating the future cash flows. If the estimated recoverable amount of the asset (or cash-generating asset group) is less than its carrying amount of this asset, the carrying amount of the asset is reduced to the recoverable value of this asset (or cash-generating asset group). Impairment losses are recognised immediately through profit or loss. The Group and the Company have one group of income-generating assets for the heat business. If after the recognition of impairment loss the value of the asset increases, the carrying amount of the asset (cash-generating asset group) is increased to the newly estimated recoverable amount, but so that the increase does not exceed the carrying value of the asset (cash-generating asset group) if the losses due to value impairment in previous years had not been recognized. Reversals of impairment losses are recognised immediately in profit or loss. 2.10. Investment property Property, plant and equipment are assets that the Company manages and controls in order to generate rental income and/or increase the value of these assets. Assets that are used for the production of goods, services or for administrative purposes, and the sale of which is classified as a typical activity of the Company, not included in property, plant and equipment. Investment property is initially valued at acquisition cost, including related transaction costs. Subsequent to initial recognition, buildings are carried at cost less accumulated depreciation and impairment losses, if any. Depreciation is calculated on a straight-line basis so as to write off the cost of the asset on a straight- line basis over the asset's useful life of 8-50 years. Depreciation of investment property is recorded in the statement of profit or loss and other comprehensive income under operating expenses. 2.11. Financial assets The Group and the Company classify their financial assets in the following groups: • financial assets that are measured at fair value in subsequent periods, with the change in fair value recognised in other comprehensive income or profit or loss; and • financial assets measured at amortised cost. The classification depends on the financial asset management model used and the contractual cash flow terms. Recognition and initial measurement Trade receivables are initially recognised when they arise. On initial recognition, all other financial assets and financial liabilities are recognised when the Group and the Company become a party to the contractual provisions of the instrument. 19 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.12. Financial assets (continued) Financial assets (other than trade receivables without a significant financing component) or financial liabilities are initially measured at fair value plus, if the instrument is not measured at fair value through profit or loss, transaction costs directly attributable to the acquisition or issue. Trade receivables without a significant financing component are initially recognised at transaction price. Classification and subsequent assessment At initial recognition, financial assets are classified and measured as follows: • amortised cost; • at fair value through profit or loss. Financial assets are not reclassified in subsequent periods unless the Group and the Company change their financial asset management model. In this case, all related financial assets shall be reclassified on the first day of the first reporting period following the change in business model. A financial asset is measured at amortised cost if it meets both of the following criteria and is not classified as an asset measured at fair value through profit or loss: • the entity intends to hold the asset for contractual cash receipts; • contractual cash flows on specific dates include only payments of principal and interest on the amount due. Write-off The carrying amount of a financial asset is written down, in whole or in part, if there is no realistic prospect of its recovery. This usually occurs when the Group and the Company determine that the debtor does not have sufficient assets or sources of income to generate sufficient cash flows to repay the amounts written off. However, financial assets that are written off may be recovered to meet debt collection requirements imposed by the Group and the Company. Assessment of significantly increased credit risk The Group and the Company assess the probability of default at the initial recognition of financial assets and at each balance sheet date, taking into account whether there has been a significant increase in credit risk since initial recognition. In order to assess whether there has been a significant increase in credit risk, the Group and the Company compare the risk of default on assets at the date of preparation of the statements with the risk of default on initial recognition. In analysing whether credit risk has increased significantly, the following factors shall be assessed: • significant changes in the internal credit rating; • significant changes in the external credit rating (if any); • actual or foreseeable material adverse changes in the business environment, financial or economic situation which may materially affect the ability of the customer to meet its obligations; • actual or anticipated significant changes in the client's performance. Based on the Group's and the Company's debt recovery statistics, management considers that the credit risk has increased from the time of initial recognition only if the contractual payments are delayed by more than 30 days. 20 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.11. Financial assets (continued) ECL valuation – trade receivables and other contract assets The Group and the Company apply a simplified approach to the calculation of lifetime expected credit losses over the lifetime of a loan, using the provisioning matrix for all trade receivables and other receivables. In order to calculate expected credit losses using the provisioning matrix, trade receivables and other receivables are classified into separate groups according to the general characteristics of credit risk. The amounts of each group are analysed on the basis of the number of days past due and a loss indicator shall be assigned to each group of amounts past due. Loss ratios are calculated using management's expert judgement using statistical recovery information for the last 2 years. For trade receivables that have no significant financing component, an estimated credit loss is recorded over the entire term of the debt. Such information shall be adjusted, if necessary, in the light of forward-looking information. The table below provides information on the expected credit losses calculated for the Group and the Company for each group of overdue amounts. As trade receivables and other receivables generally do not include collateral or other credit protection, the expected loss ratio corresponds to the probability of default. Trade receivables: Overdue in days from from from from from from 361 more Group Not 1 to 30 31 to 91 to 181 to 271 to to 720 than Expected credit overdue 90 180 270 360 721 0 0 20 50 60 80 90 100 loss rate % Company Expected credit 0 0 20 50 60 80 90 100 loss rate % 2.12. Inventories Inventories are stated at the lower of cost or net realisable value. Net realisable value refers to the estimated selling price of inventories less any estimated selling costs. The cost of inventories is calculated using the FIFO method. The cost of inventories is reduced by write-downs and discounts received from suppliers during the reporting period and applied to inventories held in stock. 21 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.13. Provisions A provision is recorded when, as a result of a past event, the Company has a present obligation (legal or constructive) and it is probable that the Group and the Company will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The amount recognised as a provision is the best estimate at the end of the reporting period of the consideration that will be required to settle the present obligation, taking into account the risks and uncertainties arising from the obligation. When a provision is valued using the estimated cash flows to cover a liability, its carrying value is the present value of these cash flows. Where it is expected that part or all of the economic benefits needed to cover the provision will be recovered from a third party, the amount receivable is covered by the asset if it is certain that the compensation will be received and that the amount receivable can be measured reliably. 2.14. Cash and cash equivalents Money consists of money in bank accounts and in cash, and money on the road. Cash equivalents are short-term, highly liquid investments that are readily converted to known amounts of cash. The term of such investments does not exceed three months, and the risk of value changes is very insignificant. 2.15. Employee benefits Recognition of post-employment benefits is recognised as an expense when the employees have performed the service that entitles them to the benefits. The post-employment benefit liabilities recognised in the statement of financial position reflect the present value of the defined benefit obligations in the collective agreement, adjusted by unrecognised actuarial gains or losses and unrecognised past service costs, and reduced by the fair value of the plan assets. Any assets arising from this calculation may not exceed the cost of unrecognised actuarial losses and past service plus the present value of repayments and reductions in future plan contributions. 2.16. Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset the preparation of which for the intended use or sale takes a long time are included in the cost of the asset until the asset is prepared for the intended use or sale. Investment income earned on a temporary investment of a specific amount borrowed that has not yet been used for a qualifying asset shall be deducted from the borrowing costs allowed for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 22 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.17. Financial liabilities and equity instruments The Group and the Company recognise financial liabilities at cost on initial recognition. The Group and the Company classify financial liabilities into the following categories: • measured at amortised cost, • measured at fair value through profit or loss, • hedging financial instruments. The Group and the Company classify trade debts, financial debts, leasing liabilities, interest liabilities and other payables as financial liabilities measured at amortised cost. Derecognition of financial liabilities The Group and the Company derecognise financial liabilities when, and only when, the obligations of the Group and the Company are discharged, cancelled or expire. 2.18. Lease The Group and the Company are the lessee At the commencement date, the lessee shall measure the lease liability at the present value of the lease payments outstanding at that date, including the following: • fixed charges (including those assimilated to fixed charges) less any rental incentives receivable; • variable payments that depend on an index or rate initially measured using an index or rate at the start date; • the amounts that the tenant should pay under the liquidation value guarantees; • penalties for terminating the lease if it is assumed that the tenant will exercise its option to terminate the lease during the lease term. Rents is discounted using the interest rate provided for in the lease agreement, if that rate can be easily determined. If that rate cannot be easily determined, the tenant shall use the borrowing rate calculated by the lessee. The interest rate specified in the lease is the interest rate that results in the present value of the lease payments and the unguaranteed residual value being equal to the sum of the fair value of the leased asset and any initial direct costs incurred by the lessor. The lease liability is measured at amortised cost using an imputed interest rate consistent with the discount rate used to discount the lease payments. Interest expense relating to a lease liability is allocated over the lease term and recognised in profit or loss. The cost of an asset held under right of use at initial recognition comprises: • the amount of the initial measurement of the lease liability; • any lease payments made on or before the commencement date less any lease incentives received; • any primary direct costs incurred by the lessee; and • an estimate of the cost of restoring the asset. 23 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.18. Lease (continued) Thereafter, the lessee shall measure the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses. If, before the end of the lease period, the ownership of the leased asset is transferred to the tenant , or if the price of the asset managed under the right of use indicates that the tenant will exercise the right to purchase, the tenant shall calculate the depreciation of the asset managed under the right of use from the beginning to the end of the useful life of the leased asset. Alternatively, the lessee shall calculate the depreciation of the right-of-use asset from the commencement date to the earlier of: the end of the useful life of an asset held under a right-of- use arrangement, or the end of a lease term. Payments relating to short-term leases or leases of low-value assets are recognised as an expense through profit or loss on a straight-line basis. Short-term leases are considered to be leases with a term of 12 months or less. Low-value assets include tools and small items of office furniture. The Group and the Company are the lessor In transactions where the Company is a lessor, the assessment of whether the concluded Agreement is a finance or operating lease are carried out on the date of commencement of the lease. For the purpose of determining the type of lease assignment, all risks and rewards of ownership of the leased asset are assessed jointly or substantially transferred from the lease. If substantially all the risks and rewards of ownership of the leased asset are transferred, such leases are treated as finance leases. Otherwise, as operating leases. In transactions in which the Company acts as an intermediate Lessor, the sublease shall be classified on the basis of the right-of-use assets specified in the main agreement. 2.19. Grants and subsidies Government grants are not recognised until there is sufficient assurance that the Group and the Company will comply with the requirements associated with them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the period in which the Group and the Company recognise the related reimbursement of the costs for which they are intended. Government grants, the principal condition whereof is that the Group and the Company should purchase, construct or otherwise acquire non-current assets, are recognised as deferred income in the statement of financial position and are recognised in a systematic and rational manner in profit or loss over the useful life of the related assets. Grants that are received in the form of long-term assets, plant and equipment or intended to purchase, constructed or otherwise acquire the same, are considered to be asset-related grants. The Company classifies assets acquired free of charge in this group of grants. Assets received for no consideration are carried at fair value on initial recognition. Receivables for reimbursement of expenses or income foregone during the reporting period or prior period, as well as all other grants not attributable to grants related to assets, shall be treated as grants that reduce costs. Grants related to revenue are recognised as part of the utilised portion to the extent that costs are incurred during the period (by reducing the proportion of costs incurred) or to the extent of the estimated foregone revenue for which the grant is intended to compensate. The unused balance of the grant is shown in the Grants (deferred income) line of the statement of financial position. 24 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.20. Income tax Income tax expense reflects current year tax and deferred tax. Current year's tax Tax of the current year is payable based on taxable profit for the year. Taxable profit differs from the profit reported in the statement of comprehensive income because of the income or expense that is taxable or deductible in the following year and the income or expense that is never taxable or deductible. Income tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. The Group and the Company are subject to a corporate income tax rate of 15 per cent in 2023 (15 per cent in 2022). Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognised if the temporary differences relate to goodwill, or to the initial recognition of assets or liabilities (other than in a business merger) that are not affected by either taxable or financial profit at the time they arise (transactions). Deferred tax liabilities are recognised to offset temporary tax differences. Deferred income tax assets are recognised for deductible temporary differences only to the extent that it is probable that sufficient taxable profit will be available to realise the benefit of the temporary differences and is expected to be realised in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered by the Group and the Company. Deferred tax assets and liabilities are measured using the tax rates that will apply to the Group and the Company in the year in which those temporary differences are expected to be recovered or settled, based on tax rates (and tax laws) that have been or will be approved before the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and the Company expect, at the reporting period, to recover or to settle the carrying amount of its assets and liabilities. Current and deferred tax for the period Current and deferred tax is accounted for in profit or loss unless they relate to items recognised in other comprehensive income or directly in equity (in other comprehensive income or directly in equity). In such a case, the tax is also recognised outside profit or loss, or when it arises on initial recognition of the business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination. 25 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.21. Basic and diluted earnings per share The basic and diluted earnings per share shall be calculated by dividing the profit for the reporting period attributable to shareholders by the weighted average of the ordinary shares issued. There is no difference between basic and diluted earnings per share. 2.22. Revenue recognition The Group and the Company recognise revenue to reflect the transfer of the committed goods or services to the purchasers in an amount that is consistent with the consideration that the entity expects to receive in exchange for the said goods or services, less value added tax, discounts and rebates. An entity shall recognise revenue on the basis of this core guiding principle in the following steps: Step 1: identification of the contract (s) with the buyer – the contract is an agreement between two or more parties that defines their enforceable rights and obligations. Step 2: identification of performance obligations under the contract – obligations under the contract to transfer the goods or services to the buyer. If these goods or services can be distinguished, such liabilities are treated as operating liabilities, which are accounted for separately. Step 3: the transaction price is determined – the transaction price is equal to the contracted amount of consideration that the entity expects to receive in exchange for the goods or services transferred to the buyer. The transaction price may consist of a fixed amount of consideration paid by the buyer, but may sometimes also include variable consideration or consideration other than cash. The transaction price is also adjusted for the time value of money if the contract includes a significant funding component, as well as for any consideration payable to the buyer. Step 4: The transaction price is attributable to the contracted performance obligation – as a rule, an entity attributes the transaction price to each performance obligation on the basis of the relative stand- alone selling prices of each good or service contracted to be transferred. If data on individual selling prices are not observable in the market, the entity makes an estimate. Step 5: revenue is recognised when the entity discharges the performance obligation by transferring the committed goods or services to the buyer (i.e. when the buyer obtains control of those goods or services). The amount of revenue recognised is equal to the amount attributed to the settled performance obligation. An operating liability may be settled at a certain point in time or over a certain period of time. Revenue is recognised when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group and the Company, and when specific criteria have been met for each type of revenue as described below. The Group and the Company rely on historical performance, taking into account the type of customer, the type of transaction and the specifics of each arrangement. 26 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.22. Revenue recognition Revenue is recognised using the methods described below: Revenue from sales of heat and hot water Revenue from the sale of heat is recognised on the basis of bills issued to residential customers and other customers for heat and hot water heating. Consumers are billed once a month according to the readings of the heat meter. At the end of the period, revenue not invoiced but services rendered is accrued on an accrual basis. Income from the sales of goods Proceeds from the sale of goods are recognized when all of the following conditions are met: • The Group and the Company transferred ownership control to the buyer; • The Group and the Company do not maintain either continuing management of goods sold at the level normally associated with ownership or effective control; • the amount of such revenue can be measured reliably; • it is probable that the Group and the Company will obtain the economic benefits associated with the transaction and the costs incurred or to be incurred in connection with the transaction can be measured reliably. Financing elements The Group and the Company do not have, and do not expect to have, any contracts where the period between the provision of goods or services and payment by the customer exceeds one year. For this reason, the Group and the Company do not account separately for the financing element. Other income Lease income is recognised on an accrual basis when it is probable that the economic benefits associated with the transaction will flow to the Group and the Company and can be measured reliably Interest is recognized as income when it is received. Dividend income from investments is recognised when the shareholders' right to receive payment is established (if it is likely that the economic benefits associated with the item will flow to the Group and the Company and the amount of the income can be measured reliably). Interest income is recognized when it is probable that the Group and the Company will receive economic benefits and the amount of revenue can be measured reliably. Interest income is accrued over the period, according to the outstanding part and the applicable effective interest rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset up to the net carrying amount on initial recognition. 2.23. Expense recognition Expenses are recognised on the basis of the accrual and comparability principles in the reporting period in which the related income is earned, regardless of the time of spending the cash. In those cases when costs incurred cannot be directly attributed to the specific income and they will not generate income during the future periods, they are recognised as incurred. Amount of costs is usually accounted in the amount of paid and payable, excluding VAT. When long period of settlement is provided, and interest is not distinguished, the amount of costs is assessed by discounting the settlement amount at the market interest rate. 27 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.24. Foreign currency transactions At the end of each reporting period, monetary items denominated in foreign currencies are converted at the daily exchange rate of that day. Non-monetary items are carried at fair value and denominated in a foreign currency are converted at the exchange rate at the date of fair value measurement. Non- monetary units carried at the cost of acquiring a foreign currency are not converted. The presentation currency shall be the euro (EUR). Operations denominated in foreign currency shall be converted into euro at the official rate of the European Central Bank on that date. Monetary assets and liabilities are converted into euro at the exchange rate at the date of the statement of financial position. Exchange differences arising from operations in foreign currencies shall be included in profit or loss at the time when they arise. Gains and losses arising from exchange rate changes in the conversion of monetary assets or liabilities into euro shall be included in profit or loss when they arise. 2.25. Application of judgements in preparation of financial statements In preparing the financial statements, management is required to make certain judgements, estimates and assumptions that affect the amounts of income, expenses, assets and liabilities that are disclosed and the disclosure of uncertainties at the date of preparation of the report. However, the uncertainty of these assumptions and estimates may affect the results, which may require significant future adjustments to the carrying amounts of assets or liabilities. Estimates and assumptions The main assumptions and other significant sources of measurement uncertainty that affect the future at the date of preparation of the statements of financial position and which give rise to material risks and which may require a material adjustment to the carrying amounts of assets or liabilities in the next financial year are discussed below: Property, plant and equipment – useful life The main assumptions used to determine the useful lives of property, plant and equipment are: • the expected life of the asset, • anticipated technical, technological or other obsolescence due to service innovation or changes in services, • legal or similar restrictions on the use of assets, such as the date of validity of finance lease agreements. Investments in subsidiaries – impairment losses To assess the recoverability of investments in subsidiaries, the Company's management calculates the recoverable amount of the investment by discounting the future cash flows of the subsidiaries to their present value using a weighted average discount rate on capital costs reflecting current market assumptions about the time value of money (Note 5). 28 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.25. Application of assessments in preparation of financial statements (continued) Impairment of receivables The Group and the Company recognise a loss allowance for expected credit losses (ECL) on financial assets measured at amortised cost as follows: trade receivables, other receivables and accrued income. Loss ratios are calculated using management's expert judgement using statistical recovery information for the last 2 years. In determining whether the credit risk of a financial asset has increased significantly since initial recognition and in assessing the amount of the ECL, the Group and the Company consider reasonable and supportable information that is relevant and accessible without excessive cost or effort. This information includes both quantitative and qualitative data and analysis based on the Group's historical experience and reasoned credit assessment, including prospective information. Provisions for losses on financial assets measured at amortised cost are deducted from the total carrying amount of such assets. The provision for impairment losses is presented in the income statement and included in operating expenses as an impairment charge. Deferred profit tax assets Deferred income tax assets are recognised for all unused tax losses, with a statement of what is expected to be the tax profit before the losses are offset. Significant management judgements are required to determine the amounts of deferred income tax assets that may be recognised based on estimates of the expected future amounts and periods of taxable profits and based on future tax planning strategies (Note 22). Fair value of financial instruments Fair value is the amount for which an asset or service could be exchanged, or a liability settled between knowledgeable, willing parties in an arm’s length transaction. Fair value of financial assets and financial liabilities are valued based on quoted market prices, discounted cash flow models or option pricing models, depending on the circumstances. In determining the fair value of assets or liabilities, the Company is based on available market data, as much as possible. The fair values are presented in three levels of the fair value hierarchies on the basis of the variables used in the valuation methods: • Level 1: prices quoted at active markets of similar assets or liabilities (unadjusted); • Level 2: other variables except the quoted prices of assets and liabilities included in Level 1 that are observed directly (i.e., as prices), or indirectly (i.e., derived from prices); • Level 3: variables of assets and liabilities not based on the observable market data (non-observable variables). Where for the purpose of measuring the fair value of assets or liabilities the variables may be attributed to the different levels of the fair value hierarchy, the hierarchy level of the fair value to which the entire fair value established is attributed shall be established on the basis of the lowest level variable material for the measurement of the entire fair value. The Company recognizes the amounts of the fair value hierarchy levels transferred to the end of the reporting period in which the change occurred. 29 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 2. Summary of significant accounting policies (continued) 2.26. Contingencies Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources generating economic benefits is small. A contingent asset is not recognised in the financial statements but is disclosed when an inflow of economic benefits is probable. 2.27. Subsequent events Post-reporting events that provide additional information about the situation of the Group and the Company at the date of preparation of the statements of financial position (adjusting events) are reflected in the financial statements. Events after the date of the balance sheet that are not corrective events, are described in the notes when they are significant. 2.28. Offsetting and comparative information When preparing the financial statements, assets and liabilities, income and expenses are not offset unless the specific International Accounting Standards specifically require such offsetting. 2.29. Segment reporting Segment information shall be reported in the same manner as other internal reporting to the chief operating decision maker. The chief operational decision maker responsible for allocating resources and assessing the performance of the segments is the Board, which takes strategic decisions. The activities of the Group and the Company are carried out in a single segment, therefore, these financial statements do not provide additional disclosures about the segments. 30 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 3. Intangible fixed assets Movements in intangible fixed assets during the reporting period and prior periods: Group Company Acquired rights and Acquired rights and software software Acquisition value: Balance on 31 December 2021 1 563 1 562 Acquisitions 84 84 Disposals, writes-off - - Balance on 31 December 2022 1 647 1 646 Acquisitions 8 - Transfers out of construction in progress and prepayments 205 205 Disposals, writes-off 9 9 Balance on 31 December 2023 1 869 1 860 Amortization: Balance on 31 December 2021 1 486 1 485 Amortisation per year 63 63 Disposals, writes-off - - Balance on 31 December 2022 1 549 1 548 Amortisation per year 71 71 Disposals, writes-off - - Balance on 31 December 2023 1 620 1 619 Book value: Balance on 31 December 2021 77 77 Balance on 31 December 2022 98 98 Balance on 31 December 2023 249 241 The amortisation charge for intangible assets is included in operating expenses in statement of profit (loss) and other comprehensive income. Part of the Company's fixed intangible assets with an acquisition value of EUR 1,436 thousand as at 31 December 2023 was (on 31 December 2022: EUR 988 thousand) was fully amortised, but still used in the business operations. 31 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 4. Property, plant and equipment Details of the Group's and Company's property, plant and equipment: Constructio Land Machine ns in Invest Group and Buildin ry and Vehicles Plant progress ment Total buildin gs equipm and tools and propert gs ent prepayment y s Acquisition value: Balance on 31 17 222 209 657 62 581 1 912 13 596 8 089 1 444 314 501 December 2021 Acquisitions 25 544 1 309 14 23 17 992 - 19 907 Sold and written off assets - (102) (236) (10) - - - (348) Transfer to intangible assets - - - - - - - - Reclassifications 280 10 262 903 73 1 044 (12 562) - - Impairment losses (- ) 10 6 - 1 - - - 17 Balance on 31 17 537 220 367 64 557 1 990 14 663 13 519 1 444 334 077 December 2022 Acquisitions - - 115 25 2 25 349 - 25 491 Sold and written off assets (3) (69) (3 443) (8) (1 350) - - (4 873) Reclassifications 94 12 450 717 744 1 175 (15 180) - - Transfer to intangible assets - - - - - (205) - (205) Impairment losses (- ) (20) (6) - - - - - (26) Balance on 31 17 608 232 742 61 946 2 751 14 490 23 483 1 444 354 464 December 2023 Accumulated depreciation: Balance on 31 11 107 87 847 47 067 1 467 11 599 - 171 159 258 December 2021 Depreciation during the year 374 4 901 2 440 142 555 - 33 8 445 Reclassifications (412) 158 257 (1) 1 218 221 Sold and written off assets - (60) (227) (15) (255) - (92) (649) Balance on 31 11 069 92 846 49 537 1 593 11 900 - 330 167 275 December 2022 Depreciation during the year 341 5 355 2 028 186 610 - - 8 520 Reclassifications - - - - - - - - Sold and written off assets (3) (69) (3 443) (3) (1 283) - - (4 801) Balance on 31 11 407 98 132 48 122 1 776 11 227 - 330 170 994 December 2023 Book value: Balance on 31 6 115 121 810 15 514 445 1 997 8 089 1 273 155 243 December 2021 Balance on 31 6 468 127 521 15 020 397 2 763 13 519 1 114 166 802 December 2022 Balance on 31 6 201 134 610 13 824 975 3 263 23 483 1 114 183 470 December 2023 32 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 4. Property, plant and equipment (continued) Machi Constructi Land nery Plant ons in Company and Buildin and Vehicles and progress Investment Total buildin gs equip tools and property gs ment prepaymen ts Acquisition value: Balance on 31 15 616 208 754 57 418 1 586 13 529 8 072 - 304 975 December 2021 Acquisitions - 604 1 755 14 21 18 261 - 20 655 Sold and written off assets - (102) (236) (20) - - - (358) Assets acquired in the reorganisation 1 531 654 4 043 106 22 - - 6 356 Reclassifications 280 10 262 928 87 1 299 (12 856) - - Impairment losses (-) 10 6 - 1 - - - 17 Balance on 31 17 437 220 178 63 908 1 774 14 871 13 477 - 331 645 December 2022 Acquisitions - - 73 20 - 25 346 - 25 439 Sold and written off assets (3) (69) (3 443) (3) (1 350) - - (4 868) Reclassifications 68 12 450 743 744 1 130 (15 135) - - Transfer to intangible assets - - - - - (205) - (205) Impairment losses (-) (10) (6) - - - - - (16) Balance on 31 17 492 232 553 61 281 2 535 14 651 23 483 - 351 995 December 2023 Accumulated depreciation: Balance on 31 9 885 87 406 43 155 1 141 11 533 - - 153 120 December 2021 Depreciation during the year 333 4 902 2 323 130 555 - - 8 243 Depreciation of assets acquired in a reorganisation 816 349 3 236 106 22 - - 4 529 Sold and written off assets - - 219 - - - - 219 Balance on 31 11 034 92 657 48 933 1 377 12 110 - - 166 111 December 2022 Depreciation during the year 339 5 355 2 012 186 607 - - 8 499 Sold and written off assets (3) (69) (3 443) (3) (1 283) - - (4 801) Balance on 31 11 370 97 943 47 502 1 560 11 434 - - 169 809 December 2023 Book value: Balance on 31 5 731 121 348 14 263 445 1 996 8 072 - 151 855 December 2021 Balance on 31 6 403 127 521 14 975 397 2 761 13 477 - 165 534 December 2022 Balance on 31 6 122 134 610 13 779 975 3 217 23 483 - 182 186 December 2023 The amounts of the Group's and the Company's depreciation expenses were included in operating expenses in the statement of profit (loss) and other comprehensive income (depreciation and amortisation and other expenses). Part of the Group's property, plant and equipment with an acquisition value of EUR 34,694 thousand as at 31 December 2023 (on 31 December 2022: EUR 35,085 thousand), EUR 34,694 thousand for the Company, was fully depreciated (on 31 December 2022: EUR 35,085 thousand), but still used in business operations. The Group and the Company have recorded assets not yet ready for use of EUR 438 thousand in the plant and equipment group as at 31 December 2023 (on 31 December 2022: EUR 313 thousand). 33 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 4. Property, plant and equipment (continued) On 31 December 2023 and 31 December 2022 the Group's and the Company's construction in progress consists mainly of the reconstruction and overhaul of boiler plants and heat supply networks. As at 31 December 2023, the Group property, plant and equipment with a residual value of EUR 8 548 thousand (on 31 December 2022: EUR 11,945 thousand) and the Company's EUR 8,548 thousand (on 31 December 2022: EUR 8,548 thousand) was pledged to banks as collateral for the loans (Note 12). 5. Investments in subsidiaries and loans to group companies Legal merger In order to simplify the Group's structure, in November 2021, the Company's Management Board prepared the Reorganisation Terms and Conditions, the preparation whereof was approved at the Extraordinary General Meeting of Shareholders of AB Kauno energija held on 25 November 2021 and on 26 November 2021 by decision of the sole shareholder of AB Petrašiūnų katilinė . The shareholders of both companies have decided to reorganise the companies by merger. On 2 March 2022 AB Petrašiūnų katilinė, 100% of whose shares were owned by the company, was merged into AB Kauno energija, in accordance with Article 2.97(3) of the Civil Code of the Republic of Lithuania, pursuant to the Reorganisation Terms and Conditions and the shareholders' decision approved on 15 December 2021. The authorised capital of AB Kauno energija remained unchanged after the reorganisation and amounts to EUR 74 476 thousand. The shareholder's property and non-property rights of the company have not changed either. Carrying Subsidiary Less net amount of data as at 2 investment assets March 2022 acquired in the merger Long term tangible assets 1 828 - 1 828 Assets of deferred income tax 89 - 89 Inventories, raw materials 23 - 23 Advances paid 3 - 3 Cash and cash equivalents 187 - 187 Owners equity (245) 992 747 Grants, subsidies (446) - (446) Provisions (9) - (9) Trade and other debtors (1 430) - (1 430) The result of the legal merger, a loss of EUR (747) thousand, was recorded in the Company's Statement of Changes in Equity in 2022. 34 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 5. Investments in subsidiaries and loans to group companies (continued) Movements in investments in subsidiaries: Group Company 2023 2022 2023 2022 At the beginning of the year - - 2 763 3 498 - - - - Acquisition of subsidiaries/capital increase Impairment adjustment for subsidiaries - - - 257 Legal merger - - - (992) At the end of the year - - would increase annually by the amount of the planned annual inflation. 2 763 2 763 As a result of the impairment testing carried out at 31 December 2022, the impairment of the investment in UAB GO Energy LT of EUR 257 thousand recognised in prior periods was reversed. factor of 1%. When forecasting cash flows, the Company also predicted that the forecasted costs The cash flow projections used in the calculations are based on the 2022 results of UAB GO Energy LT, long-term business plans, signed contracts and management expectations. The going concern value (cash flows over a period of more than five years) was calculated by applying a constant growth 2023-12-31 2022-12-31 Investments in subsidiaries Acquisi tion price Impairment Book value Acquisi tion price Impairment Book value UAB GO Energy LT 2 763 - 2 763 2 763 - 2 763 Total: 2 763 0 2 763 2 763 0 2 763 Loans to the companies of the group of companies As at 31 December 2023 and 31 December 2022, the Company has not granted credit facilities. 35 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 6. Right of use assets Movements of assets held under usufruct during the reporting period and previous periods: Group Company Right of use assets Right of use assets Acquisition value: Balance on 31 December 2021 1 351 1 137 Recognition of the right of use asset - - Disposals, write-offs (change in value) (96) (96) Balance on 31 December 2022 1 255 1 041 Recognition of the right of use asset - - Disposals, write-offs (change in value) (137) (24) Balance on 31 December 2023 1 118 1 017 Amortization: Balance on 31 December 2021 144 131 Amortisation per year 52 43 Disposals, write-offs (change in value) (82) (17) Balance on 31 December 2022 114 157 Amortisation per year 24 21 Disposals, write-offs (change in value) (103) (77) Balance on 31 December 2023 35 101 Book value: Balance on 31 December 2021 1 207 1 006 Balance on 31 December 2022 1 141 884 Balance on 31 December 2023 1 083 916 7. Other financial assets Other financial assets consist of unquoted ordinary shares. As at 31 December 2023 and 31 December 2022, it consisted of 75 460 units. Shares in UAB Kauno miesto paslaugų centras. The Company generated a net profit of EUR 53 thousand in 2022 and EUR 216 thousand in 2023. Group Company Other financial assets: 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Financial assets accounted at fair value through profit or (loss) 75 75 75 75 Value of loans to subsidiaries - - - - 75 75 75 75 36 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 8. Inventories Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Technological fuels 1 162 1 602 1 162 1 602 Spare parts 731 1 515 383 700 Materials 333 346 333 346 To be deducted: write-down to net 2 226 3 463 1 878 2 648 (449) (769) (449) (769) realisable value at the end of the period Carrying amount of inventories 1 777 2 694 1 429 1 879 The write-down of the Group's and the Company's inventories to net realisable value as at 31 December 2023 amounted to EUR 449 thousand (on 31 December 2022: EUR 769 thousand). The change in the write-down of inventories to net realisable value in 2023 and 2022 is included in the Group's and the Company's statements of profit (loss) and other comprehensive income under the item of costs of changes in the realisable value of inventories and fixed assets. The Group and the Company respectively made impairment losses of EUR 0 thousand and reversals of impairment losses of EUR 320 thousand during the reporting period. 9. Amounts receivable within one year Change in impairment of doubtful receivables in 2023 and 2022 in the Group's and the Company's statements of profit (loss) and other comprehensive income included in the item of impairment charges on receivables. Impairment of doubtful receivables is measured at expected credit losses. Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Trade receivables 18 799 22 995 17 943 22 764 To be deducted: expected credit losses (4 362) (4 826) (4 322) (4 786) 14 437 18 169 13 621 17 978 Change in the Group's and Company's expected credit losses on trade receivables: Group Company Balance on 31 December 2021 4 944 4 934 Recognised (reversed) probable credit losses (80) (110) Written off (38) (38) Balance on 31 December 2022 4 826 4 786 Recognised (reversed) probable credit losses (400) (400) Written off (64) (64) Balance on 31 December 2023 4 362 4 322 During 2023, the Group and the Company wrote off bad debts of EUR 64 thousand and EUR 64 thousand, respectively (in 2023: EUR 38 thousand and EUR 38 thousand). The Group's and the Company's receivables from customers are interest-free and normally have a maturity of 30 days or individually agreed. 37 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) On 31 December 2023 and 31 December 2022 the Group's and the Company's other receivables consisted of taxes receivable from the State, debt owed by municipalities for compensation to low- income families, receivables for inventories sold (scrap metal, heating system equipment) and services rendered (collector maintenance services, etc.). Other receivables of the Group and the Company consisted of: Group Company 2023-12-31 2022-12- 2023-12-31 2022-12- 31 31 Taxes 725 550 725 550 Amount of VAT receivable 92 2 570 92 2 570 Other 2 213 2 351 2 215 2 325 To be deducted: expected credit (275) (315) (275) (315) losses 2 755 5 156 2 757 5 130 Movement in impairment in value of other receivables of the Group and the Company: Group Company Balance on 31 December 2021 315 315 Recognition of expected credit losses - - Balance on 31 December 2022 315 315 Recognised (reversed) expected credit (40) (40) losses Balance on 31 December 2023 275 275 The Group's and the Company's other receivables are interest-free and are generally due within 30 to 45 days. No impairment is taken on unmatured receivables as management considers the risk that debtors will not be able to meet their obligations to be low. 10. Cash and cash equivalents Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Cash on the road 700 619 700 619 Cash in the bank 7 847 4 931 6 615 4 272 8 547 5 550 7 315 4 891 Funds in the Group’s bank accounts with a balance of EUR 1,073 thousand at 31 December 2023 (EUR 1,480 thousand on 31 December 2022) and the Company's EUR 1,073 thousand (on 31 December 2022: EUR 1,480 thousand) are pledged to banks as collateral for loans (Note 12). 38 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 11. Changes in equity Statutory The statutory reserve is required under the legislation of the Republic of Lithuania. At least 5% of net profits, calculated in accordance with International Financial Reporting Standards, must be transferred to the reserve annually until it reaches 10% of the authorised capital. The statutory reserve may not be distributed as dividends but can be used to cover future losses. Other reserves By the resolution of shareholders of 27 April 2023, the Company cancelled the other reserves (EUR 3,000 thousand), allocated EUR 3,000 thousand from the profit for the payment of dividends and created a reserve of EUR 50 thousand for charity. Annual allowances No annual payments were made in 2022 and 2022. Dividends In 2023, a dividend of EUR 3,000 thousand was paid by the resolution of shareholders (0 .07 EUR per share). 12. Financial debts All loans of the Group and the Company are accounted for and repaid in euro. At the end of the year, the weighted average interest rate on outstanding loans (as a percentage) was: Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Long-term 4,41 2,39 4,41 2,39 On 7 August 2020, the Company signed a EUR 55 million investment financing agreement with the European Investment Bank. The signing of the agreement was approved by the Extraordinary General Meeting of Shareholders of AB Kauno energija on 4 August 2020. On 19 September 2023, a loan tranche of EUR 14 million was taken out. In 2023, EUR 405 thousand of interest expense was capitalised. Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Long-term financial debts 54 736 43 949 54 736 43 949 (loans): Payable between 2 and 5 22 506 17 414 22 506 17 414 years Payable after 5 years 32 230 26 535 32 230 26 535 Current portion of long-term 3 231 2 769 3 231 2 769 loans 57 967 46 718 57 967 46 718 39 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 12. Financial debts (continued) Details of the Group’s and Company's loans as at 31 December 2023: Balance To be Amount, as at repaid in Credit institution Date of thousands Maturity 2023.12.31 2024, contract EUR , in thousand thousand EUR Ministry of Finance s EUR 1 of the Republic of 2010-04-09 2 410 2034-03-15 1 030 95 Lithuania * Ministry of Finance 2 of the Republic of 2010-10-26 807 2034-03-15 423 38 Lithuania * 3 EIB 2020-08-07 12 000 2036-08-18 11 547 906 Ministry of Finance 4 of the Republic of 2014-01-15 793 2034-12-01 458 41 Lithuania * Ministry of Finance 5 of the Republic of 2014-03-31 7 881 2034-12-01 4 549 414 Lithuania * 6 EIB 2020-08-07 15 000 2035-08-24 11 750 1 000 7 AB SEB bank 2016-12-22 4 127 2024-11-30 210 210 8 EIB 2020-08-07 14 000 2037-08-24 14 000 527 9 EIB 2020-08-07 14 000 2038-09-29 14 000 - 57 967 3 231 * Ministry of Finance; ** European Investment Bank. AB SEB bankas has determined that the Company must comply with the net financial debt to EBITDA ratio set for the quarter, which must not exceed 4.5. Under the loan agreements, the Company's equity ratio (total equity/total assets) must be at least 35%. The European Investment Bank's requirements also stipulate that the Company must comply with both of these indicators. On 31 December 2022 and 31 December 2023, the Company has complied with the terms of the aforementioned agreements. Loan agreements contain certain restrictions. The Company may not grant dividends, issue and/or obtain new loans, make grants, sell or lease mortgaged assets without the written consent of the banks. The consent of AB SEB Bank for the payment of dividends has not been requested or obtained, but no sanctions have been applied by AB SEB Bank for non-compliance with this obligation. The Group's and the Company's immovable property (note 4), funds in bank accounts (note 10) and land leases were pledged to banks as collateral for loans. 40 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 13. Lease Finance leases and lease liabilities of the Group and the Company: Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Within one year 22 68 22 68 After one year - 19 - 19 Total, financial lease obligations 22 87 22 87 Lease liabilities are accounted for as: – short-term 16 54 13 52 – long-term 1 121 1 132 950 868 Total lease liabilities 1 137 1 186 963 920 The Group's and the Company's assets leased under lease agreements consist of land with a lease term of 26 to 99 years. In accordance with IFRS 16, the Group and the Company recognised depreciation and interest costs associated with the lease in question, rather than operating lease costs. For the 12-month period ended 31 December 2023, the Group recognised depreciation costs of EUR 24 thousand and lease interest of EUR 28 thousand, the Company recognised depreciation costs of EUR 21 thousand and lease interest of EUR 24 thousand. 14. Grants and subsidies Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Opening balance at the beginning of the reporting period 32 211 32 715 32 211 32 229 Received during the period - 1 274 - 1 273 Amortization (1 361) (1 778) (1 361) (1 291) Closing balance at the end of the reporting period 30 850 32 211 30 850 32 211 During 2023, the Group has accrued depreciation (amortisation) grants of EUR 1,354 thousand relating to property, plant and equipment and EUR 7 thousand relating to costs (in 2022 – EUR 1,771 thousand and EUR 7 thousand), The Company – EUR 1,354 thousand and EUR 7 thousand respectively (EUR 1,284 thousand and EUR 7 thousand in 2022). 41 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 15. Employee benefit liability Every worker who leaves their job and has reached retirement age is entitled to receive between 0.5 and 2 months' salary, in accordance with the laws of the Republic of Lithuania and the Collective Agreement. The Group's and the Company's employee benefits liability were as follows: Group Company 2023 2022 2023 2022 Employee benefit liability at the beginning of the period 464 587 452 577 Paid (95) (101) (95) (101) Formed 179 (22) 170 (24) Employee benefit liability at the end of the period: 548 464 527 452 Long-term portion 385 374 365 363 Short-term portion 163 90 162 89 When calculating long-term employee benefits, the Group and the Company assessed the mortality rate in Lithuania, discount rate, retirement age, age and turnover of employees, salary growth, inflation rate and other factors. The key assumptions used to determine the planned benefit obligation of the Group and the Company are set out below: 2023-12-31 2022-12-31 Discount rate, % 3,407 1,728 Employee turnover rate, per cent 9,803 9,019 Planned annual salary increase 4.9 per cent. 8.50 per cent. The actuarial gains and losses related to these liabilities are presented under the item of operating expenses, remuneration and social security and in the Statements of Financial Position under the current portion of the liability for long-term employee benefits and the liability for employee benefits. 16. Other provisions The Company formed a provision of EUR 577 thousand as of 30 June 2021 to ensure reserve capacity, part of which has been returned to customers as of 2022, for a total of EUR 498 thousand returned during 2022. The remainder was repaid in 2023. As at 31 December 2023, the Company has made an additional provision of EUR 1,573 thousand to cover the differences in the actual cost of electricity, purchased heat, fuel and production included in the price of heat sold and actually incurred, i.e. to cover future price reduction liabilities. 42 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 17. Sales income The Group and the Company are engaged in the supply of thermal energy, maintenance of building heating and hot water supply systems, electricity generation, and other activities. These activities are closely interlinked and, for management purposes, the Group and the Company are considered to be organised in a single segment – the supply of thermal energy. The Group's and the Company's activities are seasonal, with the majority of revenue generated during the heating season, which starts in October and ends in April. Sales revenues by the Group and the Company activities are presented below: Group Company 2023 2022 2023 2022 Heat supply 78 660 81 338 78 660 81 458 Hot water supply 5 467 5 742 5 467 4 643 Maintenance of hot water metering devices 551 487 551 487 Maintenance of collectors 348 348 348 348 Maintenance of heating and hot water 17 17 17 17 systems in buildings Cooling supply 5 10 5 10 Sale of tradable emission allowances - 50 - 50 85 048 87 992 85 048 87 013 Sales revenues by consumer groups of the Group and the Company are presented below: Group Company 2023 2022 2023 2022 Residents 63 047 65 124 63 047 65 236 Other users 9 561 8 846 9 561 8 846 Budgetary organisations financed from the state budget 5 705 6 044 5 705 6 044 Budgetary organisations financed from municipal budgets 3 856 4 203 3 856 4 203 Institutions financed by territorial sickness funds 2 313 2 182 2 313 2 182 Industrial users 566 1 593 566 502 85 048 87 992 85 048 87 013 43 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 18. Other costs Group Company 2023 2022 2023 2022 Maintenance of collectors 362 362 362 362 Consulting Services 255 181 255 181 Equipment inspection and testing 205 234 205 234 Losses 179 - 179 - Ash recovery costs 173 173 173 173 Sponsorship 143 53 143 53 Debt collection costs 141 91 141 91 Information Technologies costs 123 80 123 80 Money collection costs 122 126 122 126 Employee-related costs 119 118 119 118 Invoicing costs 111 98 111 98 Membership fee 111 97 111 97 Insurance 107 49 107 49 Maintenance of fixed assets and related 102 86 102 86 services Costs for advertising 93 35 93 35 Transport costs 91 104 91 104 Rental of equipment and machinery 58 56 58 56 Communication costs 54 32 54 32 Audit costs 33 23 33 23 Other costs 195 124 290 422 2 777 2 122 2 872 2 420 19. Other operating income and expense Group Company 2023 2022 2023 2022 Other operational incomes Inventories sold 1 247 213 238 213 Miscellaneous services rendered 1 075 987 284 449 Profit from the sale of fixed assets 14 11 14 11 Other 524 230 508 230 2 860 1 441 1 044 903 The Group and the Company lease real estate, supply technical water, perform maintenance of heating equipment and provide transport services. Group Company Other operational expenses 2023 2022 2023 2022 Cost of miscellaneous services rendered (173) (306) (173) (306) Inventories sold (111) (214) (111) (214) Cost of previous periods (73) (30) (73) (30) Sale of fixed assets, write-off (23) (119) (23) (119) Other (106) (78) (112) (85) (486) (747) (492) (754) 44 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 20. Other interest and similar income Group Company Default interest received on overdue 2023 2022 2023 2022 receivables 466 228 466 228 Interest 228 19 222 22 694 247 688 250 21. Loss on sale of securities, interest and other similar charges Group Company 2023 2022 2023 2022 Interest (1 347) (299) (1 343) (296) Impairment of non-current financial assets - - - 258 Interest / penalties (1) - (1) - (1 348) (299) (1 344) (38) 22. Income tax As at 31 December 2023 and 31 December 2022, deferred income tax assets and liabilities were accounted for using the 15 per cent rate. All changes in deferred income tax are accounted for in the Group's and Company's statements of profit (loss) and other comprehensive income. The reported income tax expense for the year can be reconciled with the income tax expense resulting from the application of the regulatory corporate income tax rate to profit before tax: Group Company 2023 2022 2023 2022 Profit before tax 6 977 5 661 6 241 5 786 Income tax (expense) calculated at the statutory rate (1 046) (849) (936) (849) Effect of permanent and temporary 844 774 846 849 differences on current year's income tax Effect of permanent and temporary (671) 46 (671) 46 differences Change in unrecognised deferred income (26) (31) (26) (31) tax assets Adjustment of income tax for previous - - - - periods Deferred income tax (income) costs (899) (60) (787) 15 recorded in the profit (loss) statement 45 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 22. Income tax (continued) Group Company 2023 2022 2023 2022 Components of income tax expense Income tax expenses (costs) of the reporting (202) (75) (90) - year Deferred profit tax expense (income) (697) 15 (697) 15 Income (expense) from income taxes recognised in the statement of comprehensive income (899) (60) (787) 15 Effective corporate tax rate (%) 12,89 1,06 12,61 -0,26 All changes in deferred income tax are accounted for in the Group's and Company's profit (loss) statement. As at 31 December 2023, deferred income tax consisted of: Group Company 2023 2022 2023 2022 Deferred income tax assets Tax losses 3 441 3 647 3 441 3 647 Accruals 160 69 160 69 Change in value of assets 716 833 716 833 Investment allowance - 5 - 5 Deferred income tax assets 4 317 4 554 4 317 4 554 Deferred profit tax liabilities Depreciation differences (10 833) (10 373) (10 833) (10 373) Revaluation of assets transferred to a subsidiary - - - - Deferred profit tax liabilities (10 833) (10 373) (10 833) (10 373) Deferred profit tax, net value (6 516) (5 819) (6 516) (5 819) Deferred tax assets arising from tax losses are recognised because the Group's and the Company's management expects that they will be realised in the foreseeable future, taking into account forecasts of taxable profits. 23. Basic and diluted earnings per share The Group's basic and diluted earnings per share calculations are presented below: Group Company 2023 2022 2023 2022 Profit for the reporting period 6 078 5 858 5 454 5 801 Number of shares (thousands), beginning of period 42 802 42 802 42 802 42 802 Number of shares (thousands), end of period 42 802 42 802 42 802 42 802 Weighted average number of ordinary shares 42 802 42 802 42 802 42 802 in issue (thousands) Basic and diluted earnings per share 0,14 0,14 0,13 0,14 (EUR) 46 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management Credit risk The Group and the Company are not exposed to significant concentrations of credit risk as they deal with a large number of customers. Group Company Number of unique clients (units) 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Natural persons 120 348 119 493 120 152 119 301 Other legal entities 3 797 3 454 3 704 3 378 Legal entities financed from municipal and state budgets 561 658 559 648 124 706 123 605 124 415 123 327 Receivables due from customers of the Group and the Company by customer groups: Group Company Customer distribution (thousand EUR) 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Natural persons 13 538 16 808 13 524 16 794 Other legal entities 3 551 3 513 2 710 3 297 Legal entities financed from municipal and state budgets 1 710 2 674 1 709 2 673 Recognition of expected credit losses (4 362) (4 826) (4 322) (4 786) 14 437 18 169 13 621 17 978 As at the date of the financial statements, for trade and other receivables that are neither past due nor impaired, management believes that there is no indication that the debtors will not meet their payment obligations as the receivable balances are under constant control. The Group and the Company consider that the maximum exposure is the amount of trade and other receivables less any impairment losses recognised at the statement of financial position date (Note 9). Cash and cash equivalents in banks rated on a long-term basis : Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 AA- 4 015 2 077 4 015 2 077 A+ 3 770 2 795 2 538 2 136 A 19 - 19 - Unrated bank 43 59 43 59 7 847 4 931 6 615 4 272 - external borrowing ratings by Standard & Poor's agency. The credit risk arising from the Group's and the Company's other financial assets consisting of cash and cash equivalents translates to The Group's and the Company's potential credit risk from the default of the counterparties, with the maximum potential exposure being equal to the carrying amount of these instruments. 47 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) The Group and the Company have no financial instruments accounted at fair value. The Group's and the Company's financial assets are mainly current and therefore their carrying amount is considered to approximate fair value. The Group's and the Company's long-term financial liabilities bear interest at rates that are periodically reviewed in accordance with market conditions and are therefore considered to approximate their fair value. The classification of financial instruments by level within the fair value hierarchy in 2023 and 2022 is presented below: Group 2023-12-31 Level of the fair value hierarchy Total book Assets Level 1 Level 2 Level 3 value: Other financial assets - - 75 75 Trade receivables - - 14 437 14 437 Other amounts receivable - - 2 755 2 755 Cash and cash equivalents - - 8 547 8 547 Total financial assets - - 25 814 25 814 Liabilities Financial debts and leasing - (59 126) - (59 126) Trade debts and other current liabilities - - (16 535) (16 535) Total financial liabilities - (59 126) (16 535) (75 661) Company 2023-12-31 Level of the fair value hierarchy Total book Assets Level 1 Level 2 Level 3 value: Other financial assets - - 75 75 Trade receivables - - 13 621 13 621 Other amounts receivable - - 2 757 2 757 Cash and cash equivalents - - 7 315 7 315 Total financial assets - - 23 768 23 768 Liabilities Financial debts and leasing - (58 951) - (58 951) Trade debts and other current liabilities - - (16 550) (16 550) Total financial liabilities - (58 951) (16 550) (75 501) Group 2022-12-31 Level of the fair value hierarchy Total book value: Assets Level 1 Level 2 Level 3 Other financial assets - - 75 75 Short-term deposits 2 000 2 000 Trade receivables - - 18 169 18 169 Other amounts receivable - - 5 156 5 156 Cash and cash equivalents - - 5 550 5 550 Total financial assets - - 30 950 30 950 Liabilities Financial debts and leasing - (47 991) - (47 991) Trade debts and other current liabilities - - (19 332) (19 332) Total financial liabilities - (47 991) (19 332) (67 323) 48 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) Company 2022-12-31 Level of the fair value hierarchy Total book value: Assets Level 1 Level 2 Level 3 Other financial assets - - 75 75 Short-term time deposits 2 000 2 000 Trade receivables - - 17 978 17 978 Other amounts receivable - - 5 130 5 130 Cash and cash equivalents - - 4 891 4 891 Total financial assets - - 30 074 30 074 liabilities Financial debts and leasing - (47 725) - (47 725) Trade debts and other current liabilities - - (19 253) (19 253) Total financial liabilities - (47 725) (19 253) (66 978) Interest rate risk The Group's and the Company's long-term loans, other than those with the Ministry of Finance of the Republic of Lithuania, are at variable interest rates (3 months EURIBOR). The Group and the Company are exposed to interest rate risk. The Company's long-term loans, with the exception of loans received from the Ministry of Finance of the Republic of Lithuania, have a variable interest rate, which depends on EURIBOR fluctuations. Liquidity risk Liquidity risk is the risk that the Company or the Group will not be able to meet its financial obligations when they fall due. Liquidity risk is very low as the Group and the Company are both active in state- regulated heat supply activities. Heat generators have a 30-day settlement period. The contractual maturity of the Group's and the Company's financial liabilities to banks and suppliers based on undiscounted payments: Up to 3 3 months From 1 After 5 Group On demand months to 1 year to 5 years Total years Amounts receivable - 17 192 - 128 - 17 320 Cash and cash - 8 547 - - - 8 547 equivalents Trade debtors - (14 105) - - - (14 105) Loans received - (808) (2 423) (12 084) (42 652) (57 967) Finance lease - (9) (29) (64) (1 057) (1 159) 2023-12-31 - 10 817 (2 452) (12 020) (43 709) (47 364) 49 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) Up to 3 3 months From 1 After 5 Company On demand months to 1 year to 5 years Total years Amounts receivable - 16 378 - - - 16 378 Cash and cash - 7 315 - - - 7 315 equivalents Trade debtors - (14 136) - - - (14 136) Loans received - (808) (2 424) (12 084) (42 651) (57 967) Finance lease - (9) (26) (48) (902) (984) 2023-12-31 - 8 741 (2 450) (12 132) (43 553) (49 394) Up to 3 3 months From 1 After 5 Group On demand months to 1 year to 5 years Total years Amounts receivable - 25 325 - 39 - 25 364 Cash and cash - 5 550 - - - 5 550 equivalents Trade debtors - (18 548) - - - (18 548) Loans received - (692) (2 077) (7 080) (36 869) (46 718) Finance lease - (30) (91) (231) (921) (1 273) 2022-12-31 - 11 605 (2 168) (7 272) (37 790) (35 625) Up to 3 3 months From 1 After 5 Company On demand month to 1 year to 5 years Total years Amounts receivable - 25 108 - - - 25 108 Cash and cash - 4 891 - - - 4 891 equivalents Trade debtors - (18 487) - - - (18 487) Loans received - (692) (2 077) (7 204) (36 745) (46 718) Finance lease - (30) (89) (223) (665) (1 007) 2022-12-31 - 10 790 (2 166) (7 427) (37 410) (36 213) Foreign currency risk All purchases, sales and financial debts of the Group and the Company are denominated in euro, therefore, there is no significant foreign currency risk. Capital management The main objective of capital management is to ensure that the Group and the Company meet the external capital requirements and that they maintain appropriate capital ratios in order to sustain their business and maximise the benefits for shareholders. The Group and the Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and in accordance with their operational risk characteristics. In order to maintain or change the capital structure, the Group and the Company may issue new shares, repay the capital to the shareholders. There were no changes to the capital management objectives, policy or process as of 31 December 2023 and 31 December 2022. 50 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 24. Financial assets and liabilities and risk management (continued) The Law on Joint-Stock Companies of the Republic of Lithuania requires that the Group's and the Company's shareholders' equity shall not be less than 50% of its share capital. The Group and the Company meet the requirements of the Law on Companies of the Republic of Lithuania with respect to equity capital. There are no other externally imposed capital requirements for the Group and the Company. The Group and the Company measure capital using the ratio of liabilities to equity. Equity consists of ordinary shares, reserves and retained earnings attributable to equity holders of the parent company. The Group's and the Company's management have not set a specific target ratio for the ratio of liability to equity, however, the following current indicators are considered to be sufficiently good performance indicators: Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Non-current liabilities (including deferred 93 608 83 504 93 417 83 229 taxes and grants and subsidies) Current liabilities 22 326 24 281 22 105 24 012 Liabilities, total: 115 934 107 785 115 522 107 241 Equity 97 606 96 101 96 723 95 842 Ratio of liabilities to equity (%)) 118,78 112,16 119,44 111,89 Liabilities include all non-current (including deferred income tax liability and grants (deferred income)) and current liabilities. Market risk External risk factors affecting the Group's and the Company's core business: the economic crisis, rising fuel prices, unfavourable legislation and regulations from the government and other authorities, local government decisions, pricing policies for products sold, inflation and the general economic downturn reducing the income of heat consumers, cyclical nature of operations, environmental requirements. To mitigate risks, the Company applies a risk management model that includes risk identification, assessment, management and monitoring. An additional debt administration plan on the management of potential consumer insolvency risks has been prepared and implemented. The planned plan of additional measures is consistently implemented on a monthly basis, with good results and above projections. 25. Commitments and contingencies The contingent liability is disclosed in subsequent events (note 27). Leases and contracts for the purchase of works The Group's and the Company's future obligations under the purchase contracts in force as at 31 December 2023 amount to EUR 24,307 thousand and EUR 22,229 thousand. Guarantees On 31 December 2023 the Group and the Company have granted guarantees in the amount of EUR 20 thousand. 51 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 26. Related party transactions The parties are considered to be related if one party can control the other party or has significant influence over the other party in making financial or operational decisions. In 2023 and 2022, the Group and the Company did not have any significant transactions with other companies controlled by Kaunas City Municipality, except for the purchase or provision of utility services. Transactions with Kaunas City Municipality and companies controlled by Kaunas City Municipality were carried out at market prices. A list of countries related to Kaunas City Municipality can be found here: http://www.kaunas.lt/administracija/struktura-ir-kontaktai/pavaldzios-imones-ir-istaigos/. In 2023 and 2022, the Group's and the Company's transactions with Jurbarkas City Municipality, Kaunas City Municipality and companies financed and controlled by Kaunas City Municipality, and their debts and liabilities as at the end of the periods were as follows: 31 December 2023 Purchases Sales Amounts Amounts Kaunas City Municipality, receivable payable companies financed and fully 1 930 9 028 1 141 467 managed by it Jurbarkas district municipality 19 282 1 4 31 December 2022 Purchases Sales Amounts Amounts Kaunas City Municipality, receivable payable companies financed and fully 1 234 8 345 3 105 253 managed by it Jurbarkas district municipality 15 292 14 3 Sales include the amounts of reimbursements for housing heating costs, cold water and sewage costs, and hot water costs for financially challenged residents. The Group and the Company have made an impairment allowance of EUR 253 thousand as at 31 December 2023 (on 31 December 2022: EUR 253 thousand) in respect of receivables from companies financed from municipal budgets. Receivables are not secured by collateral or other instruments and will be settled in cash. No guarantees have been obtained for receivables. On 31 December 2023 and 31 December 2022 the Company's transactions with subsidiaries and the balances at the end of the period were as follows: UAB Kauno miesto paslaugų Purchases Sales Amounts Amounts centras receivable payable 31 December 2023 25 - - 3 31 December 2022 6 - - 3 Amounts Amounts UAB GO Energy LT Purchases Sales receivable payable 31 December 2023 1 963 138 19 225 31 December 2022 426 162 65 83 UAB GO Energy LT provides real estate management services to AB Kauno energija and participates in unregulated energy development projects together with its parent company. 52 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 26. Related party transactions (continued) Management's salary and other benefits On 31 December 2023 The Group's and the Company's management consists of 2 and 1 (31 December 2022: 2 and 1) persons, respectively, the Management Board consists of 5 and 5 persons and the Supervisory Board consists of 3 and 3 persons. Group Company 2023-12-31 2022-12-31 2023-12-31 2022-12-31 Wages and salaries charged to the management 136 103 130 97 The Management Board 78 75 78 75 The Supervisory Board 44 - 44 - Calculated compensations of employee benefits - - - - During 2023 and 2022, there were no loans, guarantees, other disbursements or accruals to the management of the Group and the Company, or transfers of assets. 27. Subsequent events On 2024-01-264, the State Energy Regulatory Council (hereinafter referred to as the VERT), when deciding on the determination of the constituents of the basic price of heat and the constituents of hot water of AB Kauno energija, decided that EUR 2,515.62 thousand awarded from Kaunas Clinics of the Hospital of the Lithuanian University of Health Sciences Kaunas Clinics (hereinafter referred to as the Kaunas Clinics) by the ruling of the Court of Appeal of Lithuania of 2021-03-04 No. e2A-151- 370/2021 and compensation of EUR 570.04 thousand paid on the basis of the settlement agreement of 2021-05-25 , approved by the Kaunas District Court on 2021-06-02 for reserve thermal capacity for the period from 2019-06-01 to 2021-02-28, must be returned to consumers. Considering that AB Kauno energija has already returned EUR 498.17 thousand, in the opinion of VERT, the remaining amount of the refund to consumers is EUR 2,587.50 thousand. The Board of AB Kauno energija, when setting the level of heat production and/or supply income for the first year of validity of the base level of heat production and/or supply income, decided on 2024- 01-31 not to include the compensation received from Kaunas Clinics for reserve power. Such a decision was made taking into account the fact that the Company incurred EUR 576.6 thousand expense in provision of reserve power service of Kaunas Clinics. By the decision of the Board of the Company of 2021-06-22 No 2021-9-1, an additional component reducing the price by 0.08 ct/kWh was already established. During the period of application of this additional component from 2022-01- 01 to 2022-04-30, AB Kauno energija returned EUR 498.17 thousand. It should be noted that AB Kauno energija amount payable to consumers, i.e. EUR 576.6 thousand is calculated in accordance with the methodology for determining the compensation for reserve capacity approved by Order No 1-22 of the Minister for Energy of the Republic of Lithuania of 2009-11-26, i.e. in accordance with the legislation. 53 AB KAUNO ENERGIJA Company code 235014830 Raudondvario pl. 84 Kaunas, Lithuania Set of consolidated and company financial statements of 2023 (in thousands euro, unless specified otherwise) 27. Subsequent events (continued) In the light of the above and the fact that VERT, despite the arguments put forward by AB Kauno energija, adopted Resolution No. O3E-141 on 9 2024-02-09 “On setting the level of heat production and/or supply income of AB Kauno energija for the first year of validity of the base level of heat production and/or supply income”, and on 2024-02-23 adopted Resolution No. O3E-213 “On unilateral determination of the level of heat production and/or supply income of AB Kauno energija for the first year of the base level of heat production and/or supply income”, where the amount to be refunded to consumers amounts to 2 587.50 thousand euro, AB Kauno energija filed a complaint with the Regional Administrative Court on 2024-02-26 regarding the annulment of part of the VERT resolutions. The management of the Group and the Company have assessed that there is no legal basis for this claim and therefore the amount in question has not been included in the formed difference provision (Note 16). On March 26, 2024, the Company entered into a credit agreement with AB SEB Bank to finance working capital. According to this agreement, a 5 million euro overdraft limit has been approved for a 12-month period. As of the financial reporting date, the overdraft limit has not been utilized. There have been no other events after the reporting date that could have a material effect on the financial statements or that should be disclosed in the financial statements. *** AB Kauno energija Code of legal entity 235014830 Raudondvario av. 84 Kaunas, Lithuania AB KAUNO ENERGIJA CONSODATED ANNUAL REPORT OF THE YEAR 2023 AB KAUNO ENERGIJA CONSOLIDATED SEMIANNUAL REPORT OF THE YEAR 2023 55 CONTENTS 1. Reporting period of the consolidated annual report ................................................................................ 56 2. Companies composing the group of companies and their contact details .............................................. 56 3. Nature of core activities of the companies composing the group of companies ..................................... 57 4. Issuer’s agreements with credit institutions ............................................................................................. 57 5. Trade in securities of companies composing the group of companies in regulated markets .................. 57 6. Overview of the condition, performance, and development of the group of companies ......................... 58 6.1. Overview of the condition, performance, and development of the group of companies ......................... 58 6.2. Description of exposure to key risks and uncertainties the company confront with and their impact on activity results ................................................................................................................................................... 61 7. Analysis of financial and non-financial performance results, information related to environmental issues 63 8. References and additional explanations .................................................................................................. 69 9. Significant events after the end of the reporting period ........................................................................... 69 10. Plans and forecasts of activities of the group of companies ................................................................... 69 11. Information on research and development activities ............................................................................... 70 12. Information on own shares acquired and held by the issuer ................................................................... 72 13. Information on the aims of financial risk management, hedging instruments in use ............................... 72 14. Information on the issuer’s subsidiary undertakings ............................................................................... 72 15. Structure of authorized capital ................................................................................................................. 72 16. Data on shares issued by the issuer ....................................................................................................... 73 17. Information on the issuer’s shareholders................................................................................................. 75 18. Employees ............................................................................................................................................... 77 19. Procedure for amending the issuer’s statutes ......................................................................................... 79 20. Issuer’s management bodies ................................................................................................................... 79 21. Information on significant agreements ..................................................................................................... 83 22. Information on agreements of the issuer and its managerial body members or employees ................... 84 23. Information on major transactions with related parties ............................................................................ 84 24. Information on harmful transactions concluded on behalf of the issuer during the reporting period ...... 84 25. Information on compliance with the governance code of companies and the company’s corporate social initiatives and policies ....................................................................................................................................... 84 26. Data on publicised information ................................................................................................................ 84 Annex 1 – AB Kauno Energija Remuneration Report for 2023.......................................................................86 Annex 2 – Company’s report on the compliance with the Governance Code for the companies listed on the Stock Exchange Nasdaq Vilnius.............…………………………………………………….……............……... 88 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 56 1. Reporting period of the Consolidated Annual Report Reporting period for which the AB Kauno Energija Consolidated Annual Report has been prepared is January 1, 2023 – December 31, 2023. 2. Companies consisting the Group of companies and their contact details AB Kauno Energija (hereinafter – the Company or the Issuer) prepares both the Company’s and the Consolidated Financial Statements. The group of companies (hereinafter referred to as the Group) consists of AB Kauno Energija and its subsidiary – UAB GO Energy LT in which the Issuer directly controls 100 per cent of the shares. Main details of the Company: Name of the Company: AB Kauno Energija Legal-organizational form: Public Limited Liability Company Headquarters’ address Raudondvario av. 84, 47179 Kaunas Code of legal entity: 235014830 Telephone (8 37) 305 650 Fax (8 37) 305 622 E-mail: [email protected] Webpage www.kaunoenergija.lt Registration date and place August 22, 1997, Kaunas, Order No 513 Register manager State Enterprise Centre of Registers Kaunas Branch VAT payer code LT350148314 Main information about the subsidiaries: Company name UAB Go Energy LT Legal-organizational form Limited Liability Company Headquarters’ address Savanorių pr. 347, 49423 Kaunas Code of legal entity 303042623 Telephone (8 37) 305 693 E-mail [email protected] Registration date and place April 16, 2013, Kaunas Register manager State Enterprise Centre of Registers Kaunas Branch AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 57 3. Nature of core activities of the companies composing the group of companies The nature of core activities of the Group is manufacture and rendering of services. The Company is the parent company of the Group. The Company generates and supplies heat to consumers (for the purposes of heating and hot water production) in the cities of Kaunas and Jurbarkas and in Kaunas district Akademija town, Ežerėlis town, Domeikava village, Garliava town, Girionys village, Neveronys village, Raudondvaris village, (hereinafter referred to as Kaunas district). Also, following provisions of the Law on Heat Sector, the Company supplies hot water (is engaged in hot domestic water supplier activities) from May 1, 2010 for consumers in the cities of Kaunas and Jurbarkas and Kaunas district, who chose the Company as a hot water supplier. As of December 31, 2023, the Company supplied hot water to 897 residential buildings in Kaunas, Kaunas district and Jurbarkas city. In addition, the Company maintains engineering structures (collectors – manifolds) and operates heat and electricity production facilities. The Group and the Company carries out a supervision of indoor heat and hot water supply systems, maintenance of heat unit equipment, repairs of heat units and other heating equipment, provides premises rental services under agreements. The Group and the Company are engaged in licensed activity in accordance with the licenses held. On February 26, 2004 the National Commission for Energy Control and Prices (hereinafter – the Commission) issued a heat supplier licence to the Company. The licence is valid indefinitely. Maintenance of indoor heat and hot water supply systems is pursued following the provisions of Article 20 of The Law on Heat Sector of the Republic of Lithuania. The vision of the Group and the Company is to be an innovative, competitive, and added value for shareholders creating Company engaged in heat and cooling generation and their centralized supply, maintenance of indoor heating and hot water systems. Values of the Group and the Company: • More than 50 years of experience in heat production and supply. • Responsibility towards consumers for reliable heat and hot water supply. • High qualification of employees allowing to reach the highest efficiency indicators. • Ability to apply innovative solutions in everyday activities. Strategic goals of the Group and the Company: AB Kauno Energija is the most advanced and innovative district heating (hereinafter – DH) company in Lithuania. Principled guidelines of Company’s heat economy strategy are as follows: • Increase of safety and reliability of heat supply – the Company intends to formulate an expert assessment of safety / vulnerability of heat supply system, to implement update and modernization of system of parameters data transfer, collection and evaluation, to implement optimization of the network hydraulic mode and increase of speed of parameters reaction / change, to reconstruct and optimize sections of termofication pipelines and elements (average age of DH pipelines reaches approximately 30 years), to implement update and development of the system of DH network water reserve – emergency replenishment, to implement technical solutions and / or use a good practice increasing reliability and safety, ensuring stability of thermofication mode; • to actively participate in formation of policy of Kaunas city supply with heat and in increase of Company’s desirability and in expansion of district heating market. • formation of good practice and its publicizing. 4. Issuer’s agreements with credit institutions On September 13, 2018 the Issuer Service Agreement was signed with AB SEB Bankas (company code 112021238, Gedimino pr. 12, Vilnius). 5. Trade in securities of companies composing the Group of companies in regulated markets 20,031,977 (twenty million thirty-one thousand nine hundred seventy-seven) of the Issuer’s ordinary registered shares (VP ISIN code LT0000123010) with the total nominal value equal to EUR 34,855,639.98 (thirty-four million eight hundred fifty-five thousand six hundred thirty-nine euro and 98 cents) were listed in the secondary trade list of Nasdaq Vilnius Baltic stock exchange as of December 32023. The beginning of listing of the Company’s shares is December 28, 1998. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 58 6. Overview of the condition, performance, and development of the Group of companies 6.1. Overview of the condition, performance, and development of the Group of companies In 2023, the company's focus was on achieving its strategic objectives by providing innovative, efficient, safe, economical, and sustainable heating solutions. The company's financial and non-financial objectives are to ensure the safety and reliability of its core activities; improve production efficiency; enhance the efficiency of the heat transmission system; improve access to district heating; and utilize modern, innovative tools and methods for organizing and managing heat supply and operations. The "Development Strategy of AB Kauno energija for the period of 5 years, covering the years 2022–2026, by implementing the directions of development of the energy sector" was approved by the Company's Supervisory Board on 11 July 2022. A summary of the strategy is available on the Company's website at a specific address: https://www.kaunoenergija.lt/apie-bendrove. The Company covers a major part of heat production and supply market in the cities of Kaunas and Jurbarkas and Kaunas district. Company’s generation capacities consist of Petrašiūnai power plant, 5 boiler- houses in Kaunas integrated network, 7 district boiler-houses in Kaunas district, 1 boiler-house in Jurbarkas city, 14 boiler-houses of isolated networks and 26 local gas burning boiler-houses in Kaunas city (25 of them are gas burned and 1 of them – burned with pellets), also 8 local water heating boiler-houses in Sargėnai catchment. Total Company’s power generation capacity is 579.91 MW (including 53.02 MW of condensational economizers’ capacities; 2.4 MW of absorption heat pump). 30 per cent of heat supplied to consumers in the year 2023 was produced in Company’s heat production facilities. The rest of required quantity of heat was purchased from independent heat producers (hereinafter – IHP) in monthly auctions, according to legal acts. Starting from May 2018 an electronic heat purchasing auctions are arranged by the Energy Stock Exchange operator UAB Baltpool. Electronic auctions are carried out in accordance with the Regulations of the Heat Auctions approved by the National Energy Regulatory Council. The Schedule of the Procedure and Conditions for the Purchase of Heat from Independent Heat Producers, the Methodology for Determining Heat Prices, the Rules for the Provision of Information on Energy, Drinking Water Supply and Wastewater Treatment, Sewage and Surface Water Treatment Companies, a Summary of Conditions of Usage of Heat Transfer Networks, and a schedule of the Procedure for Publicly Disclosed Information were changed respectively. Fuel used by the Company for heat production in the year 2023 is presented in Chart 1. Chart 1 The Company purchased heat during the year 2023 from 10 IHP in Kaunas and Kaunas district as follows: from UAB Kauno Termofikacijos Elektrinė, UAB Idex Taika, UAB Idex Taika Elektrinė, UAB Lorizon Energy, UAB Ekoresursai, UAB Aldec General, UAB Idex Biruliškių, UAB “Ekopartneris”, UAB Foksita and UAB Kauno Kogeneracinė Jėgainė. Total purchases consisted of 961 thousand MWh of heat, i.e., 70 per cent of heat supplied to the. 23.91 21.10 33.40 12.75 14.14 75.84 78.61 64.40 84.33 84.81 0.25 0.29 2.20 2.92 1.05 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2019 y. 2020 y. 2021 y. 2022 y. 2023 y. Fuel structure, per cent Natural gas Solid biofuel Biogas and other fuels AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 59 Amounts of heat purchased from IHP and produced with Company’s equipment during the period of the years 2019–2023 are presented in chart 2, thousand MWh: Chart 2 The Company supplied this produced and purchased heat with integrated and local heat supply networks to 4,263 businesses and organizations as well as to 120,152 households, in total – to 124,415 consumers (objects by addresses) as of December 31, 2023. Chart 3 Investments Investments are made in accordance with Company’s investment plan for the year 2023, which has been approved by decision No T-121 of Kaunas City Municipality Council of March 28, 2023 “Regarding investment plan of AB Kauno Energija for the year 2023 and its financing” (hereinafter – Investment plan). The Company makes investments based on an assessment of the economic situation, the competitive environment and the availability of financing. Investment plans are approved by the Board of Directors and coordinated by the Kaunas City Municipal Council. The Company implements trunk pipeline replacement projects, optimizes pipeline diameters, connects new objects to the DH network and modernises heat production facilities according to Investment plan. 515.6 442.4 483.8 396.8 417.3 847.6 869.4 1104.7 1017.1 961.3 0 200 400 600 800 1 000 1 200 1 400 1 600 1 800 2019 y. 2020 y. 2021 y. 2022 y. 2023 y. Heat purchase and production, thous.MWh Heat productions in own facilities Heat purchsased from IHP 96.57% 3.43% Repartition of Company's heat consumers by groups Units of residential households (inhabitants) Other consumers AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 60 In 2023, the company is carrying out work in the Šilainiai, Vilijampolė, Eiguliai, Dainava, Petrašiūnai, and Gričiupis districts, planning to renew 11 km of old pipelines and expand the network in Kaunas LES and Panemunė. The company has reduced heat losses in the upgraded sections of main pipelines by slightly more than 27% in 2023. The largest heat savings were achieved in Šilainiai, Vilijampolė and Dainava districts. About 74% of the total district heating network in Kaunas has already been upgraded. The company has successfully implemented another modernisation project, which has increased the efficiency of the biofuel boiler plant at the Petrašiūnai power plant. This was accomplished using a 2.4 MW absorption heat pump with a second stage smoke condensing economiser. After the implementation of the modernisation project, the efficiency of the biofuel boiler plant was raised by about 10%. Even more purified smoke, predominantly water vapour, is now discharged into the environment as a result of the installation of a second-stage smoke condensing economiser. According to current research, they contain extraordinarily low amounts of particulate matter, only 20 mg/m3. The dynamics of consumers’ heating capacities connections to Company’s DH network and disconnections from them in 2019–2023 is shown in Chart 4. Chart 4 Dynamics of consumer’s connections and disconnections A total capacity of objects disconnected from DH network in 2023 was approx. 1.28 MW. Disconnection of heat equipment from centralized heat supply networks and the change of heating method is pursued following the order determined by the Civil Code of the Republic of Lithuania, the Law on Heat Sector of the Republic of Lithuania, the Law on Construction of the Republic of Lithuania and sub statutory legal acts implementing these Laws. Company’s investments by funding sources of the years 2019–2023 are presented in Chart 5. 0.31 0.95 0.35 0.26 1.28 14.63 14.14 7.12 25.21 29.60 0 5 10 15 20 25 30 35 2019 y. 2020 y. 2021 y. 2022 y. 2023 y. Capacities disconnected, MW Capacities connected, MW AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 61 Chart 5 6.2. Description of exposure to key risks and uncertainties the Company confront with and their impact on activity results External risk factors affecting the Company’s core business: • Increase in competition between heat producers in Kaunas. • Increase in final (i.e., including all expenditures) price of natural gas and biofuel. • Ever-changing legal environment. • Heat production pricing policies. Competition environment risk factors. To operate effectively and reliably in creation the added value for shareholders, the Company is facing threats specific to the sphere of its activity, but also takes advantage of opportunities to work efficiently and effectively by exploiting the available potential. One of the biggest threats that the Company may face is a relatively high price for heat purchased from IHP, who are ranked as private business units committed to profit generation. Purchase of heat is pursued following valid law and the Description of procedure for purchase of heat from independent suppliers of heat approved by NERC. In turn, the Company invests extensively in modernization and construction of its own manufacturing facilities, to reduce the comparative costs of heat production. Thus, it takes advantage of the regulatory environment and reduces the energy purchase price. Together with coming of new IHP the Company faced additional technical, economical, legal and other issues that need to be solved: management of heat supply network and balancing of power of these producers in case of emergency stop of them, retaining of optimum working parameters of the network, regulation, change and applying of heat purchase from IHP order. Commercial risk factors The Company is a major supplier of the heat produced centrally to the city of Kaunas, part of Kaunas district and the city of Jurbarkas. To retain this market, it is necessary to implement modern and efficient heat production technologies in own production facilities and to focus on production at the lowest cost, benefiting from private differences of different types of fuel. Company’s heat sales are directly dependent on heat demand, i.e., heat consumption, which is mostly affected by the average outdoor air temperature, the amount of investment of consumers in energy-saving and rational use of heat and the pace of development of the heat sales. Changes in fuel prices and the price of heat, produced by IHP have an impact on cost of Company’s heat and electricity production. 12.11 3.88 2.69 10.08 13.46 1.08 10.54 6.83 10.13 12.02 8.80 6.92 4.50 0,11 0,02 21.99 21.34 14.02 20.32 25.50 0 5 10 15 20 25 30 0 5 10 15 20 25 30 2019 y. 2020 y. 2021 y. 2022 y. 2023 y. Implementation of investments by funding sources, million euro Company funds Loans Different funds Total AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 62 Company’s performance is affected by the decrease in sales due to reduced and further decreasing heat demand (in pursuance of residential buildings renovation and by installing a heat saving equipment), due to consumer’s disconnections from DH network (due to the various reasons). Risks can be mitigated by Company’s current and further investments in heat and electricity production facilities, using renewable energy sources, reducing heat production expenditures and the price of heat, purchased from IHP as well as the price of heat supplied for consumers, and continually reasonably informing customers on the benefits of DH network systems (safety, reliability, correlation with one sort of fuel, fuel conversion, local pollution sources in residential areas, total environmental pollution, etc.) in comparison with autonomous heating. Operational risk During the year 2023 consumers’ debts consisted of EUR 4.7 million. Despite a significant increase in heat prices between 2022 and 2023 due to fuel price increases, the level of overdue debts has not increased. To recover these debts as soon as possible, the Company actively uses a variety of legal debt management measures, such as pre-trial actions, judicial recovery, and cooperation with law Companies. In addition, when a debt becomes big, a restriction of heat supplies is applied as a prevention measure (if there are technical possibilities and according to the law). On January 2, 2018 the Kaunas Unified Service Center “Mano Kaunas” started its operations in Statybininkų str. 3, Kaunas, at the premises of UAB Kauno Švara. Here residents can get immediate information / consultation about Kaunas city services provided by municipality owned companies – AB Kauno Energija, UAB Kauno Švara, UAB Kauno Autobusai, UAB Kauno Butų ūkis, UAB Kauno Gatvių Apšvietimas and UAB Kauno Vandenys, as well as conclude contracts, pay invoices, requests, certificates, etc. Activities of the Company are cyclical. During the heating season (October – April) a major operating income is earned. During the non-heating season, the Company’s revenues are at their lowest since only heat for hot water is used. In addition, during the non-heating season, the Company incurs more costs because it must prepare for the upcoming heating season, i.e., to carry out the repairs and reconstruction of heat supply networks and heat production facilities. Legal conformity risk Energy activities are governed by the Law on Heat Sector, the Law on Energy, the Law on Electricity, the Law on Natural Gas, the Law on Drinking Water Supply and Wastewater Management, Government resolutions, Heat supply and consumption rules, Methodology of heat prices and payments for heat of NCC and other legislation. Their amendments affect the heating industry. With new amendments of articles 2, 3, 20, 22, 28, 31, and 32 of the Law on Heat Sector No XI-1608 of the Republic of Lithuania that came in affect from November 1, 2011 in accordance with Article 7, the heat and hot water prices may not include any costs related with the indoor building heating (including heat units), and hot water systems. In implementing the legislation, from November 1, 2011 all these costs directly reduce the profit of the Company. Legal conformity risk is a risk of increase in losses and (or) loss of prestige, an (or) decrease in confidence, which can be determined by the external environment factors (for example, violation of external legal acts, non-compliance of requirements of supervising institutions, etc.) or internal factors (for example, violation of internal legal acts and ethical standards, cases of employee’s abuse, etc.). Technical and process factors The biggest process risks are related to the condition of heating systems. Modernization rate of them is determined by lack of funds – it is necessary to reconstruct more than 13.5 km of pipelines per year to condition of age of heat supply system and the minimum investments should consist of approximately 6 million euros. Hydraulic testing identifies their weakest points. Every year, about 200 points where cracks occur are identified during the tests. Upon discovery of defects, pipes are exposed and promptly repaired. DH network is reconstructed in the most worn-out sections of district heating. New industrially (polyurethane foam insulation in polyethylene shell) insulated pipes not requiring concrete channels are mounted in the reconstructed sections of the heat supply network. Heat loss is very low in reconstructed sections (process level), while the pipelines no longer pose a threat of rupture and ensure reliable heat supply to consumers. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 63 One of the technical risk factors for heat generation facilities is their age. Some of heat generation facilities are already renewed now. Every year boiler repairs, and preventive work is carried out during the non- heating season. They are necessary to ensure secure heat supplies and reliability, i.e., securing of heat production facilities and fuel reserves. More detailed information on Company’s production facilities modernization is provided in chapters on operations and development. Ecological factors With respect to the Company, they may be divided into those affecting the Company and affected by the Company’s operations. In order not to adversely impact the environment and comply with the pollution limits, vibration and noise values, the Company is guided by the requirements of the Kyoto Protocol, the Helsinki Commission (HELCOM) and environmental constraints of Helsinki Convention, as well as the European Parliament and Council Directive 2001/80/EB of regulating energy emissions and Lithuanian environmental normative document LAND 43-2013 for the use of natural resources, and releases and emissions of air pollutants to the environment in its activities. Main sources of pollution of the Company: burning fossil fuel in the Company's heat sources, production of heat and wastewater used in the industrial processes. The Company pays taxes for atmospheric and water pollution. If allowable emission rate limits or annual limits are exceeded, the Company would pay the fines under the applicable laws of the Republic of Lithuania. The Company was not imposed any penalties in the year 2023. Main Company’s emission reduction measures: modernization of heat generation facilities, heat transfer loss reduction by replacing the existing pipes with the pipes with polyurethane foam insulation, installation of new technology and improvement of existing technological equipment, use of less polluting fuels, and continuous emission monitoring. Additional efforts by the company to reduce CO2 emissions: • Green procurement. We choose suppliers not only on the basis of the price and the quality of goods, services or works, but also on the basis of the reduced impact they have on the environment. • The Company is currently implementing an environmental management system (ISO 14001:2015). It assists in the systematic management of the direct and long-term environmental impact of the activities and consistently addresses the relevant environmental issues of the Company. With this system in place, we will be able to increase green procurement. • We are renewing our fleet of vehicles giving preference to electric and hybrid cars. We have purchased 13 electric cars. • We sort waste generated in production and administrative activities and transfer it to waste managers in accordance with the established procedure. We have also removed rubbish bins in the offices in the administration building and dispose rubbish in the sorting bins in the common corridors. This encourages employees to recycle and has reduced the amount of bins and bags (plastics) used. • The company is taking the initiative to inform the public about energy-saving measures in order to reduce air pollution. We regularly raise the awareness of the public by writing informative articles about renewable energy sources, their benefits for nature and people, informing what modern technologies are used by our company and how they contribute to climate change mitigation. • Employees of the Company are also encouraged to come to work with less polluting vehicles, to cooperate as much as possible and to travel to work with a single vehicle for several colleagues. 7. Analysis of financial and non-financial performance results, information related to environmental issues Company’s sales revenue of the year 2023 was EUR 85,048 thousand and in comparison, with the year 2022 decreased by 2.3 per cent (in the year 2022 it consisted of EUR 87,013 thousand). Sales revenue of the Group of the year 2023 was EUR 85,048 thousand (in the year 2022 it consisted of EUR 87,992 thousand). AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 64 The average price of heat sold decreased by 2.0 percent (in the year 2023 it was 6.99 ct/kWh, and in the year 2022 – 7.13 ct/kWh). Comparison of financial indicators of the Group of the year 2023 with the indicators of the years 2019–2022 is presented in Table 1. Table 1 No Indicator of the Group 2019 2020 2021 2022 2023 1 Revenue from sales, thousand euros 54,649 42,030 50,963 87,992 85,048 1.1 Including: Heat energy 49,711 37,147 47,125 81,338 78,660 1.2 Cooling supply 0 0 2 10 5 1.3 Maintenance of indoor heating and hot water supply systems, heating substation facilities 12 11 12 17 17 1.4 Income from the maintenance of collectors 251 268 348 348 348 1.5 Hot water supply including cold water price 3,228 2,935 3,014 5,742 5,467 1.6 Income from maintenance of hot water meters 422 433 456 487 551 1.7 Revenue from the sale of trading emission allowances 1,025 1,236 6 50 0 2 Profit, thousand euros 933 -152 72 6,356 4,505 3 EBITDA (earnings before interest, taxes, depreciation and amortization and other non-cash expense items), thousand euros 7,372 8,262 6,488 12,350 13,553 4 Profitability of core business, per cent (operating profit / operating sales) * 100 1.2 -5.7 -0.6 6.6 8.7 5 Net profitability, per cent (net profit / operating sales) 100 1.7 -0.4 0.1 7.11 5.1 6 Assets, thousand euros 154,096 162,903 179,934 203,886 213,540 7 Equity, thousand euros 89,829 89,673 89,745 96,101 97,606 8 Return on equity (ROE), per cent (net profit / average equity) 100 1.1 -0.2 0.1 6.9 4.7 9 Return on assets (ROA), per cent (net profit / average assets) 100 0.6 -0.1 0.0 3.6 2.2 10 Debt ratio (liabilities /assets) 0.42 0.45 0.50 0.37 0.40 11 Debt-to-equity ratio (liabilities / equity) 0.7 0.8 1.0 0.8 0.9 12 General liquidity ratio (short-term assets / short-term liabilities) 1.03 0.86 1.33 1.47 1.28 13 Quick ratio ((short-term assets- inventory) / short-term liabilities) 0.92 0.75 1.23 1.36 1.20 14 Net earnings per share (net profit / average weighted number of shares in issue) 0.02 0.01 0.00 0.14 0.14 15 Last share market price of the year /net profit /number of shares at year- end (P / E ratio) 45.97 -232.31 656.89 7.44 6.5 16 Share capital, thousand euros 74,476 74,476 74,476 74,476 74,476 17 Share capital-to-assets ratio 0.49 0.46 0.41 0.37 0.35 18 Dividend pay-out ratio (dividend per share / earnings per share) 0.0 0.0 0.0 0.5 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 65 Comparison of financial indicators of the Company of the year 2023 with the indicators of the years 2019– 2022 is presented in Table 2. Table 2 No Indicator of the Company 2019 2020 2021 2022 2023 1 Revenue from sales, thousand euros 54,659 42,036 50,981 87,013 85,048 1.1 Including: Heat energy 49,721 37,153 47,133 81,458 78,660 1.2 Cooling supply 0 0 2 10 5 1.3 Maintenance of indoor heating and hot water supply systems, heating substation facilities 12 11 12 17 17 1.4 Income from the maintenance of collectors 251 268 348 348 348 1.5 Hot water supply including cold water price 3,228 2,935 3,024 4,643 5,467 1.6 Income from maintenance of hot water meters 422 433 456 487 551 1.7 Revenue from the sale of trading emission allowances 1,025 1,236 6 50 0 2 Profit, thousand euros 747 57 457 6,299 3,881 3 EBITDA (earnings before interest, taxes, depreciation and amortization and other non-cash expense items), thousand euros 6,514 7,882 6,322 11,797 12,762 4 Profitability of core business, per cent (operating profit / operating sales) * 100 0.7 -2.8 0.2 6.2 8.0 5 Net profitability, per cent (net profit / operating sales) 100 1.4 0.1 0.8 7.2 4.5 6 Assets, thousand euros 151,595 161,250 178,654 203,083 212,245 7 Equity, thousand euros 89,776 89,833 90,290 95,842 96,723 8 Return on equity (ROE), per cent (net profit / average equity) 100 0.87 0.07 0.43 6.61 4.0 9 Return on assets (ROA), per cent (net profit / average assets) 100 0.5 0.0 0.2 3.0 1.9 10 Debt ratio (liabilities /assets) 0.41 0.44 0.49 0.37 0.40 11 Debt-to-equity ratio (liabilities / equity) 0.7 0.8 1.0 0.8 0.9 12 General liquidity ratio (short-term assets / short-term liabilities) 1.07 0.91 1.36 1.40 1.18 13 Quick ratio ((short-term assets- inventory) / short-term liabilities) 0.95 0.80 1.27 1.33 1.11 14 Net earnings per share (net profit / average weighted number of shares in issue) 0.02 0.02 0.01 0.14 0.13 15 Last share market price of the year / net profit / number of shares at year- end (P / E ratio) 57.3 619.5 103.49 7.51 7.0 16 Share capital, thousand euros 74,476 74,476 74,476 74,476 74,476 17 Share capital-to-assets ratio 0.49 0.46 0.42 0.37 0.35 18 Dividend pay-out ratio (dividend per share / earnings per share) 0.0 0.0 0.0 0.5 The more detailed analysis of financial indicators of the Group and the Company is provided in the Consolidated and Company’s financial statements for the year 2023. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 66 Preventing corruption The purpose of the Company's Corruption Prevention Policy is to set out the key principles and requirements for the prevention of corruption in the Company and its subsidiaries and guidelines for ensuring compliance with them. The Company is committed to the highest standards of business ethics and advocates free and fair trade, open competition and ethical conditions, in accordance with the legislation of the Republic of Lithuania. The Company adheres to and follows the Kaunas City Municipality Corruption Prevention Action Plan 2023-2025. Anti-corruption obligations cover the following areas: compliance with legal provisions and standards of conduct; disclosure of information, transparent accounting; prohibition of influence peddling and bribery; conflicts of interest; nepotism and cronyism; gifts and hospitality; donations; donations; purchases and sales; abuse of office/office; selection/evaluation of staff; confidentiality. Environmental impact on operations The Company’s performance can be affected by changes in sales turnovers caused by changed heat demand, which can be caused by consumer investments in the renovation of buildings, heat saving and rational consumption, average higher of lower outdoor temperature during the heating season, changes in fuel prices, heat purchase price from IHP. Company’s reconstructed heat production facilities changing fossil fuel to biofuel will make a serious competition with their costs of production to IHP, operating in Kaunas. The dynamics of heat price of the Company in the years 2019–2023 is provided in Chart 6. Chart 6 Constituents of Company’s heat price structure of December of the years 2019–2023 are provided in Chart 7. 4.57 3.55 3.63 7.13 6.99 0 1 2 3 4 5 6 7 8 2019 y. 2020 y. 2021 y. 2022 y. 2023 y. Average price of heat, supplied by AB Kauno energija, ct/kWh AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 67 Chart 7 The prices of heat and hot water are calculated and approved in accordance with the Methodology for the determination of heat prices, approved by the resolution of NERC No. O3-96 of July 8, 2009. Constituents of a base heat price are determined for a period of 3-5 years. In the case of regulated pricing services (products), the mechanism of long-term prices applies to heat pricing, i.e., for the base period, the base heat price (price constituents) is determined, which is adjusted for the second and subsequent years by setting the recalculated heat price (price constituents). On September 25, 2020 the NERC determined unilaterally by the Resolution No. O3E-880 the heat price constituents of AB Kauno Energija for the second year of validity of the basic heat price. The constant constituent of the heat price, valid until October 30, 2020 amounted to 1.81 ct/kWh, and the new constant constituent that entered into force from November 1, 2020 and is currently in force is 1.88 ct/kWh. Chart 8 The Company recalculates values of heat price variable constituents and final heat prices every month, considering changes in prices of fuel and purchased heat. 2.58 1.55 2.98 7.1 4.98 1.81 1.81 1.88 1.88 1.88 0 1 2 3 4 5 6 7 8 9 10 2019.12 2020.12 2021.12 2022.12 2023.12 Structural constituents of the heat price, ct/kWh Variable component Constant component Current Expenses of repair and maintenance; 0.17 Depreciation (amortization); 0.42 Personnel expenses; 0.64 Return on Investments; 0.47 Tax expenses; 0.12 Expenses of sales and marketing; 0.01 Administrative expenses; 0.02 Financial expenses; 0.02 Other distributable expenses; 0.01 Heat price constant constituent, euro ct/kWh AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 68 Details of variable heat price constituent valid on December 2023 are provided in Chart 9. Chart 9 Information related to environmental issues In carrying out their activities, the Group and the Company seek to prudently use natural resources, install fewer polluting technologies, and follow the environmental legislation and apply preventive measures to minimize the negative impact on the environment. Waste management The Group and the Company have organized the waste collection, sorting, and disposal of them to waste managers, i.e., to licensed waste management businesses. In 2023, the Group and the Company disposed for recycling 598.6 tons of various waste (absorbents, filter materials, packages containing hazardous chemicals or that are contaminated with them, paper and carton, insulation materials containing asbestos, used tyres, bituminous mixes, batteries and accumulators, fluorescent lamps, concrete, iron, and steel. The Company successfully transferred 1451.3 tonnes of production waste ash from the Ežerelis and Nemunas boiler house and the Petrašiūnai power plant to be used as a by-product for the production of road base mix and fertilization of plantation forests, in accordance with the agreed by-product plans with the Environmental Protection Agency. Wastewater management In accordance with the schedule agreed with the Environmental Protection Agency (EPA), the Group and the Company constantly monitor that the effluent discharges from stationary sources are within the permissible limits set out in the integrated pollution prevention and control permits. Air pollution The measurement laboratory of stationary air pollution sources of the Group and the Company, in possession with the permit issued by the EPA and following the schedule agreed with EPA, continuously monitors the emissions to the atmosphere from stationary sources to would not exceed the permissible limits established in integrated pollution prevention and control permits. Company’s Šilkas, Ežerėlis, Girionys and Noreikiškės boiler-houses, and starting from 2015 – Inkaras boiler-house and Petrašiūnai power-plant use biofuel, thus reducing atmospheric pollution. The comparison of the amount of pollutants emitted into the atmosphere in 2023 from the Company’s stationary facilities with the amount of the years 2019–2022 is presented in table 3 below. Fuel for technology; 26.46% Expenses of purchased heat; 54.38% Expenses of transfer technological losses; 16.46% Electric energy for technology; 2.50% Expenses of heat, used for self purposes; 0.21% Heat price variable constituent in December 2023, per cent AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 69 Table 3 Period Particulates, t Nitrogen oxides, t Carbon monoxide, t Sulphur dioxide, t Hydrocarbons, t Other pollutants, t 2023 56.7076 839.7873 171.0513 22.1036 0.5971 1.5198 2022 51.5130 159.8142 796.3571 60.3571 2.0144 0.3117 2021 72.9579 196.5479 781.2462 158.4375 1.2315 0.2966 2020 98.6841 217.8864 884.9974 102.9845 1.1430 0.2801 2019 86.0888 253.4443 1090.2436 0.2746 1.1978 0.4313 Cyclones for smoke cleaning from particulates are installed in Šilkas, Ežerėlis, Girionys, Noreikiškės, Inkaras boiler-houses and Petrašiūnai power-plant. Their working efficiency is checked every year. The Company is involved in the greenhouse gas emissions trading system. 8. References and additional explanations Main financial data of the Group and the Company are provided in the Consolidated and Company’s Financial Statements of AB Kauno Energija for the year 2023. The financial statements are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union and their interpretations. Standards have been issued by the International Accounting Standards Board and interpretations have been issued by the International Financial Reporting Interpretations Committee. Internal control over consolidated statements When preparing its consolidated financial statements, the Company combines the itemised financial statements of the Company and its subsidiaries, by summing up the items of assets, liabilities, equity, revenue, and expenses. Afterwards, it eliminates the book value of the Company’s investment in the subsidiary and Company’s share of equity in the subsidiary; amounts on balance sheets, transactions, income and expenses inside the Group (for this purpose, it prepares a reconciled report of all transactions, income and expenses for the period); difference in depreciation of contribution in kind measured at market value as compared to its book value. For composing of the consolidated financial statements of the Group, the financial statements of the Company and subsidiaries are composed for the same date. It’s controlled if the accounting policy of the Company and its subsidiaries for accounting of similar transactions is the same. The subsidiaries’ income and expenses are included into the Consolidated Financial Statements as of the date of acquisition. 9. Significant events after the end of the reporting period After the end of the reporting period, there were no significant events other than those disclosed in the financial statements. 10. Plans and forecasts of activities of the group of companies As investments allow continual business development and profitability, the aims of the Group’s and the Company’s investment program for the year 2023 is further increase in volumes of heat production and effectiveness, expansion of heat selling market, through increase of use of biofuel for heat production, development of heat transmission and distribution increasing safety and reliability, developing services of maintenance of engineering systems and further improvement of consumers services quality. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 70 In compliance with the provisions of the plan for the facilities on the implementation of the National Renewable Energy Development Strategy, in order to implement the Company’s key business objectives and the provisions of the National Energy Independence Strategy related to the assurance of technical requirements for reliability of heat facilities and heat supply networks, to guarantee the quality keeps apply to consumers, Kaunas city municipality decided to approve Company’s investment plans with the decision No. T-121 “Regarding Investment Plans of AB Kauno Energija for the Year 2023 and Their Financing” on March 28, 2023. In 2023 the implementation of Company’s investment program will involve further modernization of boiler- houses owned by the Company automating the production process and installing condensational economizers; reconstruction of heat networks; replacement of heat meters. It’s important to notice, that implementation of these measures will allow to reduce losses of heat transmission and to perform optimization of heat supply to the consumers and to ensure heat supplies reliability. 11. Information on research and development activities Company’s representatives are constantly invited to work in committees of preparation of Energy Engineering studies programs of Kaunas University of Technology and in groups of external and self- evaluation. Working in these groups and committees Company’s representatives analyse aims of programs and goals of studies, composition of training plans, appropriateness of staff, material basis, process, and evaluation of studies, as well as program management. Performing external and self-evaluation, committees apply recommendations for improvement of program structures and implementation process, to satisfy the needs of employers and to meet the requirements of national and European legal acts in the field of higher education. The Company, which supplies district heating to Kaunas, responding to the changes of the warming climate, enters a new district cooling market, which is still poorly tested in Lithuania. District cooling is the production and supply of district cooling by converting heat energy into cool and using the existing district heating infrastructure. One of the latest technologies to produce cooling from heat is absorption heat pumps. During a rather sophisticated technological process in them, heat energy is converted into cool, which is supplied to the premises by other devices. One of such absorption heat pumps was also acquired by the Company. The first project of the Company entering the cooling supply market is two refrigerating machines with a total power of 1576 kW, which will supply the Mokslo Sala science museum, being built on the island of Nemunas in Kaunas, with cooling facilities. The coolness of the Mokslo Sala island, with an area of 11.5 thousand square meters, will be produced by absorption heat pumps. This innovative technology, which is still in its infancy in Lithuania, converts the heat energy from the heat network's cogeneration water into cooling through a rather complex technological process. An important factor is that absorption-type machines do not use greenhouse gases. The Aleksotas Innovation Industrial Park (AIPP) project in Kaunas includes plans for the installation of absorption pumps to generate heat from the city to keep it cool. The cooling equipment has already been implemented in the Basketball House in Kaunas Old Town and an apartment building in Kęstučio Street in the city centre. Kaunas became Lithuania's first city to effectively install the breakthrough Internet of Things (IoT) network LoRa. The company created and customised one of the world's most popular IoT solutions to the demands of residents and businesses. Remote metre reading, filling of waste containers, parking lot occupancy, tree growth monitoring, and fire protection are just a few of the many uses of IoT. LoRa (Long Range) is an ultra- low-power wireless networking technology that uses radio waves to gather and transmit data from smart end devices such as hot water metres. Currently, this innovation has been successfully implemented and developed in 177 countries around the world. The major objectives for implementing the IoT network are to enhance customer service by providing smart remote reading hot water metres, removing the need for consumers to manually write off and declare metre readings, and to increase the efficiency of regulating the parameters of heating networks. Apartment buildings who have chosen Kauno energija as their hot water supply receive free smart metres. The LoRa network in Kaunas is intended to suit the demands of not just the heat supplier, but also other enterprises in the city providing maintenance or other services. The company has set a goal to completely eliminate the use of natural gas in heat production with gas consumption to be halved in the next three years to only 5% of total energy consumption for heat production. This will increase the use of green heat from biofuels and reduce CO2 emissions, helping to achieve the Company's long-term goals of supplying more consumers with cheaper biofuel-based heat, reducing CO2 emissions and enabling new customers to connect to the city's heat network. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 71 Minimising gas consumption will help achieve the Company's long-term goals: to supply more consumers with cheaper biofuel-based heat through more optimal utilisation of Kaunas Energy's heat production capacity; reducing emissions of CO2, which contribute to the greenhouse effect; enabling new customers to connect to the city's heat network. In 2023, the Company will undertake a significant heat network infrastructure development project, connecting Panemunė to the Kaunas city integrated network. The Company's three gas-fired boiler plants in Panemunė accounted for approximately 22% of the Company's total gas consumption during the 2021–2022 heating season. In Kaunas, some consumers who are located far from the common district heating network receive heat from individual gas boilers that are installed in their buildings by the Company. The Company has evaluated the feasibility of connecting each of these buildings to the common district heating network, but in cases where it is not economically viable, gas boilers will be replaced by heat pumps. Heat pumps have an advantage over gas boilers because they are more efficient and do not emit CO2 into the environment when producing heat. The Company has made consistent investments in solar power plants and Organic Rankine Cycle (ORC) power plants to reduce the annual cost of electricity that is heavily used for heat generation and supply. The ORC turbines in the biofuel boilers will generate electricity using steam from an organic liquid. In the period 2021–2022, solar photovoltaic power plants will be installed in Kaunas city and district, with a combined capacity of 600 kW. The power plants will be installed on the roofs of Petrašiūnai power plant, Plento g. 28, and Smetonos al. 65A boiler house in Kaunas city, and on the roofs of Neveronys and Raudondvaris boiler houses in Kaunas district. The total investment for this project is almost EUR 394.2 thousand, with EUR 123.6 thousand coming from the Environmental Project Management Agency (EPA). In 2023, an additional 4 photovoltaic solar power plants with a total capacity of 360 kW will be installed on the roofs of the buildings. Two more solar power plants on the roofs of the Silko and Inkaro boiler houses and two solar parks by 2024, the total capacity of the Company's solar power plants will reach more than 2.3 MW. A 350 kW ORC power plant to be installed at the Petrašiūnai elektrine plant by 2025. Kaunas is some of the greenest cities in Lithuania, placing a lot of emphasis on seeking and implementing sustainable solutions. In order to use the green waste generated during the maintenance of city parks, forests and squares as efficiently as possible, the raw material created after pruning trees and shrubs is converted into biofuel used to produce city heat. The municipality no longer has to worry about how to collect that waste, where to transport it and what to do with it. Meanwhile, the company no longer needs to purchase some of the biofuel; they can produce it themselves. In 2022, while maintaining green areas in Kaunas, 6,183 tons of biofuel were obtained. It was used to produce 17,500 MWh of heat, sufficient to heat and provide hot water to 45 apartment blocks. This has helped Kaunas residents save EUR 0.6 million a year. In 2023, Kaunas' gift to Ukraine was a mobile diesel boiler plant with a capacity of 0.9 MW, which the State Emergency Situations Service will use to produce heat and hot water. The mobile diesel boiler plant, assembled by the Kauno energija group, is conveniently transportable to locations where there is the greatest need for heat at the time. It is capable of heating up to 10 and supplying hot water to 35 old multi- story buildings, each containing 80 apartments. The boiler plant is fully automated with a remote control, parameter monitoring, signalling, and emergency reporting system, thus, constant personnel are not required for its operation. The mobile boiler plant units are designed and assembled to fit into a standard maritime metal container, which can be conveniently and quickly transported to locations with the greatest heat demand at that moment. The donated boiler plant is decorated with the inscription “WARM. Win the War. Stay Warm” and the flags of Ukraine and Lithuania, conveying an emotional message to Ukrainians that Lithuania and Kaunas are standing with them, supporting them in the war and believing in Ukraine's victory. The idea for the drawing was developed by the creative agency Milk Agency, and the implemented by Karolis Grubis. The transportation costs of the boiler plant travelling to Lviv are financed by the European Union and the Ministry of Transport and Communications of the Republic of Lithuania. In August 2023, the company's festival Transformations took place for the first time, relocating to the historic Petrašiūnai power station for cultural events. The most anticipated highlight of the festival is the installation of Lithuanian artists created specifically for these industrial spaces, which was installed in a 17-metre high space, featured a photo exhibition titled Energy Flow and an unveiled sculpture called Eglišakis (author: Ivas Stonys). AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 72 12. Information on own shares acquired and held by the Issuer The Company does not hold the shares of its own. The Company’s subsidiaries have not purchased any of the Company’s shares. Neither the Company nor its subsidiaries purchased or sold own shares during the reporting period. 13. Information on the aims of financial risk management, hedging instruments in use All relevant information on this issue is provided in Explanatory Notes 2.11, 24 to the Consolidated and Separate Financial Statements for the year 2023 of AB Kauno Energija. 14. Information on the Issuer’s subsidiary undertakings The name of Company’s subsidiary UAB Kauno Energija NT was changed by the decision of company’s shareholders. Starting from August 19, 2020 the name of the company is UAB GO Energy LT. Other details of the company remain unchanged, all concluded contracts remain valid. The authorised capital of UAB GO Energy LT registered in the Register of Legal Entities on December 31, 2023 is 2,762,958 euros and it is divided into 95,406 ordinary registered shares with par value of 28.96 euros each. UAB GO Energy LT has no holdings directly or indirectly managed in other companies. Activities of UAB GO Energy LT include the real estate development, management, leases, purchase, and sale. As of December 31, 2023, company UAB GO Energy LT had 28 employees. Comparison of financial indicators of UAB GO Energy LT for the year 2023 with the indicators of the years 2019–2022 is provided in Chart 10. Chart 10 15. Structure of authorized capital The authorised capital of the Company registered in the Register of Legal Entities of the Republic of Lithuania as of December 31, 2023 is EUR 74,475,728.82 (seventy-four million four hundred seventy-five thousand seven hundred twenty-eight euros and 82 cents). Structure of authorized share capital of the Issuer by types of shares is specified in Table 4. 126 123 3 139 125 13 738 607 111 1,646 983 411 3,932 3,201 620 0 500 1000 1500 2000 2500 3000 3500 4000 4500 Turnover from sales Sales costs Comprehensive income Activity results of GO Energy LT, thous. euros 2019 y. 2020 y. 2021 y. 2022 y. 2023 y. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 73 Table 4 Type of shares Number of shares, units Nominal value, euros Total nominal value, euros Municipal share in the authorised capital, per cent Share of private shareholders in the authorised capital, per cent Ordinary nominal shares 42,802,143 1.74 74,475,728.82 98.33 1.67 16. Data on shares issued by the Issuer The authorised capital of AB Kauno Energija was registered on May 18, 2015 by the decision of General Meeting of Shareholders held on April 28, 2015 and amounts to EUR 74,475,728.82 (seventy-four million four hundred seventy-five thousand seven hundred twenty-eight euros and 82 cents) and it is divided to 42,802,143 (forty-two million eight hundred and two thousand one hundred forty-three) ordinary shares of par value of 1.74 euros each. There are no limitations on the transfer of securities. Main characteristics of shares released into free circulation of securities (as of December 31, 2023). Securities registration No A01031430 ISON code of securities LT0000123010 Number of shares 20 031 977 ordinary nominal shares Nominal value EUR 1.74 Total nominal value of shares EUR 34,855,639.98 Main characteristics of shares issued and registered for non-public trading (as of December 31, 2023). ISON code of securities LT0000128407 Number of shares 22,770,166 ordinary nominal shares Nominal value EUR 1.74 Total nominal value of shares EUR 39,620,088.84 History of trade in Company’s securities in the years 2019–2023 is provided in Table 5. Table 5 Indicator 2019 2020 2021 2022 2023 Opening price, euro 1.01 0.98 0.82 1.11 0.89 Highest price, euro 1.32 1.03 1.19 1.12 1.14 Lowest price, euro 0.905 0.77 0.80 0.76 0.87 Last price, euro 0.98 0.925 1.11 0.89 0.91 Circulation, units 40,868 89,524 147,659 64,193 97,113 Circulation, million euro 0.04 0.07 0.15 0.06 0.09 Historical data on share prices (in euro) and turnovers in the years 2019–2023 is provided in Chart 11. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 74 Chart 11 Comparison of Company’s share price with the index of own sector (utility services) and OMX Vilnius index is given in Chart 12. Chart 12 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 75 17. Information on the Issuer’s shareholders The number of Company’s shareholders as of December 31, 2023 was 751. Information on Shareholders of the Issuer who owned more than 5 per cent of the authorised capital of the Company registered on May 18, 2015 (42,802,143 ordinary nominal shares) as of December 31, 2023 is provided in Table 6 and Chart 13. Table 6 Full name of shareholder (company name, type, headquartered dress, code) Number of ordinary nominal shares owned by the shareholder, units Owned share in the authorised capital, per cent Share of votes carried by owned shares. per cent Share of votes owned by the shareholder together with acting entities, per cent Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319 39,736,058 92.84 92.84 - Other shareholders 3,066,085 7.16 7.16 - Total: 42,802,143 100 100 - Chart 13 The distribution of the Company’s shareholders by groups at the end of the reporting period is presented in Table 7. 92.84% 3.75% 1.74% 1.67% Structure of shareholders as of December 31, 2023 Kaunas city municipality Kaunas district municipality Jurbarkas district municipality Other shareholders AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 76 Table 7 Group Number of shares owned by the group, pcs. Available share of the authorized capital, per cent of the total number of shares Local authorities 42 088 631 98.33 Households 500 720 1.17 Other shareholders 212 792 0.50 Total 42 802 143 100 17.1. The shareholders, who owned more than 5 per cent of the shares (20,031,977 ORS) issued for public trading (reg. No. A01031430, VP ISIN code – LT0000123010) as of December 31, 2023 are listed in Table 8. Table 8 Name Type of shares Number of shares, units Total nominal value of shares, euros Percentage of shares from those released into the public circulation Share of the authorise d capital (%) Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319 Ordinary registered shares 16,965,892 29,520,652 84.69 39.64 Kaunas District Municipality Savanorių pr. 371, 49500 Kaunas, Code 111100622 Ordinary registered shares 1,606,168 2,794,732 8.02 3.75 Other shareholders Ordinary registered shares 1,459,917 2,540,256 7.29 3.41 Total: 20,031,977 34,855,640 100 46.80 17.2. The shareholders, who owned more than 5 per cent of the shares (22,770,166 ORS) issued for non- public trading (VP ISIN code – LT0000128407) as of December 31, 2023 are listed in Table 9. Table 9 Name Type of shares Number of shares, units Total nominal value of shares, Euro Percentage of shares from those released into the public circulation Share of the authorise d capital (%) Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319 Ordinary registered shares 22,770,166 39,620,089 100 53.20 None of the shareholders of the Issuer holds any special rights of control. The rights of all shareholders are the same; they are specified in article 4 of the Law on Companies of the Republic of Lithuania. The number of shares carrying votes at the General Meeting of Shareholders of the Company is 42,802,143 units. The Company has not been notified on the limitations of voting rights or any other mutual agreements of shareholders which may limit the transfer of securities and / or voting rights. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 77 In 2019, the dividends from the profit of the year 2018 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.025 euro, in total – 1.070 million euro. The profit was allocated to the statutory reserve, other reserves, and bonuses for employees. A total of 0.05 million euros was allocated for sponsorship. In 2020, no dividends from the profit of 2019 were allocated and paid to the Issuer’s shareholders. In 2021, no dividends from the profit of 2020 were allocated and paid to the Issuer’s shareholders. In 2022, no dividends from the profit of 2021 were allocated and paid to the Issuer’s shareholders. In 2023, the dividends from the profit of the year 2022 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.07009 euro, in total – 3.0 million euro. A total of 0.05 million euros was allocated for sponsorship. 18. Employees 372 employees were employed in the Group as of December 31, 2023. Changes in the number of employees of the Group in year 2019–2023 are provided in Table 10. Table 10 Actual number of employees Group 31/12/2019 Group 31/12/2020 Group 31/12/2021 Group 31/12/2022 Group 31/12/2023 Total: 402 365 379 383 372 management 3 3 3 2 2 specialists 214 203 212 203 189 workers 185 159 164 178 181 Changes in number of employees of the Company in year 2019–2023 are provided in Table 11. Table 11 Actual number of employees Company 31/12/2019 Company 31/12/2020 Company 31/12/2021 Company 31/12/2022 Company 31/12/2023 Total: 389 354 350 353 344 management 1 1 1 1 1 specialists 210 200 197 189 178 workers 178 153 152 163 165 Education of employees of the Group as at the end of the reporting period. Table 12 No Education Group 31/12/2019 Group 31/12/2020 Group 31/12/2021 Group 31/12/2022 Group 31/12/2023 1 Secondary incomplete 3 1 1 1 1 2 Secondary 139 124 176 150 140 3 College 59 49 38 34 38 AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 78 No Education Group 31/12/2019 Group 31/12/2020 Group 31/12/2021 Group 31/12/2022 Group 31/12/2023 4 Higher 201 191 164 198 193 Total: 402 365 379 383 372 Education of employees of the Company as at the end of the reporting period. Table 13 No Education Company 31/12/2019 Company 31/12/2020 Company 31/12/2021 Company 31/12/2022 Company 31/12/2023 1 Secondary incomplete 3 1 1 1 1 2 Secondary 135 121 156 135 125 3 College 57 47 38 34 37 4 Higher 194 185 155 183 181 Total: 389 354 350 353 344 Company’s management pays a lot of attention on increase in work efficiency, working conditions improvement, supply with latest working tools, professional development, planning of internal activities and control implementation, also for improvement of consumer service quality. Executive and professional qualification levels suit their positions, and work experience and practical knowledge of subject of other employees makes them possible to work in their positions. To increase work efficiency, the Company conducts an annual work performance evaluation of structural units’ managers, the main goal of which is to evaluate the employee’s qualifications and abilities of functions performance assigned in job regulations, to properly evaluate employees' activities, provide feedback on the goals execution in order to increase employee loyalty, satisfaction with conducted work, encouraging them to improve. The result of this process is information allowing better coordination of the Company's activities and for encouraging employees to improve their working activities. The Company actively cooperates with educational institutions and enables high school students to apply theoretical knowledge and gain practical skills. When there is a need for new employees, the most active and best students are given the opportunity to get a job in the Company. The salary of employees of the Issuer consists of the constant part of salary, variable part of salary, benefits and allocations paid according to the Labour Code of the Republic of Lithuania and other laws, Collective agreement of the Company, and bonuses. Bonuses are paid from net profit, if the General Meeting of Shareholders allocates part of the profit for the bonuses of the Company employees. The collective agreement provides for special rights and obligations of the issuer's employees or part of them. In accordance with the Company's new Collective agreement effective from 1 January 2019 and subsequent amendments there to: 1. For continuous employment within the Company employees are granted additional paid leave. 2. The record of service of employees who worked in Lithuanian energy system companies and who were redeployed to the Company according to the corporate employer agreement, i.e., when the transfer was carried out according to the Labour Code or the Law on Employment Contract, is considered uninterrupted and those employees are granted an additional paid leave for an uninterrupted record of service within the Company. 3. At the agreement of the employer and employee, the employee may be granted unpaid leave for family related issues and other important reasons. 4. Company’s employees are entitled to additional paid leave. The employer obligates: 1. To ensure the conditions of preventive health check and, if necessary, to provide free health services at the Company’s occupational health unit. 2. In the event of the death of an employee, the Company grants a benefit in the amount of 4 minimum monthly salaries of the Republic of Lithuania (hereinafter referred to as the MMS), free transport, or covers transport costs (the benefit is granted to the person burying the deceased); AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 79 3. In the event of the death of the employee's close relative (parent (adoptive parent), child (adoptive child) or spouse), the Company grants the employee an MMS benefit, free transport or covers transport costs; 4. In the event of the birth of one or more children, the Company grants the employee a gift in the amount of 50 per cent MMS for each child; 5. Upon registration of the marriage, the employee is granted a gift in the amount of 50 per cent MMS; 6. A cash gift of EUR 50 is granted when an employee reaches the age of 25, 35, 45, 55, 65, and a cash gift of EUR 100 when the employee reaches the age of 20, 30, 40, 50, 60, 70; 7. In other cases, when the employee needs financial support (in case of losses due to natural disasters and other reasons beyond the control of the employee), the Company grants a benefit of up to 3 MMS; 8. In the event of a serious illness or accident, a benefit of up to 5 MMS is granted. The sickness benefit is paid once a year (within 12 months). 19. Procedure for amending the Issuer’s Statutes The Statutes of the Issuer say that the General Meeting of Shareholders of the Company has the exceptional right to amend the Statutes other than the exceptions provided in the Law on Companies of the Republic of Lithuania. The resolution on the amendment of the Company’s Statutes 2/3 qualified majority of votes of the members participating in the meeting of shareholders is needed. The Statutes of the Company were amended on August 10, 2023 by the decision of the General Meeting of Shareholders. The new wording of the Statutes was registered on August 28, 2023 in the Register of Legal Entities of the Republic of Lithuania. It can be found on Company’s website at www.kaunoenergija.lt. 20. Issuer’s management bodies According to the Statutes of the Company, the management bodies of the Company include the General Meeting of Shareholders, a collegial management body – the Supervisory Board, a collegial management body – the Management Board, and a sole management body – General Director. Decisions of the General Meeting of Shareholders made on the issues within the competence of the General Meeting of Shareholders provided for in the Statutes of the Company are binding to its shareholders, the Supervisory Board, the Management Board, and the General Director, and to other employees of the Company. All persons who are the shareholders of the Company on the date of the General Meeting of Shareholders have the right to attend the Company’s General Meeting of Shareholders personally or by proxy or be represented by persons with whom they had entered into the agreement on the transfer of the voting right. The record date of the meeting of the Company is the fifth working day before the General Meeting of Shareholders or the fifth working day before the repeat General Meeting of Shareholders. A person attending the General Meeting and entitled to vote shall provide a document which is a proof of his personal identity and sign the registration list of the Meeting of Shareholders. A person who is not a shareholder shall additionally provide a document attesting to his right to vote at the General Meeting of Shareholders. 5 (five) General Meeting of Shareholders were convoked in the year 2023. Company’s General Manager and the Chief Finance Officer attended them. Issuers’ shareholders can ask questions and can get answers or explanations from Company’s managers and speakers. The collegial management body – Supervisory Board is elected by the General Meeting of Shareholders according to the procedure specified in the Law on Companies of the Republic of Lithuania. The Supervisory Board consists of 3 (three) members. The Supervisory Board is elected for a term of 4 (four) years. The Supervisory Board elects the chairman of the Supervisory Board from among its members. The General Meeting of shareholders may remove from office the entire Supervisory Board or its individual members before the expiry of the term of office of the Supervisory Board. Where individual members of the Supervisory Board are elected, they shall be elected only until the expiry of the term of office of the current Supervisory Board. General Meeting of Shareholders Supervisory Board Management Board General Director AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 80 The Supervisory Board elects and dismisses the Management Board members and supervises the activities of the Board and the General manager of the Company; submits its comments and proposals to the General Meeting of Shareholders on the Company’s operating strategy, set of annual financial statements, draft of profit / loss allocation and the annual report of the Company as well as the activities of the Board and the General Manager of the Company; submits proposals to the Board and the General Manager of the Company to revoke their decisions which are in conflict with laws and other legal acts, the statutes of the Company or decisions of the General Meeting of Shareholders; addresses other issues assigned to the scope of powers of the Supervisory Board by decisions of the General Meeting of Shareholders regarding the supervision of the activities of the Company and its management bodies. The Supervisory Board shall not be entitled to assign or delegate the functions assigned to the scope of its powers by the Law on Companies of the Republic of Lithuania and the statutes of the Company to other bodies of the Company. The Supervisory Board, following the resolution No. 1K-18 of August 21, 2008 of the Securities Commission of the Republic of Lithuania “Regarding The Requirements For Audit Committees”, as well as “Guidelines For The Application Of Requirements For Audit Committees” which were approved by the decision of the Securities Commission of November 28, 2008 approves the internal rules of procedure for forming the Audit Committee and elects the Audit Committee members. The Supervisory Board of the Company approved on May 21, 2019 a new wording of the internal rules of procedure of the Audit Committee of the Company. The Management Board is a collegial management body of the Company. The Management Board is comprised of 3 (three) members. The Management Board is elected for the period of 4 (four) years by the Supervisory Board. The Supervisory Board can remove from office the entire Management Board or its individual members before the expiry of their term. If individual members of the Management Board are elected, they shall serve only until the expiry of the term of office of the current Management Board. The Management Board elects the chairman of the management Board from among its members. The General Manager is the manager of the Company. The manager of the Company is a sole person management body of the Company organising its activities. Authority and responsibilities of the administration members of the Company are established by the order of the General Manager. 20.1. Data on the committees in the Company The members of Audit Committee appointed by the decision No. 2023-4 of the Supervisory Board of October 13, 2023: Full name Position Beginning of term End of term* Mr. Mindaugas Šimkus Independent member of Audit Committee October 13, 2023 April 26, 2027 Ms. Violeta Kavaliauskienė Independent member of Audit Committee October 13, 2023 April 26, 2027 Ms. Edita Girdvilienė Member of Audit Committee October 13, 2023 April 26, 2027 * The term of office of the Audit Committee coincides with the term of office of the Supervisory Board of the Company. In carrying out its activities, the Audit Committee follows the internal rules of procedure of the Company’s Audit Committee approved by decision No 2019-4 of May 21, 2019 of the meeting of the Supervisory Board of the Company. The Audit Committee performs its functions provided for in article 52 of the Law on Audit of the Republic of Lithuania. 20.2. Information on the members of the Company’s Supervisory Board: Members of the Supervisory Board of the Company: AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 81 Full name Position Beginning of term End of term Mr. Antanas Etneris Chairman of the Supervisory Board June 29, 2023 April 26, 2027 Mr. Mindaugas Bičkauskas Member of the Supervisory Board June 29, 2023 April 26, 2027 Mr. Pranas Rakauskas Member of the Supervisory Board June 29, 2023 December 12, 2023 Company’s Supervisory Board comprised of two independent members and of one member of Kaunas City Municipality administration, as he partially represents the controlling shareholder, i.e., Kaunas City Municipality, holding 92.84 per cent of the Company’s voting shares. 5 session of the Supervisory Board was held during the year 2023. More than ½ of the members of the Supervisory Board attended all sessions. Mr. Antanas Etneris Mr Antanas Etneris, main occupation - director of UAB Wisewood (code 302527538, Ringuvos str. 74, LT- 45245 Kaunas), director of UAB Mana Grupė (code 303991865, Kruonio str. 16, Kaunas), director of UAB Airhotel (code 302598948, Oro Uosto str. 2, Karmėlava, LT-54460 Kaunas distr.), member of the Board of UAB Stoties Turgus, member of the Board of UAB Kauno Vandenys. Holds no shares of the company. Holds the shares of the companies UAB Wisewood, UAB Mana Ranga, UAB Mana Grupė, UAB Airhotel, UAB Dramart, UAB Ukraineičių 4, UAB Vėjo Dukra, UAB Plėtros Fondas, UAB Aguonų Projektai, LLC My Group. During the reporting period, the member of the Supervisory Board was remunerated EUR 21.0 thousand. Mr. Mindaugas Bičkauskas Main occupation - Director of UAB Urbo bankas Vilnius branch (code 112027077, Pamėnkalnio str. 40, LT- 01114 Vilnius). Holds no shares of the company. Holds the shares of the companies AB Šiaulių bankas, AB Apranga, AB Linas Agro, AB Vilkyškių pieninė, AB Litgrid. During the reporting period, the member of the Supervisory Board was remunerated EUR 16.1 thousand. Mr. Pranas Rakauskas Elder advisor of Kaunas City Municipality Administration (management of legal entities and optimization of their activities), director of UAB Sinera, Member of the Board of PI Kaunas Region Waste Management Centre”, Chairman of the Board of Gardeners' Association Vandenis. Holds no shares of the company. During the reporting period, the member of the Supervisory Board was remunerated EUR 7.2 thousand. Members of the Supervisory Board of the Company until 27 April, 2023: Mrs. Rūta Šimkaitytė-Kudarauskė Head of the Legal and Consulting Department of Kaunas City Municipality (company code 111106319, Laisvės av. 96, LT-44251 Kaunas); Director of UAB Centrinis Knygynas (company code 133607044, Laisvės av. 81, LT-44297 Kaunas). Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Saulius Lazauskas Main occupation - General Director of UAB Kauno Švara (company code 132616649, Statybininkų str. 3, LT- 50124 Kaunas), Member of the Board of UAB Kauno Vandenys, Member of the Board of PI Kaunas Region Waste Management Centre”. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 82 Mr. Justas Limanauskas Director of the budgetary institution Parkavimas Kaune (company code 134929849, Puodžių str. 24-1, LT- 44295 Kaunas); director of the budgetary institution “S. Dariaus and S. Girėno Aerodromas” (company code 135087311, Veiverių str. 132, LT-46337 Kaunas). Holds no shares of the company. No interest in the capital of other Lithuanian companies. Mr. Konstantinas Pesenka Member of the Management Board of UAB Windex Group (code 303522864, Draugystės str. 17-1, Kaunas), chairman of the Management Board of UAB Kauno Vandenys. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Mindaugas Šimkus Main occupation - Head of economics of UAB Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas), member of the Board of UAB Kauno Švara, member of the Board of UAB Kauno Vandenys. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. 20.3. Information on the members of the Company’s Management Board Members of Company’s Management Board: Full name Position Beginning of term End of term Nerijus Mordas Chairman of the Management Board July 13, 2023 April 26, 2027 Algimantas Stasys Anužis Member of the Management Board July 13, 2023 April 26, 2027 Giedrius Kazlauskas Member of the Management Board July 13, 2023 April 26, 2027 14 sessions of Company’s Management Board were held in the year 2023. More than 2/3 members of the Management Board attended all the sessions. Mr. Nerijus Mordas Chief finance officer of UAB Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas). Member of Company’s Management Board since June 1, 2015 until April 27, 2023 and since July 13, 2023. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Nerijus Mordas charged EUR 29.2 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. Mr. Algimantas Stasys Anužis Member of the Council of Kaunas Chamber of Commerce, Industry and Crafts, president of Lithuanian Veterans Basketball League. Member of Company’s Management Board since June 1, 2015 until April 27, 2023 and since July 13, 2023. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Algimantas Stasys Anužis charged EUR 20.2 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. Giedrius Kazlauskas UAB „Laustiga“ (code 135456025, Ukrainiečių str. 4, LT-45234 Kaunas). Member of Company’s Management Board since July 13, 2023. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Giedrius Kazlauskas charged EUR 11.8 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 83 Members of Company’s Management Board until 27 April, 2023: Mr. Paulius Keras Deputy Director of Kaunas city municipality (code 111106319, Laisvės av. 96, LT-44251 Kaunas). Member of the Management Board of the Company since May 21, 2019 until 27 April, 2023. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Paulius Keras charged EUR 8.5 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. Mr. Karolis Šiugžda Lawyer of UAB Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas), lawyer of UAB Groward Group (code 302764932, V. Krėvės av. 97, LT-50369 Kaunas). Member of Company’s Management Board since May 21, 2019 until 27 April, 2023. Holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Karolis Šiugžda charged EUR 8.5 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period. 20.4. Information on the General Manager and Chief accountant of the Company: Mr. Tomas Garasimavičius General Director of the Company from March 30, 2020. Education - higher university, Vilnius University in 2003, Bachelor of Political Science, Vilnius University in 2005, Master of Political Science, Creighton University, USA 2005, Master of Political Science. Workplaces during the last 10 years and positions: Head of the Sustainable Energy Development Division of Energetikos Agentūra, PI (June 2010 – December 2012), Adviser to the Prime Minister of the Republic of Lithuania on Energy (December 2012 – December 2016), Member of the Supervisory Board of UAB Lietuvos Energija (July 2013 – July 2017), Member of the Nomination and Remuneration Committee of the Supervisory Board of UAB Lietuvos Energija (July 2013 – July 2017), Member of the Risk Management Supervisory Committee of the Supervisory Board of UAB Lietuvos Energija (September 2013 – July 2017), Member of the Support Fund Council of UAB Lietuvos Energija (September 2014 – September 2017), Adviser to the Prime Minister of the Republic of Lithuania on Energy and the Environment (January 2017 – March 2018), Adviser to the Mayor of Kaunas city on Energy (June 2018 – March 2020). Holds no shares of the Company. No interest in the capital of other companies. Rita Plančiūnienė Chief Accountant of the Company from 14 March 2021 to 4 January 2024. Education – higher university degree, Vytautas Magnus University, Master's degree in Accounting and Finance. Workplaces in the last 10 years, and job positions: Chief Accountant at UAB Agrochema since 2011, Chief Economic and Financial Officer at UAB Agrochema since November 2013, Chief Financial Officer at UAB Agrochema plius since December 2018, Chief Financial Officer at UAB Doresta from April 2021 to March 2022. Company’s General Manager and the Chief Accountant charged 182.22 thousand euros of remuneration in the year 2023, and the average amount per member is 91.11 thousand euros. No other assets had been transferred; no guarantees granted. 21. Information on significant agreements There are no significant agreements that would come into force, change or termination in case of change in controls of Issuer (their impact as well, except cases when due to the character of agreements the disclosure of them would make a significant harm). AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 84 22. Information on agreements of the Issuer and its managerial body members or employees There are no agreements of the Issuer or its managerial body members or employees (which provide for compensation in case of their resignation or termination of employment on no grounds or in case their employment is terminated due to changes in controls of the Issuer). 23. Information on major transactions with related parties There were no larger individual transactions. More detailed information is provided in the Note 25 of the Explanatory Notes to the Financial Statements. 24. Information on harmful transactions concluded on behalf of the Issuer during the reporting period There are no harmful transactions concluded on behalf of the Issuer during the reporting period (not complying with the Company's objectives, normal market conditions, detrimental to the interests of shareholders and other interest groups etc.) which were or are likely to have an adverse effect on the Issuer's activities and (or) performance in the future, as well as information on transactions entered into in a conflict of interest between the Issuer’s management, controlling shareholders or other related parties' obligations to the Issuer and their private interests and (or) other duties. 25. Information on compliance with the Governance Code of Companies and the Company’s corporate social initiatives and policies Information on compliance with the corporate governance code is provided in Annex 2 to this Annual Report. Annual reports on the Company’s corporate social initiatives and policies are announced on the Company’s website. 26. Data on publicised information In performing its obligations under the applicable legislation regulating the securities market, the Issuer has announced the following information starting from January 1, 2023 over the GlobeNewswire news distribution service, in which notices are disseminated within the European Union. This information was also posted on the website of the Issuer. All the information is available on website of Nasdaq Vilnius (http://www.nasdaqbaltic.com/market/?lang=lt) and Issuer’s website (http://www.kaunoenergija.lt). AB KAUNO ENERGIJA CONSOLIDATED ANNUAL REPORT OF THE YEAR 2023 85 Title Announcement category Language Time Update: Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 20/03/2024 07:54 Kauno energija, AB. Regarding information published in the media Notification on material event EN, LT 19/03/2024 10:02 Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 08/03/2024 08:22 Activity results of 12 months of the year 2023 Interim information EN, LT 26/02/2024 15:50 Regarding the resignation of member of the Supervisory Board Notification on material event EN, LT 13/12/2023 07:12 Business activity results of the 9 months of the year 2023 Interim information EN, LT 27/11/2023 16:27 Resolutions of the Extraordinary General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 06/10/2023 15:37 AB Kauno Energija half-yearly report and unaudited financial statements for the 1 half of the year 2023 Interim information EN, LT 25/09/2023 16:00 Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 07/09/2023 09:41 Resolutions of the Extraordinary General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 10/08/2023 16:00 Business activity results of the 1 half of the year 2023 Notification on material event EN, LT 01/08/2023 16:00 Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 19/07/2023 16:00 Resolutions of the Extraordinary General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 29/06/2023 16:00 Convening the Extraordinary General Meeting of Shareholders of “Kauno Energija” AB General meeting of shareholders EN, LT 05/06/2023 16:00 Activity results of the 1 quarter of the year 2023 Interim information EN, LT 02/05/2023 16:00 Audited annual information of AB Kauno Energija for the year 2022 Annual information EN, LT 27/04/2023 16:05 Dividend payment ex-date of AB Kauno Energija Notification on material event EN, LT 27/04/2023 16:00 Resolutions of the General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 27/04/2023 16:00 Convocation of General Meeting of Shareholders of AB Kauno Energija, agenda and the resolution projects General meeting of shareholders EN, LT 05/04/2023 16:00 Activity results of 12 months of the year 2022 Interim information EN, LT 03/02/2023 12:00 Resolutions of the Extraordinary General Meeting of Shareholders of AB Kauno Energija General meeting of shareholders EN, LT 11/01/2023 12:35 86 Annex 1 AB KAUNO ENERGIJA REMUNERATION REPORT FOR 2023 GENERAL INFORMATION ON THE REMUNERATION REPORT The Remuneration Report of AB Kauno Energija (hereinafter – the Company) has been prepared for the reporting financial period of 2023, which coincides with the calendar year. The Remuneration Report (hereinafter - the Report) was prepared in accordance with the Law on Financial Statements of Entities of the Republic of Lithuania, the Remuneration Policy of AB Kauno Energija (hereinafter - the Remuneration Policy) and other legal acts. On April 27, 2023 the General Meeting of Shareholders approved the Remuneration Policy of AB Kauno Energija. This Remuneration Policy applies to the General Director and members of the Management Board and Supervisory Board of the Company insofar as it relates to the payment of monetary remuneration for activities in the management and / or supervisory bodies of the Company. The Remuneration Report shall include information on remuneration of each member of the management and supervisory bodies, information on other (un) received benefits, other data. INFORMATION ON THE REMUNERATION RECEIVED BY MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES According to the Remuneration Policy approved by the Company’s General Meeting of Shareholders, the specific remuneration is paid only to the Company’s General Director, Supervisory Board and members of the Management Board. Report on the remuneration of the Company’s General Director in 2023 The remuneration accrued and paid to the Company’s General Director during 2023, determined by the Management Board, complied with the remuneration forms provided for in the Remuneration Policy (Item 3.1). The amount of remuneration for the General Director of the Company was determined by the decision of the Management Board No. 2022-25-2 of December 15, 2022. As a reward for excellent performance, remarkable efforts in carrying out the assigned duties and initiatives, by the decision No 2023-8 as of 24 April 2023, the Management Board of the Company granted a bonus equal to his three months average salary. The General Director of the Company was paid with EUR 129.8 thousand remuneration during 2023 (a fixed part of the remuneration 73.5 thous. Eur, salary supplement 31.1 thous. Eur, bonus 25.2 thous. Eur) (the General Director started working for the Company on March 30, 2020). The Head of the Company – the General Director - did not receive any remuneration from the companies referred to the group of companies, as defined in the Law on Consolidated Financial Statements of Companies of the Republic of Lithuania. The salary of the Head of the Company was paid in accordance with the procedure, scope and terms provided for in the Employment Contract, the General Director did not receive other property benefits during 2023, including the award of shares or other transactions in favour of and in the interests of the Head. Report on the remuneration of the members of the Supervisory Board of the Company in 2023 The Company has 3 (three) independent members of the Supervisory Board (5 (five) members until 27 April 2023). During 2023 the Company accrued EUR 44.3 thousand to independent members of the Supervisory Board under activity agreements. The average EUR 14.8 thousand per one independent member of the Supervisory Board per year. The members of the Supervisory Board did not receive payments from the subsidiaries. Information on the remuneration of each individual member of the Supervisory Board is provided in the Annual Report. Report on the remuneration of the members of the Management Board of the Company in 2023 The Company has 3 (thre) independent members of the Management Board (4 (four) members until 27 April 2023). During 2023 the Company accrued EUR 78.2 thousand to independent members of the Management Board under activity agreements. The average EUR 11.4 thousand per one independent member of the 87 Management Board per year. The members of the Management Board did not receive payments from the subsidiaries. Information on the remuneration of each individual member of the Management Board is provided in the Annual Report. No bonuses were paid to the members of the Company’s Supervisory board and Management Board. During the reporting period, no guarantees or sureties were given to the members of the Supervisory Board, Management Board and the Head of the Company, no assets or other property rights were transferred, no other benefits were received from the Company. Members of the Supervisory Board and Management Board, the General Director of the Company and members of the Audit Committee have no significant material obligations to the Company (Issuer), just as the Company (Issuer) has no obligations to these persons. Guarantees and sureties and / or other measures to secure the fulfilment of the obligations of the Head of the Company, members of the management bodies and Supervisory Board were not granted on behalf of the Issuer during 2023, the Issuer did not grant loans and Company shares to these persons. The remuneration paid to the Head of AB Kauno Energija, members of the Management Board and the Supervisory Board in 2023 complied with the principles, grounds and conditions approved in the Remuneration Policy. FINAL PROVISIONS OF THE REMUNERATION REPORT The Report approved by the Management Board of the Company is submitted to the General Meeting of Shareholders, which decides whether to approve the Remuneration Report or not. Such (non) approval does not release the Management Board from the responsibility for the decision taken. The Remuneration Report for 2023 is an integral part of the Consolidated Annual Report and is published on the website of the Company http://www.kaunoenergija.lt and www.nasdaqomxbaltic.com in accordance with the procedure established by legal acts. 88 Annex 2 PLLC KAUNO ENERGIJA, PURSUE THE GOVERNANCE REPORT PLLC Kauno Energija (hereinafter – the Company), following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 24.5 of the Listing Rules of PLLC NASDAQ Vilnius, discloses its compliance with the Corporate Governance Code for the Companies, whose securities are traded on the regulated market, as approved by the NASDAQ Vilnius PLLC, and its specific provisions and recommendations. If any of the provisions or recommendations of the Codex are not respected due to any reasons, the explicable information is provided herein. Summary of the Corporate Governance Report: Specifics of the Company’s activities: The Company is listed on the secondary list of the Nasdaq Vilnius Stock Exchange starting from December 28, 1998. The main activities of the Company are production, rendering of services. The Company is the parent company of the Group consisting of LLC GO Energy LT. The Company produces and supplies heat to consumers (for heating and hot water preparation purposes) in the cities of Kaunas and Jurbarkas and in the Kaunas district (Akademija, Ežerėlis, Domeikava, Garliavos, Girioniai, Neveronys, Raudondvaris). Company’s governance structure: - The Company’s managing bodies consists of the Management Board, elected for the 4 years term of office, and the General Manager, elected by the Management Board (for further information on the Issuer's governing bodies and the composition of the committees please refer to the Article 20 “Issuer's bodies” of this Consolidated Annual Report). The Management Board’s and the manager’s activities are concentrated on the fulfilment of the Company’s strategic objectives taking count of the shareholders’ equity value increase. - A supervisory body – the Supervisory Board acts in the Company. The Management Board and the general Manager acts in close cooperation seeking to obtain the maximum benefit for the Company and its shareholders. The Management Board periodically reviews and assesses Company’s activity results. - The Chairman of the Management Board of the Company is not and was not the Head of the Company. The duties he holds or held in the past shall not prevent independent and impartial supervision. - The members of the Management Board elected by the General Meeting of Shareholders are independent and act for the benefit of the Company and its shareholders. - The Audit Committee acts in the Company. 1 independent member act in this committee. There are no nomination and remuneration committees in the Company. Accountability to the Company's shareholders: - Information on the General Manager, composition of the Supervisory and Management Boards, members education, work experience, competence and participation in activities of other companies is disclosed and constantly updated in Company’s periodical reports as well as website. - The Company discloses all regulated information through PLLC Nasdaq Vilnius news distribution system. This ensures access to the broadest public in the Republic of Lithuania and other EU countries. The information shall be provided simultaneously in Lithuanian and English. The company publishes the information before or after the trading session of PLLC Nasdaq Vilnius. The Company shall not disclose information that may affect the price of the issued securities in the form of comments, interviews or in any other manner until such information is made public through the news distribution system of PLLC Nasdaq Vilnius. 89 - All shareholders of the Company have equal access to and participate in the decision-making process important for the Company. The procedures for convening and conducting general meetings of shareholders shall comply with the provisions of the legal acts and shall provide equal opportunities for shareholders to participate in the meeting, to acquaint themselves in advance with draft resolutions and decision-making materials, as well as to ask. PRINCIPLES/ RECOMMENDATIONS YES/NO /NOT APPLICABLE COMMENTARY Principle 1: General Meeting of Shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes All shareholders have equal access to the information and / or documents provided for in legal acts and participate in making important decisions for the Company. The Company provides information through the Nasdaq Vilnius Stock Exchange Central Regulated Information Base in Lithuanian and English simultaneously. The information is published immediately at once, thus ensuring the simultaneous provision of information to all. 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 The authorized capital of the Company consists of ordinary registered shares, which grant equal voting, ownership, dividend and other rights to all shareholders of the Company. 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 The Company enables investors to familiarize themselves with the rights granted by the new or already issued shares well in advance. 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 According to the Statutes of the Company, important transactions, such as decisions on the execution, assignment, lease, pledge and mortgage of long-term assets the book value of which exceeds EUR 3 million, an approval of General Meeting of Shareholders or Supervisory Board must be received Due to extremely important transactions, such as the transfer of all or almost all the Company's assets, the Company would be guided by the Law on Companies of the Republic of Lithuania and other legal acts establishing requirements for the approval of such transactions. 1.5. Procedures for convening and conducting a General Meeting of Shareholders should provide shareholders with equal opportunities to participate in the Yes All shareholders of the Company are informed about the date, place and time of the General Meeting of Shareholders in accordance with the established 90 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. procedure in advance, in accordance with the terms established by legal acts, announcing the General Meeting of Shareholders, agenda, and draft resolutions in the Central Regulated Information Base of PLLC Nasdaq Vilnius Stock Exchange. The Company specifies the date of the General Meeting of Shareholders and may propose draft resolutions in the Notice of the General Meeting of Shareholders to be convened on the Company's website www.kaunoenergija.lt In the notice of the convention of the General Meeting of Shareholders, the Company shall indicate when the shareholders may supplement the agenda of the General Meeting of Shareholders and propose draft resolutions. 1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the General Meeting of Shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the General Meeting of Shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the Company. Such documents may be published to the extent that their public disclosure is not detrimental to the Company or the Company’s commercial secrets are not revealed. Yes The documents prepared for General Meeting of Shareholders including draft resolutions of the meeting are available not later than 21 day prior the date of General Meeting of shareholders as required by the Law on Joint stock companies. The documents placed on the website of NASDAQ Vilnius security exchange and the Company website are available in Lithuanian and English languages. Resolutions accepted by the General Meeting of Shareholders including financial reports, the audit report, annual report, amendments of the Statutes etc. are announce in Lithuanian and English languages are announced via the central base of regulated information of NASDAQ Vilnius security exchange and the Company website www.kaunoenergija.lt 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 The shareholders of the Company have the right to participate in the General Meeting of Shareholders both personally and through a representative, if the person has the appropriate authorization or the contract of transfer of voting rights concluded with him/her in accordance with the procedure established by legal acts, as well as the conditions for the shareholders to vote by filling in the General voting bulletin as provided by the Law on Companies of the Republic of Lithuania. 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 No The Company does not comply with the provisions of this recommendation as there is no possibility to ensure the security of the information transmitted 91 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. and it is not possible to identify the person who participated and voted. 1.9. It is recommended that the notice on the draft decisions of the General Meeting of Shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit Company if these issues are included into the agenda of the General Meeting of Shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes When announcing the General Meeting of Shareholders, and if the agenda of the General Meeting of Shareholders includes the issue of electing new members of the collegial body or electing the audit firm, it shall disclose in the draft resolutions the nominations of the proposed new members of the collegial body and the proposed election Company. Information about the candidates to the members of the collegial body shall be provided in advance by publishing this information on the Nasdaq Vilnius Stock Exchange website, on the website of PLLC Kauno Energija, www.kaunoenergija.lt, or by publishing it to the shareholders participating in the General Meeting during the meeting if the shareholders, whose shares give at least 1/20 of all votes, propose an additional candidate during the meeting. In its annual and six-month interim report, the Company publicly informs about the positions held by the collegial body, work experience and education. 1.10. Members of the company’s collegial management body, heads of the administration 1 or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes Members of the Company's collegial body and heads of administration participate in the General Meetings of Shareholders. Proposed nominees for members of the collegial body are also present if possible, if the election of new members is included on the agenda of the General Meeting. Principle 2: Supervisory Board 2.1. Functions and liability of the Supervisory Board The Supervisory Board of the Company should ensure representation of the interests of the Company and its shareholders, accountability of this body to the shareholders and objective 1 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. 92 monitoring of the Company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the Company. The Supervisory Board should ensure the integrity and transparency of the Company’s financial accounting and control system. 2.1.1. Members of the Supervisory Board should act in good faith, with care and responsibility for the benefit and in the interests of the Company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. Yes According to the knowledge of the Company all the members of the Supervisory Board are acting in good faith in the interests of the Company following the Company’s but not the own interests or interests of the third persons. 2.1.2. Where decisions of the Supervisory Board may have a different effect on the interests of the Company’s shareholders, the Supervisory Board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the Company’s strategy, risk management and control, and resolution of conflicts of interest. Yes The Company's Supervisory Board in its work aim to behave honestly and impartially with all the Company's shareholders and by the knowledge of the Company, there was no such kind of the contrary case. The Chairman of the Company's Supervisory Board and the Chairman of the Management Board harmonizes and coordinates interaction with Company’s General Manager and in the name of Supervisory and Management Boards communicates with shareholders, informs the shareholders about the Company’s strategy, activity and other essential questions. 2.1.3. The Supervisory Board should be impartial in passing decisions that are significant for the Company’s operations and strategy. Members of the Supervisory Board should act and pass decisions without an external influence from the persons who elected them. Yes The Supervisory Board of the Company acts impartially when taking decisions that are significant for the Company's activities and strategy. 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent 2 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Yes According to the information available to the Company, all members of the Supervisory Board act in the best interests of the Company and shareholders, are guided by the interests of the Company and not by themselves or by third parties, trying to maintain their independence in decision making. 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 longterm interests of the Company and its shareholders, which may give rise to reputational, legal or other risks. Yes In exercising its competence to supervise the activities of the Company's management bodies, the Supervisory Council performs the duties specified in the recommendation and submits its opinion on tax planning issues. 2 For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania. 93 2.1.6. The Company should ensure that the Supervisory Board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the Supervisory Board and its committees. Yes Based on the Company’s opinion, the Supervisory Board are provided with sufficient resources, including their right to get all the necessary information, especially from the employees of the Company. 2.2. Formation of the Supervisory Board The procedure of the formation of the Supervisory Board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the Supervisory Board elected by the General Meeting of Shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the Supervisory Board, it should be ensured that members of the Supervisory Board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Yes Pursuant to the Law on Companies of the Republic of Lithuania, the Supervisory Board is elected, and the qualification of its members is assessed at the General Meeting of Shareholders. 2.2.2. Members of the Supervisory Board should be appointed for a specific term, subject to individual reelection for a new term in office in order to ensure necessary development of professional experience. Yes The Supervisory Board is elected for the term of 4 (four) years. The term of office of members on the Supervisory Board is the maximum term of office prescribed by the Lithuanian Law on Companies. A General Meeting of Shareholders may remove from office both the entire Supervisory Board and individual members thereof before the end of their term of office. 2.2.3. Chair of the Supervisory Board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or Management Board member of the Company should not be immediately appointed as chair of the Supervisory Board either. Where the Company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. Yes The Chairman of the Company's Supervisory Board and the CEO of the Company is not the same person. The members of the Supervisory Board and the Chairman have not been members of the Management Board of the Company or the CEO of the Company. 2.2.4. Each member should devote enough 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 Yes Members of the Supervisory Board are active participants of the meetings of the collegial body and devote enough time to perform their duties as members of the collegial body. In 2023 there were 5 (five) Supervisory Board’s meetings, and all of them were attended by more than 94 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. 2/3 of all the members of the Supervisory Board. 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, even though a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or Company related circumstances. Yes Information on the candidates to the Company's Supervisory Board members (as well as information on the candidate's compliance with the independence requirements) is provided to the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania (see commentary on recommendation 1.9). 2.2.6. The amount of remuneration to members of the Supervisory Board for their activity and participation in meetings of the Supervisory Board should be approved by the General Meeting of Shareholders. Yes Remuneration is paid for the work on the Supervisory Board to its members, by decision of the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania. The members of the Supervisory Board are not remunerated for their performance and participation in the meetings. 2.2.7. Every year the Supervisory Board should carry out an assessment of its activities. It should include evaluation of the structure of the Supervisory Board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the Supervisory Board, and evaluation whether the Supervisory Board has achieved its objectives. The Supervisory Board should, at least once a year, make public respective information about its internal structure and working procedures. No There was no practice of assessment of the activity of Supervisory Board at the Company and of informing shareholders about that up to now because the controlling shareholder who proposes candidates to the Supervisory Board exhaustively knows the experiences and competences of each candidate. Principle 3: Management Board 3.1. Functions and liability of the Management Board The Management Board should ensure the implementation of the Company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. 3.1.1. The Management Board should ensure the implementation of the Company’s strategy approved by the Supervisory Board if the latter has been formed at the Company. In such cases where the Supervisory Board is not formed, the Management Board is also responsible for the approval of the Company’s strategy. Yes The Company's Management Board carries out the duty of implementation of the Company's strategy approved by the Company's Supervisory Board. 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 Yes As the Supervisory Board is formed in the Company, the Management Board performs the functions of the Company's 95 the Statutes 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 consider the needs of the Company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development collegial management body. The obligation to consider the Company, the shareholders, the employees and other interest groups is established in the agreement on performance of the Management Board signed by each member of the Management Board. 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 The Management Board ensures that the laws and Company internal policies applicable to the Company and its entire group are respected. The Company also operates a risk management and control program. Risk management is carried out by the management of the Company. 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 3 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes The Company has a policy of internal control and business ethics. The Company has adopted a Business Ethics Policy that clearly and publicly declares a negative attitude towards bribery and corruption. The provisions of this policy apply to all employees, agents, intermediaries, suppliers and subcontractors of the Company. 3.1.5. When appointing the manager of the Company, the Management Board should consider the appropriate balance between the candidate’s qualifications, experience and competence. Yes When appointing the CEO of the Company the Management Board considers the balance of his/her qualifications, experience and competence as well as the opinion of the Company's Supervisory Board. 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 The members of the Management Board are elected by the Supervisory Board of the Company. The members of the Management Board of the Company are qualified and competent to perform their functions, having a long experience in management. 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 Yes Information about candidates to the Company’s Management Board is provided to the shareholders together with the documents of the shareholders’ meeting following the requirements of 3 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti- bribery/44884389.pdf 96 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. If 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. the Law on Public Limited Liability Companies of the Republic of Lithuania. Shareholders may see the documents prior the meeting. Information about the members of the Management Board (names, education, qualifications, professional experience, participation in the activities of other companies, other important professional obligations) is provided in the periodical reports. 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 All new members of the Management Board are familiarized with their duties, Company structure and activities. 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 The members of the Management Board are elected for a 4-year term. The number of terms is unlimited. Members of the Management Board are elected by the General Meeting of Shareholders. Shareholders who nominate and vote for the Management Board follow their own approach, which candidates are best to represent the interests of the shareholders. 3.2.5. Chair of the Management Board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the Supervisory Board is not formed, the former manager of the Company should not be immediately appointed as chair of the Management Board. When a Company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes The Chairman of the Company’s Management Board hasn’t been the General Manager of the Company. His current or past position is not an obstacle for independent and impartial supervision. 3.2.6. Each member should devote enough 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 Each member of the collegial body fulfils his/her functions properly: actively participates at the meetings of collegial body and devotes enough time to perform his / her duties as a member of the collegial body. The quorum of each meeting was regulated so the Management Board would be enabled to accept decisions constructively. In 2023, 14 meeting of the Management Board had been held. All the meetings were attended by more, than 2/3 members of the Management Board. 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 Yes Al the members of the Management Board are independent. 97 be independent 4 , it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company-related circumstances. 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 Remuneration is paid for the work on the Management Board to its members, by decision of the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania. The members of the Management Board are not remunerated for their performance and participation in the meetings. 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 noncompete 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 By the Company’s information, all Management Board members should act in good faith, with care and responsibility for the benefit and in the interests of the Company and its shareholders. They are guided by the Company’s interests but not their own or any third parties seeking to maintain their independence in decision-making, and they do not accept any unjustified privileges that would compromise their independence. 3.2.10. Every year the Management Board should carry out an assessment of its activities. It should include evaluation of the structure of the Management Board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the Management Board, and evaluation whether the Management Board has achieved its objectives. The Management Board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. No There was no practice of assessment of the activity of Management Board at the Company and of informing shareholders about that up to now because the controlling shareholder who proposes candidates to the Management Board exhaustively knows the experiences and competences of each candidate. Principle 4: Rules of procedure of the Supervisory Board and the Management Board of the Company The rules of procedure of the Supervisory Board, if it is formed at the Company, and of the Management Board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the Company’s management bodies. 4.1. The Management Board and the Supervisory Board, if the latter is formed at the Company, should act in close cooperation Yes Legal acts, Statutes and rules of procedure governing activities of the Company’s Supervisory and 4 For the purposes of this Code, the criteria of independence of the members of the board are interpreted as the criteria of unrelated persons defined in Article 33(7) of the Law on Companies of the Republic of Lithuania. 98 in order to attain benefit for the Company and its shareholders. Good corporate governance requires an open discussion between the Management Board and the Supervisory Board. The Management Board should regularly and, where necessary, immediately inform the Supervisory Board about any matters significant for the Company that are related to planning, business development, risk management and control, and compliance with the obligations at the Company. The Management Board should inform he Supervisory Board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. management bodies lay down the principles and procedure of cooperation between Supervisory and management bodies of the Company and ensure that management and Supervisory bodies cooperate to attain the greatest possible benefit to the Company and its shareholders. 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 The Company follows the order foreseen in the work regulations of the Supervisory Board and the Management Board and the information about the convened meeting is presented in advance together with an agenda and all the necessary information and documents related to the meeting agenda. The Supervisory Board and the Management Board meeting agenda may be changed or added during the meeting, in the presence of all members of the collegial body, or when there is an urgent need to deal with Company’s certain key issues. 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have enough 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 According to the Company’s Statutes and the working procedure regulations of the Supervisory Board and the Management Board, the members of the collegial body and persons that are invited to such meetings, are informed of them in advance. They are also provided with all the information and materials, needed to examine the questions, presented in the agenda. 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 Yes The chairmen of Company's Supervisory and management bodies coordinate dates of the meetings, their agendas and cooperate in solving other issues of corporate governance. The Chairman of the Management Board and members of the Management Board are invited to the 99 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. meetings of the Supervisory Board of the Company. Principle 5: Nomination, remuneration and audit committees 5.1. Purpose and formation of committees The committees formed at the Company should increase the work efficiency of the Supervisory Board or, where the Supervisory Board is not formed, of the Management Board which performs the Supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company- related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees 5 . Yes/No The Audit Committee is formed by the Supervisory Board from March 31, 2009 and the term of office of this committee coincides with the term of office of the Company's Supervisory Board. 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/No The Audit Committee is an independent, and objective committee carrying out the functions of supervision, analysing, evaluation and consultation in order to improve General organization and create value added. The main function of the Committee is systematic and versatile evaluation, as well as encouragement of better risk management, and enough control and maintenance procedures resulting in submission of recommendations to the Management Board and management regarding implementation of the objectives and tasks, risk management procedure and internal control functioning. The nomination and remuneration committees are not formed at the Company. As the Management Board of the Company is composed of competent members and they perform their activities efficiently, the Company does 5 The legal acts may provide for the obligation to form a respective committee. For example, the Law on the Audit of Financial Statements of the Republic of Lithuania provides that public-interest entities (including but not limited to public limited liability companies whose securities are traded on a regulated market of the Republic of Lithuania and/or of any other Member State) are under the obligation to set up an audit committee (the legal acts provide for the exemptions where the functions of the audit committee may be carried out by the collegial body performing the supervisory functions). 100 not currently see the need for other committees. 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 The Management Board of the Company does not perform the functions assigned to the Audit Committee. 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the Management Board should not serve as the chair of committees. Yes The Audit Committee consists of 3 members, two of whom are independent, with at least 5 years of experience in accounting, with relevant experience in finance and accounting in listed companies. The Chairman of the Management Board is not a 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 Audit Committee follows the regulations of the Committee approved by the Supervisory Board. These Regulations establish the rules defining the rights and duties of the Audit Committee, the size of the Audit Committee, the period of membership of the Audit Committee, the requirements for the education, professional experience and independence principles of the members of the Audit Committee. The Audit Committee annually submits an annual activity report to the General Meeting of Shareholders, announcing the composition of the Committee, the number of meetings and the attendance of the members, describing the work performed and presenting the results. 5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the Company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee. Yes The members of the collegial body take decisions at the meetings of their members, but in certain cases the committee invites the head of the Company and the responsible employees of the Company to attend its meetings, who are responsible for the areas of activity of the issues under discussion. The Chairman of the Audit Committee is also provided with the opportunity to communicate with the shareholders. 101 5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of Supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the Supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. No The Nomination Committee is not formed in the Company. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the Company and the heads of the administration, the manager of the Company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. No See article 5.2.1 5.3. Remuneration committee 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; No There is no Remuneration Committee in the Company. The Company has implemented a remuneration policy that includes all forms of remuneration, including fixed salary, performance-based benefits and severance payments. The Company is approved by the Company's management in coordination with the Trade Union Committee operating in the Company. 102 3) review, on a regular basis, the remuneration policy and its implementation. 5.4. Audit committee 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 6 . Yes The Audit Committee follows the regulations of the Audit Committee approved by the Supervisory Board of the Company. The Audit Committee carries out independent, objective monitoring, investigation, evaluation and advisory activities to improve the Company's performance and create added value. 5.4.2. All members of the committee should be provided with detailed information on specific issues of the Company’s accounting system, finances and operations. The heads of the Company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. Yes All members of the Committee are provided with detailed information on the specific accounting, financial and operational characteristics of the Company and, upon request, information on the execution of important transactions. 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 Audit Committee decides on the participation of other persons in its meetings and, if necessary, the Audit Committee invites the head of the Company and the responsible employees of the Company to its meetings, who are responsible for the areas of activity of the issues under consideration. The Chairman of the Audit Committee is also provided with the opportunity to communicate with the shareholders. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the Company and its group. Yes The Audit Committee is informed about the work performed by the Internal Auditor and receives conclusions about the research performed. Each year, the Audit Committee receives reports from external auditors describing all relationships between the independent auditor and the Company and its group. 5.4.5. The audit committee should examine whether the Company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the Company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. Yes The Company has provided employees with the opportunity to submit complaints or anonymous reports about violations committed in the Company, however the Company has not received such complaints or reports during the reporting period. 6 Issues related to the activities of audit committees are regulated by Regulation No. 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, the Law on the Audit of Financial Statements of the Republic of Lithuania, and the Rules Regulating the Activities of Audit Committees approved by the Bank of Lithuania. 103 5.4.6. The audit committee should submit to the Supervisory Board or, where the Supervisory Board is not formed, to the Management Board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. Yes The Audit Committee analyses and evaluates the Company's annual and semi-annual financial statements, makes recommendations to the Management Board for their approval, together with its activity reports for that period. Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the Company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. 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 Members of the Company's management bodies behave in such a way that there is no conflict of interest with the Company. During the reporting period, there is no known conflict of interest between the Company and the member of its management body. Principle 7: Remuneration policy of the Company The remuneration policy and the procedure for review and disclosure of such policy established at the Company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the Company’s remuneration policy and its long-term strategy. 7.1. The Company should approve and post the remuneration policy on the website of the Company, such policy should be reviewed on a regular basis and be consistent with the Company’s long-term strategy. Yes/no The Company has implemented and operates a remuneration policy approved by the Company's management, but it is not published on the Company's website. The Company will follow the recommendations of Principle 7 when the respective laws and other legal acts of the Republic of Lithuania are adopted. 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 The Company has implemented a remuneration policy that includes all forms of remuneration, including fixed salary, performance-based benefits and severance payments. This procedure is approved by the management of the Company in agreement with the Trade Union Committee. 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 See article 3.2.8 7.4. The remuneration policy should provide enough information on the policy regarding termination payments. Termination Yes Termination benefits shall be granted in accordance with the provisions of Chapter 5 of the Labour Code of the 104 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. Republic of Lithuania and the provisions of the Collective Agreement in the Company. 7.5. If the financial incentive scheme is applied at the Company, the remuneration policy should contain enough 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. No The Company does not apply a system of financial incentives. 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. No See article 7.1. 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. No See article 7.1. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the Company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the Company concerned. 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. Yes The corporate governance framework assures the rights of stakeholders that are protected by law are respected. The Company applies a Corporate Contract 8.2. The corporate governance framework should create conditions for stakeholders to 105 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. with employees, and the contract is signed by the CEO and Trade Union. The Company pursues the maximum possible transparency in its relations with all stakeholders and the compliance with the highest ethical requirements and principles – in its activities, because honest and open business activities are one of the key elements of impeccable business reputation. The Company takes into account the changing customer needs, constantly improving its operational processes, empowering employees, taking care of the safety and health of its employees, seeking to maintain a close relationship with investors and ensure information accessible to all, continuously updating the information and posting it in the “Investors” section of its website. 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant 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. Principle 9: Disclosure of information The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the Company. 9.1. In accordance with the Company’s procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the Company should include but not be limited to the following: Yes The information contained in this recommendation shall be disclosed in the annual and semi-annual reports of the Company in accordance with the requirements of legal acts regulating data processing and confidential information procedures. This information is published on the website of PLLC Nasdaq Vilnius. Stock Exchange and on the Company's website. 9.1.1. operating and financial results of the Company; 9.1.2. objectives and non-financial information of the Company; 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; 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; 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; 106 9.1.6. potential key risk factors, the Company’s risk management and supervision policy; 9.1.7. the Company’s transactions with related parties; 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.); 9.1.9. structure and strategy of corporate governance; 9.1.10. initiatives and measures of social responsibility policy and anti-corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. 9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, it is recommended that the Company which is a parent Company in respect of other companies should disclose information about the consolidated results of the whole group of companies. Yes The Company discloses information on the Company’s and the Group’s consolidated results. The information is disclosed in the consolidated annual report and consolidated financial statements. 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 The information specified in the recommendation is presented in the Company's annual and semi-annual reports. The Company will implement the recommendations of Principle 7 once the legislation governing is adopted. 9.4. Information should be disclosed in such manner that no shareholders or investors are discriminated in terms of the method of receipt and scope of information. Information should be disclosed to all parties concerned at the same time. Yes The Company discloses all regulated information through the news distribution system of PLLC Nasdaq Vilnius. This ensures that it is accessible to the widest possible public. The information is simultaneously available in Lithuanian and English. In addition, the Company publishes information before or after the Nasdaq Vilnius trading 107 session so that all shareholders and investors of the Company have equal access to information and make appropriate investment decisions. The Company shall not disclose information that may affect the price of the securities issued by it in the comments, interviews or other ways until such information is made public through the Central Regulatory Information base. Principle 10: Selection of the Company’s audit firm The Company’s audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm. 10.1. With a view to obtain an objective opinion on the Company’s financial condition and financial results, the Company’s annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm. Yes An independent audit Company performs auditing of the Company’s and its subsidiaries individual and consolidated (the group) annual financial reports in accordance with International Accounting Standards applicable in the EU. An independent auditing Company also evaluates conformity of annual report to the audited financial statements. 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 Management Board proposes an audit Company to the General Meeting of Shareholders. 10.3. If the audit firm has received remuneration from the Company for the non- audit services provided, the Company should disclose this publicly. This information should also be available to the Supervisory Board or, if the Supervisory Board is not formed at the Company, by the Management Board of the Company when considering which audit firm should be proposed to the General Meeting of Shareholders. Yes Information on remuneration to the audit Company is made public in the decisions of the General Meeting of Shareholders. The audit firm provides non-audit services only with the approval of the Audit Committee. In 2023, the audit firm did not receive any remuneration for the non-audit services provided.

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