Sitowise Group Oyj

Sitowise Group Oyj (Plc) Board of Directors’ Report and Consolidated Financial Statements SITOWISE GROUP PLC 1 January – 31 December 2023 Financial period Sitowise Group Plc Business ID: 2767842-8 Linnoitustie 6 D, FI-02600 Espoo, Finland Board of Directors’ Report and Consolidated Financial Statements Financial period January 1 – December 31, 2023 Sitowise is a Nordic expert in the built environment with strong focus on digitality. We provide design and consulting knowhow to enable more sustainable and smarter urban development as well as smooth transportation. Sitowise offers services related to real estate and buildings, infrastructure, and digital solutions both in Finland and in Sweden. Global megatrends drive huge changes that require a re-evaluation of the smartness in the built environment – therefore we have set our vision to be Redefining Smartness in Cities. The Group’s net sales were EUR 211 million in 2023 and the company employs more than 2,100 experts. Sitowise Group Plc is listed on the main list of Nasdaq Helsinki under the trading symbol SITOWS. www.sitowise.com Consolidated Financial Statements 2023 Board of Directors’ Report and SITOWISE GROUP PLC 2 Contents BOARD OF DIRECTORS’ REPORT ................................................................................................5 Financial and alternative performance measures .....................................................................................30 CONSOLIDATED FINANCIAL STATEMENTS IFRS ...............................................................................33 Consolidated statement of comprehensive income ...................................................................................33 Consolidated statement of financial position .........................................................................................34 Consolidated cash flow statement ...................................................................................................35 Statement of changes in consolidated equity ........................................................................................36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .........................................................................37 1 General information ......................................................................................................37 1.1 Accounting policies ............................................................................................................37 1.2 Translation of items denominated in foreign currencies .........................................................................37 1.3 Key decisions made by the management requiring discretion and main uncertainty factors relating to estimates .................38 2 Operating profit ..........................................................................................................39 2.1 Segment reporting ............................................................................................................39 2.2 Net sales ......................................................................................................................39 2.3 Other operating income ........................................................................................................41 2.4 Materials and services ..........................................................................................................41 2.5 Personnel expenses ............................................................................................................41 2.6 Other operating expenses ......................................................................................................41 2.7 Depreciation, amortization, and impairment ....................................................................................42 2.8 Earnings per share ............................................................................................................42 3 Operational assets and liabilities ..........................................................................................43 3.1 Business combinations ........................................................................................................43 3.2 Goodwill and other intangible assets ...........................................................................................44 3.3 Tangible assets ................................................................................................................46 3.4 Trade and other receivables ...................................................................................................48 3.5 Provisions .....................................................................................................................49 3.6 Accounts payable and other liabilities ..........................................................................................49 4 Financial items and capital structure ......................................................................................50 4.1 Financial income and expenses ................................................................................................50 4.2 Financial assets and liabilities ..................................................................................................50 4.3 Shareholders’ equity ..........................................................................................................52 5 Financial and capital risks .................................................................................................56 5.1 Management of financial risks .................................................................................................56 5.2 Management of capital risks ...................................................................................................57 6 Other notes ...............................................................................................................58 6.1 Group structure ...............................................................................................................58 6.2 Income taxes ..................................................................................................................59 6.3 Related party transactions ......................................................................................................61 6.4 Guarantees and contingent liabilities ...........................................................................................63 6.5 Disputes and litigation .........................................................................................................63 6.6 Major events after the closing date .............................................................................................63 PARENT COMPANY'S FINANCIAL STATEMENTS ..............................................................................64 Sitowise Group Plc income statement (FAS) .........................................................................................64 Sitowise Group Plc balance sheet (FAS) ..............................................................................................64 Sitowise Group Plc: Cash flow statement (FAS) ......................................................................................65 Sitowise Group Plc: Notes to the financial statements (FAS) ..........................................................................66 SIGNATURES OF THE BOARD OF DIRECTORS AND AUDITOR’S NOTE .........................................................69 Board of Directors’ proposal for the distribution of profit ..............................................................................69 Signatures to the financial statements and Board of Directors’ report .................................................................69 AUDITING ......................................................................................................................70 Auditor’s Report ....................................................................................................................70 Independent Auditor’s Reasonable Assurance Report on Sitowise Group Plc ESEF Financial Statements ..............................73 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 3 SITOWISE GROUP PLC 4Consolidated Financial Statements 2023 Board of Directors’ Report and THE REPORT OFTHE BOARD OF DIRECTORS significant client segment is the public sector, which accounts for approximately 75 percent of net sales. In the private sector, key client segments are construction companies and industrial and energy sector companies. The Digital Solutions business area (Digi) focuses on smart geospatial solutions for the built environment, mobility, and forest and natural resources sector, as well as consulting services that support these fields. These services cover client-driven information system development, proprietary product solutions, analytics, information management and visualization, and consulting services. In Sweden, Sitowise provides services in buildings, infrastructure, and digital solutions. The Sweden business area’s services include building construction engineering with expertise in frame and structure engineering as well as geotechnical design. It also has a robust offering in complex installations in both buildings and infrastructure, and expert services in underground installations as well as land, water, and sewerage. As from 1 January 2023, this business area includes digital solutions for infrastructure maintenance planning, reporting and support for municipalities in Sweden (Infracontrol), which were previously reported under Digi. Sitowise demonstrated resilience and growth in the challenging market environment Sitowise is a leading technical consulting company with a strong focus on digitality. Its over 2,100 experts design and develop solutions to make daily life safe and convenient for everyone living in the built environment or using different types of infrastructure. The company has four business areas, whose wide service offerings and broad client bases bring resilience over economic cycles. The Buildings business area offers building design, specialist services, and consulting services for residential and commercial properties, as well as for the needs of the healthcare sector, energy and industry, for example. Sitowise acts as a partner in both new construction and renovation projects. The business area has distinctive design expertise in areas such as structural engineering, building services technology (HVAC and electric), acoustics design, and fire safety planning as well as construction management services. The services of the Infrastructure business area (Infra) cover a wide range of urban development needs in diverse areas: infrastructure, transport and mobility, urban development, environment and water, as well as infrastructure project management. Urbanization supports the investment needs of municipalities and cities, and the business area’s most KEY FIGURES (IFRS) EUR million2023202220212020 Change 2022–2023, % Net sales210.9204.4179.3160.13.2% EBITA, adjusted17.020.421.120.6-16.6% % of net sales8.1%10.0%11.80%12.90% EBITA15.116.118.519.5-6.0% Operating profit11.713.216.418.3-11.4% Result for the period5.57.97.912.7-29.9% Cash flow from operating activities before financing items and taxes23.922.722.831.55.4% Net debt55.356.630.956.6-2.2% Net debt / EBITDA, adjusted 3.0x2.6x1.4x2.6x Equity ratio, %42.9%41.6%46.0%30.2% Earnings per share (EPS), EUR * ) 0.160.220.229.69 Average number of personnel2,2112,1511,9691,8232.8% * ) Financial year 2020 is calculated with non-comparable number of shares and financial year 2021 is calculated using numbers of shares after IPO (3-12/2021) for best possible comparability. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 5 MARKET ENVIRONMENT IN 2023 In 2023, Sitowise’s market environment was mixed, with areas of both stronger and weaker demand. Services related to the green transition, security, and digital solutions for the built environment enjoyed strong demand from both private and public sector clients, providing growth opportunities especially for Infra and Digital Solutions businesses. Demand for technical consulting services from the public sector remained quite stable throughout the year, although price pressure and competition increased especially towards the end of the year. In the Buildings business area, however, 2023 proved to be even more challenging than anticipated. The deterioration of the construction markets, particularly in housing construction, continued throughout the year, significantly impacting the Buildings business. Some adverse effects of the distressed construction markets were also seen in the Infra and Sweden business areas, whereas Digital Solutions was adversely impacted by the slowing of demand in the private sector in the latter half of the year. Increasing interest rates and inflationary pressures affected clients’ short-term decision-making, increasing price pressure and competition in all business areas. All business areas were further impacted by the negative calendar effect of two fewer working days than in the previous year. In addition, the weakening of the Swedish krona against the euro further lowered reported net sales. STRATEGY IMPLEMENTATION Sitowise targets continued sustainable profitable growth and value creation for its clients, other stakeholders, and society. The company’s strategy for the years 2023–2025 was announced at the end of February 2023 and it focuses on innovation, sustainability, and efficiency. Sitowise also announced its new vision – Redefining smartness in cities. Sitowise seeks growth in several future-oriented areas, including renewable energy sources, circular economy, biodiversity, renovation construction and digital services. During 2023, Sitowise actively drove forward multiple initiatives linked to its strategic growth ambitions and continued to align Sitowise’s culture, key processes, leadership principles and management systems so that they best support its strategy implementation in the future. Progress under strategic pillars Under "the most innovative" strategic pillar, Sitowise aims to foster an innovative culture, build scalable SaaS business, and enhance design environments, among other things. In 2023, the innovation focus shifted from idea discovery to commercializing smart services in collaboration with key customers. New services released in 2023 include ESG risk assessment, agile creation of digital twins and 3D scanning of built assets as well as digital tools to help our real estate and construction company clients in the smart management of warranty time claims. In Sitowise’s second innovation competition, a new service focusing on the ever-growing importance of soil health was selected as the winner. With respect to enriching design environments and processes with novel solutions, Sitowise continued to strengthen its data and analytics capabilities and continued to further explore the opportunities to optimize expert work and workflows with generative AI tools. Under "the most sustainable" strategic pillar, Sitowise wants to lead the way to a sustainable future by concentrating on future business opportunities, sustainability in client projects, and the sustainability of its own operations. In 2023, Sitowise defined renewable energy, climate change mitigation, biodiversity and adaptation, and circular economy as areas where it aims to grow data-based sustainability services. Sitowise also redefined its sustainability services organization and the Group’s sales function to support growth in these areas. The acquisitions announced in the fourth quarter – Positive Impact Finland Oy and Ahlman Group’s expert operations – further expand Sitowise’s expertise and offering in this area. Sitowise also decided to further develop its Sustainability Tool. The tool, available on Sitowise’s Voima platform, helps project teams to assess their own sustainability impact and actions taken in an individual project. Its next version will give better visibility for clients about the sustainability requirements concerning their projects and understanding how Sitowise can help them to meet these needs. The development phase was started in the fourth quarter of 2023. Sitowise also continued to develop its own sustainability. Sitowise invested, for example, in the diversity, equity and inclusion (DEI) training that is mandatory for its entire personnel. The company also continued to develop its sustainability reporting to better meet the European Sustainability Reporting Standards' (ESRS) requirements in the future. In December, Sitowise also committed to setting science-based targets (SBTs) for the company in the coming years. Under “the most efficient” strategic pillar, Sitowise targets a lean, optimized operating model that enables its experts to focus on client work and provides the best value for Sitowise’s clients. In the first part of the year, the focus was especially on converting strategic plans to operational initiatives. Later in the year, transforming Sitowise’s sales culture and model was a key focus area. A new sales organization was introduced with three Group-wide strategic growth areas – industrial clients, renewable energy and sustainability services. The second half of the year also saw a heavy focus on new ERP and CRM systems integrations. The rollouts of the new systems, including extensive training and go-lives in Finland, took place in the fourth quarter, having an adverse impact on utilization rate during the quarter. However, the transition to new systems progressed well, and Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 6 the work to further develop Sitowise’s IT and service platform is continuing in 2024 on a more normalized level. Progress in strategic KPIs In June, Sitowise published targets to grow its recurring revenue to represent 10% of its net sales and to double its sustainability service revenue from its current level of approximately EUR 5 million by the end of the strategy period. By the end of the year, the share of recurring revenue increased from approximately 4 % of the Group’s net sales in 2022 to approximately 6% in 2023, and sustainability services revenue increased from approximately EUR 5 million in 2022 to approximately EUR 8 million in 2023. Acquisitions Sitowise also pursues growth via selected acquisitions in its growth areas. In 2023, three acquisitions were announced: • In May, Sitowise announced the acquisition of all shares in Infrasuunnittelu Oy, a company providing national-level road, street, and regional designs as well as surveying and supervisory expert services and construction consulting for its clients. The acquisition of Infrasuunnittelu Oy strengthens Sitowise’s expertise especially in infrastructure services offered to the mining industry. At the time of the acquisition, Infrasuunnittelu Oy employed 17 people and in 2022 its net sales amounted to approximately EUR 1.2 million. • In November, Sitowise acquired Positive Impact Finland Oy. The acquisition strengthens Sitowise's expertise in sustainability services and related digital solutions offered to companies and communities. Positive Impact's services include, for example, carbon footprint calculators, carbon handprint studies, sustainability programs, climate roadmaps, and software related to sustainability. Positive Impact Finland Oy had net sales of EUR 0.4 million in 2022 and it employed seven people at the time of the transaction. • In December 2023, Sitowise announced the acquisition of Ahlman Group Oy’s expert business, which was closed after the financial year in January 2024. The business acquisition strengthens Sitowise's expertise especially in nature services, including both diverse nature surveys and services that support biodiversity. The clients of the acquired business include wind power and other private sector companies, cities and municipalities, among others. The acquired business had estimated net sales of EUR 2.3 million in 2023, and 20 people are joining Sitowise from Ahlman Group Oy. All acquired companies will be integrated into the Infra business area. THE GROUP’S ORDER BOOK In 2023, the Group’s order book decreased by 10 percent to EUR 164 (181) million compared to the record level of the end of 2022. The decline was impacted especially by the decline in Buildings business’ order book. The order book includes a variety of projects in terms of size and duration, which increases the stability of Sitowise's operations. However, discontinuations and postponements of projects increased especially in Buildings’ order book during 2023, which may slow down the realization of the order backlog in 2024. A significant postponement of project starts may have a detrimental effect on the group's profitability, if the resources reserved for the projects cannot be reallocated to other projects. THE GROUP’S NET SALES AND PROFITABILITY Net sales EUR million20232022Change, % Buildings70.879.4-10.9% Infra65.660.09.4% Digi 1) 30.022.135.4% Sweden 1) 44.542.93.9% Total210.9204.43.2% 1) Figures for the comparison year have been adjusted to reflect the current organizational structure. Adjusted organic growth by business area Adjusted organic Growth % 2023 Buildings-12.4% Infra9.2% Digi14.5% Sweden5.2% Total0.7% Adjusted organic growth in net sales is calculated by excluding acquisitions and divestments adjusted by the number of working days and exchange rate impact. In 2023, the Group's net sales increased by 3.2 percent (5 percent in constant currency) year-on-year. Organic growth was 1 (5) percent, in addition to which the acquisitions made during 2022 and the Infrasuunnittelu acquisition in May had an impact on growth. The Infra and Digi business areas made a strong contribution to organic growth, and good growth in Sweden played its part, while Buildings had a clearly negative effect. The weakening of the Swedish krona against the euro slowed down the euro-denominated net sales growth during the period SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 7 by some 8 percent of Sweden's net sales and 2 percent of the Group’s net sales. The number of working days was down by two days year-on-year, in addition to which the implementation of new ERP and CRM systems in Finland had a similar effect in the fourth quarter. Profitability EUR million20232022Change, % EBITA, adjusted17.020.4-16.5% % of net sales8.1%10.0% EBITA15.116.1-5.9% Operating profit 11.713.2-11.1% Result before taxes7.110.3-30.5% Result for the period5.57.9-29.9% Earnings per share (EPS), EUR0.160.22-28.4% Adjusted EBITA decreased by 16.5 percent due to two working days less compared to comparison period, the implementations of the ERP and CRM systems in the fourth quarter, which had an effect equivalent to the loss of two working days, the challenging market situation in the Buildings business area and partial softening of the market in other business areas, and a weaker utilization rate overall. Items affecting comparability were EUR -1.9 (-4.3) million, with significantly lower M&A expenses compared to 2022 and a positive impact in Q2 of a receivable from the Fennovoima project that was impaired in 2022, while the restructuring costs increased in the financial year compared to the previous year. Operating profit in 2023 totaled EUR 11.7 (13.2) million. Both the result before taxes for the period and the result for the period decreased due to lower operating profit and higher financial expenses. These were above the comparison period primarily due to the increase in interest rates. In the comparison period financial expenses were adversely impacted by currency fluctuations related to intercompany loans. FINANCIAL POSITION AND CASH FLOW Equity attributable to owners of the parent company was EUR 119.3 (116.6) million at the end of the year. Net debt was slightly lower due to the higher cash position, but net debt/EBITDA tightened slightly due to the lower adjusted EBITDA level year-on-year. Gearing decreased, reflecting typical seasonal variation in working capital during the final quarter and came in at 46.3% (48.4%) at the end of the year. EUR million 31 Dec 2023 31 Dec 2022Change, % Cash and cash equivalents15.615.41.3% Interest bearing debt, total70.972.0-1.5% Interest bearing debt, current1.01.00.0% Interest bearing debt, non-current69.971.0-1.5% Equity ratio, %42.9%41.6% Net debt55.356.6-2.2% Net debt / EBITDA, adjusted3.0x2.6x16.6% Gearing, %46.3%48.4% Sitowise agreed with its lenders in February 2023 to use the extension periods provided for in its financing agreement. The extension is for the same amount and at the same terms as the original arrangement. The financing agreement now matures in March 2026. Cash flow from operating activities before financial items and taxes was EUR 23.9 (22.7) million during January-December. Cash flow from investing activities totaled EUR -5.4 (-32.5) million in January-December, and the decline was associated with acquisitions-related investments in the comparison period. In January-December, cash flow from financing totaled EUR -10.9 (12.9 million) and it mainly consisted of dividends, loan repayments and reductions in lease liabilities. In the comparison period, it also included loan withdrawals, share buybacks and payments received from share issues relating to acquisitions. The consolidated balance sheet total at the end of December was EUR 278.4 (280.7) million. Goodwill in the balance sheet amounted to EUR 158.0 (157.6) million. The goodwill impairment test was done in Q4 using the updated forecast. The market outlook was also re-examined together with updated WACC assumptions. Pre-tax WACC-% was slightly lower year-on- year at 10.8 (11.3) percent. There are no indications of need for impairment. INVESTMENTS IN RESEARCH AND DEVELOPMENT (R&D) The technical consulting industry is undergoing a major transformation due to the climate crisis, digitalization, and global uncertainty. Sitowise is committed to developing solutions through The Smart City Lab, its innovation platform and R&D community. The goal is to produce new sustainable business ideas, track market changes, and support Sitowise’s innovation culture. Sitowise invests significantly in new innovations, directing at least 80% of its R&D budget to sustainable development services. In 2023, Sitowise spent around EUR 0.2 million on innovation, and also invested in various business development projects. R&D projects also received public funding. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 8 BUSINESS AREA PERFORMANCE IN 2023 In 2023, all business areas were adversely affected by the negative calendar effect of -2 working days compared to the same in 2022. Additionally, the implementation of the new ERP and CRM systems significantly impacted utilization rates in Buildings, Infra, and Digital Solutions, corresponding to an impact of -2 working days at the Group level. Buildings Buildings’ net sales decreased by 11 percent in 2023 and amounted to EUR 70.8 million (79.4 million 2022). Net sales were adversely impacted by the difficult market situation but had a positive impact from the acquisition of Rakennuttajakaari in June 2022. The business area accounted for 34 (39) percent of the Group’s consolidated net sales in 2023. The market environment was a major challenge for the Buildings business in 2023. The strong growth seen in the construction industry in the preceding years reversed and construction production plummeted. The higher-than-anticipated rise in interest rates and the cost of living, combined with the growing supply of apartments, reduced the number of new housing project starts significantly. Also, state-supported apartment production (ARA) was reduced. The market situation had a particularly great impact on the Buildings business area’s MEP (mechanical, electrical, and plumbing) and structural engineering business. Renovation construction suffered also, although less, from the market’s downturn as the prolonged high interest rate level was reflected in the financing decisions of renovation construction projects and the hesitation of housing associations and property owners to start projects. During the first quarters of the year, the Buildings business was adapted to better correspond to the prevailing market situation with different vacation arrangements and temporary layoffs. In August, Sitowise initiated change negotiations in Buildings with the aim of securing the prerequisites for growth and a more agile way of operating. The change negotiations ended at the beginning of October and led to reductions of close to 80 employees. At the same time a leaner organizational structure supporting more efficient client and project work was introduced. Thanks to efficient workforce management and pricing actions, the Buildings business managed to keep its utilization rate and pricing at a decent level until the fourth quarter, when the introduction of the Group’s new ERP and CRM systems, the adaptation to a new organization in Buildings and low tendering pipeline had a negative impact on them. The business area’s order book declined in 2023, and at the same time the number of projects put on hold increased and the materialization of the order book extended to a longer period. New projects were won, however, in all areas of the Buildings business in 2023. During the first half of 2023, Rakennuttajakaari Oy was successfully integrated and merged with Sitowise. The Buildings business area continues to adjust its operations to the weak market with efficient workforce management, cost control and proactive sales activities. Increasing focus will be put on segments with long-term demand, such as special services, services related to energy, and security critical services. Specific future growth areas also include commercial and logistics buildings, automation, and digital solutions. The market outlook for 2024 in Buildings is weak. Sitowise expects that the Buildings business will still decrease in size in the first half of 2024 and that the turn to growth can start only towards the end of 2024. The medium- and long-term prospects for construction renovation are, however, still good thanks to the existing renovation backlog and the requirements imposed by EU regulation, such as energy-efficiency requirements. Urbanization continues too and creates demand for new apartments, positively impacting demand as Finland’s economic outlook and new construction market recover. Infra Net sales in the Infra business area increased by 9 percent in 2023 and were EUR 65.6 (60.0) million. The business area accounted for 31 (29) percent of the Group’s consolidated net sales. Infra had a strong year and its growth clearly outpaced the market in 2023. Growth was almost entirely organic, with a small positive impact from the acquisition of Infrasuunnittelu Oy in May. The number of employees increased, especially in areas of high demand such as services related to the green transition. Furthermore, successful pricing and sales initiatives and the continued diversification of the client base to private-sector and industrial clients supported top-line growth throughout the year. In 2023, the division of the wider infra market into weaker and stronger segments prevailed. The first were related to municipal infrastructure design such as road and infra planning for new residential areas and groundworks for new buildings, and the latter included especially energy and environmental projects related to the green transition. For example, environmental assessments of wind power increased significantly, employing numerous experts and enabling significant growth in this sector. Due to the current geopolitical situation, demand for projects related to safety and security increased clearly too. In Sitowise's Infra business, the weaker and stronger areas balance out each other. The Finnish government’s infrastructure investments were also on the wane and their focus has shifted clearly towards railway projects. The infrastructure-related goals included in Finland's new government program are positive from the perspective of the Infra business, but the materialization of related projects is also further delayed. The tendering rounds for the first projects are expected to start towards summer 2024 at the earliest. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 9 Infra managed to keep its order backlog at a strong level during 2023, even though there were hardly any starts of large projects in infrastructure in general. As a highlight, the largest project in Sitowise’s history, Light Rail Line, was completed successfully in 2023 ahead of its original schedule and at a lower cost than budgeted. This was all made possible by skilled and motivated personnel. Infra’s market environment is expected to remain stable in 2024 and the outlook for Infra is good. The business area’s growth in 2024 will also be supported by the acquisitions of Infrasuunnittelu Oy, Positive Impact Finland Oy and Ahlman Group Oy’s expert business, as well as the Infra team’s strong expertise, close client relationships and well-rounded customer base. Digital Solutions The Digital Solutions Business Area’s net sales increased by 35% in 2023 and were EUR 30.0 (22.1) million. The business area accounted for 14% (11%) of the Group’s consolidated net sales. Digital Solutions had a successful year in 2023. In the first half-of the year, the business had a clear tailwind from the acquisition of Bitcomp Oy, a pioneer in SaaS solutions for the geospatial data, forest and natural resources sectors, in June 2022. The revenue from Bitcomp’s LeafPoint SaaS solution grew strongly in 2023 and implementations for existing customers were completed after summer. Organic growth of 14.5 percent was also supported by good progress in other product sales. The favorable market situation at the beginning of the year turned gloomier towards the second half, as the weakening prospects of the Finnish economy started to impact the demand and investments of private sector clients, which declined. An exception was the renewable energy sector, where investments in digital solutions continued to grow rapidly. The public sector continued to invest too, but challenges in the broader IT consulting market increased competition and price pressure, particularly in larger and public sector tenders. Digital Solutions was successful in taking the increased production cost into account in pricing, managing costs, improving the invoicing rate, streamlining the product portfolio and creating new business together with the Bitcomp team. Despite the weakening market situation, strong profitability was maintained due to a balanced and resilient business mix. An increasing share of the order backlog is related to long-term projects and SaaS business, which helps to carry the business through economic cycles. The wider IT market change was strongly reflected in recruitment, with talent becoming more readily available towards the end of the year and wage inflation slowing down. Towards the end of the year, demand for SaaS products such as the Louhi GIS platform, Foresta, Routa, and Smart Analytics and Maps, was at a high level. Changes in the built environment and the upcoming new Finnish Building Act were reflected in the municipal sector’s demand, which increasingly shifted towards solutions offered by the Louhi GIS platform and AI-based Smart Analytics applications built on top of the Ryhti built environment information system. Sitowise has a good opportunity to create a new market by developing Louhi and Smart Analytics services to meet new regulatory needs. A focus on sales activity and systematic account management is expected to positively impact Digital Solutions’ business, and the share of recurring revenue from the product business is expected to grow. The combination of Sitowise’s SaaS and project business has enabled flexible resource utilization in a changing market. Sitowise’s strong expertise in geospatial information systems and the built environment, data management skills, and digital solutions offering enable it to stand out from its competition. Its balanced service and client portfolio, coupled with the ability to create new markets, particularly with SaaS products, enable profitable growth both now and in the future. The market situation will remain challenging, particularly affecting software investment in the private sector and adding further price pressure to public tenders. Growth opportunities are seen in the product business, energy sector, and especially in the digitalization development of the municipal sector. Overall, the outlook for digital solutions remains positive. Sweden In 2023, the krona/euro exchange rate heavily impacted the reported sales figures for the Sweden business area. While net sales in constant currency were up by 12 percent in 2023, they increased by 4 percent when reported in euros. The net sales amounted to EUR 44.5 (42.9) million, which corresponds to approximately 21 (21) percent of the Group’s consolidated net sales in 2023. Approximately two-thirds of the net sales growth was organic, while the rest was related to the tailwind from the Mavacon, E60, and Convia acquisitions completed in 2022. Throughout 2023, Sitowise progressed significantly in integrating and consolidating the Swedish operations under the legal entity Sitowise Sverige AB. In October 2023, the Swedish business area completed the merger of four subsidiaries – Mavacon, E60, Convia Ingenjörsbyrå and Convia Infrastructure – and reduced the number of legal entities from six to two. It also relocated two of the acquired entities into common offices in Stockholm and Falun. These mergers encourage greater collaboration and provide a unified and clear platform for future development and driving synergies both on the cost and revenue sides. The Digital solutions part of the business continues for the time being to operate under its own entity, Infracontrol AB. Another important milestone achieved early in the year was the consolidation of all services under the Sitowise brand. This move has been influential in promoting the brand recognition necessary for continuous growth as a key player in the Swedish market. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 10 The technical consulting market in Sweden shifted from favorable in the first quarter to moderately good in the fourth quarter. The slowdown began in spring and certain segments faced headwinds later in 2023. The residential housing segment declined significantly, with building projects decreasing by over a quarter from 2022. However, Sitowise’s favorable positioning towards other segments meant the local housing market drop had only a moderate impact on the business. The Swedish market is still supported by the Infrastructure, Industrial, and Institutional sectors, which saw an increase in started projects. Sitowise won new projects related to hospitals, pharmaceutical factories, and rails. Demand for Infracontrol’s digital solutions for infrastructure, municipalities and traffic monitoring remained stable. After summer, the business area shifted its focus to internal integrations and was impacted by an abnormally high absence rate due to sick leaves, holidays, and parental leaves. This slowed down the growth significantly. To improve the performance in the last quarter, an increasing focus was put on more proactive sales, pricing excellence and diligent project management. The sales setup was revised, including alignment with the Group’s sales initiative. The positive impacts of these actions are expected to be seen in the first half of 2024. The market environment is expected to remain unchanged in the coming months. However, there are some signs indicating a slight market pick-up in early 2024, such as the restarting of halted projects and increased tendering activity leading to more sizable tenders. A clearer market recovery would require a continued decline in inflation and lower interest rates. PERSONNEL AND MANAGEMENT Personnel 20232022Change, % Number of personnel, average2,2112,1512.8% Number of personnel, at the end of the period 2,1432,232-4.0% FTE per Business Area 20232022Change, % Buildings742825-10.1% Infra56551210.3% Digi25420722.6% Sweden35031411.3% Group Functions63597.0% Group total1,9741,9182.9% The average number of personnel in the Group during the financial period was 2 211 (2 151). At the end of the financial period, the Group had 2 143 employees (2 232). The number of full-time equivalent employees (FTE), however, increased during the year. The key factor lowering the number of employees was the market situation in Buildings, which led to personnel adjustments in the form of temporary layoffs in the first half of the year, and to reductions of close to 80 employees in the fourth quarter. Key drivers of FTE growth in Infra, Digi and Sweden were the acquisitions made in the latter half of 2022 and in 2023. The strong growth of sustainability services contributed to FTE growth in Infra, too. Personnel expenses increased by 6.6 % in 2023 to EUR 138.4 (129.8) million half coming from the wage inflation and half from the small increase in number of personnel and FTEs. The average age of Sitowise’s employees was 40 (39) years. At the end of 2023, students accounted for 10% (8%) of the Group’s personnel. Women accounted for 34% (33%) of the Group’s employees. Of all employees, 84% (85%) responded to the personnel survey. The main indexes measured in the survey are Overall index (Average of all questions on a scale 1-5) which was 3,87 (3,98) and eNPS (Employee Net Promoter Score) which was 18 (30). Changes in the Group Management Team On 12 April 2023, Timo Palonkoski resigned from his position as Business Area Director of the Buildings business area and as a member of the Group Management Team. On 3 August 2023, Timo Räikkönen was appointed as Executive Vice President of the Buildings business area and member of Sitowise’s Group Management Team. He joined Sitowise from the position of Executive Vice President of Destia's Urban Development and Design Services and started in his position on 13 November 2023. On 4 May 2023, Anna Wäck was appointed as Business Area Director for Digital Solutions and member of the Group Management Team. She joined Sitowise from the position of Head of Global Offering, Pricing and Sales Development in KONE's global maintenance business, and started in her new position on 5 May 2023. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 11 GROUP STRUCTURE At the end of the financial period, the Sitowise Group consisted of the parent company Sitowise Group Plc and the following companies: • Wholly owned by Sitowise Group Plc: Sitowise Oy, which is the company’s main operational subsidiary in Finland, and foreign subsidiaries: Sitowise Sverige AB, Infracontrol AB and its wholly owned subsidiaries Infracontrol Espana SL, Infracontrol Portugal Lda and Infracontrol Danmark ApS • Sitowise Oy’s Finnish subsidiaries, Routa Systems Oy (51%), Bitcomp Oy (acquired in June 2022, whose merger with Sitowise Oy is pending and due to be registered 29 February 2024), Infrasuunnittelu Oy (acquired in May 2023, whose merger with Sitowise Oy is pending and due to be registered 29 February 2024), Positive Impact Finland Oy (acquired in November 2023, whose merger with Sitowise Oy is pending and due to be registered in May 2024) and foreign subsidiaries AS DWG (55 %) and Sitowise Consulting Oü (100%, which is planned to be liquidated in February 2024). During the financial period, the wholly owned subsidiaries Rakennuttajakaari Oy and its wholly owned subsidiaries Rakennuttajakaari Pohjanmaa Oy and Certimo Oy were merged with Sitowise Oy on 28 February 2023, and Sitowise Rakennuttajat Oy on 30 April 2023. In Sweden, E60 Elkonsult Aktiebolag was merged with Sitowise Sverige Ab on 6 October 2023. Further, Mavacon Mark & VA Consult AB and Convia Infrastructure AB were merged with Convia Ingenjörsbyrå AB on 6 October 2023, and Convia Ingenjörsbyrå AB was merged with Sitowise Sverige AB on 9 October 2023. Sitowise Oy’s branch office Sito Norge NUF was closed on 23 November 2023. CORPORATE GOVERNANCE Authorizations of the Board of Directors The company has the following authorizations in force as decided by the Annual General Meeting on 25 April 2023: The Board of Directors is authorized to decide on the issuance of shares as well as the issuance of special rights entitling to shares referred to in Chapter 10, Section 1 of the Companies Act as follows: The number of shares to be issued based on the authorization shall not exceed 3,500,000 shares, which corresponds to approximately 9.8 percent of all of the shares in the company. The authorization covers both the issuance of new shares as well as the transfer of treasury shares held by the company. The Board of Directors decides on all other conditions of the issuance of shares and of special rights entitling to shares. The issuance of shares and of special rights entitling to shares may be carried out in deviation from the shareholders’ pre- emptive rights (directed issue). The authorization may be used, among other things, to finance and carry out acquisitions or other corporate transactions, to promote engagement, in incentive systems, in order to develop the company’s capital structure, to broaden the company’s ownership base, and for other purposes as determined by the company’s Board of Directors. The Board of Directors is authorized to decide on the repurchase of the company’s own shares as follows: The number of own shares to be repurchased based on the authorization shall not exceed 3,500,000 shares in total, which corresponds to approximately 9.8 percent of all the shares in the company. However, the company together with its subsidiaries cannot at any moment own more than 10 percent of all the shares in the company. Own shares can be repurchased only using the unrestricted equity of the company at a price formed in public trading on the date of the repurchase or otherwise at a price determined by the markets. The Board of Directors decides on all other matters related to the repurchase of our own shares and, inter alia, derivatives can be used for the repurchase. Own shares do not have to be acquired proportionally to the number of shares held by the shareholders (directed acquisition). The authorizations are effective until the beginning of the next Annual General Meeting, however no longer than until 30 June 2024. The Board of Directors decided to exercise its existing share issue authorization and carried out directed issues of 37,330 treasury shares in connection with the acquisition of Infrasuunnittelu Oy on 2 May 2023, and of 33,394 treasury shares in connection with the acquisition of Positive Impact Finland Oy on 30 November 2023. At the end of the financial period, the Board’s remaining share issue authorization amounted to 3,429,276 shares, and the authorization for the repurchase of the company’s own shares remains unused. Shareholders' Nomination Board The Annual General Meeting 2023 of Sitowise decided to establish a Shareholders' Nomination Board to prepare the proposals on the election and remuneration of the members of the Board of Directors to be presented to the Annual General Meeting. The three shareholders who hold the largest share of all the votes in the Company on the first weekday in September are each entitled to nominate one member to the Nomination Board each year. In addition, the Chair of the Board of Directors of Sitowise Group Plc serves as an expert member of the Nomination Board. Members were appointed to Sitowise Group Plc's Shareholders' Nomination Board in September. The members of the Nomination Board are Juhana Kallio representing Intera Partners Oy, Malin Björkmo representing Handelsbanken Funds, Claes Murander representing Lannebo Funds and Eero Heliövaara, the Chair of Sitowise's Board of Directors. CORPORATE GOVERNANCE STATEMENT AND REMUNERATION REPORT Sitowise’s Corporate Governance Statement and Remuneration Report are published together with the Annual and Sustainability Report during week 11 in 2024. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 12 Key figures per share 202320222021 Earnings per share (EPS)EUR0.160.220.22 Equity per share (BPS)EUR3.343.273.25 Dividend per shareEUR0.00.10.1 Dividend/earnings ratio%0.0045.4545.45 Effective dividend yield%0.001.951.24 Price/earnings ratio (P/E)20.2x23.4x36.6x Share price development Volume weighted average share priceEUR3.765.248.46 Lowest share priceEUR2.703.897.33 Highest share priceEUR5.148.2210.05 Share price on December 31EUR3.185.148.05 Market value of shares on December 31EUR million113.4183.3285.1 Trading volumeEUR million5.26.119.0 Trading valueEUR million19.732.0157.1 * ) Board of Directors’ proposal to the Annual General Meeting. For the weighted average adjusted number of shares during the financial period and the adjusted number of shares at the end of the financial period, see Note 4.3 to the financial statements. Shareholders At the end of the review period on 31 December 2023, the number of registered shareholders was 6,061 (6,060). Nominee- registered shareholders accounted for 37.7 (37.4) percent of the company’s shares. The ten largest shareholders entered in the book-entry register maintained by Euroclear Finland Oy owned a total of 29.3 (30.3) percent. A list of these major shareholders is available on the company’s website at www.sitowise.com. The table below lists the ten largest shareholders on 31 December 2023. The information is based on the Monitor service provided by the Swedish company Modular Finance AB: * ) SHARES AND SHAREHOLDERS Shares outstanding and share capital At the end of the year, Sitowise Group Plc’s share capital was EUR 80,000. The company has one class of shares. Each share entitles the holder to one vote and an equal dividend. There were no changes in the number of shares outstanding during the review period. Sitowise Group Plc held 119,399 own shares on 1 January 2023. The number of treasury shares declined by 37,330 in May when the Group’s Board of Directors decided on a directed share issue to the sellers of Infrasuunnittelu Oy, and by further 33,394 shares in November when the Group’s Board of Directors decided on a directed share issue to the sellers of Positive Impact Finland Oy. For the key terms and conditions of share issues, see Note 4.3.1 to the financial statements. Sitowise Group Plc held 48,675 own shares on 31 December 2023. 31 Dec 202331 Dec 2022 Registered share capital, EUR thousand8080 Registered total number of shares 35,665,92735,665,927 Treasury shares48,675119,399 ShareholderNumber of shares% of shares 1 Intera Partners Oy5,121,573 14.4% 2 Paradigm Capital AG3,575,309 10.0% 3 Lannebo Funds2,286,8886.4% 4 Handelsbanken Funds 1,910,0795.4% 5 Evli Fund Management1,583,000 4.4% 6 Ilmarinen Mutual Pension Insurance Company 1,071,500 3.0% 7 SEB Funds 906,965 2.5% 8 DNCA Finance S.A636,618 1.8% 9 Varma Mutual Pension Insurance Company 635,000 1.8% 10 Didner & Gerge Funds472,235 1.3% 10 largest, total18,199,167 51.0% Total shares 35,665,927 * ) Data may be incomplete for both the number of shares and shareholders. It is not possible for the company to verify the accuracy or timeliness of the information. The company is not responsible for the information supplied by the service provider, which is given only as additional information. The company’s shareholder register is available from Euroclear, and the company additionally publishes any flagging notifications it receives as stock exchange releases. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 13 Shareholders by sector on 31 December 2023 Sector 2023 Number of shares 2023 % 2022 Number of shares 2022 % Households10,330,41928.96%10,475,95829.37% Financial and insurance institutions, total8,199,30622.99%8,275,95023.20% Public sector, total2,119,1105.94%2,351,2356.59% Businesses, total1,311,5963.68%1,120,1643.14% Foreign, total158,7800.45%58,2980.16% Nonprofit organizations, total88,4980.25%33,9780.10% Total22,207,70962.27%22,315,58362.57% Nominee-registered13,458,21837.73%13,350,34437.43% All shares, total35,665,927100.00%35,665,927100.00% Source: Data is based on shareholder register maintained by Euroclear Finland Oy. Shareholding of the Board of Directors and the Group Management Team on 31 December 2023 BOARD OF DIRECTORS PersonPosition 2023 Number of shares 2023 % of shares 2022 Number of shares 2022 % of shares Eero Heliövaara 1 Chairman109,2080.31%92,5200.27% Tomi TerhoDeputy Chairman00.00%00.00% Taina KyllönenBoard member9,3200.03%9,3200.03% Mirel Leino-HaltiaBoard member5,5000.02%5,5000.02% Elina Piispanen 2 Board member70,0000.20%70,0000.20% Petri Rignell 3 Board member80,3400.23%80,3400.23% Niklas Sörensen 4 Board member3,0000.01%-- Mats Åström 5 Board member2,5000.01%-- Leif Gustafsson 6 Board member--20,0000.06% Total279,8680.78%277,6800.79% 1 Including both shares held by Heliövaara personally and shares held by Heliocabala Oy, which he controls 2 Including both shares held by Piispanen personally and shares held by Fit Advice Oy, which she controls 3 Including both shares held by Rignell personally and shares held by PriRock Oy, which he controls 4 Board member since 25 April 2023. 5 Board member since 25 April 2023. 6 Board member until 25 April 2023. GROUP MANAGEMENT TEAM PersonPosition 2023 Number of shares 2023 % of shares 2022 Number of shares 2022 % of shares Heikki HaasmaaCEO70,0000.20%60,0000.17% Jonas LarssonEVP, Sweden10,0000.03%10,0000.03% Taija LehtolaEVP, Human Resources18,0000.05%18,0000.05% Hanna MasalaEVP, CFO20,0000.06%9,0000.03% Jannis MikkolaEVP, Infrastructure356,7401.00%356,7401.00% Timo Räikkönen 1 EVP, Buildings8,6000.02%-- Turo TinkanenEVP, Information Technology 52,0000.15%52,0000.15% Minttu VilanderEVP, Sustainability, Brand and Communications 19,2000.05%19,2000.05% Anna Wäck 2 EVP, Digital Solutions3,7500.01%-- Timo Palonkoski 3 EVP, Buildings--154,0000.43% Teemu Virtanen 4 EVP, Digital Solutions--170,000 0.48% Total558,2901.57%848,9402.38% 1 Started as EVP, Buildings on 13 November 2023. 2 Started as EVP, Digital Solutions on 4 May 2023. 3 EVP, Buildings until 30 April 2023. 4 EVP, Digital Solutions until 31 December 2022. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 14 The company’s management was granted stock options in the spring of 2021 and during the 2022 financial period. The table in section 6.3.4 of the notes to the financial statements lists the options held by the CEO and the members of the Group’s Management Team. The Board members hold no options. Flagging notifications On 30 January 2023, Sitowise Group Plc received a notification in accordance Chapter 9, Section 5 of the Finnish Securities Markets Act from Handelsbanken Fonder AB, according to which Handelsbanken Fonder AB’s direct holding of shares and votes in the company increased to 5.05 percent on 27 January 2023. At the end of 2023, Handelsbanken Fonder owned 5.4% of the Company’s shares and votes. On 28 September 2023 Sitowise received a notification in accordance with Chapter 9, Section 10 of the Finnish Securities Market Act from Paradigm Capital Value Fund SICAV. According to the notification Paradigm Capital Value Fund SICAV's direct holding of the shares and votes of the Company exceeded 10 percent on 28 September 2023. At the end of 2023, Paradigm Capital Value Fund SICAV held 10.0 percent of the Company’s shares and votes. During the year, Sitowise received further 28 notifications in accordance with Chapter 9, Section 5 of the Finnish Securities Markets Act from Morgan Stanley & Co. International plc. According to these notifications, Morgan Stanley & Co. International plc’s indirect holding of shares and votes in Sitowise Group Plc had either exceeded or fallen below the 5 percent threshold of all shares and votes as a result of stock borrowing agreements. According to the latest flagging notification, Morgan Stanley held on 27 December 2023, as a result of stock borrowing agreements, indirectly 3.4 percent of the Company’s shares and votes, and through financial instruments 0.39 percent of the Company’s shares and votes. Share-based incentive plans On 31 December 2023, Sitowise Group Plc had two performance- based, long-term incentive plans in place: Performance Share Plan 2023-2025 and Restricted Share Plan 2023-2025. The company also had in place a long-term option program. All three are further described at www.sitowise.com/investors/ governance/remuneration. REPORT OF NON-FINANCIAL INFORMATION Business model Sitowise is a Nordic expert in the built environment with a strong focus on digitality. Company offers sustainable design and consultancy services for projects of all sizes to enable more sustainable and smarter urban development as well as smooth transportation. Sitowise has four business areas that are Buildings, Infrastructure, Digital Solutions and Sweden. Value creation for clients and other stakeholders is based on the strong expertise and industry knowledge of Sitowise employees. In future, the company aims to strengthen its position as one of the leading providers of technical consulting and digital services for the built environment and forest assets. Principles of sustainability and materiality topics Sitowise’s vision is to Redefine smartness in cities. The vision is driven by global megatrends such as urbanization, renovation backlog, sustainability, digitalization, and security. The vision underlines Sitowise’s aim to redefine, create, and implement the change that future societies need. The company is committed to increasing the sustainability of both its own operations and its projects and client relationships on a long-term basis, and to reporting on and measuring its progress in respect of sustainability. The Group also continuously develops its sustainability business to meet the changing needs of its customers. Sitowise's Sustainability Program 2025 focuses on clearly set sustainability targets and defined sustainability indicators which guide actions taken. Sustainability is examined from all perspectives of the ESG division: environmental, social, and governance. The Sustainability Program 2025 is based on a materiality analysis that has set four objectives: • We are carbon neutral in 2025 • We are the most equitable workplace with best employee well-being in the industry • We aim for sustainable economic growth • We actively contribute to make our industry more sustainable SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 15 Key sustainability indicators Target: Carbon neutrality 2025 20232022 • Carbon footprint without any form of compensation (t CO-ekv/employee) Sitowise joined Science-Based initiative (SBTi) in the end of 2023. The Carbon neutrality target will be updated according to SBTi requirements during 2024. **The carbon footprint of 2022 and 2023 are not comparable since the data for calculation has developed. The 2023 footprint includes e.g. employee commuting for the first time. The share of employee communing of total emissions 2023 is 32%. 1.89 CO 2 -ekv/person1.16 CO 2 -ekv/person Target: Equitable workplace with best employee well-being 20232022 • Employee survey: I feel that the employer supports the wellbeing of employees3.77 (1–5)3.98 (1–5) • Share of employees who have done the diversity, equity and inclusion (“DEI”) training 58%Training started in 2023 Target: Sustainable economic growth 20232022 • Doubling Sustainability Services Revenue between 2022 and 2025 to EUR 10 million. approx. EUR 8 million approx. EUR 5 million • Client survey: Sitowise knows the industry’s developments well 4.10 (1–5)4.08 (1–5) • Client survey: Evaluate Sitowise's operations in terms of developing new innovative solutions (% of respondents who see Sitowise as a forerunner) 53%53% • % of the innovation budget allocated to actions promoting sustainable development The aim is to report the share for the whole RDI budget. 90%88% Target: Make our industry more sustainable 20232022 • % of projects that have used the sustainability tool out of all of our client projects *** Utilization rate of the Sustainability Tool in Finnish client projects. For 2023 the data is for 31 October 2023. The Tool’s development phase started in Q4 and therefore reliable data is not available for Q4 89%86%* • General public reputation and trust survey: Sitowise moves the industry in the right direction with regard to society 3.5 (1–5)3.5 (1–5) • General public reputation and trust survey: Sitowise is an industry pioneer in the climate and environmental aspects 3.42 (1–5)3.28 (1–5) • Personnel survey: I know how I can take sustainability into account in my work58%61% (answers 4 and 5 on scale 1–5 Hyvän hallintotavan indikaattorit 20232022 • Code of conduct training is done by all employees. From 2019 forward the Code of conduct online training is a mandatory part of onboarding. 91%85% • Incidents reported via anonymous Whistleblow channel. All cases are closed in accordance with the company’s policy. 17 9 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 16 The UN's Sustainable Development Goals (SDG’s) are an important part of Sitowise's sustainability work, and the Sustainability Tool created by Sitowise is based on this framework. The sustainability tool helps to identify and monitor the material sustainability matters in client projects. During the year, 89% of the company’s new projects set SDG-based targets and indicators with Sitowise's Sustainability Tool. In financial year 2023, the Sustainability Tool was only used in Finland. Sitowise continuously develops its own sustainability reporting. In 2023, the company conducted a gap analysis to identify the differences in its 2022 sustainability and the future requirements of EU’s Corporate Sustainability Reporting Directive (CSRD). At the end of 2023, Sitowise initiated Double Materiality Analysis to identify both how Sitowise’s operations impact people and the environment, but also to evaluate how sustainability considerations impact the company itself and its financial position in future. The work continues in the first quarter of 2024. The analysis complements the comprehensive Materiality Assessment conducted in 2021 as part of the launch of Sitowise’s Sustainability Program 2025. The results of the Double Materiality Assessment will guide both Sitowise's future sustainability efforts and strategy as well as reporting. Sustainability management Sustainability efforts at Sitowise are guided by Sitowise’s strategy, environmental policy, sustainability program, Code of Conduct, and industry practices as well as the general principles of social responsibility and the applicable legislation. Sitowise’s management system and activities are ISO 9001 and ISO 14001 compliant. Data security is developed in accordance with the ISO 27001 standard and in Sweden occupational health and safety matters are managed with ISO 45001 standard. In addition, Sitowise is committed to the following international declarations and agreements: UN Sustainable Development Goals, Universal Declaration of Human Rights, Convention on the Rights of the Child, ILO Declaration on Fundamental Principles and Rights at Work, Rio Declaration on Environment and Development, UN Convention Against Corruption, OECD Guidelines for Multinational Enterprises, UN Global Compact initiative, and from December 2023 onwards, Science-Based Target initiative (SBTi). The Group’s Sustainability Program 2025 is approved by Sitowise’s Board of Directors. The CEO has overall responsibility for sustainability. The Corporate Sustainability Officer directs and promotes sustainability initiatives, and monitors and reports on the indicators, goals, and achievements. The Corporate Sustainability Officer is a member of Group Management Team and provides updates on sustainability efforts to the CEO and, if necessary, prepares accounts of different areas of sustainability and progress in those areas. Business Directors and line managers are responsible for the implementation of practical measures. Group functions (finance, IT, HR, communications, quality, safety and security) support the business areas in reaching the sustainability goals. Sitowise conducts all its procurement in a responsible way, following the company’s Code of Conduct and procurement practices. At Sitowise partnerships are valued, and in their selection, the social and environmental aspects of sustainability are particularly considered. Even though the approval process of the European Commission’s Corporate Sustainability Due Diligence Directive (CSDDD) is delayed, Sitowise will review its due diligence process to meet the prospective requirements. Due to the CSDDD directive, companies need to establish procedures to address the impacts on human rights and the environment in their value chains. Environmental sustainability The built environment has a significant impact on the environment. As an expert organization, Sitowise's most significant opportunities to reduce the negative impacts occur in customer projects and collaboration with various stakeholders. These opportunities have been actively pursued during the year 2023, e.g. with setting sustainability targets for 89% of customer projects with Sustainability Tool; taking consistent steps towards the goal to double sustainability services revenue between 2022 and 2025; developing new sustainable products and services through innovation and participating in several significant industry development projects. Furthermore, as part of the goal related to industry advancement, Sitowise has actively addressed sustainability issues with The Smart City Talks that is Sitowise´s own media focusing on topical themes of sustainable city development. During the year The Smart City Talks events raised themes such as energy efficiency, diversity, equity and inclusion (“DEI”) and radical innovation to discussion with Sitowise’s experts, leaders and stakeholders. In Sitowise's own operations its most significant environmental impact is related with climate issues and the key environmental target is to reach carbon neutrality by 2025. The objective of minimizing the carbon footprint also guides the company towards reducing energy and water consumption, careful sorting of waste, using low-emission modes of travel and transport as well as considering sustainability aspects in purchasing. To reach this goal, the company works to systematically reduce its emissions. The completion of this goal is tracked with an annual calculation of the carbon footprint. The emission data was developed during the year. It complicates the comparison of carbon footprints between years. However, it gives a clearer picture how to focus impactful climate actions in Sitowise. In 2023, Sitowise's total carbon footprint was 3982t CO- ekv, and per employee 1.89t CO-ekv. The majority of emissions in our operations result from commuting to and from work, as well as business travel. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 17 Social sustainability For Sitowise, social sustainability primarily means ensuring the well-being of its employees. Sitowise is also committed to employing students and carrying its responsibility in society. To reach the most equitable workplace goal, Sitowise is committed to actively improving the well-being of its employees and listening to them. Sitowise is also committed to ensuring diversity, equity and inclusion (“DEI”) in the company. These goals require evolving leadership and Sitowise is constantly training its leaders. In 2023, employees’ stress management and recovery were supported in various ways throughout the year. A new learning path for health and well-being was published on Sitowise’s e-learning platform StudyHub in Finland and will be opened next year in Sweden. Sitowise also offers personal support to personnel according to the early intervention model. As a part of our well-being program, feedback from the personnel is regularly invited. All employees are covered with health care and there are several additional insurances provided. Company supports wellbeing in many ways, for example by organizing common free time activities in sites and supporting employees’ hobby clubs. In 2023, Sitowise prepared an action plan based on the results of the employee diversity survey. The company also offered training about Diversity, Equity and Inclusion for all personnel. The target is that all employees will do the training. At the end of the year, six months after the trainings had started 58% of the employees in Finland had done the training. In Sweden the training was launched in October and employees have started to participate. Results of the training will be followed through the annual Employee Survey. Sitowise's policies related to its own workforce are explicitly aligned with internationally recognized instruments, including the UN Guiding Principles on Business and Human Rights that underscores the commitment to upholding human rights and labor standards. This commitment is reflected in the remuneration, recognition, and development policies. NextGen is Sitowise’s trainee program aimed at students with different backgrounds in Finland. The trainee program includes working in actual projects under the guidance of Sitowise employees as well as work life coaching that helps students direct their competence development in the direction they want. In 2023 Sitowise had a total of 37 (68) NextGen trainees. Ethical principles, corruption, and bribery The Code of Conduct describes how Sitowise operates sustainably and ethically as well as commits to complying with the laws and regulations concerning the company in all the countries in which it operates. At Sitowise, the Code of Conduct online course is a mandatory part of job orientation. Sitowise addresses its ethical principles to customers and collaborators. Sitowise’s Code of Conduct states the following: We comply with the laws and our commitments, we care about people and our work community, we develop a sustainable and smart environment, we take care of assets and information that are in our responsibility, we procure sustainably, we do not accept corruption, bribery, or extortion, and we report concerns and violations. The Whistle Blow channel is a contact and reporting channel through which anyone can anonymously report suspected violations of Code of Conduct or other regulations. To ensure anonymity, the reporting channel is managed by an external partner, NAVEX WhistleB. 17 reports were received in 2023. All notifications were internal, no notifications were received from customers or other stakeholders. All reports are treated confidentially, and the notifiers were provided with comprehensive responses. Most of the notifications were related to HR and workplace practicalities or the ongoing change negotiations at Sitowise. These notifications did not require any further actions or were resolved by referring to Sitowise’s existing policies or guidelines. Only in a few cases concerning for example inappropriate behavior and workload distribution, the matters were discussed with the persons concerned and their team leads, and necessary actions were taken by both the HR team and business management. Key risks related to non-financial information and risk management Sitowise’s business and strategy are based on competent personnel, and skilled professionals are crucial for growth, profitability and the implementation of the company’s strategy. As stated on page 9 of the report under ‘Assessment of risks and uncertainties’, the most pronounced personnel risks of the Sitowise Group relate to the retention of current experts, well- being of employees and the availability of new experts. Managing these risks is based on the premise that it is important for the company that its employees are healthy, motivated, and proud of the impact that Sitowise’s services have on the environment, communities, and people. Each Sitowise employee contributes to the setting of their personal targets and the assessment of their performance and development needs and discusses expectations with his/ her manager at regular intervals and at least once a year. The aforementioned risks are also managed by, for example, supporting coping at work, offering flexibility in different life situations, and providing a variety of training options for example for both professional development and better management of work-related stress. However, the best ways to increase competence are learning on the job, teamwork, and sharing experiences in the course of projects. Well-being at work stems, above all, from good work management and having access to training that builds competence, as well as a good team spirit, interaction, and a Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 18 culture of solving problems together. Good leadership creates a framework for efficient teamwork and success. Sitowise promotes its personnel’s well-being systematically in cooperation with, for example, its occupational health care providers and pension providers in Finland and Sweden. Due to the nature of Sitowise’s business, there are no significant environmental risks associated with the Group’s own operations. One risk related to the upholding of human rights and the fight against corruption and bribery could be a failure to observe Sitowise’s Code of Conduct, if this resulted in significant damage to the Group’s finances or reputation or if the violations were systemic, in which case the operations of the entire Group could be affected. This risk is managed by clearly stating the company’s position on human rights and discrimination in the Code of Conduct, which applies to all employees of Sitowise, and by instructing both the company’s personnel and partners to report concerns or potential inappropriate conduct. The risk of corruption and bribery, and the resulting damage, is also controlled by always having more than one person check every payment and purchase. Sitowise and the EU taxonomy The EU aims to be climate-neutral by 2050. To meet the climate and energy targets, the EU has launched the European Green Deal to ensure there are no net emissions of greenhouse gases by 2050, and to direct investments towards sustainable activities. For this purpose, a classification system for environmentally sustainable economic activities, “the EU taxonomy”, has been created. The EU taxonomy provides a common definition of economic activities that can be considered environmentally sustainable as well as technical screening criteria for each environmental objective helping companies become more climate-friendly and increasing security for investors. The built environment has significant impacts on climate and on environment in general. As Sitowise offers solutions in Finland and Sweden for buildings and infrastructure, as well as digital solutions, all related to the built environment, forest, and natural assets, there is a great potential for minimizing the risks related to climate and environment, reducing the environmental impact, and participating in decarbonization, thus supporting the ambitious goals of the climate-neutral EU. These solutions help Sitowise’s clients take steps towards more sustainable and taxonomy- aligned activities. In addition, EU taxonomy reporting also supports the evaluation and planning of Sitowise’s sustainable business model, and the sustainability services that Sitowise offers to its clients. Taxonomy accounting principles EU Taxonomy required KPI’s, revenue, capex and opex are all presented on separate tables. The company presents the share of taxonomy-worthy turnover in euros of Sitowise Group Plc’s total turnover for the financial year. Revenue is presented in financial statement annex 2.2 and capex in annex 3.2 and 3.3. Opex is presented in annex 2.6 but regarding Company’s view, the opex are not suitable for Sitowise’s taxonomy reporting. Calculating taxonomy-eligible turnover is done by identifying the Company's business areas, which are likely to have turnover according to the taxonomy criteria. The company determines the percentage share within each industry according to each corresponding taxonomy-worthy criteria. In the calculation, it has been taken into account that the same turnover cannot enter two different taxonomy-worthy functions. The company's capex are generally investments for the entire company, so the same calculation principle has been applied to them, but divided into taxonomy classifications in relation to turnover. Taxonomy-eligibility and taxonomy-alignment Sitowise reported the proportion of the company’s turnover, capital (CapEx) and operating expenses (OpEx) eligible under the taxonomy regulation in relation to the objectives for climate change mitigation and adaptation first time for the year 2021. For the year 2022, the reporting also covered activities and KPI’s aligned with the taxonomy, i.e., activities that were aligned with the technical screening criteria making a substantial contribution to the climate change mitigation and/or adaptation objective, “Do No Significant Harm” (DNSH) criteria, and minimum safeguards. For the year 2023, four new environmental objectives and technical screening criteria were included in the taxonomy classification system covering now all six environmental objectives: climate change mitigation (CCM), climate change adaptation (CCA), sustainable use and protection of water and marine resources (WTR), transition to circular economy (CE), pollution prevention and control (PPT), and protection and restoration of biodiversity and ecosystems (BIO). At Sitowise, the reporting for the year 2023 covers taxonomy-eligibility and taxonomy-alignment for the climate change mitigation and adaptation objectives, taxonomy-eligibility for the new four environmental objectives, as well as transition activities, and enabling activities. Transition activities are applied with regards to the climate change mitigation objective and are activities for which there are no technologically and economically feasible low- carbon alternatives, but that support the transition to a climate- neutral economy in a manner that is consistent with the pathway to limit the temperature increase. On the other hand, enabling activities are activities that enable other activities to make a substantial contribution to one or more of the objectives. The taxonomy reporting for the year 2023 was based on the taxonomy assessment and report made in the previous year. Furthermore, it took into account the amendments to the taxonomy regulation as well as changes to Sitowise’s business areas and services. The aim was also to develop Sitowise’s own taxonomy assessment and reporting even further and follow the path of strict interpretation of the regulation chosen in the assessment and reporting for the year 2022. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 19 For the year 2023, 35 % of Sitowise’s revenue was assessed as taxonomy-eligible. These taxonomy-eligible activities included, e.g., engineering activities and related technical consultancy dedicated to adaptation to climate change (CCA 9.1), professional services related to energy performance of buildings (CCM 9.3), infrastructure for rail transport (CCM 6.14), infrastructure enabling road transport and public transport (CCA 6.15), and data-driven solutions for GHG emissions reductions. Sitowise was also able to report new taxonomy-eligible activities, including conservation of habitats, ecosystems and species (BIO 1.1), remediation of contaminated sites and areas (PPC 2.4), and flood risk prevention and protection infrastructure (CCA 14.2). However, the consulting sector of which Sitowise is a part of, is not yet included in the taxonomy regulation as its own activity, and for several sectors where Sitowise provides solutions and services, the design and engineering are not included in the taxonomy-eligible activities. Therefore, Sitowise cannot report these activities as taxonomy-eligible. One important activity is the construction and real estate sector where Sitowise is contributing to the design phase of construction of new building (CCM/CCA 7.1) and renovation of existing buildings (CCM/CCA 7.2). In addition, due to the scope of the regulation and the strict interpretation of it, not all Sitowise’s taxonomy-eligible activities directly meet all the technical screening criteria or DNSH criteria, and Sitowise could not report taxonomy-aligned turnover for the financial year 2023. These activities are reported in the template as “Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities)” (A.2). However, Sitowise does not generically consider these activities as environmentally unsustainable activities and sees that the phrase used in the taxonomy reporting to some extent challenging. Sitowise does not carry out, fund, or has exposures to nuclear or fossil gas related activities. The Template 1 according to the Delegated Act (EU) 2022/1214 is presented in Table 1: Nuclear and fossil gas related activities. Enabling activities and transition activities According to the taxonomy regulation, an activity can be taxonomy-aligned when it in and of themselves contributes substantially to one of the six environmental objectives, is a transition activity, or when it enables other activities to make a substantial contribution to the environmental objectives. These enabling activities must not, however, lead to a lock-in in assets that undermine long-term environmental goals, considering the economic lifetime of those assets, and the activities should have a substantial positive environmental impact on the basis of lifecycle considerations. In some extent, Sitowise’s built environment related activities can be seen as enabling activities since they enable directly several environmental objectives defined in the taxonomy regulation through the solutions Sitowise offers to its clients. This is significant especially in the construction and real estate sector where the services provided by Sitowise directly enable efficient solutions to climate change mitigation and adaptation in construction of new buildings and renovation of existing buildings. In addition, for example Sitowise’s ecological surveys enable the conservation of habitats, ecosystems, and species. Thus, 19,4 % of Sitowise’s revenue was assessed as enabling activities. For the year 2023, no transition activities were identified in Sitowise’s activities. Transition activities can be applied with regards to the climate change mitigation objective. For example, nuclear energy and natural gas related activities typically seen as transition activities. The summary of Sitowise’s non-taxonomy-eligible, taxonomy- eligible, and taxonomy-aligned activities, including enabling activities and transition activities, for the year 2023, are listed in the template below. The official taxonomy reporting templates are presented in the tables 2–4. 2023Turnover Capital expenditure (CapEx) Operating expenditure (OpEx) Non-taxonomy-eligible activities 45.6% 34.5% 0% Taxonomy-eligible activities 35.0% 42.1% 0% Taxonomy-aligned activities 19.4% 23.4% 0% Of which enabling activities 19.4% 23.4% 0% Of which transition activities 0% 0% 0% Taking into account the core of Sitowise’s business model, for Sitowise the operating expenditures are not relevant in the way that taxonomy regulation presents them, and therefore, no taxonomy-eligible or taxonomy-aligned OpEx has been identified. Hence reported OpEx is 0 % for the year 2023. At Sitowise, there is a direct relationship between research & development and projects, and research & development will be taken into account as part of personnel costs also in the future. The Minimum Safeguards International Platform on Sustainable Finance has presented a set of criteria for minimum social safeguards in the EU taxonomy. The criteria are divided into human rights, corruption and bribery, fair competition and tax processes and observing related violations to these. Sitowise policies and practices which guide company’s employees and operating environment are in line with international commitments on social responsibility. The key processes to ensure social responsibility in line with international commitments are Code of Conduct and it’s implementation in daily work and company's WhitleBlow channel for reporting misconduct and the process defined for handling notifications. At Sitowise Code of Conduct -course is part of the personnel training programme and the course is also part of orientation program of all new employee. The Code of Conduct covers, among other things, the company's principles relating to human and employee rights, corruption and bribery, and fair competition. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 20 Sitowise also requires it’s partners to take company’s Code of Ethics into account in their own operations. The company conducts all its procurements responsibly and in compliance with the Code of Conduct and procurement practices. Bribery is considered the most likely form of corruption. Sitowise's Code of Conduct prohibits corruption, bribery and extortion and contains guidelines on how to deal with these issues. The possibility of financial misconduct is reduced by applying the so-called four-eyes principle, whereby at least two handlers must confirm the accuracy of every purchase and travel invoice. The company complies with tax regulations locally in all the countries where it operates. Taxes are always paid correctly and on time, benefiting local economies and societies. Neither the company nor its management has been convicted of, or charged with, any violations against human rights, corruption and bribery, fair competition or taxation. Development of operations and improving the taxonomy reporting in the future The common classification system for environmentally sustainable economic activities enables environmentally sustainable development for businesses, and Sitowise is committed to be part of this sustainability change. However, the fact that taxonomy regulation does not yet recognize consulting sector as its own activity keeps challenging the taxonomy assessment, and as a consequence only part of the technical screening criteria can be seen applicable to assessing Sitowise’s activities. Despite this, Sitowise recognizes that the role of consulting sector is relevant to achieving the ambitious environmental goals set by the EU Commission, and that the Sitowise’s role is to first and foremost enable its clients to contribute substantially to the environmental objectives and to improve their operations so that they are even more sustainable and taxonomy-aligned. Sitowise also recognizes the potential for enabling activities in its own operations and this will be one of Sitowise’s focus points on the taxonomy assessment and reporting for the year 2024. As the taxonomy regulation has a margin for interpretation, the future guidelines to the regulation will be taken into account. Sitowise follows the development of the taxonomy regulation and the formation of best practices in the consulting sector and is committed to providing added value to the clients by providing solutions that enable taxonomy-alignment even further. Steps have already been taken by developing taxonomy-aligned solutions for climate change adaptation for construction and real estate sector. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 21 Table 1: Nuclear and fossil gas related activities RowNuclear energy related activities 1. The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. NO 2. The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. NO 3. The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. NO Fossil gas related activities 4. The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. NO 5. The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. NO 6. The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. NO Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 22 Table 2: Proportion of turnover from products or services associated with Taxonomy-aligned economic activities – disclosure covering year 2023 Financial year 2023YearSubstantial Contribution Criteria DNSH criteria ('Does Not Significantly Harm') Economic Activities Code Turnover Proportion of Turnover, year 2023 Climate Change Mitigation Climate Change Adaptation Water Pollution Circular Economy Biodiversity Climate Change Mitigation Climate Change Adaptation Water Pollution Circular Economy Biodiversity Minimum Safeguards Proportion of Taxonomy aligned (A.1.) or eligible (A.2.) turnover, year 2022 Category enabling activity Category transitional activity MEUR% Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y/NY/NY/NY/NY/NY/NY/N%ET A. TAXONOMY-ELIGIBLE ACTIVITIES A.1. Environmentally sustainable activities (Taxonomy-aligned) Electricity generation using solar photovoltaic technologyCCM 4.10.20.1%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Electricity generation from wind powerCCM 4.31.60.7%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Transmission and distribution of electricityCCM 4.90.10.1%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Infrastructure for rail transportCCM 6.140.40.2%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Construction of new buildingsCCM 7.112.45.9%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Renovation of existing buildingsCCM 7.220.69.8%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings) CCM 7.40.10.0%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Installation, maintenance and repair of renewable energy technologies CCM 7.60.00.0%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Infrastructure enabling road transport and public transport CCA 6.150.30.2%N/ELYN/ELN/ELN/ELN/ELYYYYYYY0%E Water supplyWTR 2.12.81.3%N/ELN/ELYN/ELN/ELN/ELYYYYYYY0%E Sorting and material recovery of non-hazardous wasteCE 2.70.10.0%N/ELN/ELN/ELN/ELYN/ELYYYYYYY0%E Demolition and wrecking of buildings and other structures CE 3.30.40.2%N/ELN/ELN/ELN/ELYN/ELYYYYYYY0%E Maintenance of roads and motorwaysCE 3.40.10.1%N/ELN/ELN/ELN/ELYN/ELYYYYYYY0%E Conservation, including restoration, of habitats, ecosystems and species BIO 1.11.70.8%N/ELN/ELN/ELN/ELN/ELYYYYYYYY0%E Turnover of environmentally sustainable activities (Taxonomy-aligned) (A.1) 40.919.4%16.8%0.2%1.3%0%0.3%0.8%YYYYYYY0% Of which Enabling40.919.4%16.8%0.2%1.3%0.0%0.3%0.8%YYYYYYY0%E Of which Transitional00%0%T A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL Infrastructure for rail transportCCM 6.146.22.9%ELN/ELN/ELN/ELN/EL N/EL4% Data-driven solutions for GHG emissions reductionsCCM 8.20.90.4%ELN/ELN/ELN/ELN/ELN/EL0% Close to market research, development and innovationCCM 9.10.60.3%ELN/ELN/ELN/ELN/ELN/EL1% Professional services related to energy performance of buildings CCM 9.318.28.6%ELN/ELN/ELN/ELN/ELN/EL1% Infrastructure enabling road transport and public transport CCA 6.1512.05.7%N/ELELN/ELN/ELN/ELN/EL11% Infrastructure for water transportCCA 6.160.30.1%N/ELELN/ELN/ELN/ELN/EL0% Computer programming, consultancy and related activities CCA 8.229.714.1%N/ELELN/ELN/ELN/ELN/EL4% Software enabling physical climate risk management and adaptation CCA 8.40.10.1%N/ELELN/ELN/ELN/ELN/EL0% Engineering activities and related technical consultancy dedicated to adaptation to climate change CCA 9.10.90.4%N/ELELN/ELN/ELN/ELN/EL2% Flood risk prevention and protection infrastructureCCA 14.20.20.1%N/ELELN/ELN/ELN/ELN/EL0% Manufacture, installation and associated services for leakage control technologies enabling leakage reduction and prevention in water supply systems WTR 1.10.20.1%N/ELN/ELELN/ELN/ELN/EL0% Remediation of contaminated sites and areasPPC 2.43.81.8%N/ELN/ELN/ELELN/ELN/EL0% Conservation, including restoration, of habitats, ecosystems and species BIO 1.10.70.3%N/ELN/ELN/ELN/ELN/ELEL0% Turnover of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 73.735.0%12.3%20.4%0.1%1.8%0%0.3%23% A. Turnover of Taxonomy-eligible activities (A.1+A.2)114.654.4%29.1%20.6%1.4%1.8%0.3%1.1%23% B. TAXONOMY-NON-ELIGIBLE ACTIVITIES Turnover of Taxonomy-non-eligible activities9645.6% Total210.9100% SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 23 Table 3: Proportion of CapEx from products or services associated with Taxonomy-aligned economic activities – disclosure covering year 2023 Financial year 2023YearSubstantial Contribution Criteria DNSH criteria ('Does Not Significantly Harm') Economic Activities Code Turnover Proportion of CapEx, year 2023 Climate Change Mitigation Climate Change Adaptation Water Pollution Circular Economy Biodiversity Climate Change Mitigation Climate Change Adaptation Water Pollution Circular Economy Biodiversity Minimum Safeguards Proportion of Taxonomy aligned (A.1.) or eligible (A.2.) CapEx, year 2022 Category enabling activity Category transitional activity MEUR% Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y/NY/NY/NY/NY/NY/NY/N%ET A. TAXONOMY-ELIGIBLE ACTIVITIES A.1. Environmentally sustainable activities (Taxonomy-aligned) Electricity generation using solar photovoltaic technologyCCM 4.10.00.1%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Electricity generation from wind powerCCM 4.30.10.9%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Transmission and distribution of electricityCCM 4.90.00.1%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Infrastructure for rail transportCCM 6.140.00.2%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Construction of new buildingsCCM 7.10.87.1%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Renovation of existing buildingsCCM 7.21.411.8%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings) CCM 7.40.00.1%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Installation, maintenance and repair of renewable energy technologies CCM 7.60.00.0%YN/ELN/ELN/ELN/ELN/ELYYYYYYY0%E Infrastructure enabling road transport and public transport CCA 6.150.00.2%N/ELYN/ELN/ELN/ELN/ELYYYYYYY0%E Water supplyWTR 2.10.21.6%N/ELN/ELYN/ELN/ELN/ELYYYYYYY0%E Sorting and material recovery of non-hazardous wasteCE 2.70.00.0%N/ELN/ELN/ELN/ELYN/ELYYYYYYY0%E Demolition and wrecking of buildings and other structures CE 3.30.00.2%N/ELN/ELN/ELN/ELYN/ELYYYYYYY0%E Maintenance of roads and motorwaysCE 3.40.00.1%N/ELN/ELN/ELN/ELYN/ELYYYYYYY0%E Conservation, including restoration, of habitats, ecosystems and species BIO 1.10.11.0%N/ELN/ELN/ELN/ELN/ELYYYYYYYY0%E CapEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) 2.723.4%20.2%0.2%1.6%0.0%0.4%1.0%YYYYYYY0% Of which Enabling2.723.4%20.2%0.2%1.6%0.0%0.4%1.0%YYYYYYY0%E Of which Transitional0.00%0%T A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL Infrastructure for rail transportCCM 6.140.43.6%ELN/ELN/ELN/ELN/EL N/EL3% Data-driven solutions for GHG emissions reductionsCCM 8.20.10.5%ELN/ELN/ELN/ELN/ELN/EL0% Close to market research, development and innovationCCM 9.10.00.4%ELN/ELN/ELN/ELN/ELN/EL0% Professional services related to energy performance of buildings CCM 9.31.210.4%ELN/ELN/ELN/ELN/ELN/EL3% Infrastructure enabling road transport and public transport CCA 6.150.86.9%N/ELELN/ELN/ELN/ELN/EL13% Infrastructure for water transportCCA 6.160.00.2%N/ELELN/ELN/ELN/ELN/EL0% Computer programming, consultancy and related activities CCA 8.22.017.0%N/ELELN/ELN/ELN/ELN/EL42% Software enabling physical climate risk management and adaptation CCA 8.40.00.1%N/ELELN/ELN/ELN/ELN/EL0% Engineering activities and related technical consultancy dedicated to adaptation to climate change CCA 9.10.10.5%N/ELELN/ELN/ELN/ELN/EL5% Flood risk prevention and protection infrastructureCCA 14.20.00.1%N/ELELN/ELN/ELN/ELN/EL0% Manufacture, installation and associated services for leakage control technologies enabling leakage reduction and prevention in water supply systems WTR 1.10.00.1%N/ELN/ELELN/ELN/ELN/EL0% Remediation of contaminated sites and areasPPC 2.40.32.2%N/ELN/ELN/ELELN/ELN/EL0% Conservation, including restoration, of habitats, ecosystems and species BIO 1.10.00.4%N/ELN/ELN/ELN/ELN/ELEL0% CapEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 5.042.1%14.8%24.6%0.1%2.2%0.0%0.4%66% A. CapEx of Taxonomy eligible activities (A.1+A.2)7.765.5%35.1%24.8%1.7%2.2%0.4%1.3%66% B. TAXONOMY-NON-ELIGIBLE ACTIVITIES CapEx of Taxonomy-non-eligible activities4.134.5% Total11.8100% Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 24 Table 4: Proportion of OpEx from products or services associated with Taxonomy-aligned economic activities – disclosure covering year 2023 Financial year 2023YearSubstantial Contribution Criteria DNSH criteria ('Does Not Significantly Harm') Economic Activities Code Turnover Proportion of OpEx, year 2023 Climate Change Mitigation Climate Change Adaptation Water Pollution Circular Economy Biodiversity Climate Change Mitigation Climate Change Adaptation Water Pollution Circular Economy Biodiversity Minimum Safeguards Proportion of Taxonomy aligned (A.1.) or eligible (A.2.) OpEx, year 2022 Category enabling activity Category transitional activity MEUR% Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y; N; N/ EL Y/NY/NY/NY/NY/NY/NY/N%ET A. TAXONOMY-ELIGIBLE ACTIVITIES A.1. Environmentally sustainable activities (Taxonomy-aligned) OpEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) %%%%%%%KKKKKKK% Of which Enabling%%%%%%%KKKKKKK%E Of which Transitional%%KKKKKKK%T A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL EL; N/ EL OpEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) %%%%%%%% A. OpEx of Taxonomy eligible activities (A.1+A.2)%%%%%%% B. TAXONOMY-NON-ELIGIBLE ACTIVITIES OpEx of Taxonomy-non-eligible activities100% Total 100% SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 25 ASSESSMENT OF RISKS AND UNCERTAINTIES The significant risks and uncertainties related to the Sitowise Group’s business include operational, strategic, financial and ESG risks, to which the Group’s financial performance is exposed. The Group’s risk assessment is based on an annual survey that was conducted again during the financial year 2023, and its results have been discussed in the Group’s Board of Directors, management team as well as business areas. The Sitowise Group’s risk management process and responsibilities are described on the Group’s website (www.sitowise.com). Operational risksRisk descriptionRisk management Personnel risksThe most pronounced personnel risks of the Sitowise Group relate to the retention of current experts, well-being of employees, and availability of new experts. Sitowise’s business is based on competent personnel, and skilled professionals are crucial for profitability, growth and the implementation of the company’s strategy. A potential decline in Sitowise’s employer image due to internal or external factors is a risk from the perspective of employee engagement and retention. Being the most well-known and desired employer is one of the Sitowise Group's strategic focus areas, and great emphasis is placed on active development of the culture and HR practices. Also, maintaining a high quality of manager work, for example through leadership training, is seen as an important part of managing the personnel risks. Project workThe Sitowise Group’s operational risks related the project work include, among others, miscalculated tenders, claims for compensation due to engineering mistakes or delays, and exceptionally strict warranty and liability terms, which could, if invoked, damage Sitowise’s profitability. Risks related to tenders and projects are managed by means of regular quality management and risk management reviews and by complying with procedures pursuant to the ISO-certified operating model. The Group has developed a proprietary service platform called Voima to facilitate the adoption of more efficient and consistent operating methods. The Voima project management tool contains project guidelines and templates, best practices, bidding and project workspaces, and a risk assessment tool. Project risks are managed already in the offering phase by means of project guidance according to which an authorization from the management of the relevant business area is required before tendering for any contracts that are subject to nonstandard terms and conditions. The guidance also covers the implementation phase of projects. The risk assessment addresses themes such as contract terms and liability, schedule, resources, scope of the assignment, safety, and sustainability. The Voima platform contains real-time data that can be used to mitigate risks. Project risks are managed through carefully thought-out pricing and a thorough review of the tendered project and its problematic elements. Damage risksDamage risks include IT system and cyber security risks. Sitowise’s business is dependent on a well-working IT infrastructure and uninterrupted access to IT-based tools and systems, which are susceptible to faults and failures. Malfunctions, interruptions, faults, cybersecurity breaches or power cuts that affect IT systems can delay the delivery of services, cause unexpected costs, and damage Sitowise’s reputation. Risks related to IT systems and cyber security are mitigated by ensuring necessary resources and capabilities and by investing in and upgrading systems to continuously improve cyber security. The risks are further managed by training employees, implementing proactive risk management measures and ensuring that effective safeguards against potential data loss or system failures are in place. Strategic risksRisk descriptionRisk management Market risksUncertainty created by changes in the global and local economy and market conditions poses a risk to Sitowise’s business. Rapid cyclical fluctuations in the economy and reduction in the use of public funds or a diversion of such funds away from the built environment may contribute to market stagnation. Higher inflation, rising interest rates, the price of energy, and the increased cost of construction materials create uncertainty in the markets and may cause a decline in economic activity by leading to, for example, a decrease or postponement of investments and clients’ projects. Sitowise is actively monitoring the economic and market developments so that it can react to changes in its business environment. Constant and focused development actions in the business areas, such as increased sales focus, establishment of strategic client segment teams and further diversification of the client base, are utilized to safeguard the company from rapid market changes. M&A risksThe Sitowise Group’s growth according to the long-term financial targets is partly based on corporate acquisitions, and the planned growth may not materialize if suitable acquisition targets are not available, transactions cannot be made at an economically justified valuation level or acquisitions involve liabilities that cannot be factored into the purchase price, or the targets set for the acquisitions are not reached in the integration of the acquired companies. Sitowise actively reviews and manages its M&A pipeline and focuses on targets which support the company's strategy and fit the company's financial situation and market. When defining the level of M&A activity, Sitowise is also considering the balance sheet structure. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 26 Strategic risksRisk descriptionRisk management M&A risksSuccessful integration of the acquisitions is a key element of the Sitowise Group’s growth strategy, and Sitowise is therefore exposed to risks related to the integration process, which can lead to additional costs, failure to implement synergies, and loss of growth opportunities. The company has a well-established integration process which is based on its past experience from a vast number of previous transactions. Careful planning of the integration and ensuring good cultural fit already before the acquisition are also key parts of transaction processes. Technological development Failure to anticipate or utilize technological development trends and tap into new innovations, for example through successful commercialization of new smart services and ability to grow ARR's share of business may impede the company's ability to execute its strategy effectively. New technological developments may also require the company to adapt its pricing and project management models. Innovations are one of the three strategic pillars of Sitowise's strategy, with the aim of developing and engaging Sitowise's employees and partners to innovate smart solutions accelerating the industry transition. The focus is put on fostering and evolving the company's innovation culture and improving the coordination of internal development opportunities through different tools and processes. Customer risksThe Sitowise Group's largest customer groups are the public sector, construction companies and housing companies. Loss of a customer accounting for a larger portion of net sales could have a significant financial impact. Even though procurement from larger public customers is not always centralized but rather an outcome of numerous procurement procedures, problems in one service may be reflected in the purchases of other services. Sitowise has a diversified client base, and the risk related to the dependency on individual clients or client segments is aimed to be mitigated by further diversification of the company's client base by attracting new client from new client sectors. The Sitowise Group has also strengthened its sales resources by introducing a new sales model and organization. Also, the implementation of the new CRM system is aimed to support the client work moving forward. Financial risksRisk descriptionRisk management Financial market risksUncertainty in the financial markets or rising interest rates leading to higher financing costs and reduced availability (adequacy, timeliness, and favorable terms) is both a strategic and a financial risk for the Sitowise Group. Sitowise finances its business and investments with cash flow and debt financing and needs external financing to implement its growth strategy. External financing can expose Sitowise to risks related to indebtedness and weaken its financial position. The Sitowise Group carefully assesses possible financial risks, and the Group’s liquidity (trade receivables and cash flows) is monitored continuously. The Group also closely monitors its leverage and focuses on improving it e.g. through a careful approach to all possible acquisition cases. To mitigate the risk of encountering challenges in securing financing, the Sitowise Group fosters strong and transparent relationships with its core banks as well as aims to maintain an active and open dialogue with its shareholders to enhance financial credibility and support. Order bookDue to the business model’s high dependency on personnel, maintaining a steady and profitable order book is of great importance to the business. The Sitowise Group aims to maintain a sufficient order book through an extensive customer base, diverse workload, focused sales efforts and continuous monitoring of the order book. Cost riskA rise in costs, such as in wage levels, ICT or premises costs can have a negative impact on Sitowise’s profitability and financial performance if it cannot revise the prices of its services accordingly. The Sitowise Group continuously focuses on pricing activities and sales development actions, including the implementation of a new CRM system as well as actions ensuring cost effectiveness. Geopolitical eventsThe global economic consequences of wars and other major geopolitical events, such as inflation and higher interest rates, may further slowdown market growth in the construction sector, which could jeopardize Sitowise’s growth and profitability aspirations. The war in Ukraine only has limited direct effects on Sitowise. The company does not have offices in Russia, Belarus, or Ukraine, nor does it export to these countries. However, sanctions imposed on account of Russia’s aggression and the changed operating environment outside of the scope of the sanctions – as well as countersanctions – may create uncertainties. The risks related to the economic consequences of major geopolitical events are examined and mitigated through continuous monitoring and analysis of market developments and the operating environment. Financial risks are discussed in more detail in Note 5 to the financial statements. Information on the sustainability and climate risks related to Sitowise's operations is presented in the Annual and Sustainability Report. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 27 LEGAL PROCEEDINGS Sitowise Oy has a pending legal proceeding with a former client relating to a Finnish residential apartment building project from a few years back. A substantial claim has been presented to Sitowise by the counterparty, but according to the company’s view, the claim is unfounded. Sitowise has also presented a claim to the counterparty for the unpaid part of the project payment, plus the delay interest. The company estimates that the proceedings will take years. RELATED PARTY LOANS Sitowise Group Plc has given subordinated loans to its related party company Fimpec Group Oy. The loans amounted to EUR 916,500 at the end of the financial period. The interest rate on the subordinated loans is 8% p.a. The loans are subject to the provisions of Chapter 12 of the Finnish Limited Liability Companies Act. SEASONALITY AND SENSITIVITIES The seasonal variation of Sitowise’s business is affected by the monthly allocation of annual working days, which in turn is affected by the timing of public holidays (e.g., Easter and Christmas) and employee vacation periods. The Group’s net sales and profitability are generally at their lowest in the third quarter due to the summer vacation season. Calendar effects: Number of working hours based on sales weighted business mix 202420232022 Difference (2023 vs 2022) Q14784844768 Q2459451460-9 Q3502491500-9 Q4471469477-8 Full year1,9101,8951,914-19 Estimated sensitivities with current business scope on annual level: 2023ChangeImpact in eurosImpact scope Number of working days +/- 1 day+/- EUR 0.7-0.9 million Topline and bottom-line impact Sickness absences +/- 1%-point -/+ EUR 2 million Topline and bottom-line impact SEK/EUR FX rate+/- 10%+/- EUR 4 million Topline impact BOARD OF DIRECTORS’ PROPOSAL CONCERNING THE USE OF THE PARENT COMPANY’S PROFIT On 31 December 2023, the distributable funds of Sitowise Group Plc amounted to EUR 108.2 million, of which profit of the parent company for the 2023 financial period was EUR 4,014,150. According to its dividend policy, Sitowise’s objective is to pay annually a dividend corresponding to 30–50 percent of net profit to its shareholders. When distributing a possible dividend, business acquisitions, the company's financial situation, cash flow and future growth opportunities are taken into account. Considering the current market environment, and to preserve capital for future growth initiatives, the Board of Directors proposes that no dividend be paid based on the balance sheet to be adopted for the financial year 2023. The Board will consider using the authorization for share buy-backs during 2024. LONG-TERM FINANCIAL TARGETS The Board of Directors of Sitowise Group has set the following long-term financial targets: • Growth: Annual growth in net sales of more than 10 percent, including acquisitions • Profitability: Adjusted EBITA margin of at least 12 percent • Leverage: Net debt / adjusted EBITDA should not exceed 2.5x, except temporarily in conjunction with acquisitions According to its dividend policy, Sitowise’s objective is to pay annually a dividend corresponding to 30–50 percent of net profit to its shareholders. When distributing a possible dividend, business acquisitions, the company’s financial situation, cash flow and future growth opportunities are taken into account. OUTLOOK AND GUIDANCE Outlook for 2024 The stable long-term growth in the demand for design, consulting and digital services to create sustainable societies is supported by megatrends such as urbanization, renovation backlog, sustainability, digitalization and security. The weakened macro-economic outlook, high interest rates and high inflation have slowed down growth in both Finland and Sweden and impacted the short-term decision-making of Sitowise’s clients especially in the private sector and most of all in residential building projects. The general economic environment also has an impact on larger public sector investments. A key factor impacting Sitowise’s market environment in 2024 will be the timing of the anticipated central banks’ decisions to lower interest rates, and whether those will be, when materialized, Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 28 sufficient to drive increasing demand for new construction and investment projects and thereby technical consulting services. We expect the market environment to remain mixed in 2024. Key driver for growth will be increasing demand for services related to green transition, security, and digitalization of the built environment. In Buildings, the first part of the year will still be challenging due to the difficult construction market in Finland, which is expected to show signs of recovery earliest towards to the end of 2024. There are some positive signals in the Swedish technical consulting market environment, which has overall remained more stable than in Finland. Entering the year 2024, orderbooks were at good level in Infra, Digital Solutions and Sweden. In Buildings, the workload was on an insufficient level, which has led to a start of selective temporary layoffs In Buildings in early 2024 In addition to the market development, cost inflation (e.g., relating to salary increases), higher number of working days in 2024 than in the previous year (-1 day in Q1, +1 day in both Q2 and Q3 and equal number of days in Q4), potential currency fluctuations (EUR/SEK) and higher interest expenses are expected to impact Sitowise’s financial performance during 2024. Guidance for 2024 Sitowise Group’s net sales is expected to slightly decline in 2024, driven by the Buildings business decline. Adjusted EBITA margin (%) is expected to be at the 2023 level or above in 2024. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD Directed share issue and a change in the number of Sitowise shares On 9 January 2024, the Board of Directors of Sitowise Group Plc decided on, by virtue of the authorization granted by the Annual General Meeting on 25 April 2023, to issue 48,675 own shares held by Sitowise Group Plc and 179,738 new shares in a directed share issue. The directed share issue relates to a transaction where Sitowise Oy acquired the expert operations of Ahlman Group Oy, a provider of nature and environmental services. The acquisition was completed on 9 January 2024. The new shares subscribed for in the issue were registered with the Finnish Trade Register on 11 January 2024, after which the total number of shares in the Company is 35,845,665 shares. The Company does not hold own shares. Proposals of the Shareholders’ Nomination Board of Sitowise for the Annual General Meeting 2024 On 30 January 2024, the proposals of the Shareholders' Nomination Board for the Annual General Meeting were published. The Annual General Meeting is planned to be held on 4 April 2024 and according to the proposal the members of the Board of Directors and its committees will be paid the same fees for the term of office ending at the Annual General Meeting 2025 as for their previous term of office. The Shareholders' Nomination Board further proposes that for the term of office ending at the Annual General Meeting 2025, the current members of the company’s Board of Directors Eero Heliövaara, Mirel Leino-Haltia, Elina Piispanen, Niklas Sörensen, Tomi Terho and Mats Åström be re-elected and Anni Ronkainen be elected as a new member to the Board of Directors. Proposals in full are available on Sitowise’s investor site at Annual General Meeting 2024 | Sitowise. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 29 FINANCIAL AND ALTERNATIVE PERFORMANCE MEASURES Since the publication of the IFRS financial statements for 2019, Sitowise has reported some alternative performance measures that do not comply with IFRS standards. The calculation of alternative performance measures does not take into account items affecting comparability, which are different from ordinary business operations, in order to show the financial result of the underlying actual business. The alternative performance measures are intended to improve comparability and are not a substitute for other IFRS-based key figures. The alternative performance measures to be reported are adjusted EBITDA, EBITA, adjusted EBITA, and net debt / EBITDA (adjusted). Adjusted EBITDA and adjusted EBITA exclude material items that are not part of ordinary activities, but which affect comparability. Key figures describing financial development EUR thousand1–12/20231–12/2022 Net sales210,910204,414 Growth in net sales, %3.2%14.0% Adjusted organic growth in net sales, %1%5% EBITA, adjusted17,01220,380 % of net sales8.1%10.0% EBITA15,12816,075 Operating profit (EBIT)11,70113,162 % of net sales5.5%6.4% Result for the period5,5497,914 Balance sheet total278,381280,724 Cash and cash equivalents15,59615,390 Net debt55,34056,602 Cash flow from operating activities before financial items and taxes23.89122.676 Earnings per share (EUR)0.160.22 Diluted earnings per share (EUR)0.160.22 Earnings per share, continuing operations (EUR)0.160.22 Diluted earnings per share, continuing operations (EUR)0.160.22 Return on equity (ROE), %4.7%6.8% Return on capital employed (ROCE), %5.5%6.5% Equity ratio, %42.9%41.6% Net debt / EBITDA, adjusted3.0x2.6x Gearing, %46.3%48.4% Number of personnel, average2,2112,151 Full-time equivalent (FTE), average1,9741,918 Utilization rate74.4%76.1% Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 30 FORMULAS OF FINANCIAL AND ALTERNATIVE PERFORMANCE MEASURES Adjusted organic growth in net sales= Growth in net sales excluding acquisitions and divestments adjusted by the number of working days and exchange rate impact EBITA=Operating profit + amortization of intangible assets EBITA, adjusted=EBITA + items affecting comparability EBITDA, adjusted= EBITDA + items affecting comparability; in addition, lease liabilities are treated as operating leases, so lease expenses on the whole affect EBITDA Items affecting comparability= Items affecting comparability are primarily costs associated with M&A and integration, restructuring as well as IPO readiness Net debt=Loans from financial institutions - cash and cash equivalents (net debt does not include lease liabilities) Return on equity (ROE), %= Profit for the period, prev. 12 months Total shareholders’ equity, average Return on capital employed (ROCE), %= (Profit before taxes + financial expenses), prev. 12 months (Balance sheet total – non-interest-bearing debt), average Equity ratio, %= Total shareholders’ equity Balance sheet total Net debt / EBITDA, adjusted= Net debt EBITDA, adjusted, prev. 12 months Gearing, %= Net debt Total shareholders’ equity Non-diluted earnings per share= (Result for the period – non-controlling interest – dividend for the financial period to be distributed taking tax impact into consideration) Average weighted number of shares Diluted earnings per share= (Result for the period – non-controlling interest – dividend for the financial period to be distributed taking tax impact into consideration) Average diluted weighted number of shares Full-time equivalent (FTE), average=Group personnel, full-time equivalent average during the period Utilization rate=Number of project hours worked relative to the number of hours worked SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 31 RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES EUR thousand20232022 Net sales210,910204,414 Adjusted organic growth in net sales, % Growth in net sales3%14% Impact of acquisitions-5%-9% Impact of number of working days1%0% Impact of exchange rates2%1% Adjusted organic growth in net sales, %1%5% EBITA Operating profit (EBIT)11,70113,162 Amortizations of intangible assets-3,427-2,913 EBITA15,12816,075 EBITA %7.2%7.9% Items affecting comparability Restructuring costs1,503722 M&A and integration costs3022,801 Other, income (-) / costs (+)-99782 Items affecting comparability, EBITDA1,7064,305 Items affecting comparability, depreciations1780 Items affecting comparability, EBITA1,8844,305 EBITA, adjusted EBITA15,12816,075 Items affecting comparability, EBITA1,8844,305 EBITA, adjusted17,01220,380 EBITA, adjusted %8.1%10.0% EBITDA Operating profit (EBIT)11,70113,162 Depreciation and amortization-11,518-10,594 EBITDA23,21923,756 EBITDA %11.0%11.6% Net debt Loans from financial institutions70,93571,992 Cash and cash equivalents15,59615,390 Net debt55,34056,602 EBITDA, adjusted (prev. 12 months) EBITDA (prev. 12 months)23,21923,756 Items affecting comparability, EBITDA (prev. 12 months)1,7064,305 Operational lease liabilities (IFRS16) (prev. 12 months)-6,735-6,366 EBITDA, adjusted (prev. 12 months)18,18921,695 Net debt / EBITDA, adjusted Net debt55,34056,602 EBITDA, adjusted (prev. 12 months)18,18921,695 Net debt / EBITDA, adjusted3.0x2.6x Gearing, % Total shareholders’ equity 119,483116,874 Net debt55,34056,602 Gearing, %46.3%48.4% Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 32 CONSOLIDATED FINANCIAL STATEMENTS IFRS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME EUR thousandNoteJan 1 – Dec 31, 2023Jan 1 – Dec 31, 2022 Net sales2.2210,910204,414 Other operating income2.3397288 Materials and services2.4-21,493-20,495 Personnel expenses2.5-138,417-129,774 Other operating expenses2.6-28,179-30,677 Depreciation, amortization, and impairment2.7-11,518-10,594 Operating result11,70113,162 Financial income4.1532390 Financial expenses4.1-5,088-3,272 Profit before taxes7,14510,280 Income taxes6.2-1,596-2,366 Profit for the period5,5497,914 Attributable to: Owners of the parent5,6187,847 Non-controlling interest-6967 Profit for the period5,5497,914 Items that may be reclassified to profit or loss Change in translation difference162-3,837 Cash flow hedging, net of tax-5463 Total for items in other comprehensive income109-3,774 Total comprehensive income5,6574,140 Comprehensive income attributable to: Owners of the parent5,7274,073 Non-controlling interest-6967 Earnings per share: Earnings per share (EUR)2.80.160.22 Diluted earnings per share (EUR)0.160.22 The notes are an integral part of the financial statements. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 33 CONSOLIDATED STATEMENT OF FINANCIAL POSITION EUR thousandNoteDec 31, 2023Dec 31, 2022 Assets Goodwill3.2158,033157,620 Intangible assets3.211,86310,224 Property, plant and equipment3.32,8963,973 Right-of-use assets3.326,40527,803 Other shares, similar rights of ownership, and receivables4.21,8991,931 Deferred tax assets6.2732894 Total non-current assets201,828202,446 Trade and other receivables3.459,15061,564 Income tax receivables6.21,8081,323 Cash and cash equivalents4.215,59615,390 Total current assets76,55378,278 Total assets278,381280,724 EUR thousandNoteDec 31, 2023Dec 31, 2022 Shareholders’ equity and liabilities Share capital8080 Reserve for invested unrestricted equity96,69296,434 Fair value reserve294348 Translation difference-3,519-3,681 Retained earnings25,75123,440 Equity attributable to owners of the parent119,299116,621 Non-controlling interest183253 Total shareholders’ equity119,483116,874 Deferred tax liabilities6.21,5431,588 Financial liabilities4.269,93570,992 Lease liabilities4.220,52422,050 Total non-current liabilities92,00394,630 Income tax liabilities60653 Financial liabilities4.21,0001,000 Lease liabilities4.27,1936,937 Provisions3.5330981 Trade payable and other liabilities3.658,31259,649 Total current liabilities66,89569,219 Total shareholders’ equity and liabilities278,381280,724 The notes are an integral part of the financial statements. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 34 CONSOLIDATED CASH FLOW STATEMENT EUR thousandJan 1 – Dec 31, 2023Jan 1 – Dec 31, 2022 Cash flow from operating activities: Profit for the period5,5497,914 Adjustments Income taxes1,5962,366 Depreciation, amortization, and impairment11,51810,594 Financial income and expenses4,5562,882 Other adjustments259297 Change in working capital Increase (-) / decrease (+) in trade receivables and other receivables2,835-6,424 Increase (+) / decrease (-) in trade and other payables-2,4225,047 Interest paid and other financial expenses-4,885-2,244 Interest received and other financial income500185 Income taxes paid-2,921-4,558 Net cash flows from operating activities16,58616,058 Cash flow from investing activities: Investment in tangible and intangible assets -3,904-3,665 Acquisitions of subsidiaries, net of cash acquired-1,512-28,786 Cash flow from investing activities -5,416-32,450 Cash flow from financing activities: Payments from share issue2583,844 Share repurchase0-2,720 Dividends paid-3,555-3,545 Withdrawal of long term loans024,424 Repayment of short term loans-1,072-2,974 Payments of lease liabilities-6,561-6,131 Cash flow from financing-10,92912,899 Cash and cash equivalents at the start of the period15,39019,353 Change in cash and cash equivalents, increase (+) / decrease (-)241-3,493 Impact of changes in foreign exchange rates-35-470 Cash and cash equivalents at the end of the period15,59615,390 The notes are an integral part of the financial statements. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 35 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY Equity attributable to owners of parent EUR thousand Share capital Reserve for invested unrestricted equity Fair value reserve Translation differences Retained earningsTotal Non- controlling interest Total shareholders’ equity Shareholders’ equity 1 Jan 2023 8096,434348-3,68123,440116,621253116,874 Result for the period5,6185,618-695,549 Other comprehensive income -54162109109 Total comprehensive income 00-541625,6185,727-695,657 Share issues258258258 Dividend distribution-3,555-3,555-3,555 Share-based incentive schemes 248248248 Transactions with owners 025800-3,306-3,0480-3,048 Shareholders’ equity 31 Dec 2023 8096,692294-3,51925,751119,299183119,483 Shareholders’ equity 1 Jan 2022 8095,31028515618,840114,672186114,858 Result for the period7,8477,847677,914 Other comprehensive income 63-3,837-3,774-3,774 Total comprehensive income 0063-3,8377,8474,073674,140 Share issues3,8443,8443,844 Share repurchase-2,720-2,720-2,720 Dividend distribution-3,545-3,545-3,545 Share-based incentive schemes 297297297 Transactions with owners 01,12400-3,247-2,1230-2,123 Shareholders’ equity 31 Dec 2022 8096,434348-3,68123,440116,621253116,874 The notes are an integral part of the financial statements. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basic information Sitowise is a Nordic expert in the built environment with a strong focus on digitality. Company offers sustainable design and consultancy services for projects of all sizes to enable more sustainable and smarter urban development as well as smooth transportation. Sitowise has four business areas that are Buildings, Infrastructure, Digital Solutions and Sweden. Value creation for clients and other stakeholders is based on the strong expertise and industry knowledge of Sitowise employees. In future, the company aims to strengthen its position as one of the leading providers of technical consulting and digital services for the built environment and forest assets. The Group’s parent company is the Finnish limited liability company Sitowise Group Plc (hereinafter referred to as the “Company”), domiciled in Espoo, with the mailing address Linnoitustie 6, FI-02600 Espoo, Finland. The Company was listed on the main list of Nasdaq Helsinki Ltd in March 2021. The consolidated financial statements are available at the company's head office at Linnoitustie 6 D, FI-02600 Espoo, Finland, and on the Group's website www.sitowise.com. The Board of Directors of Sitowise Group Plc approved these financial statements in its meeting on 26 February 2024. In accordance with the Finnish Limited Liability Companies Act, shareholders can adopt or reject the financial statements in a general meeting of shareholders organized after their publication. The general meeting can also resolve to amend the financial statements. 1 GENERAL INFORMATION 1.1 ACCOUNTING POLICIES The consolidated financial statements of the Sitowise Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) approved for use in the European Union, and the IAS and IFRS standards as well as SIC and IFRIC interpretations in force on 31 December 2023 have been applied in preparing them. IFRS refers to standards and interpretations that companies referred to in the Finnish Accounting Act and regulations issued under it must comply with and that have been approved for application in accordance with the procedure enacted by Regulation (EC) No. 1606/2002 of the European Parliament and of the Council. The notes to the consolidated financial statements also fulfill the requirements of Finnish accounting and company legislation supplementing the IFRS standards. The consolidated financial statements have been prepared on the basis of original cost, unless otherwise specified in the accounting policies. The consolidated financial statements include the parent company’s financial statements and the financial statements of all companies over which the Group has control. A subsidiary is consolidated into the financial statements as of the moment when the Group receives control. Consolidation is discontinued once control ceases to exist. All intra-Group transactions are eliminated in the consolidated financial statements. Item-specific accounting policies and descriptions of decisions requiring management discretion and the use of estimates and assumptions are presented in conjunction with each item. The operating currency of the Sitowise Group is the euro. The figures disclosed in the financial statements are rounded up, so the sum of individual figures can deviate from the reported sum. The notes are an integral part of the financial statements. New and amended standards During the financial year the Group has adopted the amendments to IAS 12 Income taxes -standard. The amendment applies to accounting for deferred tax related to assets and liabilities arising from a single transaction. The amendments narrow the scope of the initial recognition exemption and specify that the exemption does not apply to individual transactions, such as leases that give rise to equal and opposite temporary differences. The amendments have an impact on the notes presented in consolidated financial statements, but not on Sitowise Group’s Balance sheet. The Group has not adopted any new and revised IFRS standards or interpretations that have been published but have not yet entered into force in the financial period beginning on January 1, 2023 (early application), and the unadopted IFRS or IFRIC interpretations are not considered to have a significant impact on the Group. 1.2 TRANSLATION OF ITEMS DENOMINATED IN FOREIGN CURRENCIES The consolidated financial statements are reported in euros, which is also the parent company’s operating currency. Items included in the financial statements of Group companies are measured at the currency of the primary economic operating environment of the respective company (operating currency). SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 37 Transactions denominated in foreign currencies are translated into the operating currency at the exchange rate of the transactions. Foreign exchange gains and losses arising from payments associated with such transactions and translation of monetary assets and liabilities denominated in foreign currencies at the exchange rate of the closing date are recognized through profit and loss. The profit and loss accounts and balance sheets of international units using an operating currency different from the reporting currency are translated into the reporting currency as follows: • the assets and liabilities on each reported balance sheet are translated using the exchange rate of the closing date; and • the income and expenses on each profit and loss account are translated at average exchange rates for the financial period. Exchange rate differences arising from the consolidation of foreign units are recognized as translation differences in other comprehensive income. 1.3 KEY DECISIONS MADE BY THE MANAGEMENT REQUIRING DISCRETION AND MAIN UNCERTAINTY FACTORS RELATING TO ESTIMATES Preparing the financial statements in accordance with the IFRS requires the management to make discretionary decisions and use estimates and assumptions that have impacts on the amounts of assets and liabilities on the closing date, reporting of contingent assets and liabilities and the amounts of income and expenses for the reporting period. These estimates and assumptions are based on prior experience and other justifiable factors, such as expectations concerning future events that the management of the Sitowise Group considers reasonable, taking into account the conditions on the closing date and when the said estimates and assumptions were made. Even though these estimates are based on the best view of the Sitowise Group’s management of events and measures on the closing date, it is possible that the outcomes differ from these estimates. The estimates and underlying assumptions are continuously updated when preparing the financial statements. The Group may need to adjust its estimates if the conditions on which the estimates are based change, or if the Group receives new information or accumulates more experience. Any changes are recognized in the accounts for the financial period during which the estimate or assumption is updated. Decisions based on management discretion which the management has made when applying the accounting policies and which have impacts on the figures disclosed in the financial statements are associated with the following areas, among others: segment reporting, recognition of revenue based on the percentage of completion, goodwill impairment testing, provisions, allocation of the cost of acquisitions, measurement of tangible assets, and economic lives of other intangible assets. The revenue recognition practices are described in Note 2.2. Impairment testing is described in Note 3.2. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 38 2 OPERATING PROFIT This section focuses on the Group's result and its formation. Next, the different components of the Group’s operating profit are discussed. 2.1 SEGMENT REPORTING The Sitowise Group consists of a single operating segment covering all the Group's business operations. This corresponds to the way in which internal reporting is made to the highest operational decision-maker and the way in which the highest operational decision-maker makes decisions on resource allocation and evaluates performance. Significant estimates based on management discretion Sitowise Group's management has used discretion in determining the Group's segment reporting. Areas requiring discretion have been the determination of the highest operational decision- maker, decisions made in Group management and the reports used. The Board of Directors and the CEO have been defined as the highest operational decision-maker. The CEO is responsible for allocating resources and evaluating performance. 2.2 NET SALES Sitowise provides its customers with all the services for the built environment as well as expert and digital services under the one-stop-shop principle. The main market areas are Finland and Sweden. The net sales of the Sitowise Group primarily comprise sales of services and service packages that may also include software or system development. All services provided to clients under client contracts are recognized as net sales in accordance with the variable and fixed amounts specified in the client contract, considering any incentives and sanctions. Other income that is not related to ordinary activities, such as public grants received and gains on the sale of tangible assets, are recognized in other operating income. A five-step model is applied to revenue recognition, identifying the contract and performance obligations, determining the transaction price, and allocating it to the performance obligation. Sales revenue is recognized as the performance obligation is fulfilled and only up to the consideration that the Group expects it to be entitled against the services delivered to the client. Accounting policy Identification of a contract: IFRS 15 includes the criteria for identifying and combining contracts. As a rule, Sitowise only concludes a single contract with the same customer on a single project. However, contracts can be combined when several almost simultaneous contracts concerning the same site have been concluded with the customer. If separate framework agreements have been concluded with the same customer on different areas of design, it means that the contracts should not be combined for revenue recognition. The justification of this is that the contract negotiations have often been carried out by completely different persons and they have not been negotiated as a single whole. The average duration of customer contracts varies from weeks to a few months, depending on the industry and whether the contract is a framework agreement or an individual service contract with the client. Amendments to contracts: In the contracts of the Sitowise Group, additional work is most commonly addressed as part of the project whole, i.e. as expansions of the existing project. In some cases, additional and alteration work can also be established as separate projects and performance obligations. If the scope of application of a contract is expanded due to the work added to it being separable and the total contractual price increases by the separate selling prices for work, the alteration and additional work will be accounted for as a separate performance obligation and recognized as revenue as a separate project. Identification of performance obligations:The services promised in the customer contract are estimated and the performance obligations delivered to the customer are identified at the time of concluding the contract. In the practice pursuant to IFRS 15, the entire project is considered to be a single performance obligation in the customer contracts of the Infrastructure and Digital Solutions business areas. In the Buildings business area, on the other hand, performance obligation levels depend on the customer and the service offered. If the sub-areas of design are defined and priced as a single aggregate of duties in the request for quote, quote, and contract, the assignment is treated as a single performance obligation. Determination of transaction price and its allocation to performance obligations:The transaction price is the amount of consideration to which the Sitowise Group expects it to be entitled for the services provided to the customer. The consideration pledged in the customer contract may include fixed or variable monetary amounts or both. The most common variable considerations are associated with penalties for delay, incentives, performance-linked bonuses, and target prices. Penalties for delays are recognized once they are likely to materialize. Incentives and bonuses and additional consideration received for completion below target prices are recognized once they are very likely to materialize. Revenue recognition:The services provided by the Sitowise Group are customized for the customer, and the Sitowise Group primarily has a contractual right to payment for the customized output received by the time of review. Performance obligations are fulfilled over time, and control is considered to be transferred to the client as the service is performed for the client. The determination of sales revenue recognized over time is based on the percentage of completion. The percentage of completion is determined as the percentage of the working hours and costs of work performed by the time of review of the estimated total amount of work and costs of the project. If the service package involves software or software maintenance services, their license and maintenance revenue is recognized for the contract period. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 39 The estimated sales revenue and total costs of the project are updated at the end of each reporting period. If the outcome of a long-term project cannot be reliably estimated, revenue from the project is recognized only to the extent that the monetary amount corresponding to actual costs is available. If it is probable that the total cost of project completion exceeds the total revenue received from the project, the expected loss is immediately expensed. If the invoicing of the project is lower than the sales revenue recognized on the basis of percentage of completion, the difference is reported as a contractual asset in the Project receivables item on the balance sheet. If the invoicing of the project is higher than the sales revenue recognized on the basis of percentage of completion, the difference is reported as a contractual liability in the Trade and other liabilities item on the balance sheet. The Sitowise Group has set euro-denominated limits for revenue recognition based on the percentage of completion, varying by business area. If the price of the project is below the limit, the contract can be recognized as revenue monthly based on the work performed up to the amount that it is entitled to charge to the customer, instead of recognizing the revenue based on the percentage of completion. In addition, there are hourly priced projects to which the practical relief is applied; in them, revenue is recognized based on expert work. The warranty periods of customer contracts are based on the common standard contractual clauses of the industry. The Group applies payment terms pursuant to the industry’s standard business practices. Significant estimates based on management discretion When revenue recognition is based on the percentage of completion, the outcome of the contract is assessed regularly and reliably. Revenue recognition based on the percentage of completion is based on estimates of the probable sales revenue and expenses of the project as well as reliable measurement of the percentage of completion of the project. If the estimates of the project outcome change, the revenue recognition based on the percentage of completion is adjusted for the reporting period during which the change is initially known. The expected loss from the project is recognized as a loss provision immediately in conjunction with the following monthly reporting. Buildings The Buildings business area offers building design, specialist services, and consulting services for residential and commercial properties, as well as for the needs of the healthcare sector, energy and industry, for example. Sitowise acts as a partner in both new construction and renovation projects. The business area has distinctive design expertise in areas such as structural engineering, building services technology (HVAC and electric), acoustics design, and fire safety planning as well as construction management services. In the area of structural and prefabricated element engineering and building systems, fulfilling the more extensive project package makes up the performance obligation. Correspondingly, in building design, the performance obligation regarding different types of engineering comprises implementing the individual projects of the engineering sectors. In renovations, the performance obligation comprises the overall construction contracting and supervision assignment or tasks of the service areas. The Buildings area also includes specialist and design services that, when commissioned individually, make up a separate performance obligation. Infrastructure The services of the Infrastructure business area (Infra) cover a wide range of urban development needs in diverse areas: infrastructure, transport and mobility, urban development, environment and water, as well as infrastructure project management. Urbanization supports the investment needs of municipalities and cities and the business area’s most significant client segment is the public sector, which accounts for approximately 75 percent of net sales. In the private sector, key clients include construction companies and industrial and energy sector companies. Sitowise's performance obligation consists of preparing the overall engineering of the infrastucture project. Digital Solutions The Digital Solutions business area (Digi) focuses on smart geospatial solutions for the built environment, mobility, and forest and natural resources sector, as well as consulting services that support these fields. These services cover client-driven information system development, proprietary product solutions, analytics, information management and visualization, and consulting services. The services of Digital Solutions usually make up a single project package that is treated as a performance obligation. The system maintenance phase after system development is treated as a separate performance obligation. Sweden In Sweden, Sitowise provides services in buildings, infrastructure, and digital solutions. The Sweden business area’s services include building construction engineering with expertise in frame and structure engineering as well as geotechnical design. It also has a robust offering in complex installations in both buildings and infrastructure, and expert services in underground installations as well as land, water, and sewerage. As from 1 January 2023, this business area also includes digital solutions for infrastructure maintenance planning, reporting and support for municipalities in Sweden (Infracontrol), which were previously reported under Digi. The Sitowise Group primarily acts as the principal in all of its contracts, as it is itself always liable for fulfilling the contract. The Sitowise Group is also responsible for final delivery to the customer when using subcontractors. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 40 2.2.1 Net sales by business area EUR thousand20232022Buildings70,78979,446Infrastructure65,60259,960Digital Solutions29,96928,523Sweden44,55036,486Total210,910204,414 2.2.2 Net sales by market area EUR thousand20232022Finland165,963160,906Sweden44,01142,658Other countries935850Total210,910204,414 The net sales of the geographical areas are reported by the customer’s location. Assets and liabilities based on customer contracts are reported in Notes 3.4 and 3.6. Revenue from customer contracts expected to be recognized and relating to remaining performance obligations by December 31, 2023 amount to approximately EUR 164 (181) million. 2.3 OTHER OPERATING INCOME Accounting policy The Sitowise Group recognizes net sales from non-ordinary activities in other operating income. Other income includes, for example, public grants received and gains on the sale of tangible assets. Public grants are recognized as income at the moment when there is reasonable assurance that the grant will be received and the Group both meets and complies with the terms of the grant. EUR thousand20232022Gains on fixed assets585Grants received337222Other income261Total397288 The Sitowise Group has received public grants from Business Finland and the European Union, among others. 2.4 MATERIALS AND SERVICES EUR thousand20232022Subcontracting expenses13,60513,296Project and other expenses7,8887,199Total21,49320,495 Project and other expenses include costs relating to customer projects as well as travel and meeting expenses. 2.5 PERSONNEL EXPENSES Accounting policy Pension schemes are classified as either defined contribution or defined benefit schemes. The Sitowise Group has no defined benefit schemes. The defined contribution pension scheme is an arrangement in which the Sitowise Group pays fixed premiums to pension insurance policies. The Sitowise Group has no legal or factual obligations to make additional payments if the insurance does not provide sufficient funds for paying all benefits based on the work performance for the current and previous financial periods to all employees. The total compensation paid by the Sitowise Group to its personnel comprises salaries, wage supplements, short-term incentives, and fringe benefits. EUR thousand20232022Wages and salaries110,743103,544Pension expenses18,34117,566Other social security expenses9,3338,664Total138,417129,774 Personnel20232022Average number of personnel2,2112,151Full-time equivalent (FTE) on average1,9391,880 Full-time equivalent (FTE) on average is the average number of full-time equivalents in the Group. Information about the compensation of the management, including share-based incentives, is reported in Note 6.3 on related party transactions. 2.6 OTHER OPERATING EXPENSES EUR thousand20232022Other personnel-related expenses6,8747,159ICT expenses10,85210,502Sales and marketing expenses1,1021,261Rent and other premise expenses4,7494,368Other expenses4,6027,387Total28,17930,677 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 41 Other personnel-related expenses mainly comprise fringe benefits and diverse expenses relating to training, recruitment, and personnel meetings. ICT expenses are primarily associated with software and IT service expenses. The material items included in other expenses are communication expenses, legal and other counselling fees, insurance expenses and office supplies. Practical reliefs allowed by IFRS 16 have been applied, and part of lease costs are included in other operating expenses. Information on IFRS 16 is presented in Note 3.3. 2.6.1 Auditors' fees EUR thousand20232022Statutory audit153146Audit related services133Tax advice 534Other advisory services11238Total183421 The auditor of the parent company and the Group is KPMG Oy Ab. Auditor’s fees other than statutory audit fees were 29 (275) thousand euros. 2.7 DEPRECIATION, AMORTIZATION, AND IMPAIRMENT Accounting policy Depreciation of machinery, equipment, other tangible assets and intangible assets is recognized over their economic useful lives. Depreciation is recognized using the straight-line method based on the acquisition cost and estimated economic useful life of the asset. The Sitowise Group reviews the depreciation periods and methods at least at the end of each financial period. If the economic useful life of an asset differs from the previous estimate, the depreciation period will be adjusted accordingly. Depreciation of right-of-use assets is recognized from the beginning of the contract over the whole contract period. Impairment loss is the amount by which the book value of an asset exceeds the recoverable value of the asset. A public grant received for capital expenditure is recognized as lowering the cost of the fixed asset. Economic useful lives of assets for the 2023 and 2022 financial periods are as follows: • IT machinery and equipment 4 years • Other machinery and equipment 5 years • Right-of-use assets Contract period Economic useful lives of intangible assets are as follows: • Intangible rights 3–5 years • Acquired asset, technology 5 years • Acquired asset, customer relations 5 years • Other intangible rights 5–10 years EUR thousand20232022Machinery and equipment1,2841,291LeasesBuildings and structures6,0435,828Machinery and equipment647561Impairments11743Tangible assets8,0917,723Intangible rights and other 3,4232,803intangible assetsImpairment468Intangible assets3,4272,871Total11,51810,594 2.8 EARNINGS PER SHARE Accounting policy Earnings per share is calculated by dividing parent company’s result for its owners with average amount of shares during the financial period. During the financial year Company had one long-term share based incentive program effective which's traget of 210,000 new shares were taken on account when calculating diluted share result. Diluted share result per share is calculated in same way than non-diluted but by using diluted amount of shares. EUR thousand20232022Parent company result for the owners5,6187,847Average amount of the shares35,665,92735,664,557Non-diluted earnings per share 0.160.22(EUR/share)Average diluted amount of shares35,801,70835,664,557Diluted earnings per share (EUR/share)0.160.22 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 42 3 OPERATIONAL ASSETS AND LIABILITIES 3.1 BUSINESS COMBINATIONS Accounting policy Acquired subsidiaries are consolidated into the consolidated financial statements using the acquisition method. The consideration given in business combinations and the identifiable assets and assumed liabilities of the acquired company are measured at fair value upon acquisition. The consideration given in conjunction with acquisitions includes any funds given, liabilities to the previous owners of the acquiree and issued equity shares. Any additional purchase price is measured at fair value upon acquisition. The additional purchase price is classified as either equity or a liability. If the additional purchase price is classified as a liability, it is measured at fair value on the closing date of each reporting period. An additional purchase price classified as equity is not remeasured. Information about additional purchase price liabilities is presented in Note 4.2.2. Non-controlling interest in the acquiree is measured at fair value or at an amount corresponding to the proportional share of the non-controlling interest of the identifiable net assets of the acquiree. Acquisition-related expenses, such as expert fees, are expensed for the periods during which they occur and services are received. Mergers and acquisitions are a central part of the active growth strategy of the Sitowise Group. The mergers and acquisitions have primarily been minor supplementary acquisitions, and each acquisition has had an impact of less than 10% individually on the net sales of the Sitowise Group. The starting point in acquisitions has been to strengthen local expertise and resources. Therefore, the value of the acquisitions is primarily based on skilled personnel, and no value is allocated; the majority of it is allocated to goodwill. In 2023, the Sitowise group carried our two acquisition in Finland. • Infrastructure and environment construction expert, Infrasuunnittelu Oy. • Sustainability agency, Positive Impact Finland Oy Purchase prices of the acquisitions are paid by cash consideration or by combination of cash consideration and shares of Sitowise Group Plc. Estimated purchase price liabilities as per 31.12.2023 amounted to 0.9 million euros. The assets and liabilities of the acquired companies mainly include working capital items and separately identified assets related to customer relationships, technology, or non-compete clauses agreed on acquisition. The estimated useful life of the separately identified assets is 5 years. Recognized consolidated goodwill is not deductible for tax purposes whereas goodwill from purchases of businesses is deductible in acquiring company’s taxation. The Sitowise Group has received reasonable information to allocate the acquired assets and is not aware of any changes needed for the made allocations. If the acquisitions in 2023 would have been made as per 1 January 2023 group’s revenue would be 0.8 (9.5) million euros higher but no effect on EBIT (1.3 million euros). EUR thousand20232022Purchase price1,57932,617Assets1,55711,574Liabilities6074,618Net assets9506,772Goodwill62925,845 Net sales in 2022Acquisitions 2023Time of acquisitionTransaction methodMain locationPersonnelEUR millionInfrasuunnittelu Oy5/2023Share purchase (100%)Kajaani (Finland)171.2Positive Impact Finland Oy11/2023Share purchase (100%)Helsinki (Finland)70.4 Net sales in 2021Acquisitions 2022Time of acquisitionTransaction methodMain locationPersonnelEUR millionMavacon AB1/2022Share purchase (100%)Falun (Sweden)132.3VRT Survey1/2022Business acquisitionJyväskylä (Finland) 9-Rakennuttajakaari Oy6/2022Share purchase (100%)Helsinki (Finland)455.0E60 Elkonsult AB6/2022Share purchase (100%)Norrtälje (Sweden)101.1Bitcomp Oy6/2022Share purchase (100%)Jyväskylä (Finland)805.7Convia10/2022Share purchase (100%)Stockholm (Sweden)233.8 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 43 3.2 GOODWILL AND INTANGIBLE ASSETS Accounting policy Apart from goodwill, intangible assets are recognized at cost less amortization using the straight-line method over their economic useful lives. Intangible assets include intangible rights and other intangible assets. Goodwill Goodwill from the acquisition of business operations is recognized at the amount by which the consideration given, non-controlling interest, and any previous holding in the acquiree combined exceed the Group’s share of the fair value of the acquired net assets. Goodwill is recognized on the balance sheet less any accumulated impairment losses. Goodwill is not amortized but tested annually for any impairment. An impairment loss recognized for goodwill is never reversed. For impairment testing, goodwill is tested as a whole. Impairment testing is described in more detail below in this Note. The impairment of goodwill is described in Note 3.2.1, Impairment testing. Intangible assets Intangible assets include intangible rights and intangible assets. Intangible assets, such as system deliveries, which have a limited economic useful life, are recognized on the balance sheet at original acquisition cost less accumulated amortization and any impairment. Intangible assets also include products developed for customer needs, for which own or subcontractors' work has been capitalized and from which revenues are expected in the future. Technology and customer relationships owned by the Sitowise Group have been acquired in conjunction with previous mergers and acquisitions, and they were initially recognized on the balance sheet at fair value and are amortized using the straight- line method over their estimated economic useful lives. The Sitowise Group assesses on the closing date of each financial period whether there are indications of the impairment of intangible assets other than goodwill. If indications emerge, the Group assesses the recoverable amount from the said asset. The recoverable amount is the fair value of the asset less the higher of costs of selling or value in use. An impairment loss is recognized through profit and loss when the book value of the asset exceeds the recoverable amount. When recognizing the impairment loss, the Group reassesses the economic useful life of the intangible asset. The impairment loss is reversed if a change has taken place in the circumstances and the recoverable amount of the asset has changed from the time of recognizing the impairment loss. However, the impairment loss will not be reversed in excess of the book value of the asset had the impairment loss not been recognized. Significant estimates based on management judgment Technology and customer relationships owned by the Sitowise Group have been acquired in conjunction with previous mergers and acquisitions, and they were initially recognized on the balance sheet at fair value and are amortized using the straight- line method over their estimated economic useful lives. The management has estimated the economic useful life of technology to be 5 years and the economic useful life of customer relationships to be 5 years. Section 3.2.1.1, Business combinations, discusses the treatment of goodwill. During the 2023 financial period, the Sitowise Group carried out two acquisitions. Prepayments for intangible EUR thousandGoodwillIntangible assetsassetsTotalAcquisition cost January 1, 2023157,62016,5911,921176,133Business combinations3181,4891,807Increase3,5463,546Transfer between items981-9810Impairments-8-8Exchange rate differences95461142Acquisition cost December 31, 2023158,03322,645941181,620Accumulated depreciation -8,288-8,288Depreciation for the period-3,423-3,423Transfer between items5656Impairments, accumulated depreciation44Exchange rate differences-72-72Accumulated depreciation, amortization, and -11,723-11,723impairment December 31Balance sheet value December 31, 2023158,03310,922941169,896 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 44 Prepayments Other intangible for intangible EUR thousandGoodwillassetsassetsTotalAcquisition cost January 1, 2022135,19313,798542149,532Business combinations23,9193,13827,056Increase2,0681,2411,4484,757Decrease-400-400Transfer between items-252-66-318Impairments-249-249Exchange rate differences-3,559-684-4-4,247Acquisition cost December 31, 2022157,62016,5911,921176,133Accumulated depreciation -6,401-6,401Business combinations, accumulated depreciation-10-10Depreciation for the period-2,803-2,803Transfer between items274274Impairments, accumulated depreciation181181Exchange rate differences471471Accumulated depreciation, amortization, and -8,288-8,288impairment December 31Balance sheet value December 31, 2022157,6208,3021,921167,844 3.2.1 Impairment testing Accounting policy The impairment testing is carried out annually, and if there are indications of value possibly being impaired. Furthermore, other assets are tested for impairment if there are indications of any impairment. If any evidence of impairment is found, the recoverable amount of the said asset is estimated. The recoverable amount is determined on the basis of value in use. An impairment loss is recognized when the book value of the asset exceeds the recoverable amount. The impairment loss is immediately recognized through profit and loss, and the economic useful life of the amortized asset is reassessed when recognizing the impairment loss. The need for recognizing impairment losses is reviewed at the level of cash-generating unit, namely the Sitowise Group. An impairment loss recognized for goodwill is never reversed. Significant estimates based on management discretion The preparation of calculations used in testing goodwill for impairment requires making estimates concerning the future. The management’s estimates and related critical uncertainty factors are associated with the components of calculations concerning the recoverable amount, which include discount rate, growth rate after the projection period and development of net sales and operating profit, including the level of the company’s costs. The discount rate indicates current estimates of the time value of money and a relevant risk premium, which, in turn, indicates risks and uncertainty factors not taken into account by adjusting the estimates concerning the corresponding cash flows. The discount rates used and projections of business growth and profitability, including sensitivity analyses, are presented in section 3.2.1.1 below. 3.2.1.1 Impairment testing of goodwill The Sitowise Group has one cash-generating unit at the level of which goodwill is monitored and to which goodwill is allocated. Cash flow projections are based on the board of directors' confirmed budget for the next year and the board of directors' confirmed strategic plan for the subsequent years. Market forecast provided by an external party ia also taken into account when making the cash flow projections. The length of the projection period used in impairment testing calculations is five years. The management’s conservative estimate of long-term cash flow growth has been used in determining the growth in the terminal value. The growth factor used for the terminal value is 2.0% annual growth, corresponding to long-term GDP growth in the market areas in which the Sitowise Group operates. The discount rate of cash flows is determined using the weighted average cost of capital (WACC). The key factors of WACC are risk-free interest rate, market risk premium, industry-specific beta factor, cost of debt, and ratio of equity to liabilities. The table below presents the assumptions by testing dates. Assumptions used in impairment 30 September 30 September calculation20232022Growth in net sales during the 3.7%5.7%projection period (CAGR)Terminal growth assumption2.0%2.0%Discount rate (pre-tax WACC)10.8%11.3% Impairment testing on 30 September 2023 did not indicate a need for impairment of goodwill, with the recoverable amount exceeding the book value. The Sitowise Group has estimated that no anticipated change in the key assumptions would cause a situation in which the book SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 45 value of a cash-generating unit would exceed its recoverable amount. A break-even sensitivity analysis was carried out in conjunction with the impairment testing, in which the discount rate was increased by 1.0 percentage points and the terminal growth assumption was reduced to 1.5%. Based on the sensitivity analyses, the probability of goodwill impairment loss was low. 3.3 TANGIBLE ASSETS 3.3.1 Property, plant and equipment Accounting policy Tangible assets primarily comprise office furniture, IT hardware, and other tools. Property, plant, and equipment is measured at original acquisition cost less accumulated amortization and any impairment. The Group assesses on the closing date of each reporting period whether there are indications of the impairment of a tangible asset. If indications emerge, the Group assesses the recoverable amount from the said asset. An impairment loss is recognized when the book value of the asset exceeds the recoverable amount. Machinery and Other tangible EUR thousandequipmentassetsTotalAcquisition cost January 1, 202310,020010,020Business combinations5151Increase332332Decrease-136-136Impairments-128-128Exchange rate differences-3-3Adjustment of accumulated depreciation and acquisition cost-1,029-1,029Acquisition cost December 31, 20239,10709,107Accumulated depreciation-6,047-6,047Depreciation for the period-1,284-1,284Adjustment of accumulated depreciation and acquisition cost8686Accumulated depreciation of decreases1,0211,021Accumulated depreciation of impairments1111Exchange rate differences33Accumulated depreciation, amortization, and impairment December 31-6,211-6,211Balance sheet value December 31, 20232,89602,896 Machinery and Other tangible EUR thousandequipmentassetsTotalAcquisition cost January 1, 20228,444368,480Business combinations759759Increase1,1461,146Decrease-19-19Impairments-8-36-43Exchange rate differences-119-119Adjustment of accumulated depreciation and acquisition cost-183-183Acquisition cost December 31, 202210,02010,020Accumulated depreciation-4,917-4,917Business combinations, accumulated depreciation-30-30Depreciation for the period-1,291-1,291Adjustment of accumulated depreciation and acquisition cost129129Accumulated depreciation of decreases11Exchange rate differences6262Accumulated depreciation, amortization, and impairment December 31-6,047-6,047Balance sheet value December 31, 20223,97303,973 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 46 3.3.2 Leases Accounting policy As a rule, the Sitowise Group recognizes all lease-related assets (right-of-use assets) and lease liabilities on its balance sheet. At the time of concluding a contract, the Sitowise Group assesses whether the contract is a lease or includes a lease. The contract is a lease or includes a lease if the contract gives the right to control the use of a specific asset for a fixed period against consideration. A right-of-use asset and a corresponding liability are recognized for all of the lessees’ leases, with the exception of short-term leases as well as leases of minor value. The right-of-use asset is measured at acquisition cost at the start of the contract and later at acquisition cost less accumulated depreciation and amortization and any impairment losses, adjusted for the impact of any reassessments of the lease liability. Depreciation of right- of-use assets is recognized from the beginning of the contract over the whole contract period. The lease liability is measured at the start of the contract at the current value of rents not paid on the said date. Later, the lease liability is measured at amortized cost using the effective interest method. The lease liability is remeasured when a change has taken place in the future rent payments due to a change in the index or price level. When the lease liability is remeasured in this way, a corresponding adjustment is made to the book value of the right-of-use asset, or it is recognized through profit or loss if the book value of the right- of-use asset has been reduced to zero. At the Sitowise Group, right-of-use assets include the premises and vehicles leased under ordinary terms and conditions. Open- ended lease contacts for smaller premises in smaller locations are treated as short-term lease contracts. Computers, tablets, printers, and similar assets are treated as assets with minor value. Assets with a purchase price below EUR 5,000 are treated as low-value. The Group uses the IFRS relief clause and does not apply IFRS 16 to intangible assets. The discount rate used is the interest rate of the company’s additional credit, the components of which include the reference interest rate and the financial institution’s margin. Significant estimates based on management discretion The management of the Sitowise Group regularly reviews the strategic value of locations. This influences the IFRS 16 interpretation regarding for how long the Group is likely to extend a lease on premises until further notice, for example. IFRS 16, IFRS 16,IFRS 16 right- EUR thousand Business Premises Carsof-use assets Acquisition cost January 1, 202351,7213,23554,956Increase 4,6949065,600Decrease -206-82-288Exchange rate differences 48654Acquisition cost December 31, 202356,2574,06560,323Accumulated depreciation-25,030-2,123-27,153Depreciation for the period-6,043-647-6,690Exchange rate differences-70-5-75Accumulated depreciation, amortization and impairment December 31-31,143-2,775-33,918Balance sheet value December 31, 202325,1151,29026,405 IFRS 16, IFRS 16,IFRS 16 right- EUR thousand Business Premises Carsof-use assets Acquisition cost January 1, 2022 46,197 2,373 48,570 Increase 6,516 945 7,461 Decrease -283 -39 -322 Exchange rate differences -709 -43 -752 Acquisition cost December 31, 202251,721 3,235 54,956 Accumulated depreciation-19,519 -1,589 -21,108 Depreciation for the period-5,828 -561 -6,389 Exchange rate differences317 27 344 Accumulated depreciation, amortization and impairment December 31-25,030 -2,123 -27,153 Balance sheet value December 31, 202226,6911,11227,803 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 47 During the financial period, outgoing cash flow due to leases totaled EUR 6.6 (6.1) million. Rent expenses from short-term contracts are included in other operating expenses, amounting to EUR 3,486 (3,121) thousand. Rent expenses from low-value assets were EUR 1,562 (1,176) thousand. The interest expense on the lease liability was EUR 834 (819) thousand. 3.4 TRADE AND OTHER RECEIVABLES Accounting policy The Sitowise Group applies the simplified approach of IFRS9 to provisions for credit losses for trade receivables. Trade receivables are recognized on the balance sheet at original invoiced value less any impairment. A provision for impairment is immediately recognized through profit and loss. An allowance for loss is based on the expected credit losses from trade receivables. The model of expected credit losses is forward-looking and based on the historic credit loss rate, applying the simplified procedure, the provisioning matrix. The Sitowise Group records the final credit loss when debt collection measures prove to be unsuccessful. As a main rule a final credit loss is recognized, when a credit loss recommendation has been received from the debt collection agency or the debtor applies for restructuring or bankruptcy. Trade receivables decreased during 2023 mainly as a result of implementation of the new ERP and CRM as the invoicing prosess was slower during go-live months. On the other hand, before mentioned increased the contract assets as the not invoiced sales revenue was recognized based on the basis of percentage completion method at the end of 2023. There are no significant credit risk concentrations associated with the receivables, and all receivables are unsecured. EUR thousand20232022Trade receivables37,60141,701Contract assets16,97015,214Accrued income3,9563,960Other accrued income622688Total59,15061,564 Aging of trade receivablesExpected credit Expected credit EUR thousand2023losseslossesUndue34,1150.01%20–29 days2,4570.1%230–59 days2421.0%260–119 days3014.0%12120–365 days5806.3%36Over 365 days298100.0%298Total37,992354 Expected credit Expected credit EUR thousand2022losseslossesUndue36,9690.01%30–29 days2,9230.1%330–59 days4631.0%560–119 days4924.0%20120–365 days7416.3%47Over 365 days877100%877Total42,465953 Provisions for impairment related to trade receivables are based on historic data concerning materialized credit losses and on an estimate of potential future credit losses. The expected credit losses are fully covered by the provisions. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 48 3.5 PROVISIONS Accounting policy A provision is recognized when the Group has a legal or factual obligation as the result of a prior event, the materialization of the obligation is likely, and the amount of the obligation can be reliably measured. The amount recognized as a provision is the current value of the expenses which fulfilling the obligation is expected to require at the end of the financial period based on the management’s best estimate. If compensation for part of the obligation can be recovered from a third party, the compensation is deducted from the provision, but only when it is likely that the compensation will be received. A provision is recognized only if the amount of the obligation can be reliably measured. At the time of recognition, the management must assess whether there is an obligation that is likely to materialize as well as its amount and time of materialization. A provision is recognized for loss-making contracts when the expenses required to fulfill obligations exceed the benefits from the contract. The loss provision is decreased pro rata to the recognition of revenue from the loss-making contract. EUR thousand20232022Provision January 19811,428 Increases in provisions538363 Provisions used-1,019-601 Cancellations of unused provisions-170-210 Provision December 31330981 Provisions include normal business-related complaint and loss provisions. 3.6 ACCOUNTS PAYABLE AND OTHER LIABILITIES EUR thousand20232022Trade payable7,0828,429 Liabilities based on contracts with 9,16112,655 customersAccrued expenses31,44326,462Other liabilities10,62412,102Total58,31259,649 Accrued expensesEUR thousand20232022Employee-related27,81323,254Other accrued expenses3,6313,207Total31,44326,462 Accounts payable and other liabilities as a whole were at a slightly lower level year on year due to the lower business volume in Q4. In addition, the new ERP system caused slowness in the end-of- year invoicing and partly affected customer contracts. Liabilities based on customer contracts include both the difference between net sales based on the percentage of completion and invoicing, and ordinary provisions for costs relating to customer projects. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 49 4 FINANCIAL ITEMS AND CAPITAL STRUCTURE 4.1 FINANCIAL INCOME AND EXPENSES EUR thousand20232022Dividend income 22Other interest and financial income530388 Interest on lease liabilities-834-819 Interest expenses-3,800-1,274 Other financial expenses-454-1,179 Total-4,556-2,882 Interest expenses are associated with loans from financial institutions. The increase in interest expenses has mainly been due to the increase in the Euribor reference rate. 4.2 FINANCIAL ASSETS AND LIABILITIES Measurement of fair values The fair value of an asset or liability is the price that would be received from selling the asset or paid for transferring the liability between market parties in a regular transaction on the measurement date. The Sitowise Group makes use of market data in measuring fair value if there is an active market for the financial asset or liability. Otherwise, other measurement methods will be applied. Fair values are classified as follows to different levels of the fair value hierarchy, illustrating the significance of input data used in the measurement methods: • Level 1: Quoted fair values for identical assets and liabilities in active markets • Level 2: Fair values are measured using inputs other than quoted prices included within Level 1, and they are observable for the asset or liability, either directly or indirectly • Level 3: Fair values are measured using asset or liability data not based on observable market inputs The Sitowise Group considers that the book values of current trade receivables, accounts payable and cash and cash equivalents correspond to the best estimate of their fair values. Moreover, the Group considers that the book values of loans from financial institutions and other non-current liabilities correspond to the best estimate of their fair values. 4.2.1 Financial assets The Group classifies its financial assets at amortized cost and fair value through other comprehensive income. The classification of financial assets is based on the business model specified by the Group and contractual cash flows of financial assets. At the Sitowise Group, non-current receivables include receivables falling due after more than one year. Other shares and participations, which are included in non-current financial assets, are initally measured at fair value, and their fair value is determined using inputs other than observable market inputs. Financial assets that are not measured at amortized cost are recognized at fair value through comprehensive income. The change in the fair value of these items is recognized through comprehensive income, and never through result. The Group's shares in non-listed companies are measured at fair value using the valuation of the company's last financing round. Current financial assets include trade receivables and cash and cash equivalents. The book values of current trade receivables and cash and cash equivalents correspond to the best estimate of their fair values. Write-downs of trade receivables are made based on expected credit losses from trade receivables. The model of expected credit losses is forward-looking and based on the historic credit loss rate. Cash and any bank deposits that can be withdrawn on demand are included in cash equivalents at the Sitowise Group. Short-term deposits are considered to be easily convertible into cash because their original maturity is at most three months. The cash and cash equivalents reported on the balance sheet correspond to the cash and cash equivalents reported on the cash flow statement. Cash and cash equivalents on December 31, 2023 amounted to EUR 15,596 (15,390) thousand. Cash and cash equivalents are derecognized when the Group has lost the contractual right to cash flows or has transferred risks and income to outside the Group to a significant extent. During 2023, there were no transfers between fair value levels 1, 2 and 3. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 50 Measured at fair Fair value Measured at value through other through profit Book value EUR thousandamortized costcomprehensive incomeand losstotalFair valueLevelNon-current financial assetsOther shares and holdings731731731Level 3Loans receivable917917917Level 3Other financial assets,2429251251Level 2including derivativesCurrent financial assetsTrade receivables37,60137,60137,601Level 3Cash and cash equivalents15,59615,59615,596Financial assets December 31, 202354,356740055,09655,096 Measured at fair Fair value Measured at value through other through profit Book value EUR thousandamortized costcomprehensive incomeand losstotalFair valueLevelNon-current financial assetsOther shares and holdings731731731Level 3Loans receivable917917917Level 3Other financial assets,20579284284Level 2including derivativesCurrent financial assetsTrade receivables41,70141,70141,701Level 3Cash and cash equivalents15,39015,39015,390Financial assets December 31, 202258,213809059,02259,022 Measured at fair Fair value Measured at value through other through profit Book value EUR thousandamortized costcomprehensive incomeand losstotalFair valueLevelNon-current financial liabilitiesLoans from financial institutions 69,93569,93569,935Level 2Lease liabilities20,52420,524Level 2Current financial liabilitiesLoans from financial institutions 1,0001,0001,000Level 2Trade payable7,0827,0827,082Additional purchase price liabilities894894894Level 3Lease liabilities7,1937,193Level 2Financial liabilities December 31, 2023105,7350894106,62978,911 Measured at fair Fair value Measured at value through other through profit Book value EUR thousandamortized costcomprehensive incomeand losstotalFair valueLevelNon-current financial liabilitiesLoans from financial institutions 70,99270,99270,992Level 2Lease liabilities22,05022,050Level 2Current financial liabilitiesLoans from financial institutions 1,0001,0001,000Level 2Trade payable8,4298,4298,429Additional purchase price liabilities1,0481,0481,048Level 3Lease liabilities6,9376,937Level 2Financial liabilities December 31, 2022109,40801,048110,45681,469 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 51 4.2.2 Financial liabilities Financial liabilities measured at amortized cost are included in the Group’s external loans from financial institutions and accounts payable. Financial liabilities are measured initially at fair value and recognized on the balance sheet less transaction costs. A financial liability is classified as current if the Group does not have an unconditional right to postpone the repayment of the liability a minimum of 12 months from the closing date of the reporting period. If loans are repaid or refinanced, any remaining costs not expensed relating to them are recognized in financial expenses. These financial liabilities are measured at amortized cost using the effective interest method. Cost items are measured at fair value through profit or loss in the period during which they occur. Liabilities recognized at fair value through profit or loss are additional purchase price liabilities for acquisitions. The Sitowise Group had an estimated additional purchase price liability of EUR 894 (1,048) thousand. Liabilities from financial institutions consist of a variable interest bank loans withdrawn under the financing agreement. In connection with the stock exchange listing, a three-year financing agreement of EUR 100 million was negotiated in the financial year 2021, from which the year end liabilities of EUR 71.0 million have been withdrawn. When taking into account the interest rate swap concluded by the group at the year end of 2022, EUR 38 million of the loans were based on fixed base rate and EUR 33 million were based on a variable rate. The share offixed and variable based interest in the total loan portfolio were therefore 54% and 46%. The working capital limit of 20 million euros, which is a part of the financing agreement, was unused at the time of closing the accounts. In the financial period of 2023, the Group fulfilled the covenant condition relating to the net liabilities/ EBITDA ratio in accordance with the financing agreement. There are also ESG related conditions attached to the bank loan. Exercise of option periods provided for in the financing agreement Sitowise agreed with its lenders in February 2023 on the exercise of the option periods provided for in the current financing agreement. The extension is for the same amount and at the same terms as the original arrangement. With the option periods taken into account, the maturity of the financing agreement is now in March 2026. 4.3 SHAREHOLDERS’ EQUITY 4.3.1 Shares and share capital Sitowise Group Plc has one series of shares in which each share entitles its holder to one vote and an equal dividend. The company's share (SITOWS) is listed and publicly traded on the main list of Nasdaq Helsinki Ltd. On 31 December 2023, the number of shares was 35,665,927 (35,665,927) and the share capital was EUR 80,000 (80,000). The shares have no nominal value and all issued shares have been fully paid. On 31 December 2023, the company held a total of 48,675 (119,399) own shares, representing approximately 0.14 (0.33) percent of all shares in Sitowise. At the end of the financial year 2022 Sitowise Oy had a total of 60,280 Sitowise Group Plc share pledges which were received as collateral for previous acquisitions. The amount corresponds to approximately 0.17 percent of all shares. The pledges were fully released during the financial year 2023. On 31 December, the company had shares as follows: 20232022Number of shares35,665,92735,665,927Average number of shares35,665,92735,664,557Diluted number of shares35,875,92735,665,927Average number of diluted shares35,801,70835,664,557 The Annual General Meeting resolved on 25 April 2023, in accordance with the proposal of the Board of Directors, that a dividend of EUR 0.10 per share will be distributed. The dividend was paid to shareholders who on the dividend record date 27 April 2023 were registered in the shareholders’ register of the Company maintained by Euroclear Finland Ltd. The dividend was paid on 5 May 2023. The Board of Directors has resolved on directed share issues in connection with acquisitions on 2 May 2023, where 37,330 shares were issued, and on 30 November 2023, where 33,394 shares were issued, in total 70,724 shares. The share issues were directed to the sellers of the acquired companies or businesses, who used a portion of the purchase price to subscribe for shares in the share issues. The subscription price per share was determined based on to the average volume weighted trading price of the Sitowise’s share on Nasdaq Helsinki Ltd stock exchange during the 30-day period ending seven days prior to the share issue. There were weighty financial reasons for the directed share issues, as the acquisitions supported the Sitowise Group’s growth and strategy implementation. The share issues also committed the sellers to Sitowise after the acquisitions. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 52 4.3.2 Ownership of the Board of Directors and the management Ownership of the Board of Directors and the management31 Dec 2023Share % 31 Dec 2022Share % Board279,8680.8%277,6800.8%CEO70,0000.2%60,000 0.2%1)Other management team488,2901.4%788,940 2.2%Total management ownership838,1582.4%1,126,6203.2%Total (shares)35,665,92735,665,9271) Situation of the group management team on 31 December 2022 includes the shares of Timo Palonkoski, Business Director (154,000 shares) and Teemu Virtanen, Business Director (170,000 shares). 4.3.3 Reserve for invested unrestricted equity Payments made for subscriptions for shares during the financial period 2023 are recognized in full in the reserve for invested unrestricted equity. Investments in the company resulting from acquisitions made during the year amounted to 0.3 million euros and were recognized in the reserve for invested unrestricted equity. 4.3.4 Share-based payments (option program) As part of the incentive and engagement scheme for management and key personnel, the Sitowise Group has one valid option program. Stock options are granted free of charge. Each stock option gives the option holder the right to subscribe for one Sitowise Group Plc share (SITOWS) at a price determined in accordance with the terms of the option program and at the time specified in the terms of the option program. The options will be forfeited and transferred back to the Company for no consideration if the option holder resigns or their employment relationship or service contract is terminated before the commencement of the subscription period of the Shares to be subscribed with the options. The Board of Directors can, under certain conditions, permit the option holder to keep some of their options. The Board of Directors resolved to amend share subscription price for shares to be subscribed based on stock options during financial year 2022. For stock options 2021A the new share subscription price is EUR 6.00. The share subscription price for the stock options 2021B is maintained unchanged and is EUR 8.10 which equals the share subscription price in the company’s initial public offering decreased with the paid dividend. The per- share dividends and capital repayments to be paid annually will be deducted from the share subscription price. Before the amendment, the share subscription price for all stock options was the share subscription price in the company’s initial public offering (EUR 8.20) decreased with annually paid dividends and capital repayments. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 53 Share based incentives during the period 1.1.2023– 31.12.2023 PlanOption rights 2021TypeOPTIONOPTIONOPTIONOPTIONInstrumentMatch 2021APerformance 2021AMatch 2021BPerformance 2021BAnnual General Shareholders` Meeting dateMarch 3, 2021March 3, 2021Maximum amount, pcs636,750826,650The subscription ratio for underlying shares, pcs111Initial excercise price, €8.28.28.28.2Dividend adjustmentYesYesYesYesCurrent exercise price, €5.95.988Initial allocation dateMarch 25, 2021March 25, 2021March 25, 2021March 25, 2021Vesting dateApril 1, 2024April 1, 2024April 1, 2025April 1, 2025Maturity dateMarch 31, 2025March 31, 2025March 31, 2026March 31, 2026Vesting conditionsShare price Share price Share price Share price development developmentdevelopmentdevelopmentService requirementService requirementService requirement Service requirementMaximum contractual life, yrs3.03.04.04.0Remaining contractual life, yrs0.30.31.31.3Number of persons at the end of reporting year22292229Payment methodEquityEquityEquityEquity Changes during periodMatch 2021APerformance 2021AMatch 2021BPerformance 2021BJanuary 1, 2023Outstanding in the beginning of the period362,364118,400385,197118,400Reserve in the beginning of the period155,986323,053Changes during periodGranted1,8759,0001,8759,000Forfeited32,3009,00032,3009,000ExercisedWeighted average subscription price, €Weighted average price of shares, €ExpiredDecember 31, 2023Excercised at the end of periodOutstanding at the of the period331,939118,400354,772118,400Vested and outstanding at the of the periodReserved at the of the period186,411353,478 Determination of fair value The fair value of share based incentives have been determined at grant date and the fair value is expensed until vesting. The pricing of the share based incentives granted during the period was determined by the following inputs and had the following effect: Valuation parameters for instruments granted during periodShare price at grant, €4.20Share price at reporting period end, €3.18Exercise price, €7.64Expected volatility, %31.7%Maturity, years2.65Risk-free rate, %2.8%Expected dividends, €Valuation modelBinomial modelFair Value, €1,333 The impacts of the option programs 2023 on the result and financial position for the financial period was EUR 191 (297) thousand. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 54 4.3.5 Performance Share Plan In March 2023 the Board of Directors of Sitowise Group Plc decided on a new performance-based, long-term incentive plan (Performance Share Plan or PSP 2023–2025) which is targeted for the Group Management Team members in the first phase. The purpose of the plan is to align the interests of the management and key personnel with the interests of the shareholders and thereby increase the shareholder value in the long term, and to commit the management and key personnel to achieving Sitowise’s strategic goals. The plan has a three-year performance period, and the Board of Directors decides the commencement of any new plans separately. During the reporting period, the members of the Group Management Team have been invited to participate in the PSP 2023–2025. The performance targets applied to the plan are the relative total shareholder return (TSR) and cumulative reported EBITA 2023–2025. The payout of shares will be dependent on meeting the targets set by the Board of Directors and no reward will be paid if the minimum levels set for the targets are not met. If the targets are reached, reward for the plan will be paid in the company’s shares, after the deduction of the proportion that is required to taxes and related costs. However, the company may decide to pay the reward fully in cash. As a main rule no reward is paid to an individual participant whose employment or service relationship ends or has ended before the delivery of the reward. For IFRS 2 purposes the fair value shall take into account market-based performance conditions. The evaluation takes into account Sitowise’s share price at the time of the grant, the relative TSR market condition, the absolute TSR trigger and expected dividends to be missed before the payment of the reward. Number ofGrant date Number ofPerformance Settlement PlanGrant dategranted sharesshare priceparticipantsperiodyearPSP 2023–202510 May 2023210,0004.40 EUR82023–20252026 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 55 5 FINANCIAL AND CAPITAL RISKS 5.1 MANAGEMENT OF FINANCIAL RISKS The management of financial risks at the Sitowise Group aims to ensure the financial stability of the Group and availability of sufficient financing options in different market situations. In addition, the aim is to support the businesses in identifying and managing business-related financial risks. The Board of Directors has approved the Group's risk management principles and the Board is responsible for supervising them. The Group is exposed to diverse market risks. Changes in these risks have effects on the company’s assets, liabilities, and anticipated business transactions. The risks are caused for example by changes in interest and exchange rates. Financial risk management is carried out as part of the Group’s risk management efforts. The foundation of the management of financial risks is based on principles aiming for business continuity. The situation of financial risks is regularly reported on to the company’s Board of Directors and management. The company’s Board of Directors makes the most significant in-principle decisions concerning risk management. The Board of Directors reviews all material financing-related matters, such as external loan arrangements, on a case-by-case basis. The CFO of the Sitowise Group is responsible for ensuring financing, identifying risks and, if necessary, implementation of hedging together with external counterparties according to internal treasury policies. The business units and subsidiaries are responsible for the management of risks involved in their respective business operations, and subsidiaries also for projecting cash flows. The Group’s cash and liquidity remained at a good level in 2023. 5.1.1 Exchange rate risk The Sitowise Group is exposed to exchange rate risks, the most significant being the Swedish krona through the business operations of the Swedish subsidiaries. The Sitowise Group does not actively hedge against exchange rate risks, as the income and expenses of business operations are mostly in the same currency (“natural hedge”). Fluctuations in the Swedish krona, however, affect the Swedish business unit's result in euros and thereby the group's equity. The Group analyzes regularly its translation risk. Translation risk is also caused by currency-denominated items in the balance sheet. The largest items are Group's SEK cash and cash equivalents and the goodwill related to acquisitions made in Sweden. On the closing date, the sensitivity of the before mentioned was approximately EUR 2.5 million (approximately EUR 2.5 million), assuming that the SEK/EUR exchange rate changes by 5 percentage points. 5.1.2 Interest rate risk The Group is exposed to financial risks in its operations, such as the effects of changes in interest rates and the availability of competitive financing. Changes in the macroeconomic environment or general situation in the financial markets may have negative impacts on the availability, price, and other terms and conditions of financing. An increase in interest rates could have a material direct impact on the costs of available financing and the company’s existing financial expenses. An increase in interest rates could thereby affect the costs of the company’s debt financing in the future. Risks related to interest-bearing assets and liabilities can be hedged with derivative instruments, such as interest rate swaps. Sitowise entered into an interest rate swap agreement at the end of the fiscal year of 2022, in order to reduce the interest rate risk of its loan portfolio. Cash flow hedge accounting is applied to the interest rate swap. Changes in the fair values of derivatives used as cash flow hedges are recognized in other comprehensive income and presented in the fair value reserve of equity to the extent that the hedge is effective. The key contractual terms of the interest rate swap, such as the reference rate, interest rate review dates, payment dates, maturities and nominal value, are matching with the hedged item and therefore Sitowise estimates the hedging to be effective. The interest related to the interest rate swap is presented in financial income and expenses at the same time as the interest of the hedged variable rate loans. At the end of fiscal year, the Group had EUR 71.0 (72.0) million in interest bearing bank loans. With the interest rate swap agreement, the share of fixed base rate loans in the loan portfolio were approximately 54% and variable-rate loans about 46%. The reference rate for variable-rated loans was Euribor 3 months. The interest rate sensitivity of the Sitowise Group was approximately EUR 330 thousand (approximately EUR 330 thousand), if interest rates would increase by one percentage point. Please see also section 4.2.2, Financial liabilities. The nominal value and fair value of the interest derivative contract are shown in the table below. Cash flow hedging (Interest rate hedge) EUR thousand20232022Fair value979Nominal value 38,00039,000Hedge ratio1:11:1Fair value reserve963 5.1.3 Credit risk Credit risk is the risk of a financial loss that occurs if a customer fails to fulfill their contractual obligations. The credit risk of the Sitowise Group is related to counterparties from which it has outstanding receivables or with which the Sitowise Group has long-term contracts. The tools of credit risk management at the Sitowise Group include frontloaded payment schedules of Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 56 projects, thorough investigation of the customers’ background data, credit risk monitoring of the major customers, and agreeing on advance payments. The Sitowise Group assesses at the end of each reporting period whether there is objective evidence of impairment of a financial asset or group of financial assets. If there is justified indication of impairment, the said financial asset is recognized as a credit loss. Credit losses are recognized as expenses through profit and loss. The Sitowise Group considers that there are indications of a credit loss as a rule if any of the following indications is present: • Significant financial difficulties of the debtor • Probability of the debtor's bankruptcy or other financial restructuring • Default of payments Information on trade receivables and expected credit losses is presented in Note 3.4. 5.1.4 Solvency risk To manage the solvency risk, the Sitowise Group continuously maintains sufficient liquidity reserves. The Sitowise Group aims to have a sufficient amount of liquid assets to deal with fluctuations in the need for working capital. The company aims to continuously project and monitor the need for financing in its business operations so that the company has sufficient liquid assets for financing its operations and repaying maturing debt. Cash and cash equivalents totaled EUR 15.6 (15.4) million at the end of 2023. In addition to cash reserves, the Group had a EUR 20.0 (20.0) million unused overdraft facility. Contractual cash flows of financial liabilities 2023EUR thousand202420252026 →Loans from financial 1,0001,00068,935institutionsLease liabilities7,1936,16214,362Accounts payable7,08200Total15,2767,16283,297 2022EUR thousand202320242025 →Loans from financial 1,00070,9920 institutions1)Lease liabilities6,9376,14315,907 Accounts payable8,42900Total16,36677,13515,9071) The number has been specified after the publication of the 2022 financial statement The cash flows in lease liabilities include the payments of lease liabilities. 5.2 MANAGEMENT OF CAPITAL RISKS In the management of working capital, the Sitowise Group aims to ensure the ability to operate continuously in order to be able to provide the shareholders with returns and increase the value of their invested capital. The Sitowise Group monitors many key ratios and especially the net debt to adjusted EBITDA to ensure the realization of the growth strategy by keeping indebtedness under control. The Group's capital structure is regularly assessed by the company's management. The company has announced a long-term target of maintaining the ratio of net debt to adjusted EBITDA below 2.5. Net debt is calculated as current and non-current loans from financial institutions less cash and cash equivalents. The table below presents the net debt of the Sitowise Group. EUR thousand31.12.202331.12.2022Loans from financial institutions70,93571,992Cash and cash equivalents-15,596-15,390Net debt55,34156,602Net debt / EBITDA, adjusted3.0x2.6xNet debt excludes IFRS 16 lease liabilities SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 57 6 OTHER NOTES 6.1 GROUP STRUCTURE Accounting policy The consolidated financial statements include the parent company Sitowise Group Plc and all subsidiaries over which the parent company had control on the closing date of the reporting period. Sitowise Group Plc has control when it is exposed, or has rights, to variable returns from its involvement with a company and has the ability to affect those returns through its power over the company. Acquired subsidiaries are consolidated as of the date on which Sitowise Group Plc gains control. Divested subsidiaries are consolidated until control ceases to exist. Intra-Group transactions, receivables, debts, and unrealized margins and internal distribution of profits are eliminated in preparing the consolidated financial statements using the acquisition cost method. The allocation of profit (loss) for the financial period to non-controlling interests is presented in the statement of comprehensive income. Non-controlling interests’ share of shareholders’ equity is reported as a separate figure under shareholders’ equity on the balance sheet. Associated companies are companies in which the Group has considerable influence. The Group considers considerable influence to emerge primarily when the Group holds 20–50 percent of a company’s votes or has otherwise considerable influence, but no control. Associated companies are consolidated in the financial statements using the equity method. The Group has no associated companies. At the end of the financial period, the Sitowise Group consisted of the parent company Sitowise Group Plc and the following companies: CompanyDomicile Ownership 2023Ownership 2022Sitowise OyEspoo, Finland100.0%100.0%(4Sitowise Rakennuttajat OyEspoo, Finland100.0% 100.0%Routa Systems OyEspoo, Finland51.0%51.0%AS DWGRiga, Latvia55.0%55.0%Infracontrol ABGothenburg, Sweden100.0%100.0%Infracontrol Espana SLMadrid, Spain100.0%100.0%Infracontrol Portugal LdaVila Pouca de Aguiar, Portugal100.0%100.0%Infracontrol Danmark ApSCopenhagen, Denmark100.0%100.0%Sitowise Consulting OüTallinn, Estonia100.0%100.0%(7Mavacon Mark & VA Consult ABFalun, Sweden100.0% 100.0%(8E60 Elkonsult ABNorrtälje, Sweden100.0% 100.0%(6Convia Ingengörsbyrå ABStockholm, Sweden100.0% 100.0%(5Convia Infrastructure ABStockholm, Sweden100.0% 100.0%Bitcomp OyJyväskylä, Finland100.0%100.0%(3Rakennuttajakaari OyHelsinki, Finland100.0% 100.0%(2Rakennuttajakaari Pohjanmaa OyVaasa, Finland100.0% 100.0%(1Certimo OyHelsinki, Finland100.0% 100.0%Infrasuunnittelu OyKajaani, Finland100.0%0.0%Positive Impact Finland OyHelsinki, Finland100.0%0.0% During the financial period 2023, Sitowise Oy had a branch office Sito Norge NUF in Norway. There was no activity at the branch office during the financial period, and the branch office was closed in November 2023. (1 Certimo Oy merged with Rakennuttajakaari Oy 28.2.2023 (2 Rakennuttajakaari Pohjanmaa Oy merged with Rakennuttajakaari Oy 28.2.2023 (3 Rakennuttajakaari Oy merged with Sitowise Oy 28.2.2023 (4 Sitowise Rakennuttajat Oy merged with Sitowise Oy 30.4.2023 (5 Convia Infrastructure AB merged with Convia Ingenjörsbyrå AB 6.10.2023 (6 Convia Ingenjörsbyrå AB merged with Sitowise Sverige AB 9.10.2023 (7 Mavacon Mark & VA Consult AB merged with Sitowise Sverige AB 9.10.2023 (8 E60 Elkonsult AB merged with Sitowise Sverige AB 6.10.2023 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 58 6.2 INCOME TAXES Accounting policy The Sitowise Group’s tax expense recognized through profit and loss comprises tax based on the taxable profit for the period, any taxes on previous financial periods, and deferred taxes. The tax based on the taxable profit for the period is calculated in accordance with the local tax legislation of each Group company. If the taxes are associated with other comprehensive income or transactions or other events recognized directly in shareholders’ equity, income taxes are recognized in the said items. The tax for the financial period is calculated using the tax rates confirmed by the closing date of the reporting period. Deferred tax assets and liabilities are primarily recognized for all temporary differences between the tax bases of assets and liabilities and unused tax losses and credits. The most significant temporary differences arise from tangible and intangible assets, confirmed tax losses, and allocations of the fairvalues of subsidiary acquisitions. Deferred tax assets are recognized at the maximum up to the amount for which it is probable that there will be future taxable income against which the temporary difference can be used. The prerequisites for recognizing deferred tax assets are assessed on the closing date of the reporting period. Deferred tax liabilities are recognized in full. Deferred taxes are recognized using the tax rates enacted or factually confirmed by the closing date of the reporting period. Significant estimates based on management judgment The decision on recognizing deferred tax assets on the balance sheet requires discretion. Deferred tax assets are only recognized when it is more likely that they will be realized than not realized, which, in turn, is determined by whether sufficient taxable income will be generated in the future. The assumptions concerning the accumulation of taxable income are based on future cash flows projected by the management. These estimates concerning future cash flows, on the other hand, depend on estimates concerning the volume of future sales, business expenses, investments, and other items affecting the profitability of business operations, among other things. These estimates and assumptions involve risks and uncertainty and, therefore, it is possible that changes in conditions result in charges in expectations, which in turn can affect the deferred tax assets recognized on the balance sheet as well as any other tax losses or temporary differences not yet recognized. The ability of the Sitowise Group to accumulate taxable income also depends on general factors relating to the economy, financing, competitiveness, legislation, and regulation which are beyond its own control. If the future taxable income of the Sitowise Group is lower than projected by the management when measuring the deferred tax assets to be recognized, the value of the assets decreases or they lose all value. In this case, the amounts recognized on the balance sheet may have to be reversed through profit and loss. Changes in circumstances can also lead to recognizing deferred tax assets for confirmed losses for which no receivables have been currently recognized. EUR thousand20232022Tax based on the taxable profit for the -1,732-2,551financial periodAdjustments concerning previous -2-11financial periodsChange in deferred taxes137196Total-1,596-2,366 Reconciliation between tax expenses and taxes calculated using the 20% domestic tax rate EUR thousand20232022Profit before taxes7,14510,280Tax calculated using the 20% domestic -1,429-2,056tax rateAdjustments concerning previous -11-2financial periodsDiffering tax rates of foreign subsidiaries-194Tax-free income and non-deductible -37-428expensesConfirmed loss8-37Other items -117161Taxes on the profit and loss account-1,596-2,366 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 59 Deferred tax assets and liabilities Recognized on the Recognized in EUR thousandJanuary 1, 2023income statementshareholders’ equityDecember 31, 2023Lease liabilities5,830-255-45,570Other items657-1890469Deferred tax assets total6,487-444-46,039Netting of deferred tax assets and liabilities-5,5932814-5,307Deferred tax assets after netting894-1630732Financial items1128-16104Tax provisions 648132664Right-of-use assets5,593-281-45,307Other items828-321268775Deferred tax liabilities total7,180-5812506,849Netting of deferred tax assets and liabilities-5,5932814-5,307Deferred tax liabilities after netting1,588-3002541,543 Recognized on the Recognized in EUR thousandJanuary 1, 2022income statementshareholders’ equityDecember 31, 2022Lease liabilities5,707208-865,830Other items889-229-3657Deferred tax assets total6,597-20-896,487Netting of deferred tax assets and liabilities-5,520-15784-5,593Deferred tax assets after netting1,077-177-5894Financial items298-20216112Tax provisions 5485743648Right-of-use assets5,520157-845,593Other items719-228337828Deferred tax liabilities total7,085-2173127,180Netting of deferred tax assets and liabilities-5,520-15784-5,593Deferred tax liabilities after netting1,565-3733961,588 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 60 6.3 RELATED PARTY TRANSACTIONS Accounting policy Parties are considered to be related when one party can exercise control, shared control, or significant influence over the other in decision-making involving its finances and operating activities. The related parties of the parent company include subsidiaries, Fimpec Group Oy and its subsidiaries, and key management personnel, family members of the management and companies over which they exercise control. Key management personnel include members of the Board of Directors, the CEO, and members of the Group Management Team. Balances and transactions between the Group and its subsidiaries and common functions are eliminated in the consolidated financial statements, and they are not reported in this note. The transactions between them have been carried out on market terms. 6.3.1 Transactions with related parties EUR thousand20232022Other related partiesIncome12173Receivables928917 Related party transactions for the financial period are related to subordinated loan given to Fimpec Group Oy and normal project contracts with subsidiaries. The company had no other related party transactions during the financial period. 6.3.2 Employment benefits for management belonging to related parties The management of Sitowise Group Plc consists of the Board of Directors, the CEO, and the members of the Group Management Team. EUR thousand20232022Wages, salaries and other short-term 1,7261,669employment benefitsPost employment benefits545527Total2,2712,196 Calculated using the average pension insurance per cent. A long-term incentive plan, i.e. an option program, was established in connection with the listing (Note 4.3.4) in 2021. The option program includes the company's management, excluding the Board of Directors, and the company's key personnel. In 2023 the Board of Directors establish a new performance- based, long-term incentive plan (Performance Share Plan 2023-2025) (Note 4.3.5) which is targeted for the Group Management Team members in the first phase. The program consists of annually commencing individual three-year plans. The commencement of each individual plan and its terms, the length of the performance or retention period within the plan, the performance criteria, the eligible participants thereof and the earning opportunity is subject to a separate decision of the company’s Board of Directors in each case. The purpose of the plans is to align the interests of the management and key personnel with the interests of the shareholders and thereby increase the shareholder value in the long term, and to commit the management and key personnel to achieving Sitowise's strategic goals. Additionally, the purpose is to commit Sitowise's key resources to the company by offering competitive long-term incentive plans. EUR thousand20232022Remuneration of the Board of Directors300292Remuneration of the CEO, including 488412fringe benefitsRemuneration of the Management 1,4831,492Team, including fringe benefitsTotal (basis of payment)2,2712,196 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 61 6.3.3 Remuneration of the Board of Directors and the CEO's salary with fringe benefits In accordance with the Finnish Limited Liability Companies Act, the remuneration paid to the members of the Board of Directors is decided by the shareholders at the Annual General Meeting. The shareholders of the company decided on 25 April 2023, as part of the matters decided at the Annual General Meeting, the remuneration of the Chair of the Board of Directors will be EUR 4,750 per month and the remuneration of the other members of the Board of Directors will be EUR 2,250 per month. It was also decided that the Chair of the Board and the Chairs of the Audit, Personnel and Acquisition Committees will be paid an attendance allowance of EUR 1,000 per meeting, and the other members of the Board and the members of the Audit, Personnel and Acquisition Committees will be paid an attendance allowance of EUR 400 per meeting. The allowances are the same as paid in the previous term. In addition, it was decided that the travel expenses of the members of the Board of Directors will be reimbursed in accordance with Sitowise's travel policy. The chair of the Shareholders' Nomination Board is paid an attendance allowance of EUR 1,000 per meeting, and the members of the Nomination Board an attendance allowance of EUR 400 per meeting. The CEO is covered by the Finnish statutory earnings-related pension scheme. The retirement age of the CEO is the minimum personal retirement age according to the law. The CEO's notice period is six months for both parties. The CEO is not entitled to a severance package in addition to their remaining regular pay if they resign. EUR thousand20232022Board of DirectorsHeliövaara Eero, Chair of the Board7478Gustafsson Leif (until 25 April 2023)1035Kyllönen Taina3334Leino-Haltia Mirel3937Piispanen Elina3234Rignell Petri3134Sörensen Niklas (since 25 April 2023)230Terho Tomi3440Åström Mats (since 25 April 2023)240Total remuneration of the Board of300292DirectorsCEOEloholma Pekka (until 30 April 2022)0195Haasmaa Heikki (since 1 May 2022)488217Total CEO's salary with fringe benefits488412 6.3.4 Management stock options The company’s management was granted stock options in the spring of 2021 and during financial year 2022 and 2023. The table below lists the options held by the CEO and the members of the Group’s Management Team. The Board of Directors holds no options. Match Match Performance Performance December 31, 20232021A2021B2021A2021BTotal(1Options granted72,87572,875100,400100,400346,550 Of which exercisable00000Total number of shares entitled to 72,87572,875100,400100,400346,550(1 The options returned to the company by Timo Palonkoski who left his positions in the financial year 2023, are no longer included in the management options on 31 December 2023. The option program is described in more detail in Note 4.3.4. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 62 6.4 GUARANTEES AND CONTINGENT LIABILITIES The guarantees and contingent liabilities of the Sitowise Group are presented in the table below: December 31, December 31, EUR thousand20232022Commitments on behalf of own obligationsBank guarantees2,0602,057Total2,0602,057Bank guaranteesContractual guarantees3030Other guarantees2,0302,027Total2,0602,057 No pledges or real collateral have been provided as a guarantee for the financing agreement negotiated in connection with the listing. Bank guarantees totaling EUR 2.1 million have been provided for the benefit of lessors against the leases of the premises. 6.5 DISPUTES AND LITIGATION Sitowise Oy has a pending legal proceeding with a former client relating to a Finnish residential apartment building project from a few years back. A substantial claim has been presented to Sitowise by the counterparty, but according to the company’s view, the claim is unfounded. Sitowise has also presented a claim to the counterparty for the unpaid part of the project payment, plus the delay interest. The company estimates that the proceedings will take years. 6.6 MAJOR EVENTS AFTER THE CLOSING DATE Directed share issue and a change in the number of Sitowise shares On 9 January 2024, the Board of Directors of Sitowise Group Plc decided on, by virtue of the authorization granted by the annual general meeting on 25 April 2023, to issue 48,675 own shares held by Sitowise Group Plc and 179,738 new shares in a directed share issue. The directed share issue relates to a transaction where Sitowise Oy acquired the expert operations of Ahlman Group Oy, a provider of nature and environmental services. The acquisition was completed on 9 January 2024. The new shares subscribed for in were registered with the Finnish Trade Register on 11 January 2024, after which the total number of shares in the Company is 35,845,665 shares. The Company does not hold own shares. Proposals of the Shareholders’ Nomination Board of Sitowise for the Annual General Meeting 2024 On 30 January 2024, the proposals of the Shareholders' Nomination Board for the Annual General Meeting were published. The Annual General Meeting is planned to be held on 4 April 2024 and according to the proposal the members of the Board of Directors and its committees will be paid for the term of office ending in the Annual General Meeting 2025 the corresponding fees which have been paid during the term that will be ending. The Shareholders' Nomination Board further proposes that for the term of office ending in the Annual General Meeting 2025, the current members of the company’s Board of Directors Eero Heliövaara, Mirel Leino-Haltia, Elina Piispanen, Niklas Sörensen, Tomi Terho and Mats Åström be re-elected and Anni Ronkainen be elected as a new member to the Board of Directors. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 63 PARENT COMPANY'S FINANCIAL STATEMENTS SITOWISE GROUP PLC INCOME STATEMENT (FAS) EURNoteJan 1 – Dec 31, 2023Jan 1 – Dec 31, 2022 Net sales11,952,399.001,533,141.72 Other operating income20.0067,122.45 Personnel expenses3-1,256,185.00-1,360,293.04 Depreciation, amortization, and impairment4-932,298.96-940,636.87 Other operating expenses5-722,865.00-1,441,895.80 Operating profit/loss-958,949.96-2,142,561.54 Financial income and expenses6946,936.00-734,748.30 Profit/loss before appropriations and taxes-12,013.96-2,877,309.84 Group contributions74,030,000.002,884,000.00 Income taxes8-3,835.94-181.94 Profit for the period4,014,150.106,508.22 SITOWISE GROUP PLC BALANCE SHEET (FAS) EUR AssetsNoteDec 31, 2023Dec 31, 2022 Non-current assets Intangible assets92,097,673.003,029,971.52 Holdings in Group companies10161,508,170.00161,516,353.52 Other shares and participations10305,500.00305,500.00 Other debtors11925,729.00995,056.92 Non-current assets total164,837,072.00165,846,881.96 Current assets Long-term receivables1212,500,000.0019,000,000.00 Short-term receivables135,543,433.003,888,749.59 Cash and cash equivalents9,972,951.006,537,609.51 Current assets total28,016,384.0029,426,359.10 Assets total192,853,456.00195,273,241.06 EUR Shareholders’ equity and liabilities Shareholders’ equity14 Share capital80,000.0080,000.00 Reserve for invested unrestricted equity98,741,854.0098,483,862.37 Fair value reserve 9,229.0078,556.92 Retained earnings5,401,764.008,949,908.28 Profit (loss) for the period4,014,150.006,508.22 Total shareholders’ equity108,246,997.00107,598,835.79 Liabilities15 Non-current liabilities70,000,000.0071,000,000.00 Current liabilities14,606,459.0016,674,405.27 Liabilities total84,606,459.0087,674.405.27 Shareholders’ equity and liabilities total192,853,456.00195,273,241.06 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 64 SITOWISE GROUP PLC: CASH FLOW STATEMENT (FAS) EURJan 1 – Dec 31, 2023Jan 1 – Dec 31, 2022 Cash flow from operating activities Operating profit-958,950.62-2,142,561.54 Adjustments to operating profit932,298.96873,514.42 Change in working capital4,999,200.17-12,593,442.43 Dividends received and other financial income 4,671,566.86192,865.57 Interest paid and other financial expenses-4,411,146.04-1,281,763.97 Taxes paid-102,619.85314,276.90 Cash flow from operating activities 5,130,349.48-14,637,111.05 Cash flow from investing activities Purchase of shares in subsidiaries and associated companies-282,347.47-9,435,059.09 Cash flow from investing activities -282,347.47-9,435,059.09 Cash flow from financing Share issue for consideration257,992.103,844,237.00 Share repurchase0.00-2,720,089.51 Dividends paid-3,554,652.80-3,544,656.98 Withdrawal of loans0.0022,500,000.00 Repayment of loans-1,000,000.00-1,000,000.00 Received group contribution2,884,000.000 Cash flow from financing-1,412,660.7019,079,490.51 Cash received in mergers0.00134,231.53 Change in cash and cash equivalents3,435,341.31-4,992,679.63 Cash and cash equivalents January 16,537,609.5111,530,288.82 Cash and cash equivalents December 319,972,950.826,537,609.51 SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 65 SITOWISE GROUP PLC: NOTES TO THE FINANCIAL STATEMENTS (FAS) The Parent Company financial statements are prepared in accordance with the Finnish Accounting Standards (FAS). Copies of Sitowise Group's consolidated financial statements are available at Linnoitustie 6, FI-02600 Espoo, Finland. 1 NET SALES EUR20232022 Net sales1,952,3991,533,142 Total1,952,3991,533,142 Sitowise Group Plc's net sales consist of management fees charged to other group companies. 2 OTHER OPERATING INCOME EUR20232022 Merger profit067,122 Total067,122 3 PERSONNEL EXPENSES EUR20232022 Wages and salaries1,099,0491,185,820 Pension expenses138,439152,770 Other social security expenses18,69721,703 Total1,256,1851,360,293 Management remuneration EUR20232022 Board of Directors299,550292,200 CEO488,040411,573 Total (basis of payment)787,590703,773 More detailed information on the terms and conditions of the CEO's contract can be found in Note 6.3.3 to the consolidated financial statements. The average number of personnel in the financial period was 3 (3). At the end of the financial period, the number of personnel was 3 (3). 4 DEPRECIATION, AMORTIZATION, AND IMPAIRMENT ACCORDING TO PLAN EUR20232022 Intangible rights02,462 Other long-term expenses932,299938,174 Total932,299940,637 5 AUDIT FEES EUR20232022 Audit firm KPMG Oy Ab Statutory audit35,79536,144 Tax advice and consulting8,990250,283 Total44,785286,427 6 FINANCIAL INCOME AND EXPENSES EUR20232022 Interest income From Group companies886,500280,837 From others254,95973,842 Dividend income from Group companies4,051,6560 Other financial income207,608280,118 Total5,400,723634,798 Interest expenses To Group companies-287,338-79,858 To others-3,657,530-1,097,182 Other financial expenses-508,918-192,506 Total-4,453,786-1,369,546 Financial income and expenses total946,936-734,748 7 APPROPRIATIONS EUR20232022 Group contributions received4,030,0002,884,000 Total4,030,0002,884,000 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 66 8 DIRECT TAXES EUR20232022 Income taxes on ordinary activities for the financial period -3,8360 Income taxes for the previous financial period 0 -182 Total-3,836-182 9 INTANGIBLE ASSETS EUR20232022 Acquisition cost January 14,669,8334,669,833 Acquisition cost December 314,669,8334,669,833 Accumulated depreciation, amortization, and impairment January 1 -1,639,861-699,224 Depreciation-932,299-940,637 Accumulated depreciation, amortization, and impairment December 31 -2,572,160-1,639,861 Balance sheet value December 312,097,6733,029,972 9.1 MEASUREMENT OF FIXED ASSETS Fixed assets are capitalized at direct acquisition cost. With regard to machinery and equipment, the depreciation plan used is the straight-line method of depreciation based on the economic useful life: • IT machinery and equipment 4 years • Other machinery and equipment 5 years Straight-line depreciation based on economic useful life is used for intangible rights and long-term expenses, with the following planned depreciation periods: • Intangible rights 3–5 years • Goodwill 10 years • Long-term expenses 5–10 years • Development expenses 5 years 10 INVESTMENTS EUR20232022 Holdings in Group companies Acquisition cost January 1161,516,354110,953,081 Increase050,563,272 Decrease-8,1840 Acquisition cost December 31161,508,170161,516,354 Holding20232022 Sitowise Oy100%100% Infracontrol AB100%100% Infracontrol Espana SL100%100% Infracontrol Portugal Lda100%100% Infracontrol Denmark ApS100%100% Sitowise Sverige AB (Byggnadstekniska Byrån AB) 100% 100% (1 Mavacon Mark & VA Consult AB100%100% (2 E60 Elkonsult AB100%100% (3 Convia Ingenjörsbyrå AB100%100% (4 Convia Infrastructure AB49%49% (5 (1 Company changed its name on November 3, 2022 (2 Company merged with Sitowise Sverige AB on 9 October 2023 (3 Company merged with Sitowise Sverige AB on 6 October 2023 (4 Company merged with Sitowise Sverige AB on 9 October 2023 (5 Company merged with Convia Ingenjörsbyrå AB 6 October 2023 EUR20232022 Other shares and participations Acquisition cost January 1305,500305,500 Acquisition cost December 31305,500305,500 10.1 MEASUREMENT OF INVESTMENTS Investments are measured at acquisition cost or at cost less accumulated impairment, if the recoverable amount is expected to be permanently lower than the acquisition cost. 11 OTHER DEBTORS EUR20232022 Other debtors Subordinated loans916,500916,500 Fair value of the derivative9,22978,557 Total925,729995,057 11.1 SUBORDINATED LOANS Sitowise Group Plc has given subordinated loans to its related party company Fimpec Group Oy. The loans amounted to EUR 916,500 at the end of the financial period. The interest rate on the subordinated loans is 8% p.a. The loans are subject to the provisions of chapter 12 of the Finnish Limited Liability Companies Act. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 67 12 LONG-TERM RECEIVABLES EUR20232022 Long-term loan receivables from Group companies 12,500,00019,000,000 Total12,500,00019,000,000 13 SHORT-TERM RECEIVABLES EUR20232022 Other accrued receivables245,167438,096 Accrued receivables from Group companies 5,298,2663,450,653 Total5,543,4333,888,750 14 SHAREHOLDERS’ EQUITY EUR20232022 Share capital at the beginning of the financial period 80,00080,000 Share capital at the end of the financial period 80,00080,000 Reserve for invested unrestricted equity at the beginning of the financial period 98,483,86297,359,715 Increase257,9923,844,237 Decrease0-2,720,090 Reserve for invested unrestricted equity at the end of the financial period 98,741,85498,483,862 Fair value reserve at the beginning of the financial period 78,5570 Increase078,557 Decrease-69,3280 Fair value reserve at the end of the financial period 9,22978,557 Retained earnings at the beginning of the financial period 8,956,41712,494,567 Distribution of dividends-3,554,653-3,544,659 5,401,7648,949,908 Profit for the period4,014,1506,508 Total shareholders’ equity108,246,997107,598,836 Calculation of distributable funds EUR20232022 Reserve for invested unrestricted equity 98,741,854 98,483,862 Retained earnings 5,401,7648,949,908 Profit/loss for the period4,014,1506,508 Total distributable funds108,157,768107,440,279 15 LIABILITIES EUR Non-current liabilities20232022 Loans from financial institutions71,000,00072,000,000 Transfer to short-term loans-1,000,000-1,000,000 Total70,000,00071,000,000 EUR Current liabilities20232022 Repayment instalments of long-term loans 1,000,0001,000,000 Accounts payable59,016224,035 Interest debt34,2099,888 Corporate tax accrual3,836305,620 Earn-out liabilities630,8581,048,212 Other current liabilities Group12,564,00313,621,547 Other accrued expenses314,537465,104 Total14,606,45916,674,405 16 GUARANTEES AND CONTINGENT LIABILITIES Assets pledged and off-balance sheet commitments and arrangements on behalf of own and Group companies’ obligations EUR20232022 Leasing agreements To be paid in the next financial period 23,59522,888 To be paid later25,77917,814 Total 49,37440,703 Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 68 SIGNATURES OFTHE BOARD OF DIRECTORS AND AUDITOR’S NOTE Auditor’s note A report on the audit has been issued today. Helsinki, February 26, 2024 KPMG Oy Ab Kim Järvi Authorized Public Accountant (KHT) BOARD OF DIRECTORS’ PROPOSAL FOR THE DISTRIBUTION OF PROFIT The parent company's profit for the financial period is EUR 4,014,150 and the company's distributable funds total EUR 108,157,768. The Board of Directors proposes to the Annual General Meeting that no dividend is distributed and that the distributable funds are retained in unrestricted equity. SIGNATURES TO THE FINANCIAL STATEMENTS AND BOARD OF DIRECTORS’ REPORT Espoo, February 26, 2024 Eero Heliövaara Chair of the Board Heikki Haasmaa CEO Taina KyllönenMirel Leino-Haltia Elina Piispanen Petri Rignell Niklas SörensenTomi Terho Mats Åström SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 69 Auditing AUDITOR’S REPORT To the Annual General Meeting of Sitowise Group Plc Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Sitowise Group Plc (2767842-8) for the year ended 31 December 2023. The financial statements comprise the consolidated statement of financial position, statement of comprehensive income, statement of changes in equity, cash flow statement and notes, including material accounting policy information, as well as the parent company’s balance sheet, profit and loss account, cash flow statement and notes. In our opinion • the consolidated financial statements give a true and fair view of the group’s financial position, financial performance and cash flows in accordance with IFRS Accounting Standards as adopted by the EU • the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report submitted to the Audit Committee. Basis for Opinion We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 2.6.1 to the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Materiality The scope of our audit was influenced by our application of materiality. The materiality is determined based on our professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on the financial statements as a whole. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of the financial statements. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the financial statements. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The significant risks of material misstatement referred to in the EU Regulation No 537/2014 point (c) ofArticle 10(2) are included in the description of key audit matters below. We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 70 Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN THE AUDIT Net sales (Accounting principles and note 2.2 to the consolidated financial statements) Revenues arise from provision of services to customers in accordance with customer contracts, with the total net sales of EUR 211 million. The 5-step model is applied to revenue recognition, which identifies the contract and performance obligations, determines the transaction price and allocates it to the performance obligations. Revenue is recognized as the performance obligation is satisfied and only in an amount that reflects the consideration to which the Group expects to be entitled in exchange for the services provided to the customer. Revenue reporting involves the risk of inappropriate timing or amount of revenue recognition due to management estimates and the large number of invoicing transactions. We evaluated the company’s revenue recognition and accounting policies by reference to the principles of revenue recognition determined under IFRS. We tested the effectiveness of key internal controls in place over the completeness and accuracy of revenue. We also assessed the operative effectiveness of relevant IT systems for financial reporting purposes. We compared total revenue estimates to customer contracts for projects where revenue is recognized over time based on the project’s percentage of completion. In addition, we have analyzed estimated and actual project costs as well as project margins. We also considered the appropriateness of the process for updating estimated project costs and percentages of completion. In addition, we performed substantive audit procedures to evaluate the completeness and accuracy of revenue recorded. Valuation of goodwill (Accounting principles and note 3.2 to the consolidated financial statements) Goodwill of EUR 158 million represents a significant part, 57%, of the consolidated balance sheet total. Goodwill is tested for impairment annually and whenever there is any indication that the goodwill may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount is determined based on value in use. The preparation of goodwill impairment testing requires estimates be made about the future. Management estimates and associated critical uncertainties relate to the components of the calculation of recoverable amount, which include the discount rate, terminal growth rate, and the development of net sales and operating profit, including cost levels for the company. Due to the significance of the carrying amount and significant management judgments involved in the forecasts, valuation of goodwill is considered a key audit matter. We critically analyzed the management's assumptions that form the basis on which the cash flow projections for future years are prepared. We assessed the appropriateness of the discount rate used and the technical integrity of calculations as well as for comparison of the assumptions used to the market and industry-specific data. In addition, we assessed the adequacy of the sensitivity analyses and the appropriate presentation of notes related to impairment tests in the consolidated financial statements. SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 71 intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Reporting Requirements Information on our audit engagement We were first appointed as auditors by the Annual General Meeting in 2018, and our appointment represents a total period of uninterrupted engagement of 6 years. Sitowise Group Plc has been a public interest entity since 25 March 2021. Other Information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Helsinki, 26 February 2024 KPMG OY AB KIM JÄRVI Authorised Public Accountant, KHT Board of Directors’ Report and Consolidated Financial Statements 2023 SITOWISE GROUP PLC 72 INDEPENDENT AUDITOR’S REASONABLE ASSURANCE REPORT ON SITOWISE GROUP PLC’S ESEF FINANCIAL STATEMENTS To the Board of Directors of Sitowise Group Plc We have undertaken a reasonable assurance engagement in respect of whether the consolidated financial statements for the year ended 31 December, 2023 included in the digital financial statements 743700HOHMOHAANHFF73-2023-12-31-en.zip of Sitowise Group Plc (Business ID 2767842-8) have been marked up with iXBRL markups in accordance with the requirements of Article 4 of EU Delegated Regulation 2018/815 (ESEF RTS). The Responsibility of the Board of Directors and Managing Director The Board of Directors and Managing Director are responsible for preparing the report of the Board of Directors and financial statements (ESEF financial statements) that comply with the requirements of ESEF RTS. This responsibility includes: • preparation of ESEF financial statements in XHTML format in accordance with Article 3 of the ESEF RTS • marking up the primary statements and the notes to the consolidated financial statements, and the company identification data included in the ESEF financial statements with iXBRL tags in accordance with Article 4 of the ESEF RTS; and • ensuring consistency between ESEF financial statements and audited financial statements. The Board of Directors and the Managing Director are also responsible for such internal control as they deem necessary to prepare the ESEF financial statements in accordance with the requirements of the ESEF RTS. Auditor’s Independence and Quality Management We are independent of the company in accordance with the ethical requirements applicable in Finland, which apply to the engagement we have performed, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The auditor applies International Standard on Quality Management ISQM 1, which requires the firm to design, implement and operate a system of quality management including policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulations requirements. Auditor’s Responsibility In accordance with the Engagement Letter our responsibility is to express an opinion on whether the marking up of the consolidated financial statements included in the ESEF financial statements comply in all material respects with the Article 4 of the ESEF RTS. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000. The engagement involves procedures to obtain evidence whether; • the primary statements of the consolidated financial statements included in the ESEF financial statements are, in all material respects, marked up with iXBRL tags in accordance with Article 4 of the ESEF RTS, and; • whether the notes to the consolidated financial statements and the company identification data included in the ESEF financial statements data, have been marked up, in all material respects, with iXBRL tags in accordance with Article 4 of the ESEF RTS; and • whether the ESEF financial statements and the audited financial statements are consistent with each other. The nature, timing and the extent of procedures selected depend on practitioner’s judgement. This includes the assessment of the risks of material departures from the requirements set out in the ESEF RTS, whether due to fraud or error. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the primary statements of the consolidated financial statements, the notes to the consolidated financial statements and the company identification data included in the ESEF financial statements of Sitowise Group Plc identified as 743700HOHMOHAANHFF73-2023-12-31-en.zip for the year ended 31 December, 2023 are, in all material respects, marked up in compliance with the ESEF Regulatory Technical Standard. Our audit opinion on the audit of the consolidated financial statements of Sitowise Plc for the year ended 31 December, 2023 is set out in our Auditor’s Report dated 26 February, 2024. In this report, we do not express any audit opinion or other assurance conclusion on the consolidated financial statements. Helsinki 12 March, 2024 KPMG OY AB Kim Järvi Authorised Public Accountant, KHT SITOWISE GROUP PLC Board of Directors’ Report and Consolidated Financial Statements 2023 73 SITOWISE GROUP PLC LINNOITUSTIE 6 D, FI-02600 ESPOO, FINLAND PHONE +358 20 747 6000 WWW.SITOWISE.COM The Smart City Company 743700HOHMOHAANHFF732023-01-012023-12-31743700HOHMOHAANHFF732022-01-012022-12-31743700HOHMOHAANHFF732023-12-31743700HOHMOHAANHFF732022-12-31743700HOHMOHAANHFF732021-12-31743700HOHMOHAANHFF732022-12-31ifrs-full:IssuedCapitalMember743700HOHMOHAANHFF732023-01-012023-12-31ifrs-full:IssuedCapitalMember743700HOHMOHAANHFF732023-12-31ifrs-full:IssuedCapitalMember743700HOHMOHAANHFF732022-12-31SIT:ReserveForInvestedUnrestrictedEquityMember743700HOHMOHAANHFF732023-01-012023-12-31SIT:ReserveForInvestedUnrestrictedEquityMember743700HOHMOHAANHFF732023-12-31SIT:ReserveForInvestedUnrestrictedEquityMember743700HOHMOHAANHFF732022-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember743700HOHMOHAANHFF732023-01-012023-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember743700HOHMOHAANHFF732023-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember743700HOHMOHAANHFF732022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700HOHMOHAANHFF732023-01-012023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700HOHMOHAANHFF732023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700HOHMOHAANHFF732022-12-31ifrs-full:RetainedEarningsMember743700HOHMOHAANHFF732023-01-012023-12-31ifrs-full:RetainedEarningsMember743700HOHMOHAANHFF732023-12-31ifrs-full:RetainedEarningsMember743700HOHMOHAANHFF732022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700HOHMOHAANHFF732023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700HOHMOHAANHFF732023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700HOHMOHAANHFF732022-12-31ifrs-full:NoncontrollingInterestsMember743700HOHMOHAANHFF732023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember743700HOHMOHAANHFF732023-12-31ifrs-full:NoncontrollingInterestsMember743700HOHMOHAANHFF732021-12-31ifrs-full:IssuedCapitalMember743700HOHMOHAANHFF732022-01-012022-12-31ifrs-full:IssuedCapitalMember743700HOHMOHAANHFF732021-12-31SIT:ReserveForInvestedUnrestrictedEquityMember743700HOHMOHAANHFF732022-01-012022-12-31SIT:ReserveForInvestedUnrestrictedEquityMember743700HOHMOHAANHFF732021-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember743700HOHMOHAANHFF732022-01-012022-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember743700HOHMOHAANHFF732021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700HOHMOHAANHFF732022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700HOHMOHAANHFF732021-12-31ifrs-full:RetainedEarningsMember743700HOHMOHAANHFF732022-01-012022-12-31ifrs-full:RetainedEarningsMember743700HOHMOHAANHFF732021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700HOHMOHAANHFF732022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700HOHMOHAANHFF732021-12-31ifrs-full:NoncontrollingInterestsMember743700HOHMOHAANHFF732022-01-012022-12-31ifrs-full:NoncontrollingInterestsMemberiso4217:EURiso4217:EURxbrli:shares

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