Grigeo

Annual Report (ESEF) • Apr 28, 2023

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All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of the accompanying documents takes precedence over this translation. FOREWORD BY THE PRESIDENT ............................................................................................................................................ 3 CONSOLIDATED ANNUAL REPORT ......................................................................................................................................... 4 1. Business model ................................................................................................................................................................... 5 1.1. The future is circular .............................................................................................................................................. 5 1.2. Our mission and values ......................................................................................................................................... 6 1.3. Scale of organization in 2022 ................................................................................................................................ 7 2. Overview of operations ........................................................................................................................................................ 8 2.1. Executive summary of 2022 .................................................................................................................................. 8 2.2. Financial and operating performance of the Group and the Company ................................................................ 11 2.3. Business plans and forecasts of the Group ......................................................................................................... 12 2.4. Employees .......................................................................................................................................................... 12 2.5. Environmental protection ..................................................................................................................................... 12 2.6. EU Taxonomy...................................................................................................................................................... 13 2.7. Risk management ............................................................................................................................................... 13 3. Group companies .............................................................................................................................................................. 15 3.1. Structure and contact details ............................................................................................................................... 15 3.2. Main activities of the Group companies ............................................................................................................... 16 4. Data on the Issuer’s securities .......................................................................................................................................... 17 4.1. Contracts with intermediaries of public trading in securities ................................................................................ 17 4.2. Main characteristics of the Company’s shares .................................................................................................... 17 4.3. Trade in the Company’s shares .......................................................................................................................... 17 4.4. Capitalisation of the Company’s shares .............................................................................................................. 18 5. Corporate governance report ............................................................................................................................................ 19 5.1. Significant directly and indirectly controlled shares ............................................................................................. 19 5.2. Rules regulating the election and replacement of the management and supervisory bodies .............................. 19 5.3. Management and supervisory bodies .................................................................................................................. 21 5.4. Functions and responsibilities of the management and supervisory bodies ........................................................ 23 6. Remuneration report ......................................................................................................................................................... 24 6.1. Remuneration policy ............................................................................................................................................ 24 6.2. Remuneration paid to the management and supervisory bodies ........................................................................ 25 6.3. Compliance with the Remuneration Policy .......................................................................................................... 26 7. Sustainability (social responsibility) report ......................................................................................................................... 27 7.1. About sustainability report ................................................................................................................................... 27 7.2. Commitments and targets ................................................................................................................................... 28 7.3. Sustainable governance ...................................................................................................................................... 31 7.4. Sustainability investments ................................................................................................................................... 34 7.5. Incidents .............................................................................................................................................................. 36 7.6. Impact and materiality assessment ..................................................................................................................... 38 7.7. Our products and processes ............................................................................................................................... 43 7.8. Social profile ........................................................................................................................................................ 49 7.9. Environmental profile ........................................................................................................................................... 58 7.10. Summary of key numbers ................................................................................................................................... 69 7.11. GRI index ............................................................................................................................................................ 70 7.12. Taxonomy disclosures ......................................................................................................................................... 72 CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS ............................................................................................. 75 STATEMENTS OF FINANCIAL POSITION....................................................................................................................... 76 STATEMENTS OF COMPREHENSIVE INCOME ............................................................................................................. 78 STATEMENTS OF CHANGES IN EQUITY ....................................................................................................................... 79 STATEMENTS OF CASH FLOWS .................................................................................................................................... 81 NOTES TO THE FINANCIAL STATEMENTS ............................................................................................................................ 82 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ............................................................. 133 CONFIRMATION OF RESPONSIBLE PERSONS .................................................................................................................. 148 INDEPENDENT AUDITOR’S REPORT ................................................................................................................................... 149 3 « Table of Contents FOREWORD BY THE PRESIDENT FOREWORD BY THE PRESIDENT Dear members of the society, We have been dealing with unprecedented multifaceted challenges for several years now. The global pandemic of 2020 was overshadowed by the leaps in raw materials, energy, and logistics prices the year after, and last year everything was dwarfed by the war in Ukraine, which brought the prices of the resources to new heights just as it made its own adjustments to the supply chains and the market situation. And so, against all odds, placed against this background of geopolitical tensions, unprecedented inflation, and increasingly stronger signals of recession, we and our team had to remain quick and maintain our precision and focus on creating long-term value for our employees, partners, and investors. Even though Grigeo AB companies did suffer a number of short-term losses and, just like our major European players, had to temporarily suspend their operations in 2022, the conservative management of the Group’s finances and the strategic diversification of business implemented last year allowed us to demonstrate some resilience and flexibility even in these difficult times. As a result, we can take pride in our decent annual performance. You will be able to see that for yourselves once you read the enclosed 2022 statement, which presents information about the Group’s key performance ratios and key developments in the areas of finances, environmental protection, social responsibility, and governance. Prior to this reporting period, we had made a commitment to our stakeholders to set a number of ambitious sustainability targets for ourselves. We did this in the area of environmental protection, social responsibility, and governance, and we followed the best international practices in doing so. Furthermore, we have clearly defined our contribution to achieving the United Nations goals of sustainable development. We are committed to showcase these indicators and the process of compliance thereto in our annual sustainability reports. Our commitments become essential to us, for we are an integral part of the circular economy. Nearly all (98%) of our products were made from renewable resources in 2022. Last year, secondary raw materials accounted for 34% or all raw materials used in manufacturing. In 2022, we processed a total of over 131 thousand tons of waste paper. The increasing global demand for sustainable products will definitely reinforce the Group’s economic resilience and will have a lasting positive effect. Environmental aspects cover a significant portion of our sustainability targets. Our industrial operations require substantial energy resources, which makes environmental indicators relevant both to ourselves and to our stakeholders. We have set ourselves ambitious goals to reduce our CO 2 emissions, improve energy efficiency, reduce waste disposal by way of landfill and the amount of waste water generated by our manufacturing process, among other things. In the area of social responsibility, we still prioritise the health and safety, personal satisfaction with work, and engagement of our employees. We have also set ourselves a goal to minimise the number of on-job incidents as well as employee turnover indicators. When it comes to governance, we have identified 10 internal policies that we agreed to update or create to achieve a synergy between the Group’s strategy, sustainability requirements, and best international practices. Despite the market dynamics and the factors that drove uncertainty in 2022, our Group has achieved relatively high financial results. The drastic growth of electricity and gas prices has had an inevitable impact on the prices of our products, resulting in a historically high sales figure, yet the actual market situation is reflected in the drop in our ultimate profitability indicators. The Group’s EBITDA in 2022 stood at EUR 21 million, down by 10% from 2021. Accordingly, the EBITDA margin has shrunk from 14.5% to 10.5%. In the wake of the outbreak of the war in Ukraine in 2022, we severed all our business ties with the aggressor countries. Our Ukrainian plant continues to operate under difficult conditions, yet we consider employee safety, preserving jobs and guaranteeing income to our employees a priority in this situation. After the 2020 environmental incident at Grigeo Klaipėda AB, a court trial was launched in 2022. We have assumed a moral responsibility for this incident, and we hope that the court will evaluate the fact of potential damage having been done to the environment and once this has been accomplished, will determine the objective extent of that damage. This would allow Grigeo Klaipėda AB to reverse the impact its actions have had on the environment in an equitable manner and in line with international standards. Next year, we will continue to consistently improve the financial, environmental, social, and governance sustainability of the Group and pursue our mission of building a circular future. Gintautas Pangonis President of Grigeo AB GRI: 2-22 3-3 CONSOLIDATED ANNUAL REPORT 5 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 1. Business model Grigeo AB (hereinafter the “Company” or the “Issuer”) company group is the only paper and wood industry company group in Lithuania and one of the largest groups in the Baltic countries. Grigeo AB company group consists of the following entities: Grigeo AB, Grigeo Packaging UAB, Grigeo Baltwood UAB, Grigeo Klaipėda AB, Mena Pak AT, Grigeo Recycling UAB and Grigeo Recycling SIA and Grigeo Investicijų Valdymas UAB (hereinafter the “Group”). 1.1. The future is circular The Group operates following the principle of a circular economy. A part of paper used for the production of tissue paper products and all raw materials designated for the production of corrugated cardboard, i.e., testliner (smooth layered cardboard) and fluting (paper for corrugation and raw material for paper honeycomb), are produced by recycling secondary raw materials, i.e., waste paper, thus contributing to the reduction of waste in Lithuania and neighbouring countries as well as to the preservation of forests: In the scope of its operational processes, the Group performs an almost complete cycle of processing of wood and paper components, producing products with higher added value: tissue paper, i.e., toilet paper, tissues, paper towels, paper to produce corrugated cardboard, honeycomb, corrugated cardboard and packaging, as well as solid fibreboard. Corrugated cardboard packaging has the following characteristics: - Products are 100% recyclable, organic and biodegradable. - The 2021 study conducted by Graz University of Technology in Austria concluded that corrugated cardboard can be recycled up to 25 times. - Recycled paper provides 76% of raw material for new corrugated cardboard packaging, ensuring the continuous renewal of fibres while making a universal packaging for our customers. Corrugated cardboard packaging is currently one of the most recycled paper products and the market of secondary raw materials is well established. Efficient recycling processes allow reusing fibre to produce new packaging. GRI: 2-1 2-6 301-1 301-2 301-3 Containerboard Collecting, sorting and recycling of waste paper - 99% of reclaimed all materials - 106,958 tonnes recycled into containerboard Production of tissue paper - Recycling of white waste paper - 24,599 tonnes recycled into tissue paper - 131,557 tonnes recycled - 81% of waste paper cardboard paper production Converting paper to packaging - 32% of paper made by Grigeo Klaipėda AB is further converted to corrugated cardboard in our packaging plants - We cooperated closely with our clients, 100% of our packaging is custom-made. - Reducing food waste: corrugated cardboard packaging is hygienic and storing fruits and vegetables for longer periods. - Fewer trucks on the road: corrugated cardboard packaging is cost-efficient and highly versatile which allows optimisation of pace for transport and storage. Significant role in logistics 6 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 1.2. Our mission and values Our mission and its directions: Our values: Responsible 360° Whatever we do, let’s always think about the impact on our environment because it’s our home. The best measurement of our work is a satisfied client. Working like for ourselves makes us proud with the work done. Agile We grow faster than the market. Even the best result can be better. Every investor’s euro that is targeted makes us more valuable. Professional A preconception is eliminated while considering proposed ideas. Knowing everything is impossible – we improve by learning and sharing a good practice. We speak the language of numbers and facts. Teamwork Good result is a merit of a good team. The team is as strong as you are in it. Before demanding from others, demand more from ourselves. GRI: 2-23 7 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 1.3. Scale of organization in 2022 Consolidated revenue: EUR 203.2m Consolidated EBITDA: EUR 21.4m Consolidated net profit: EUR 10.6m Employee remuneration fund: EUR 23.4m Paid in taxes: EUR 11.7m Purchases from local suppliers: 66.5% Export share of total production: 63.5% 26.4% Women Lithuania: 770 Ukraine: 84 Latvia: 11 865 EMPLOYEES Subsidies received under programmes for companies in sectors particularly affected by energy prices: EUR 1.0m MEMBERSHIPS IN ASSOCIATIONS GRI: 2-6 2-7 2-28 201-1 201-4 204-1 301-1 301-2 301-3 302-1 303-1 303-3 305-2 306-3 3,514t 1,201t 29,256t 10,796 11,633t 4,675t 49,528t 70,985t 334GWh 93GWh 24GWh 4GWh 92GWh 131,557t 144t 926thous. m 3 97,091t 63,491t 44,982t 36,056t 3,452 t 17,105t 7,218t 3,682t 22,845tCO 2 e 1,488thous. m 3 731thous. m 3 44thous. m 3 Support provided: EUR 0.3m 8 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 2. Overview of operations 2.1. Executive summary of 2022 Impact of war The war in Ukraine that started in February 2022 had an impact in various aspects. First, the Group's factory of corrugated cardboard products in Ukraine Mena Pak AT has stopped operations. Later, in May 2022, the activities were resumed, but the reduced human resources, more complicated logistics routes and all the risks related to the war constantly raise questions about the continuity of this business. Although the company Mena Pak AT was profitable in 2022, due to a significant decrease in profitability and future uncertainties, the parent company Grigeo Klaipėda AB had to account for the impairment of the investment of EUR 1.6 million. The Group's sales in 2021 to Ukraine, Belarus and Russia comprised about 10.6%. Since the beginning of war, sales to Russia and Belarus were completely stopped. In 2022, the sales volumes of the Group did not decrease for this reason, as one tenth of sales were compensated in other markets. Due to the war, the supply chain of raw materials has also changed. Cellulose, as the main raw material for tissue paper, was often supplied from the pulp factories in the Northern European countries, which produced birch pulp by importing wood from the forests of Karelia (Russia). After the sanctions, these mills ran out of birch wood, forcing the European tissue paper manufacturers, as well as the Group, to temporary import a part of their demand from other parts of the world, such as South America, which supplies eucalyptus pulp. This pulp is also FSC ® chain of custody certified, which continues to ensure environmentally sound, socially responsible and economically viable forest management. Belarusian wood chips, which were used both as biofuel in boiler rooms and as the main raw material in fibreboard, had to be replaced by alternative suppliers from Lithuania. Impact of energy prices A significant increase in the prices of energy resources was already visible in 2021, but the year 2022 showed price leaps that have not been seen as possible. This may raise issues of business continuity in the long term. It has become almost impossible to hedge against such price leaps at competitive prices. Today, we believe that in the long term, investments in gas supply infrastructure in Europe will stabilize and reduce gas prices, while investments in renewable electricity generation will reduce electricity prices. In the short term, to maintain financial sustainability, the Group has the following strengths: - The generation of steam in our biofuel boilers makes it possible to be less dependent on gas. In addition, steam generation from biofuel is significantly cheaper than steam from natural gas. - Low debt-equity ratio does not create significant financial risk after the increases of base interest rate. - A sufficient level of working capital is constantly maintained to absorb the spikes in the demand for working capital due to rising energy prices (and correspondingly rising prices of raw materials). In addition to the existing strengths, the Group has made various investments that allow producing more output with the same energy consumption. More detailed information about the investments made and future ones is presented in the section Sustainability (social responsibility) report. Similar investments are a continuous process in the Group to maintain competitiveness and resistance to energy price fluctuations. In 2022 the Group decided to invest its funds in renewable energy production capacity, abandoning the purchase of green certificates on the market, the price of which has increased drastically. More than 3 MWh solar power plant should start production in 2024. Most of the Group's activities are treated as sectors particularly affected by the energy crisis. The State Tax Inspectorate classifies the Group companies (Grigeo AB, Grigeo Klaipėda AB, Grigeo Packaging UAB) as large taxpayers. The Group exercised the right to receive subsidies in 2022, which were linked to the taxes paid by the Group. The total amount of received subsidies in the Group amounted to EUR 1.0 million. 9 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Summary of results of operations Presented below are changes in the key indicators over 12 months of 2022, compared to the respective period of the previous year: - The Group’s and the Company’s revenue increased by EUR 40.0 million (24.5%) and EUR 22.9 million (33.8%), respectively. - The Group’s EBITDA was lower by EUR 2.4 million (10.0%) and the Company’s EBITDA was higher by EUR 4.2 million (70.6%). - The Group’s EBT decreased by EUR 2.0 million (14.3%) and the Company’s EBT increased by EUR 14.3 million (497.5%). Indicator, EUR million Group Company 2022 2021 Change 2022 2021 Change Revenue 203.2 163.2 24.5% 90.5 67.6 33.8% EBITDA 21.4 23.7 -10.0% 10.1 5.9 70.6% Profit before tax (EBT) 11.7 13.6 -14.3% 17.2 2.9 497.5% In 2022, the Group reached the record high level of turnover – EUR 203.2 million (EUR 163.2 million in 2021). The increase in turnover was determined by the adjustments of sales prices considering the significant increase in the prices of energy resources and raw materials in the market. The Group’s net profit for 2022 decreased and was equal to EUR 10.6 million (EUR 12.4 million in 2021). Despite increase in turnover, the Group’s profitability ratios declined due to a significant increase in prices of raw materials and energy resources (the comparison of ratios is presented in section 2.2). The Group's performance remains satisfactory due to business diversification: more profitable segments compensate poorer performance of other segments at different times, and vertical integration, i.e., the Group covers a full production cycle of corrugated cardboard and related products, and in the tissue paper segment – from paper production to final products. More detailed information on reasons of these changes is presented in the table and explanations below according to business segments. Revenue, gross profit, and gross margin of the business segments: Indicator, EUR million Tissue paper and paper products Wood fibreboards Raw materials for corrugated cardboard and related products Unallocated TOTAL 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Revenue 77.7 60.7 27.7 20.7 93.0 78.7 4.9 3.1 203.2 163.2 Gross profit 11.1 9.6 2.3 4.5 16.8 19.1 0.7 0.3 30.8 33.6 Gross margin 14.2% 15.9% 8.3% 21.7% 18.0% 24.3% 14.3% 9.5% 15.2% 20.6% The data is presented after the elimination of the impact of transactions between the segments. Segment of tissue paper and paper products The segment's turnover in 2022 reached EUR 77.7 million (EUR 60.7 million in 2021). The increase in turnover was mainly driven by the increase in the prices of products sold as well as higher sales of final products. Despite a higher turnover, the segment's gross profitability in 2022 decreased to 14.2% (15.9% in 2021). The decrease in gross profitability was caused by significant increases in the prices of energy and raw materials. 142,5 140,0 129,6 163,2 203,2 14,3 13,6 13,3 12,4 10,6 2018 2019 2020 2021 2022 Rrevenue of the Group, EUR million Net profit of the Gruop, EUR million 10 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Prices of raw materials stabilised to some extent at the second half of 2022 with some decreases in prices seen as well. The record high energy prices are expected to fall once Europe ensures additional gas supply and electricity production capabilities. Segment of wood fibreboards The segment’s sales revenue amounted to EUR 27.7 million (EUR 20.7 million in 2021). The main reason for the increase in turnover was higher sales prices. The increase in sale prices in this segment was determined by the global rise in the prices of wood raw materials. Significantly higher energy prices contributed to the increase in the cost of the segment’s products, leading to the decrease of the segment’s profitability to 8.3% in 2022 (2021: 21.7%). The main buyers of wood fibreboard products are manufacturers of cabinet furniture and soft furnishings, manufacturers and users of specialized packaging solutions, DIY (Do-It-Yourself) sector, and construction companies. The Group’s management believes that the prices in this segment, both in respect of raw materials and final products, will remain at a high level. Raw materials for corrugated cardboard and related products In 2022, this segment showed a growth – sales revenue reached EUR 93.0 million. It was 18.1% higher than in 2021 (EUR 78.7 million). The segment was negatively affected by increase in prices of waste paper and significant increase in the prices of energy resources in 2022. As a result, the gross margin of the segment decreased to 18.0% in 2022 (in 2021 – 24.3%). The segment’s sales of raw materials for corrugated cardboard (paper rolls) reached 97.1 thousand tons and were 5.1% lower than in 2021 (102.3 thousand tons). Sales of related products (corrugated cardboard boxes and sheets) in 2022 reached 38.5 thousand tons and were 20.8% lower than in 2021 (48.6 thousand tons). Higher segment revenue was mostly affected by higher sales prices. The Group's management believes that the uncertainties in the global economy as well as expected recession might lead to lower sales volumes of this segment, as the packaging solutions are very often used by other industries. 11 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 2.2. Financial and operating performance of the Group and the Company In 2022, the profitability indicators declined due to increase in the prices of raw materials and energy resources. The values of the liquidity and capital structure ratios remained at a similar level compared to the respective values in 2021 – the ratios confirm the financial stability as well as low financial risk of the Group and the Company. Indicator Group Company 2022 2021 2020 2022 2021 2020 Revenue, EUR million 203.2 163.2 129.6 90.5 67.6 63.7 Net profit, EUR million 10.6 12.4 13.3 16.4 3.2 9.0 EBITDA, EUR million 21.4 23.7 26.2 10.1 5.9 14.8 EBIT, EUR million 12.1 13.9 15.1 17.3 3.0 10.0 Profitability ratios Gross margin 15.2% 20.6% 25.8% 12.0% 13.4% 27.2% EBITDA margin 10.5% 14.5% 20.2% 11.2% 8.8% 23.2% EBIT margin 6.0% 8.5% 11.7% 19.1% 4.4% 15.7% Net margin 5.2% 7.5% 10.3% 18.1% 4.8% 14.1% ROE margin 11.0% 13.3% 16.0% 26.7% 5.5% 15.9% ROA margin 7.6% 9.6% 11.1% 19.9% 4.2% 12.0% ROCE margin 11.2% 13.8% 15.8% 24.6% 5.0% 15.6% Liquidity ratios Current ratio 1.71 1.51 1.56 1.75 1.01 1.63 Quick ratio 1.13 1.07 1.23 1.22 0.72 1.33 Capital structure ratios Debt to equity ratio 0.46 0.41 0.38 0.35 0.33 0.28 Debt to total assets ratio 0.31 0.29 0.27 0.26 0.25 0.22 Market value ratios P/E 8.79 9.92 6.57 5.64 37.83 9.73 Dividend pay-out ratio 62.4% 64.3% - 40.1% 245.1% - Basic earnings per share, in EUR 0.080 0.093 0.101 0.125 0.024 0.068 Diluted earnings per share, in EUR 0.080 0.093 0.100 0.124 0.024 0.068 Ratios for year 2020 were restated following the Company's authorised share capital increase on 19 May 2021 using the Company’s retained earnings (section 4.2). The above-mentioned indicators have been calculated in accordance with the formulas recommended by Nasdaq Vilnius AB: EBITDA margin = EBITDA / sales revenue. EBITDA to revenue ratio shows the overview of operational efficiency and cash flows. Gross margin = Gross profit / sales revenue. Gross profit margin shows the ability to earn profit from operating activity, control the level of sales revenue and cost. EBIT margin = Profit from operations / sales revenue. A monetary value of the coefficient shows operating profit to EUR 1 of sales. A higher ratio shows higher profitability. Net margin = Net profit attributable to shareholders / sales revenue. The ratio describes the profitability of the final total operating result. ROE margin = Net profit attributable to shareholders / average equity. This ratio estimates shareholders’ return on investment. ROA margin = Net profit attributable to shareholders / average assets. The return on assets shows how effectively assets are used to generate profit. ROCE margin = EBIT / capital used. The used capital return shows income generated by each euro invested in the capital. Current ratio = Current assets / current liabilities. The ratio shows the ability to cover current liabilities with current assets. Quick ratio = (Current assets – Inventories) / current liabilities. Liquidity describing the ability to fulfil current liabilities from quickly realisable current assets. Debt to equity ratio = Liabilities / equity. The ratio estimates the combination of fund resources in the balance and compares funds from owners and those that were borrowed. Debt ratio = Liabilities / assets. The ratio shows the asset share financed from borrowed funds. The lower the value, the more borrowings are covered with assets. P/E = the market price of share / total of attributable profit. The ratio shows how much investors pay for one EUR of profit. Dividend pay-out ratio = Dividends / Net profit attributable to shareholders. The ratio shows the portion of earnings paid out as dividends. Basic earnings per share = (Net profit – preferred stock dividends) / weighted average number of ordinary shares in circulation. The calculated profit shows the earned net profit per share. Diluted earnings per share = (Net profit – preferred stock dividends) / (weighted average number of ordinary shares in circulation + weighted average number of dilutive shares, i.e. shares that can be converted to ordinary shares). The calculated profit shows the diluted net profit per share. 12 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 2.3. Business plans and forecasts of the Group In 2023, the Group plans various investments and modernisations that will contribute to higher efficiency in production processes, as well as sustainability-enhancing investments that will contribute to the improvement of environmental protection, a safer working environment, and energy savings. The main planned investments include as follows: Grigeo AB Having successfully implemented investments in new production equipment in recent years, Grigeo AB plans to invest in a condensing economiser, rooftop solar power plants, various other systems that will improve the safety and comfort of the working environment (additional air-cooling systems, security solutions for loading goods, modernization of lighting and others). Grigeo Klaipėda AB Grigeo Klaipėda AB plans to renew gas steam boiler burners, also plans to modernise the treatment of circulating water generated in the paper production process by installing an anaerobic bioreactor for circulating water treatment, and other investments. The wastewater treatment efficiency of the anaerobic bioreactor according to BOD 7 is at least 80%. 2.4. Employees There were no significant changes in the number of employees during 2022. Natural personnel turnover rates prevailed in the Group companies in the reported period. The average salary in the Company and in the Group increased for all categories of employees as compared to the year 2021. The growth of the average salary was mostly driven by the consistent salary increase policy and recruitment of workers with higher competences. The number of employees in the Group and in the Company as at 31 December: Employees Group Company 2022 2021 2022 2021 Women 228 222 70 69 Men 637 639 210 201 Total 865 861 280 270 The average salary in the Group and in the Company, in euros: Employees Group Company 2022 2021 2022 2021 Workers 1,973 1,822 2,143 1,890 Specialists 2,268 2,139 2,466 2,218 Managers 4,959 4,559 5,983 5,583 Total 2,394 2,214 2,673 2,393 Information on the average salary does not include data of Mena Pak AT to show a more precise average salary in the Group that is not affected by fluctuations in exchange rate of the Ukrainian hryvnia. 2.5. Environmental protection The Group fully recognises that sustainable development embraces economic, environmental and social business issues which remain relevant in the daily operations of the organization. In 2022 the Group consistently made investments the majority of which was aimed at the acquisition of modern, more efficient facilities and improvement of processes of environmental protection. After the environmental incident in Grigeo Klaipėda AB that took place in 2020, in 2021 the prosecutor’s office completed the pre-trial investigation regarding the wastewater treatment carried out by Grigeo Klaipėda AB, and the criminal proceedings were referred to the court. The court hearings have started in 2022. Assuming moral responsibility we hope that the fact of damage to the natural environment will be established by the court and, once it has been established, an objective scope of damage will be determined. This will allow Grigeo Klaipėda AB to recover the impact made on the natural environment in a fair manner and in compliance with international standards. We have set clear targets for our future development. Our continuous sustainability targets include: - reducing our GHG emission intensity, GRI: 2-7 13 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated - reduce number of accidents at work - improve nature- and people-friendly product properties, - select more environmentally friendly mix of energy sources, - invest in energy efficiency, - promote responsible collection of waste paper, - better manage the wastewater quality, - reduce the disposable waste. More information on sustainability targets is disclosed in section Sustainability (social responsibility) report. Environmental management system certificates ISO 14001:2015 implemented at the companies of the Group are a proof that we aim to control the environmental impact in our production and distribution processes. We responsibly choose and use raw materials and energy sources, implement environmentally friendly technologies, and manage production waste – these priorities will remain the focus of our Group entities future activities. 2.6. EU Taxonomy The disclosure requirements of the European Union (EU) Taxonomy came into force as of 1 January 2022. The Taxonomy is the EU-wide classification system, which will allow businesses and investors speak the same language in identifying those economic activities which are considered environmentally sustainable.EU taxonomy foresees the following environmental objectives: - climate change mitigation, - climate change adaptation, - the sustainable use and protection of water and marine resources, - the transition to a circular economy, - pollution prevention and control, - the protection and restoration of biodiversity and ecosystems. The companies a required to disclose the proportion of turnover, CapEx and OpEx from products or services associated with Taxonomy-aligned economic activities. Taxonomy-eligible economic activity is an activity, which, as foreseen by the Taxonomy regulation, makes a substantial contribution to one of the six environmental objectives of the Taxonomy. Whether an activity is Taxonomy- eligible or Taxonomy-non-eligible says nothing about the sustainability or unsustainability of that activity. Taxonomy-aligned economic activity is an economic activity, which is considered as environmentally sustainable. Such activity must meet the following criteria: - contribute substantially to one or more of the environmental objectives, - do not significantly harm (DNSH) any of the environmental objectives, - is carried out in compliance with the minimum safeguards laid down Taxonomy Regulation, - complies with technical screening criteria that have been established by the European Commission. The main activities of the Group are not yet included in the Taxonomy Regulation. However, the Group identified secondary activities that are Taxonomy eligible: - Production of heat from gas, - Production of heat from bioenergy. The proportions of taxonomy-aligned turnover, CapEx and OpEx as well as related specification of disclosures of the Group are disclosed in Sustainability (social responsibility) report, section 7.12 Taxonomy disclosures. 2.7. Risk management Ecological risk The Group is constantly exposed to ecological risks during its manufacturing activities. To properly manage environmental risks, ISO 14001 (Environmental Management System) has been implemented in all of the Group's manufacturing companies in Lithuania, the effectiveness of which is constantly monitored with the help of external certification consultants. The Company follows the integrated pollution prevention and control principles in its economic activities. The Company rationally uses energy and natural resources through the application of modern production technologies and technologies for the treatment of environmental components without worsening the quality of the products manufactured. 14 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Product risk The Group's hygiene paper segment manufactures products that come into contact with food or are used as personal hygiene products. For these reasons, the Group must apply the highest quality standards. In 2020, Grigeo AB was the first personal hygiene product manufacturer in Lithuania to receive an IFS HPC quality certificate. It accredits that tissue paper products are manufactured in compliance with the highest quality and safety standards and the products supplied to the market are safe to be in contact with food. This certification is carried out every year. In 2022, the certificate was renewed. The Group plans to continue renewing this certificate on an annual basis to maintain a minimal risk of the tissue paper product. Climate change risk The management of the Group recognises the importance of analysis in disclosing climate-related risks and opportunities. In 2021, the Group’s management decided to start with a qualitative analysis that will help explore a possible range of effects of climate change. During 2022, the Group continued its analysis and used the reporting principles of the Climate-Related Financial Disclosure Working Group (TCFD) to analyse the potential impact of the climate change on the activities of the companies of the Group. Although the physical risk to the Group is low, in the opinion of the management, the reputational risk and market risk remain significant in the context of the climate change risk. During the production process, the Group's companies emit greenhouse gases (GHGs) and the Group is sensitive to electricity needs. In order to ensure the Group's transparency, the Group provides GHG emissions data calculated by the independent consultants (see section ‘Sustainability (social responsibility) report’) and sets targets for reducing emissions and energy needs through technological means, through the purchase of new and more energy-efficient equipment and upgrade of existing ones. Risk of prices of raw materials The markets of raw materials relevant for the paper and wood industry are showing signs of stabilisation (cellulose, white waste paper, starch), and in some markets (various types of paper, cardboard waste paper, wood chips) a significant price decrease is seen. This is related to both the reduced demand for raw materials, as well as the significantly increased availability of various logistics channels and the resulting drop in logistics costs. To manage this risk, the companies of the Group renewed the annual supply contracts with the main suppliers of raw materials, maintaining and, in some cases, significantly improving the supply conditions. The Group companies avoided downtime due to the lack of raw materials, therefore, looking to 2023, due to increased availability, stabilization of prices, and, in some markets, a decrease in prices, a significant decrease in this risk can be predicted. Risk of prices of energy resources Due to the start of the war in Ukraine, the flow of energy resources from Russia and Belarus has decreased or even completely stopped. Also, insufficient supply of cheap energy sources in 2022 resulted in multiple increase in the prices of these resources. The war and the supply restrictions caused by it led to a large increase and variability of electricity, gas and biofuel prices, which have a significant impact on the cost of the Group's production. In 2022 the companies of the Group renewed electricity, gas and biofuel supply contracts, focusing special attention on the reliability and flexibility of the selected partners, i.e. the ability to ensure the necessary energy resources and respond promptly to market changes. Decisions have been made to invest in renewable energy resources, thus reducing both the need for their purchase and the costs incurred by the Group companies. The Group also invests in new technologies that allow to increase energy efficiency and at the same time reduce the need for energy resources. Despite the above actions, the risk of high energy prices remains high and can be significantly reduced only in a longer (>1 year) perspective along with market changes both in the country and in the entire affected region. Risk related to the process of financial reporting The Company’s financial accounting is performed, and financial statements are prepared in accordance with the requirements of International Financial Reporting Standards, as adopted by the European Union effective at 31 December 2022. The annual financial statements are audited by the independent auditors elected by the General Meeting of Shareholders. Independence of the auditors is assessed by the Company’s Audit Committee. This procedure guarantees the relevance and transparency of the data presented in the Company’s financial statements. Financial risk The information on financial risks and their management is disclosed in Note 3 to the consolidated and separate financial statements. 15 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 3. Group companies 3.1. Structure and contact details As at 31 December 2022, the Group consisted of the Company and its nine subsidiaries as indicated below: The Company has sales representatives operating in Latvia and Estonia. No new representative offices or branches are planned to be opened in 2023. Status Parent company Subsidiary Subsidiary Company name Grigeo AB Grigeo Klaipėda AB Grigeo Packaging UAB Code 110012450 141011268 302329061 Authorised share capital EUR 38,106,000 EUR 11,890,550 EUR 15,202,900 Portion of shares directly/indirectly controlled by Grigeo AB The Company has not acquired own shares 97.68% 100% LEI code 529900YXT3CDTZGS0R43 64880O4VY4HF60K96D17 - Address Vilniaus g. 10, Grigiškės, Vilnius City Municipality, Lithuania Nemuno g. 2, Klaipėda Vilniaus g. 10, Grigiškės, Vilnius City Municipality Telephone +370 5 243 5801 +370 46 39 5601 +370 5 243 5838 Fax - +370 46 39 5600 - E-mail info@grigeo.lt info.klaipeda@grigeo.lt info.packaging@grigeo.lt Website https://www.grigeo.lt/en https://www.grigeo.lt/en https://www.grigeo.lt/en Legal form Public limited liability company Public limited liability company Private limited liability company Date of registration 23 May 1991 22 September 1994 10 April 2009 Manager of the register State enterprise Centre of Registers State enterprise Centre of Registers State enterprise Centre of Registers GRI: 2-1 2-2 2-6 16 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Status Subsidiary Subsidiary Subsidiary Company name Grigeo Baltwood UAB Grigeo Recycling UAB Grigeo Recycling SIA Code 126199731 302529158 40203001091 Authorised share capital EUR 4,000,000 EUR 2,960,000 EUR 500,000 Portion of shares directly/indirectly controlled by Grigeo AB 100% 100% 100% Address Vilniaus g. 10, Grigiškės, Vilnius City Municipality Vilniaus g. 10, Grigiškės, Vilnius City Municipality Ēdoles iela 5, Riga, Latvia Telephone +370 5 243 5900 +370 5 243 3393 +370 5 243 3393 Fax +370 5 243 5910 - - E-mail info.baltwood@grigeo.lt info.recycling@grigeo.lt info.recycling@grigeo.lt Website https://www.grigeo.lt/en https://www.grigeo.lt/en - Legal form Private limited liability company Private limited liability company Private limited liability company Date of registration 10 April 2003 16 July 2010 16 June 2016 Manager of the register State enterprise Centre of Registers State enterprise Centre of Registers Register of Enterprises of the Republic of Latvia Status Subsidiary Subsidiary Subsidiary Subsidiary Company name Mena Pak AT Grigeo Investicijų Valdymas UAB Naujieji Verkiai UAB Grigiškių Energija UAB Code 00383260 302416687 300015674 302674488 Authorised share capital UAH 4,011,470 EUR 19,329,776 EUR 28,962 EUR 2,900 Portion of shares directly/indirectly controlled by Grigeo AB 100% 100% 100% 100% Address Koševovo g. 6, Chernihiv region, Mena, Ukraine Vilniaus g. 10, Grigiškės, Vilnius City Municipality Popieriaus g. 15, Vilnius Vilniaus g. 10, Grigiškės, Vilnius City Municipality Telephone +380 4644 21341 +370 698 87433 +370 5 243 5933 +370 5 243 5933 Fax +380 4644 21084 - - - E-mail menapack@ukr.net info.giv@grigeo.lt info@grigeo.lt vigmantas.kazukauskas @grigeo.lt Website www.menapack.com.ua - - - Legal form Public limited liability company Private limited liability company Private limited liability company Private limited liability company Date of registration 30 December 1993 10 July 2009 6 April 2004 7 October 2011 Manager of the register Mena District State Administration, Chernihiv Region State enterprise Centre of Registers State enterprise Centre of Registers State enterprise Centre of Registers 3.2. Main activities of the Group companies The main business activity of Grigeo AB is the production of tissue paper. Grigeo Klaipėda AB manufactures the raw material to produce corrugated cardboard – testliner (smooth layered cardboard) and fluting (paper for corrugation) as well as paper honeycomb used in the furniture industry. Grigeo Packaging UAB manufactures corrugated cardboard and corrugated cardboard products. Grigeo Baltwood UAB manufactures uncoloured hardboard and painted hardboard panels. Grigeo Recycling UAB collects secondary raw materials and prepares them for recycling. Grigeo Recycling SIA collects secondary raw materials and prepares them for recycling. GRI: 2-1 2-2 17 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Mena Pak AT (in Ukranian – акцiонерне товариство „МЕНА ПАК“) manufactures corrugated cardboard and corrugated cardboard products. Grigeo Investicijų Valdymas UAB is engaged in investment activities and management of companies. Naujieji Verkiai UAB is engaged in construction and development of real estate; the company was dormant in 2022. The activities of Grigiškių Energija UAB are related to heat production and sale; the company was dormant in 2022. The transactions between related parties are disclosed in Note 30 to the financial statements. 4. Data on the Issuer’s securities The ordinary registered shares of Grigeo AB are listed on the Official Baltic List of Nasdaq Vilnius Stock Exchange (trading code of shares is GRG1L). The Company and the companies of the Group did not purchase own shares during the reporting period and have no such shares acquired. 4.1. Contracts with intermediaries of public trading in securities The Company has signed a contract with Šiaulių Bankas AB (telephone: 1813 (+370 37 301337 for calls from abroad), kc@sb.lt) on payment of dividends to the shareholders for the previous financial year. The Company has signed a contract with FMĮ Orion Securities UAB (A. Tumėno g. 4, Vilnius, tel. +370 5 231 3833, info@orion.lt) on the bookkeeping of securities issued by the Company and on market making activities. 4.2. Main characteristics of the Company’s shares Date Type of shares Securities’ ISIN code Number of shares, units Par value, EUR Total par value, EUR Until 18/05/2021 Ordinary registered shares LT0000102030 65,700,000 0.29 19,053,000 From 19/05/2021 Ordinary registered shares LT0000102030 131,400,000 0.29 38,106,000 Based on the decision of the Ordinary General Meeting of Shareholders held on 30 April 2021, the Company's authorised share capital was increased on 19 May 2021 out of the Company’s retained earnings from EUR 19,053 thousand to EUR 38,106 thousand by issuing 65,700,000 ordinary registered shares with par value of EUR 0.29. 4.3. Trade in the Company’s shares Reporting period Price, EUR Turnover, EUR Total turnover Max. Min. Last session Average Max. Min. Last session Units EUR 2019 0.735 0.653 0.723 0.698 104,495 - 13,623 3,990,714 2,783,923 2020, Q1 0.750 0.482 0.530 0.554 342,036 310 23,212 6,240,586 3,458,776 2020, Q2 0.600 0.510 0.593 0.567 67,608 11 6,651 1,630,360 925,039 2020, Q3 0.640 0.590 0.628 0.616 50,999 151 2,737 985,304 606,631 2020, Q4 0.665 0.613 0.665 0.630 40,416 9 9,670 973,192 613,338 2020 0.750 0.482 0.665 0.570 342,036 9 9,670 9,829,442 5,603,785 2021, Q1 0.753 0.630 0.673 0.676 178,553 77 3,085 2,120,000 1,432,306 2021, Q2 0.980 0.670 0.974 0.878 576,103 1,782 64,516 6,366,053 5,590,079 2021, Q3 0.998 0.964 0.964 0.986 2,079,207 3,054 12,209 6,960,462 6,862,103 2021, Q4 0.964 0.866 0.926 0.905 90,003 260 6,726 1,265,914 1,145,714 2021 0.998 0.630 0.926 0.899 2,079,207 77 6,726 16,712,429 15,030,202 2022, Q1 0.944 0.650 0.840 0.832 57,663 340 14,324 1,044,261 869,038 2022, Q2 0.908 0.782 0.788 0.856 34,250 97 2,406 562,634 481,777 2022, Q3 0.820 0.664 0.672 0.729 160,293 353 2,729 1,037,585 756,833 2022, Q4 0.766 0.674 0.704 0.720 155,835 343 3,831 634,139 456,842 2022 0.944 0.650 0.704 0.782 160,293 97 3,831 3,278,619 2,564,490 18 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Price and turnover of shares over the period 01/01/2020 – 31/12/2022: Share price benchmarked against the Baltic market index over the period 01/01/2020 – 31/12/2022: 4.4. Capitalisation of the Company’s shares 0 400 800 1 200 1 600 2 000 0,40 0,60 0,80 1,00 1,20 1,40 2020-01 2020-04 2020-07 2020-10 2021-01 2021-04 2021-07 2021-10 2022-01 2022-04 2022-07 2022-10 turnover, EUR thousand share price, EUR 50% 75% 100% 125% 150% 175% 200% 2020-01 2020-04 2020-07 2020-10 2021-01 2021-04 2021-07 2021-10 2022-01 2022-04 2022-07 2022-10 OMX_Baltic_Benchmark_GI GRG1L - Grigeo Last session date Capitalisation, EUR 31/12/2019 94,936,500 31/03/2020 69,642,000 30/06/2020 77,854,500 30/09/2020 82,453,500 31/12/2020 87,381,000 31/03/2021 88,366,500 30/06/2021 127,983,600 30/09/2021 126,669,600 31/12/2021 121,676,400 31/03/2022 110,376,000 30/06/2022 103,543,200 30/09/2022 88,300,800 31/12/2022 92,505,600 19 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 5. Corporate governance report The applied corporate governance code and information on compliance with the code are presented in the section “Statement of compliance with the corporate governance code”. 5.1. Significant directly and indirectly controlled shares As at 31 December 2022, the number of shareholders of Grigeo AB was 4,676 (31 December 2021: 4,360). There are no shareholders holding special controlling rights at the Company. There are no limitations of voting rights at the Company. Moreover, the Company is not aware of any agreements between the shareholders, including those under which a transfer of securities and / or voting rights could be restricted. Shareholders holding more than 5% of the Issuer’s authorised share capital by the right of ownership as at 31 December 2022 and 31 December 2021 are presented in the table below: Shareholder’s name, surname (company’s name, type, registered office address, company code 31 December 2022 31 December 2021 Number of ordinary registered shares owned by the shareholder, units Portion of the authorised share capital held, % Votes granted by shares held by the right of ownership, % Number of ordinary registered shares owned by the shareholder, units Portion of the authorised share capital held, % Votes granted by shares held by the right of ownership, % Ginvildos investicija UAB Turniškių g. 10a-2, Vilnius, 125436533 60,809,151 46.28 46.28 60,809,151 46.28 46.28 Irena Ona Mišeikienė 17,578,342 13.38 13.38 17,168,342 13.07 13.07 Gintautas Pangonis holds 100% of shares of Ginvildos Investicija UAB. 5.2. Rules regulating the election and replacement of the management and supervisory bodies According to the Company’s Articles of Association, the Company’s bodies are the General Meeting of Shareholders, the Supervisory Board (the collegial supervisory body), the Board (the collegial management body), and the Manager of the Company (the President). The Audit Committee is formed at the Company, which is the advisory body to the Company’s Supervisory Board. The Company’s objective is to ensure diversity of qualifications, professional experience and competences as well as gender equality of the elected members of the management and supervisory bodies. GRI: 2-9 2-13 20 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Supervisory Board The Supervisory Board consists of five members. The members of the Supervisory Board are elected by the General Meeting of Shareholders for a period of four years as defined by the Articles of Association of the Company. The General Meeting of Shareholders may recall the entire Supervisory Board or its individual members before the end of the term of office of the Supervisory Board. In the election of the members of the Supervisory Board, each shareholder holds the number of votes which is equal to the number of votes conferred by the shares held by them multiplied by the number of the Supervisory Board members to be elected. The shareholder distributes these votes at his own discretion – in favour of one or several candidates. The candidates who have collected the largest number of votes are elected. In case the number of candidates who collected equal number of votes exceeds the number of vacancies on the Supervisory Board, a repeated voting is organised during which each shareholder may vote only for one of the candidates who collected equal number of votes. The Supervisory Board performs its functions for a period defined by the Articles of Association or until a new Supervisory Board is elected but no longer than until the Ordinary General Meeting of Shareholders is held in the year in which the Supervisory Board’s term of office ends. The number of terms of office of a member of the Supervisory Board is unlimited. More than a half of the Supervisory Board members must have no employment relations with the Company, at least 1/3 of the Supervisory Board members must be independent and cannot be members of the Supervisory Board of the Company for more than 10 years. The Supervisory Board or its members commence their activities after the end of the General Meeting of Shareholders which elected the Supervisory Board or its members. The Supervisory Board is chaired by its chairperson who is elected by the Supervisory Board from its members. Audit Committee The Audit Committee is formed at the Company, and it consists of three members. The Audit Committee is formed, and its composition is approved by the decision of the Supervisory Board for the period defined therein but no longer than for four years. Only a private individual may be a member of the Audit Committee. The Audit Committee must include at least one Audit Committee member with knowledge of at least one of the following areas: finance, accounting, audit of financial statements, or the sector in which the company operates; at least one member of the Audit Committee must have at least three years’ working experience in accounting and (or) audit of financial statements. The Manager of the Company and a person who has held this position for the past five years may not be a member of the Audit Committee. More than a half of the Audit Committee members must be independent members and may not serve as a member of the Company's Audit Committee for a total of more than 12 years. The chairperson of the Audit Committee is elected by the members of the Audit Committee. An independent member is elected to be the chairperson of the Audit Committee. Board The Company’s Board consists of five members. The Board is elected for a period of four years as defined by the Articles of Association of the Company. The Board performs its functions for a period defined by the Articles of Association or until a new Board is elected and starts to perform its functions but no longer than until the Ordinary General Meeting of Shareholders is held in the year in which the Board’s term of office ends. The Board elects the chairperson of the Board from its members. Only a private individual may be elected to be a member of the Board. The number of terms of office of a member of the Board is unlimited. The Board or its members commence their activities after the end of the meeting of the Supervisory Board which elected the Board or its members. The Supervisory Board may recall the entire Board or its individual members before the end of their term of office. Manager of the Company The Manager of the Company is elected, recalled and dismissed by the Board of the Company. An employment contract is signed with the Manager of the Company. The Company’s Manager starts to perform his/her duties from the election day, unless otherwise provided by the agreement signed. Articles of Association of the Company The General Meeting of Shareholders has the exclusive right to amend the Articles of Association of the Company subject to the exceptions provided by the Law on Companies of the Republic of Lithuania. The Articles of Association of the Company are amended following the procedure established by the Law on Companies of the Republic of Lithuania. GRI: 2-10 2-13 21 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 5.3. Management and supervisory bodies Composition of the management and supervisory bodies Name, surname Position Education Term of office Portion of ownership interest and voting rights, % Supervisory Board Vilius Oškeliūnas Independent Member, Chairman Vilnius University, Bachelor’s and Master’s degree in Economics From 26 April 2019 until the General Shareholders’ Meeting to be held in 2023 - Norimantas Stankevičius Member Vilnius University, Physicist 4.47 Romualdas Degutis Member Kaunas University of Technology, Telecommunications Engineer 0.03 Normantas Paliokas Member Vilnius Gediminas Technical University, Architect - Daiva Duksienė Independent Member Vilnius University, Economist - Audit Committee Daiva Duksienė Independent Member, Chairwoman Vilnius University, Economist From 26 April 2019 until the General Shareholders’ Meeting to be held in 2023 - Norimantas Stankevičius Member Vilnius University, Physicist 4.47 Vilius Oškeliūnas Independent Member Vilnius University, Bachelor’s and Master’s degree in Economics - Board Gintautas Pangonis Chairman Kaunas University of Technology, Telecommunications Engineer From 26 April 2019 until the General Shareholders’ Meeting to be held in 2023 Indirectly 46.28 Algimantas Variakojis Independent Member (since 13/07/2020) Vilnius University, Economist 0.16 Vigmantas Kažukauskas Member Kaunas University of Technology, Telecommunications Engineer 0.88 Saulius Martinkevičius Member Vilnius University, Master’s degree in Business Administration and Management, Bachelor’s degree in Economics and Business IT Systems 0.23 Tomas Jozonis Member ISM University of Management and Economics, Bachelor’s degree in Management and Business Administration; Vilnius University, Master’s degree in Business - Manager of the Company Gintautas Pangonis President Kaunas University of Technology, Telecommunications Engineer - Indirectly 46.28 Ginvildos Investicija UAB holds 46.28% of the Company’s shares. 100% of shares of Ginvildos investicija UAB are held by Gintautas Pangonis. The Board member holds 0.13% of the Company’s shares directly and 0.03% – through 100% owned company Alro Kapitalas UAB. Gintautas Pangonis – Chairman of the Board, President. Education – higher education. Profession – multichannel telecommunication engineer. Workplaces during the last 10 years: Employer Position Grigeo AB General Director, Chairman of the Board Grigeo AB President, Chairman of the Board GRI: 2-9 2-11 405-1 2-17 22 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Participation of the management and supervisory bodies in the activities of other organisations Name, surname Position Name of the enterprise, institution and organisation Vilius Oškeliūnas Chairman of the Supervisory Board, Member of the Audit Committee Grigeo AB Wealth Manager Gerovės Valdymas UAB Director, Board Member Atelier Investment Management UAB Director IM Investment UAB, Commody UAB Deputy Director WB Invest UAB True Member Gerovės Partneriai KŪB Board Member Invalda Privatus Kapitalas AB, ETA projektai UAB, Liv in LT UAB, V46 UAB Norimantas Stankevičius Member of the Supervisory Board, Member of the Audit Committee Grigeo AB Project Manager Didma UAB Romualdas Degutis Member of the Supervisory Board Grigeo AB Strategy and Development Director InComSystems UAB Chairman of the Board Antena UAB, InComSystems UAB Normantas Paliokas Director Elnorma UAB Member of the Supervisory Board Grigeo AB Daiva Duksienė Independent Member of the Supervisory Board, Chairperson of the Audit Committee Grigeo AB Director Amerigas UAB, Pasaulio skoniai UAB Chief Financial officer Baltijos ir Amerikos terapijos ir chirurgijos klinika UAB Gintautas Pangonis President Grigeo AB Director Ginvildos investicija UAB Chairman of the Board Grigeo AB Board Member Grigeo Klaipėda AB, Grigeo Packaging UAB Chairman of the Board Naujieji Verkiai UAB, Grigeo Baltwood UAB, Grigiškių Energija UAB, Grigeo Recycling UAB, Grigeo Investicijų Valdymas UAB Member of the Supervisory Board Mena Pak AT Chairman of the Supervisory Board Grigeo Recycling SIA Vigmantas Kažukauskas Vice President for Business Development Grigeo AB Board Member Grigeo AB, Grigeo Klaipėda AB, Grigeo Baltwood UAB, Grigeo Packaging UAB, Grigeo Investicijų Valdymas UAB Director, Board Member Naujieji Verkiai UAB, Grigiškių Energija UAB Member of the Supervisory Board Mena Pak AT Algimantas Variakojis Independent Board Member Grigeo AB Partner, True Member Verslo Angelų fondas I KŪB Director Alro Kapitalas UAB, Verslo Praktika UAB, Mes Invest UAB Board Member Nailtex UAB, Chipper Blades Center UAB Chairman of the Board Mes Invest UAB Saulius Martinkevičius Vice President, Procurement and Logistics Grigeo AB Board Member Grigeo AB, Grigeo Baltwood UAB, Grigeo Packaging UAB, Grigeo Klaipėda AB, Naujieji Verkiai UAB, Grigiškių Energija UAB, Grigeo Investicijų Valdymas UAB Tomas Jozonis Managing Director Grigeo AB Board Member Grigeo AB, Grigeo Recycling UAB, Grigiškių Energija UAB Member of the Supervisory Board Grigeo Recycling SIA GRI: 2-9 2-11 2-15 23 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 5.4. Functions and responsibilities of the management and supervisory bodies Supervisory Board The Supervisory Board discusses and approves the business strategy of the Company, elects members of the Board of the Company and recalls them from their positions, adopts decisions regarding transactions with related parties, supervises the activity performed by the Board and the Manager of the Company, submits replies and proposals regarding the set of financial statements, the proposed profit or loss appropriation and the annual report of the Company as well as the activity of the Board and the Manager of the Company to the General Meeting of Shareholders; and resolves other issues assigned to the competence of the Supervisory Board by the Articles of Association of the Company, by the decisions of the General Meeting of Shareholders regarding the supervision of the activities of the Company and its management bodies. Audit Committee The functions of the Audit Committee are to inform the Manager or the supervisory body of the Company about the results of the audit of the financial statements and to explain how this audit contributed to the reliability of the financial statements and the role of the Audit Committee in doing that; to monitor the financial reporting process and submit recommendations for ensuring the reliability thereof; to monitor the audit of the annual financial statements and the consolidated financial statements; to review and monitor the independence of the auditors or the audit companies; to provide recommendations regarding the appointment of statutory auditors or the audit companies; to submit opinions regarding the transactions conducted by the Company with the related parties. Board The Board discusses and approves the Company’s annual and interim reports, the management structure of the Company; elects and removes from the office the Manager of the Company, sets his/her remuneration and other terms and conditions of the employment contract; analyses and assesses the information submitted by the Manager of the Company on the organisation of the Company’s business activities, financial condition, the set of the Company’s annual financial statements, proposed profit or loss appropriation and submits to the Supervisory Board and General Meeting of Shareholders together with the responses and proposals in relation thereto and the Company’s annual report; analyses, assesses the draft business strategy and information about the implementation of the Company’s business strategy submitted by the Manager of the Company and adopts other decisions assigned to the competence of the Board by the Law on Companies of the Republic of Lithuania, the Articles of Association or the decisions of the General Meeting of Shareholders of the Company. The Articles of Association of the Company provide for the following competence of the Board in addition to those provided by the Law on Companies of the Republic of Lithuania: the Board discusses and approves the employee payment systems; elects and recalls employees directly reporting to the Manager of the Company, directors of the Company’s divisions, sets their salaries, other terms and conditions of the employment contract, approves their job descriptions, allocates bonuses to these employees; elects and recalls the accounting company providing accounting services to the Company, sets the conditions of payment for the accounting services; approves the systems and procedures of bonuses, incentives to the employees procedures; sets the non-current assets’ depreciation or amortisation rates and calculation methods applied in the Company. Manager of the Company The Manager of the Company – the President – organises the Company’s economic commercial business activities. The Manager of the Company has the right to unilaterally conclude transactions, except for the cases provided by the Articles of Association of the Company where the Manager of the Company may conclude transactions subject to the decision of the Board of the Company to conclude such transactions. The Manager of the Company is responsible for the organisation of the Company’s business activities and for the implementation of its goals, preparation of the set of the annual financial statements, preparation of the Company’s annual report, and for the fulfilment of other obligations provided by the Law on Companies of the Republic of Lithuania and other legal acts as well as the Articles of Association of the Company. GRI: 2-13 2-17 24 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 6. Remuneration report On 29 April 2022, the General Meeting of the Shareholders approved the remuneration report of 2021. The remuneration report presents information about the remuneration paid to each member of the management and supervisory bodies of the Company (including but not limited to, all of its components, i.e., fixed and variable remuneration, bonuses, extra pays and other benefits and taxes related to all payments or calculated benefits) by the Company and any other entity within the group of Grigeo AB. The remuneration report includes personal data of the members of the management and supervisory bodies of the Company (name, surname and other specified data) which is processed in order to enhance the Company’s transparency, improve the accountability of the management and supervisory bodies, and monitor the remuneration of the members of the management and supervisory bodies. 6.1. Remuneration policy The Company’s remuneration policy (the “Remuneration Policy”), which was approved on 29 April 2022, is applicable to the Company’s Manager, members of the Board and the Supervisory Board. The Remuneration Policy is published on the Company’s website www.grigeo.lt. The main provisions of the Remuneration Policy of the Company are presented below: Manager of the Company The remuneration to the Company’s Manager consists of the fixed (base) monthly salary in the amount defined by the Board of the Company, bonuses, and other benefits. By the decision of the Board of the Company, the Company’s Manager may be granted annual bonuses depending on the Company’s financial performance and calculated following the bonus scheme approved by the Board of the Company. The amount of the annual bonus may not exceed 50% of the annual salary of the Company’s Manager. Following the Rules for Granting Shares of the Company, the Manager of the Company may be remunerated by granting shares. Board A civil agreement on the provision of services is concluded with the member of the Board of the Company who has no employment relations with the Company whereby a fixed monthly remuneration is set amounting to no more than EUR 2,500 (before the applicable taxes). The member of the Board is paid an additional monthly remuneration for the performance of the duties of the chairperson of the Board of the Company which cannot exceed 25% of the fixed monthly remuneration agreed with the member of the Board in the agreement. No variable remuneration components, bonuses or supplements are normally set to the member of the Board who has no employment relations with the Company, and no remuneration is offered by granting shares, no specific remuneration criteria are predefined depending on the financial and non-financial performance. Тhe member of the Board who is the Company’s employee receives remuneration under the employment contract signed with the Company. The remuneration of the member of the Board who is the Company’s employee consists of a fixed (base) monthly salary, bonuses, and other benefits applicable to the employees of the Company. A specific fixed (base) monthly salary is set by the Board of the Company. By the decision of the Board of the Company, a member of the Board may be granted annual bonuses depending on the Company’s financial performance, calculated in accordance with the bonus scheme approved by the Board of the Company. Following the Rules for Granting Shares of the Company, the member of the Board who is the Company’s employee may be remunerated by granting shares. Following the procedure established by the Law on Companies of the Republic of Lithuania and by other legal acts, by the decision and at the discretion of the General Meeting of Shareholders of the Company, the members of the Board of the Company may be granted annual bonuses. Supervisory Board A civil agreement on the provision of services is concluded with the member of the Supervisory Board of the Company whereby a fixed annual remuneration is set amounting to no more than EUR 3,000 (before the applicable taxes). In case the member of the Supervisory Board has performed his/her activity for less than a calendar year, a proportionally lower remuneration is paid thereto in view of the actual performance of the activity of the member of the Supervisory Board. A member of the Supervisory Board shall be paid an annual additional remuneration of no more than 25% for the performance of the duties of the Chairperson of the Supervisory Board of the Company, no more than 20% for the performance of the duties of the member of the Audit Committee of the Company, and no more than 20% for the performance of the duties of the Chairperson of the Audit Committee of the Company. No variable salary components, bonuses or premiums depending on the Company’s performance are commonly set to the member of the Supervisory Board, and no remuneration is offered by granting shares, no specific remuneration criteria are predefined depending on the financial and non-financial performance. GRI: 2-19 2-20 25 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Following the procedure established by the Law on Companies of the Republic of Lithuania and by other laws, by the decision and at the discretion of the General Meeting of Shareholders of the Company, a member of the Supervisory Board may be granted annual bonuses. In case annual bonuses are granted to a member of the Supervisory Board, they also comprise the remuneration payable to the member of the Supervisory Board. 6.2. Remuneration paid to the management and supervisory bodies Position, name, surname Reporting period Fixed salary component Variable salary component One-off payments Total remune- ration Fixed to variable salary ratio, % Base salary Other benefits Chairman of the Board, President Gintautas Pangonis 2022 147 20 56 - 223 75% / 25% 2021 133 15 59 - 207 71% / 29% Member of the Board Tomas Jozonis 2022 111 3 34 - 149 77% / 23% 2021 117 4 50 - 170 71% / 29% Member of the Board Saulius Martinkevičius 2022 93 4 27 - 123 78% / 22% 2021 86 3 21 - 109 81% / 19% Member of the Board Vigmantas Kažukauskas 2022 94 4 25 - 124 79% / 21% 2021 87 2 21 2 112 80% / 20% Independent Member of the Board Algimantas Variakojis 2022 30 - - - 30 100% / 0% 2021 30 - - - 30 100% / 0% No remuneration by granting the Company’s shares was allocated to the members of the management and supervisory bodies of the Company. The Company has not granted any share options to the members of the management and supervisory bodies. During the reporting period, variable remuneration was not recovered. The annual remuneration paid to the members of the management bodies of the Company as compared to the Group’s performance and the average salary of the employees: Position, name, surname 2018 2019 2020 2021 2022 Chairman of the Board, President Gintautas Pangonis 176 206 120 207 223 Member of the Board Tomas Jozonis - 64 141 170 149 Member of the Board Saulius Martinkevičius - 48 97 109 123 Member of the Board Vigmantas Kažukauskas 127 148 104 112 124 Independent Member of the Board Algimantas Variakojis - - 14 30 30 The Group’s performance 2017 2018 2019 2020 2021 2022 EBITDA (-1 year) 22,894 28,113 28,603 26,243 23,726 21,357 Average annual salary paid to full-time employees (EUR’000) 2018 2019 2020 2021 2022 Average annual salary paid to the Group’s employees 16.4 22.2 23.8 25.9 28.4 Annual remuneration of Chairman of the Board compared to annual salary paid to full time employee 10,7 9,3 5,1 8,0 7,9 The EBITDA ratio is presented in each case for the previous year as the results of operations are assessed based on the previous year’s financial performance. The presented data is related to employees working in the Group companies operating in Lithuania who are not members of the management and supervisory bodies of the Company. GRI: 2-19 2-20 2-21 26 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated The annual remuneration paid to the members of the supervisory body of the Company as compared to the Group’s performance and the average salary of the Group’s employees: Position, name, surname 2018 2019 2020 2021 2022 Chairman of the Supervisory Board, Member of the Audit Committee Vilius Oškeliūnas 1.8 2.2 - 7.2 3.6 Member of the Supervisory Board, Member of the Audit Committee Norimantas Stankevičius 10.0 12.0 - 8.7 4.4 Member of the Supervisory Board Romualdas Degutis 1.8 2.2 - 6.0 3.0 Independent Member of the Supervisory Board, Chairwoman of the Audit Committee Daiva Duksienė 1.8 2.2 - 8.4 4.2 Member of the Supervisory Board Normantas Paliokas - - - 6.0 3.0 The Group’s performance 2017 2018 2019 2020 2021 2022 EBITDA (-1 year)* 22,894 28,113 28,603 26,243 23,726 21,357 Average annual salary paid to full-time employees (EUR’000) 2018 2019 2020 2021 2022 Average annual salary paid to the Group’s employees 16.4 22.2 23.8 25.9 28.4 The EBITDA ratio is presented in each case for the previous year as the operating results are assessed based on the previous year’s financial performance. The presented data is related to employees working in the Group companies operating in Lithuania who are not members of the management and supervisory bodies of the Company. 6.3. Compliance with the Remuneration Policy The remuneration received by the members of the Company’s management and supervisory bodies complies with the approved Remuneration Policy. Four out of five members of the Board of the Company (except for the independent member of the Board) are the Company’s employees holding the top-level management positions at the Company. They receive the remuneration in the amount set by the Board under the employment contract signed with the Company. The amounts of remuneration paid to the members of the Board who are the Company’s employees are set in view of the qualifications and competence of each specific employee, the scope of functions and responsibilities assumed within the Company, the aim to retain a specific person in the Company’s top management position, motivate him/her to work in good faith, with due care, qualification and loyalty for the Company to achieve the Company’s goals, and implement the Company’s strategy and interests, thereby increasing the Company’s profitability and ensuring a consistent improvement of its financial performance in the long-term perspective. Following the bonus system approved by the Board of the Company, annual bonuses were allocated to the members of the Board of the Company who are the Company’s employees depending on the Group’s and/or the Company’s financial performance. When allocating annual bonuses to the top-level employees, the Group’s and/or the Company’s profitability and EBITDA are the main criteria that are taken into consideration when evaluating the employees’ performance. The monthly remuneration paid to the independent member of the Board is set in accordance with the provisions of the Remuneration Policy and is provided for in the agreement signed with the member of the Board on the provision of management activities/services subject to remuneration by the member of the Board. The remuneration paid to the Manager, members of the Board and the Supervisory Board of the Company complies with the remuneration guidelines defined by the Remuneration Policy of the Company and enables better accountability of members of the management and supervisory bodies to the Company and its shareholders as well as encourages members of the management and supervisory bodies of the Company to focus on the long-term goals and strategy rather than take high-risk decisions that may imply positive results only in the short-term. GRI: 2-19 2-20 27 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7. Sustainability (social responsibility) report 7.1. About sustainability report This report has been prepared in accordance with the Global Reporting Initiative (GRI) Standards. GRI is a universally applicable, comparable framework that facilitates transparency and accuracy. This report demonstrates our effort to consolidate the Group’s impacts and disclose the scope of our businesses’ effect on people and nature. General information: Timeframe. Unless otherwise indicated, information represents 2022 calendar year, and data is accurate as on 31 December 2022. The reporting of employee and Health and Safety data reflects the situation at the end of 2022. Major changes. The data for the year 2022 is presented by business segments, whereas for the year 2021 data was presented on a Group entity basis. We have changed the presentation to focus more on the value chain, as separate entities present only fragmented environmental, social and governance (ESG) impacts and do not disclose consolidated impact of each segment. The data for the year 2021 was restated for comparability accordingly. Information disclosure in segments. The Group consists of different business segments, therefore, where relevant, information is presented according to the following business segments: Segment Group companies forming the segment Abbreviation Tissue paper and paper products Grigeo AB Tissue paper Wood fibreboards Grigeo Baltwood UAB Fibreboard Raw materials for corrugated cardboard and related products Grigeo Packaging UAB, Grigeo Klaipėda AB, Mena Pak AT, Grigeo Recycling UAB and Grigeo Recycling SIA Containerboard and packaging Grigeo AB sells heat energy to the city of Vilnius. Where relevant, the data is disclosed in additional segment named “Sold heat” accordingly. Management involvement. The Board of the Company and the Audit Committee review this report before submitting it to the annual general meeting of shareholders. External assurance. No external assurance was commissioned for this report. Reporting principles: Accuracy. Unless stated otherwise, all information provided is traceable to the accounting data. Balance. We aim to cover both favourable and unfavourable results and topics. Clarity. We aim to report in a concise way, avoiding abbreviations (or explaining them), in order that the users with reasonable knowledge could fully understand the contents. Comparability. Our targets are measured against produced tonnes of products rather than absolute values. Other information is reported in absolute figures, unless otherwise stated. We present 2-year comparative data and expect to present 3-year data in the upcoming periods as per requirements of GRI. Completeness. This report does not omit relevant information that substantively influences stakeholder’s assessments and decisions, or that reflects significant economic, environmental, and social impact. Sustainability context. We aim to present our impact to people and environment, considering proper broader geographic and industry-specific contexts. Timeliness. The Group reports in accordance with GRI standards on an annual basis. The report is publicly presented on a regular schedule together with annual financial statements. Verifiability. When preparing the report, we aim that any data is documented in our systems and can be traced to primary sources so that external examinators can review them, if needed. Contacts: Key contacts are Finance Director of the Company, Martynas Nenėnas martynas.nenenas@grigeo.lt and Sustainability Manager Grigeo Klaipėda AB, Klaudija Kionies klaudija.kionies@grigeo.lt. We welcome any suggestions and encourage an open dialogue about opportunities to improve. Please contact us to provide feedback or request more information about topics covered within this report. GRI: 2-2 2-3 2-4 2-5 2-14 28 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.2. Commitments and targets Commitments In 2021 the Group updated its business strategy which was further pursued in the year 2022. We invested our time and effort to make sure that sustainability agenda is an integral part of our general strategy. To ensure that we addressed critically material topics and targeted significant impacts, we evaluated our activities Group-wide. All decision makers were actively involved and challenged to assess our ability to improve the Group’s performance. In the following sections, this report covers in detail our stakeholders and materiality assessment. The following sections are devoted to our detailed disclosure of key inputs, processes, and outputs. Based on this data combined with our business know-how, we were able to take on adequate commitments: Agenda Commitment Direction Environmental Environment protection Reducing our GHG emission intensity Improving nature-and people-friendly product properties Improving energy mix Investing in energy efficiency Promoting responsible collection of waste-paper Reducing chemical compound intensity Wastewater quality management Reducing disposable waste Reliable supplier and partner Responsible supply chain management Reducing virgin plastic packaging consumption Social Meaningful activities based on trust and cooperation Accident-free workplace Training and development Pursuit of consistent feedback Dialogue with local communities Promoting healthier lifestyle of our employees Governance Ambition and transparency in the market, ensuring competitive returns Zero tolerance to compliance breaches Increased transparency: sustainability reporting Strong and widely accepted policies Reliable supplier and partner Supply chain transparency Targets Following the agenda, in 2022 we set specific performance indicators (KPI) for each commitment, integrating them among other long-term strategic goals of the Group. Targets cover the period of the Group's current strategy until 2026. Sustainability targets have complemented X-matrix (strategic planning tool) of the Group. The Board of the Company sets sustainability targets. The goals are set during work sessions withhelp of external consultants to achieve a high level of management involvement and knowledge that is consistent with contemporary practices in sustainability. The targets are delegated to CEOs of the companies of the Group, further to department heads and employees at all levels. On the environmental agenda, one of the most important tasks in our activities is reducing the intensity of natural gas in our energy mix. Another important area is the improvement of long-term energy efficiency. We are an integral part of the circular economy and will constantly strive to collect and recycle higher amounts of wastepaper. Unfortunately, the more wastepaper collected, the lower its quality. Poorer quality increases the amount of waste that ends up in landfills. Therefore, as waste collection grows, it is important to seek ways to reduce the waste which is diverted to disposal. Paper production is a water-intensive process; therefore, our efforts are focused on reducing the intensity of water use and improving the quality of wastewater. We aim to improve safety in the workplace and have engaged and loyal employees. We adhere to a zero-tolerance policy for violations of the law, and we strive for our internal policies to meet the highest sustainability standards and modern practices. GRI: 2-13 2-14 2-17 2-23 2-24 3-1 3-2 29 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated The Group has committed to pursue the following targets: Target Unit of measurement No. Result in 2021 Interim result in 2022 Change Target for 2026 Environmental targets Reduction of GHG emission intensity (Scope 1). kgCO 2 /ton of production 1. 114.1 101.5 -11,0% -5.0% Increasing energy efficiency MWh/ton of production 2. 2.56 2.54 -0.8% -3.0% Reduce waste that is directed to disposal kg/ton of production 3. 53.0 50.8 -4.1% -9.0% Effluent reduction m 3 /ton of production 4. 7.1 6.8 -4.0% -17.0% Compliance with integrated pollution prevention and control requirements Number of non-compliances 5. None None None None Increasing waste-paper collection and sorting In thousands of tons 6. 53.0 60.0 +13.0% +50.0% Social targets Reduce the number of accidents at work TRI ratio (number of incidents among employees per 1 million hours worked) 7. 17.1 11.4 -5.7 8.0 Employee turnover The ratio of retired employees to the average number of employees 8. 30.8% 23.8% -10.0pp 22.0% Employee retention rate Employees with 1+ years’ service to total employees 9. 85.7% 87.0% +1.0pp 91.0% Governance targets We have identified 10 internal policies, which we will update or create, aiming for greater compatibility with the Group's strategy, sustainability requirements and modern practices. The update of policies is carried out until the end of 2023. 10. - 5 +5 10 Comments on progress 1. The Group is constantly investing in new equipment, which allows to reduce emissions of Scope 1 per ton of production. However, the main factor leading to the reduction of Scope 1 emissions in 2022 was lower consumption of natural gas, when production processes had to be temporarily stopped due to the energy crisis, thus biofuel boilers were used more intensively. Therefore, this indicator should be evaluated in the context of longer term of Group's activities. 2. The Group managed to increase energy efficiency through investments into new equipment by 0.8% (from 2.56 MWh/ton of production to 2,54 MWh/ton of production). 3. It was possible to reduce the amount of waste directed to disposal per ton of production (from 53.0 kg/ton in 2021 to 49,6 kg/ton in 2022) because of Grigeo Klaipėda AB improved operations of waste-paper handling facilities and raw material control processes. The more sustainable use of waste from the thermal processes of Grigeo Klaipėda AB – the ash produced in the biofuel boiler – also had a significant impact. From November 2022 the ash is no longer sent to the landfill but is rather composted by the waste manager and used to make another product (organic fertilizers and compost). 4. Effluents in m 3 /ton of production were reduced by 4% (from 7.1 to 6.8), which is primarily the result of investments into evaporator of waste water by Grigeo Baltwood UAB. 5. The Group’s monitoring systems as well as the inspections of governmental institutions did not observe any non- compliances with integrated pollution prevention and control requirements. 6. In 2022 The Group collected and sorted 60 thousand tonnes of wastepaper (in 2021 – 53 thousand tonnes), an increase of 13 %. 7. Focusing on employee safety, the Group managed to reduce TRI ratio from 17.1 to 11.4. Better TRI indicator was due to a greater focus on the implementation of measures to reduce occupational safety and health risks, thereby reducing the risk of accidents. Registration of unsafe situations, incidents, and procedural risk assessment helped to implement preventive measures. 8. 9. 10. Until the issue of this report, the Group revised or created and approved the following policies: • Environmental policy – new policy. • Tax policy – new policy. • Dividend policy – new policy. • Code of business Ethics – revised policy. • Procurement policy – new policy, which will be supplemented with the guidelines of supplier environmental and social screening in 2023. GRI: 2-24 3-2 3-3 Decrease in the employee turnover rate (No. 8) and the improvement in the retention rate (No. 9) were the result of a combination of various measures. One of the most important factors is the competitive remuneration and continuously reviewed remuneration policy. Other important measures are active actions aimed at improving the results of the annual employee engagement survey, development of employee competencies, their involvement in strategic projects, and other measures. 30 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Contributing to United Nations Sustainable Development Goals As one of the largest groups of paper and wood industry companies in the Baltic countries, we aim to make a significant contribution to the United Nations Sustainable Development Goals (SDGs). The SDGs define global priorities and aspirations until 2030 with the mission of sustainable development of people and the planet. We have identified the SDGs where we can contribute the most, both by reducing the negative impact and increasing the positive impact on humanity and the planet: SDG SDG target The activities and responsibilities of the Group 3.4 • Occupational Safety and Health (OSH) initiatives. • Regular health checks. • Health promotion. • Improving the TRI indicator. 5.5 • Ensure that all employees and applicants for management positions have equal opportunities. • Track and disclose the percentage of women in leadership positions. 8.4 8.8 • Increasing the share of biofuel in the energy mix (Scope 1). • Increasing the share of renewable packaging. • Increasing waste-paper collection. • Occupational Safety and Health (OSH) initiatives. • Improving the TRI indicator (reduction of employee incidents) 9.4 • Evaporator of wastewater (Grigeo Baltwood UAB). • Anaerobic bioreactor (Grigeo Klaipėda AB). 12.2 12.4 12.5 12.6 • Reduce waste that is directed to disposal • Increasing waste-paper collection. • Effluent reduction • Compliance with water cumulative pollution indicators. • Preparation of annual sustainability reports. 13.2 • Reduction of GHG emission intensity (Scope 1). • Increasing the share of biofuel in the energy mix (Scope 1). 14.1 14.2 • Anaerobic bioreactor (Grigeo Klaipėda AB). • Evaporator of wastewater (Grigeo Baltwood UAB). • No direct entry of effluents into water bodies. 15.2 • Control of raw materials – ensuring that raw materials and biofuel are supplied from sustainably managed forests. • Supply chain traceability. • Increasing energy efficiency. GRI: 2-23 3-2 3-3 31 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.3. Sustainable governance Sustainability as an integral part of our activities We understand that with the growing demands and importance of sustainability in the market, financial indicators and financial statements are no longer sufficient ways of disclosing the company's performance. Inevitably, investors and other stakeholders are raising their standards and working on broadening their understanding of how companies create value, looking at ESG performance as an additional layer to understand long-term risk-adjusted returns. Our Board and key decision makers are embracing the shift in paradigm by actively engaging in sustainability assessment and setting sound and relevant sustainability commitments and targets. We incorporate environmental, social, and governance considerations into our everyday processes. This ensures that we adequately address risks, indicate opportunities for more sustainable operations, and serve increasing market needs as a critical infrastructure operator for a circular economy creating long-term value. The collegial bodies that are elected by the shareholders are responsible for the strategy and risk profiling as well as for developing and maintaining the vision, mission, and values of the Group. The governing bodies of the Group have appointed employees responsible for financial, environmental, and social matters who report directly to the CEOs of the companies. Our sustainability, human resources, and sourcing leaders handle the operational management of sustainability in their given areas. This work is supported by the leadership forming a cross-functional team co-led by our CFO and sustainability officer. Key decision makers from each of our business segments, as well as representatives from communications, legal, human resources, and other staff functions, take an active part in sustainability strategy development, implementation, and oversight. Designated staff at the corporate, business, and facility levels help to identify, prioritize, and manage economic, social, and environmental risks and opportunities. Business leaders are responsible for planning and managing business- specific sustainable development priorities, from fibre procurement to the end-use and recovery of our products. As such, the remainder of this report is organized around the key impact points along our value chain. The Board of the Company participates in identifying Group’s impacts and materiality on the economy, environment, and people. The impacts and materiality are mapped with significance to stakeholders and the Group. Finally, the Board develops targets on sustainable development, which are disclosed, and their progress is assessed in the sustainability report on an annual basis. The sustainability report is also presented to the Company's Audit Committee as an integral part of the annual report. Transparency, fairness, and intolerance to corruption • Relations with employees, customers, partners and the state are based on honesty and transparency. • Obey the law, pay due taxes. • Settle with employees in a transparent manner. • Only officially documented financial transactions. • No corruption of any form. • No unjustified renumeration ton employees or other workers. • Highest compliance standards for our suppliers. • Transparent and fair procurement process. • The Group has adopted a gift policy, according to which the Group's employees are prohibited from accepting and giving gifts of any type, any value, gratuitously received or provided items, services or other benefits. All employees were familiarized with this policy. Respect for human rights and freedoms • We respect and ensure human rights and freedoms as defined in the Universal Declaration of Human Rights adopted by the United Nations General Assembly, the Convention for the Protection of Human Rights and Fundamental Freedoms adopted by the European Council, the Conventions of the International Labour Organisation, and legal acts of the Republic of Lithuania. • No child labour. • When entering contracts with security companies, we always ensure that security personnel are regularly trained in human rights policies or procedures. • No forced or mandatory labour. • Our employees are granted the right to form or join associations including trade unions. • We strictly oppose any discrimination, or instruction to discriminate either directly or indirectly on the grounds of sex, race, nationality, language, origin, social status, belief, convictions or views, age, sexual orientation, disability, ethnicity, or religion. GRI: 2-9 2-12 2-13 2-14 2-23 205-1 205-2 410-1 32 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated • Fair and equal selection criteria, employment terms and equal working conditions and guarantees to all people irrespective of the gender, race, religion, nationality, language, origin, citizenship, social status, beliefs, family, age, sexual orientation, political views, disability or health. • Zero tolerance to any harassment, abuse or exploitation in respect to our employees. • Zero tolerance to any antisocial behaviour that compromises or has the intent of compromising another’s personal dignity on the grounds of the sex of that person. • Zero tolerance to the creation of, or the intent of creating, a terrifying, hostile, insulting or humiliating work environment. • We do not use nor support and allow the use of any physical punishments, violence or any other form of psychological or physical coercion. • No system of public warnings or punishments. The avoidance of conflicts of interest • Members of the supervisory and management bodies and employees of the Group should avoid situations where their personal interests conflict or may conflict with the interests of the Group. • Members of the supervisory and management bodies and employees of the Group may not confuse company’s property with their own the use whereof has not been specifically discussed with such a person. This person may not use any property or information acquired as a member of a body or an employee of the company for any activities which, according to the laws of the Republic of Lithuania, are illegal, or used for personal gain or for the gain of third parties. Confidentiality • The employee, during both working and non-working hours, will respect and protect confidential information of the companies of the Group that they may have received or become aware of during his/her work. They will not use such information for personal gain or for the gain of other persons. Enforcement of the Code of Business Ethics and Communication of critical concerns • Employees can report infringements as well as post questions and complaints related to this Code of Business Ethics or any other critical concerns to their direct supervisors, the Personnel Manager, the Head of the Company. • Notifications about a criminal act, administrative offense, violation of work duties, as well as gross violation of mandatory norms of professional ethics or other violation of the law posing a threat to or violating the public interest in any of the companies of the Group may be submitted using internal channel of providing information about violations by e-mail pranesejuapsauga@grigeo.lt. • If information is received about violations, complaints and other negative impacts in the governance, environmental or social area, they are examined in accordance with the procedure established by the Group's internal policies. To examine information, the head of particular company of the Group can appoint responsible persons or form an ad hoc committee consisting of employees with competence and responsibilities in a specific problematic situation. • The management of each company of the Group is responsible for the implementation of the provisions of the Code, for the censure and the prompt and honest correction of actions that are not in compliance with the provisions of the Code. • The Group supports employees who honestly adhere to the provisions of the Code and encourages others to adhere to them. • In 2022 the group received one employee complaint about discriminatory behaviour at work. The commission established by the company of the Group and the state institutions that examined the complaint did not find any factual violations. Our approach to taxes • In carrying out its activities, the Group complies with the applicable tax laws and the principles of legal regulation of taxation, fulfils its tax obligations in a timely and accurate manner. • Tax accounting in the Group is handled carefully and professionally, and all decisions are made at the appropriate level and supported with documents confirming all related decisions. • When assessing risks, the Group maintains low tolerance for tax risks. • The group strives for full clarity on tax issues. If there is a need, the Group seeks to obtain preliminary explanations from tax administrators. • The group does not use tax heaven zones in the group structure or in the execution of transactions to avoid tax obligations. GRI: 2-15 2-16 2-23 2-25 2-26 205-1 205-2 207-1 207-2 207-3 33 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated • The Company and also some of the Group's companies are classified as large tax payers. The Group adheres to the principle of transparency and strives for the information provided by the Group to be useful and meaningful to tax administrators and other interested parties. • The Group uses tax benefits, as permitted by applicable legislation, when it is consistent with business goals and when it does not pose any reputational risk or the possibility of disputes with tax authorities. • The Group aims to cooperate with tax administrators actively and positively to reduce the likelihood of any dispute. • The Group actively monitors public consultations and engages constructively with national tax policy makers either individually or through relevant industry bodies. • Most of the Group's taxes are paid in Lithuania – EUR 11.4 million in 2022 (in Latvia – EUR 0.1 million, in Ukraine – EUR 0.2 million). In 2021 the Group's taxes paid in Lithuania amounted to EUR 10.7 million (in Latvia – EUR 0.06 million, in Ukraine – EUR 0.3 million). Our procurement practices • The Group undertakes to carry out procurement activities responsibly. Long-term, good business relations and beneficial cooperation are the most important for the Group. • All employees of the Group engaged in procurement activities must comply with the rules of the Group's Code of Business Ethics. The Group's suppliers are also expected to comply with the Group's Code of Business Ethics. • All procurement activities must be conducted in such a way that the Group meets ethical, environmental and social sustainability requirements in all parts of the supply chain. • The Group communicates with suppliers in such a way that it is considered as honest, professional and working by the highest standards of business ethics and procurement. • To maintain constant competitive ability and lower risk, whenever possible the Group avoids purchases from the single supplier and assesses all risks associated with the purchase. • In 2023, the Group plans to introduce the guidelines for supplier environmental and social assessment. Our approach to environment • The Group's activities are a significant part of the circular economy, therefore one of the Group's essential sustainability obligations is the preservation of nature. The Group is committed to complying with best manufacturing practices as well as with environmental legislation with zero tolerance for violations. • The Group aims to contribute to the European Green Deal, therefore, when planning and making investments, the Group considers the constantly updated EU Taxonomy Regulation, aiming for as much of the Group's activities as possible to be classified as taxonomy-aligned economic activities. • To reduce the amount of GHG emitted by the Group, the Group strives to constantly implement new technologies and innovative solutions, as well as to modernize existing equipment. • The Group regularly analyses the environmental impact of activities, products, and equipment, and assesses risks and provides preventive and other measures to reduce, avoid, and eliminate them. • The Group promotes the rational and sustainable use and management of natural and energy resources, prioritizing the use of renewable resources. • The Group ensures responsible management of water as one of the most important resources in the supply chain and aims to improve the quality of effluents. • The Group aims to reduce the amount of waste generated in the Group's activities by applying the principles of the waste hierarchy (prevention – reuse – recycling – other recovery operations (e.g.: incineration with energy recovery) and disposal) and to ensure their responsible management. • The Group constantly strengthens internal culture and values, developing employees' competences and responsible attitude towards environmental protection. • The Group initiates and supports educational, educative environmental and circular economy literacy projects and initiatives, social actions involving employees and other stakeholders. • The Group publicly reports to its shareholders and society, presenting operational and financial results in a timely, clear and understandable manner, which reflect the Group's impact on the environment. GRI: 207-1 207-2 207-3 207-4 34 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.4. Sustainability investments Significant investments accomplished in year 2022 Company Investment Impact Grigeo AB Industrial tissue (leaves) conversion line (project value EUR 3.8 million) Replaced old semi-automatic paper conversion line. The processing capacity of paper and cellulose increased by 4,200t per year. When working at full capacity, transportation emissions of at least 182t CO 2 equivalent are being avoided. Compressed air pipelines for paper scraps and dust collection (project value EUR 0.7 million) Reduced dust saturation in the air. The need for manual collection of scraps was eliminated. The need for transportation of scraps was eliminated. Scraps are pressed automatically, saving space and increasing safety. Internal logistics system (lifters and robots) (project value EUR 0.85 million) The internal transport system was optimised with automatic laser guided forklift vehicles instead of LNG driven and manned forklift vehicles. 100% increased lifting capacity, reduced number of trips twice. 100% electric system is estimated to cut scope 1 GHG emissions significantly. Grigeo Baltwood UAB Evaporator of wastewater (project value EUR 2 million) Up to 2% of organic material is returned to production cycle. The efficiency of this wastewater treatment method is higher than 95%. Evaporator of wastewater in Vilnius The key challenge for Grigeo Baltwood UAB was to reduce the saturation of organic matter in the wastewater generated in fibreboard production process. It is estimated that up to 3% of fibre material processed by Grigeo Baltwood UAB end up in wastewater. This is due to the production technology where the finer fibres are washed out together with the effluent. These fibres are micron-sized, in addition, we use a lot of softwood in the production, as well as a little resin is added to the product, the said fine fibre becomes sticky and cannot be effectively filtered. High temperature of the wastewater further complicates the cleaning process. To solve the filtering problem a wastewater evaporation method was chosen after the thorough research. The installation works started in 2021 and were completed in the first half of 2022. The device has been in production since June, in testing mode. After starting to use the device, the first results were obtained, which showed that the obtained wastewater treatment effect is close to the set goals: • Wastewater is cleaned and meets the requirements of the Republic of Lithuania for wastewater pollution. The concentration of suspended solids (SS) is <350 mg/l. The concentration of BOD 7 is <800 mg/l. • Concentrated organic matter is returned to the fibreboard production process. • The amount of used water was reduced by more than 50%. The Grigeo Baltwood UAB team, together with the manufacturer's representatives, continues working to harmonize the fibreboard production and wastewater evaporation technologies, so that the production cycle is smooth and reliable. The greatest attention is now paid to the use of the obtained concentrate in the production process. Below, on the left, wastewater from the production process before treatment, on the right – after treatment, together with the concentrated organic material that is returned to the production process: GRI: 3-2 201-2 302-2 303-4 35 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Significant investments planned in 2023 Company Investment Impact Grigeo AB Condensing economiser (project value EUR 2.0 million) CO 2 emissions are expected to be reduced by 24 tons per year. The aim is to reduce technical heat losses by 50%. 3 MWh rooftop solar power station (project value EUR 2.1 million) Annual electricity generation is expected to be up to 2,900 MWh. About 2% of the Group's electricity needs would be in-house generated. Grigeo Klaipėda AB Anaerobic bioreactor for waste water treatment (project value EUR 2.65 million) CoD/BoD 7 reduction at waste water approximately 80%. Biogas from the anaerobic processes will be used for energy by reducing natural gas at boiler house up to 8%. Odour control Anaerobic bioreactor in Klaipėda Water is fundamental in our everyday activities of paper waste recycling and paper production. This is one of the most important resources in our supply chain. We understand clearly that the use of water in production processes affects not only the environment, but also local communities in the Klaipėda region. One of our most important strategic considerations is to conserve nature. To meet our goals, we have tightened up our internal processes for its rational use, we are closely monitoring the amount of discharged wastewater and the level of pollutants, and we are seeking sustainable solutions in water management. For more than three years now, Grigeo Klaipėda AB wastewater is being transferred to AB “Klaipėdos vanduo” for treatment. As of 7 January 2020, Grigeo Klaipėda AB is no longer using its own treatment facilities in Dumpiai for the treatment of industrial wastewater. To optimise the composition of circulating water used during economic activities and to reinforce the prevention of local dispersion of odours, Grigeo Klaipėda AB intends to modernise the technological process of the generated wastewater by constructing an anaerobic bioreactor with appurtenances on the plant territory. It is one of the most innovative technologies for the treatment of industrial wastewater widely applied in paper industry. This technological equipment is intended to modernise the processes of treatment of circulating process water generated in the production. Innovative technology will allow reducing the load of the currently used treatment plants and will significantly reduce the amount of waste (sludge) generated after the biological treatment of circulating water in Klaipėdos vanduo AB facilities. Accordingly, the anaerobic reactor will also contribute significantly to even more efficient management of local odour dispersion generated during the treatment of circulating water. The efficiency of the anaerobic reactor in reduction of BOD 7 /COD wastewater pollution is estimated to amount to 80%. This project is important in terms of a fully sustainable use of energy resources. Biogas generated during the anaerobic process will be used for thermal energy production at Grigeo Klaipėda AB gas boiler house. This way, the use of natural gas would be reduced up to 8%, Scope 1 CO 2 emissions decreasing accordingly . Since Grigeo Klaipėda AB is located next to Klaipėda city centre, odour control will be even more stable, and we will fully meet the expectations of the neighbouring city communities. Currently, the implementation of the project is coordinated with the responsible authorities. Upon completion of this process, Grigeo Klaipėda AB would be ready to implement the technology in its production area in an optimally short period of time. GRI: 3-2 201-2 303-2 36 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.5. Incidents Incidents in 2022 There were no significant instances of non-compliance with laws and regulations in 2022. Incident of 20 July 2021 On 20 July 2021, during scheduled repairs, a technical breakdown occurred which disrupted the maintenance of the working level of Grigeo Klaipėda AB circulating process water basin. During the overflow of the basin area, 18.6 m 3 of circulating process water got into the Klaipėda city rainwater collection system through the leaky cleanout pipe of the rainwater collection system and then entered the Curonian Lagoon after the preliminary treatment at Klaipėdos vanduo AB rainwater treatment plant. This temporary breakdown was rectified expeditiously, and action plans were immediately drawn having the risks assessed to prevent a recurrence of the incident. The Environmental Protection Agency has determined that the pollution at the state environmental monitoring sites generated by Grigeo Klaipėda AB did not affect the concentrations of the measured polluting substances in surface water and the ecological condition. Grigeo Klaipėda AB incident in 2020 The environmental incident occurred in 2020, when it was announced that Grigeo Klaipėda AB released partially biologically treated wastewater into the Curonian Lagoon through the treated wastewater collector of municipal company AB “Klaipėdos vanduo”. Grigeo Klaipėda AB assumed legal responsibility for this incident, carried out internal inspections and commissioned international expert investigations to establish, through scientific research, the fact and extent of possible environmental damage. It also started implementing environmental remedial measures on its own initiative to remove the pollutants discharged with its wastewater from the natural environment. Pollutants released into the natural environment with the wastewater of Grigeo Klaipėda AB that was only partially biologically treated were nitrogen and phosphorus (i.e., water-soluble nutrients of organic origin that are necessary for every living organism) and BOD 7 (biochemical oxygen demand per 7 days). Pollutants contained in the biologically untreated wastewater of Grigeo Klaipėda AB are attributable to non-hazardous pollutants that have not had a significant negative impact on (significant damage to) the water state, biota, and ecosystem of the Curonian Lagoon. Grigeo Klaipėda AB seeks to cooperate with state authorities in implementing wastewater management solutions and environmental remedial measures that would remove the allegedly released pollutants from the natural environment, implement environmental remedial measures (improvement of the state of water of the Curonian Lagoon), restore lost public confidence, and ensure business resilience in the long run. It is very important to the management of Grigeo Klaipėda AB that this incident not only becomes a painful lesson for the company, but also prevents the recurrence of such cases in the future in all economic activities of the country. Grigeo Klaipėda AB environmental restoration actions after the 2020 environmental incident In 2021 and in 2022 Grigeo Klaipėda AB was assessing scientifically based environmental restoration measures, which would aim to remove the amount of pollutants (phosphorus, nitrogen and BOD 7 ) from the Curonian Lagoon and contribute to more favourable conditions for the recovery of biological diversity, thereby reducing eutrophication processes in the Curonian Lagoon. The following environmental restoration measures were evaluated and modelled: • Cutting and disposal of reed biomass on the shores of the Curonian Lagoon. • Installation of surface wastewater treatment facilities (preventive measure). • Installation of wetlands in the territory of the Minija river basin. • Removal of cyanobacteria from the Curonian Lagoon. • Breeding of molluscs (dreissena polymorpha). It was determined that the environmental restoration criteria set by the Environmental Protection Department best meet the following two environmental restoration measures: reed removal in the Curonian Lagoon and installation of surface wastewater treatment facilities in Klaipėda city. The first measure: Cutting and removing reed biomass on the shores of the Curonian Lagoon. With this measure, the pollutants that Grigeo Klaipėda AB may have allegedly released into the natural environment would be removed from the Curonian Lagoon. Also, removing the biomass of cut reeds would restore the sandy shores of the Curonian Spit and the habitats of rare plant and animal species, reduce the amount of organic matter entering the Curonian Lagoon, mitigating the negative effects of eutrophication. After the restoration of open bays and the formation of canals, the swamping processes of the shores of the Curonian Lagoon would be eliminated, recreational space and views of the Curonian Lagoon would open up, and this would increase the area's biological diversity and recreational potential. Reed cutting would be carried out for 4 years whenever the program is approved by the Environmental Protection Department. GRI: 2-25 2-27 3-3 303-2 304-1 304-2 304-3 37 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Grigeo Klaipėda AB completed 2 pilot reed cutting projects, the results of which were verified in the laboratory: Pilot project period Harvested weight of reeds in tonnes Amounts of pollutants removed from the Curonian Lagoon, in tons Nitrogen (N) Phosphorus (P) BOD 7 2021.11.22 – 2021.11.26 15.5 0.07 0.02 11.63 2022.03.24 – 2022.04.14 165.4 0.40 0.05 148.11 Total 180.9 0.47 0.07 159.74 The absolute dry weight of reed biomass is given. The harvested reeds are used in sustainable ways, in such order of priority: • Roofing (a new product is being developed, with a service life of about 50 years). • Biofuel – helps reduce the need for fossil fuels, biogenic CO 2 is released. • Compost – returned to the natural environment as green waste. Grigeo Klaipėda AB hopes that the Environmental Protection Department will approve the plan of environmental restoration measures, and after its implementation, the incriminated volume of pollutants would be removed from the natural environment of the Curonian Lagoon. The second measure. Modernization of treatment facilities of Klaipėdos vanduo AB (preventive measure). A trilateral cooperation agreement was concluded between Klaipėda City Municipality, Klaipėdos vanduo AB and Grigeo Klaipėda AB, in which the parties agreed to prepare and implement the construction and operation program of Klaipėdos vanduo AB surface wastewater treatment facilities. This measure would reduce the entry of oil products, floating substances, and organic matter into the Klaipėda Strait. This would have a positive impact on reducing the eutrophication of the Curonian Lagoon. According to the signed contract, if the Environmental Protection Department approves the plan of environmental restoration measures, Grigeo Klapėda AB will finance the modernization of No. 7 and No. 8 outlets of the surface sewage networks managed by Klaipėdos vanduo AB. The surface sewage networks, which need to be modernized, were chosen considering the position of Klaipėdos vanduo AB, according to which sewage basins No. 7 and No. 8 are among the largest, both in terms of their total area and the area of their surfaces intended for road transport (streets, driveways, parking lots). The amount of pollutants released through the outlets of these basins is one of the highest, compared to other basins where treatment facilities have not yet been built. From an environmental point of view, it is appropriate (necessary) to reduce pollution where it is generated the most. The preliminary value of the project amounts to EUR 2 million, which would be financed free of charge by Grigeo Klaipėda AB. Investment in the Environmental Scientific Research Back in 2020, to fulfil the promise made to the society to finance research carried out to determine the state of water in the Curonian Lagoon and to implement environmental social initiatives, Grigeo Klaipėda AB was looking for partners with the highest competencies. In June 2020, Grigeo Klaipėda AB signed a support agreement with the Klaipėda University regarding the provision of targeted support of EUR 500 thousand for the development of environmental pollution reduction solutions in the Klaipėda region and training of environmental specialists. Under the terms of the agreement, a five-year programme of environmental action is implemented, focusing on the long- term value creation. Based on the agreement, three separate programmes have been planned for development. The first one is for the development and installation of an ambient air pollution (industrial and transport pollutants, volatile organic compounds) monitoring system in Klaipėda city. The second one is for the application of advanced treatment technologies for the containment and disposal of hazardous organic micro-pollutants in urban wastewater treatment plants. The third one is for the provision of support for bachelor’s and master’s study projects in the preparation of graduation papers. By the end of 2022, the Klaipėda University has received EUR 363 thousand. Klaipėda University uses these funds for the following research programs: • Creation and implementation of a monitoring system for environmental air pollution (industrial and transport pollutants, volatile organic compounds) in the city of Klaipėda. Under this program: - An analysis of the scientific literature on the possibilities of using neural networks for the determination of ship emissions was carried out. - Based on the analysis, an article was published about the possibilities of evaluating emissions from ships by direct measurement methods and using mathematical models. - Based on the analysis, the artificial neural network modelling software license was selected and purchased. - A variant of AIS (Automatic identification system) data processing algorithm has been prepared. - Using neural network methods, the first version of the ship air pollutant emissions forecasting model in the port of Klaipėda was created. • Application of advanced treatment technologies for retention and removal of hazardous organic micropollutants in urban wastewater treatment plants. The program is in progress and the results will be published in future reports. GRI: 2-25 3-3 201-2 203-1 303-2 304-1 304-2 304-3 38 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.6. Impact and materiality assessment Stakeholder engagement To make sense of stakeholder engagement, we invested our time and effort in the following steps: STEP ONE: BENCHMARKING • We assessed industry specific issues and best practices. • Identified gaps in our stakeholder engagement vs. peers/best practices. STEP TWO: IDENTIFICATION • We revised our entire supply chain and came up with a full list of our stakeholders. • All stakeholders were mapped based on their influence and interest in our sustainable development. • Our management and decision makers were actively involved in defining key stakeholder groups. STEP THREE: ENGAGEMENT PLAN • We assessed the most effective methods and communication channels to reach our stakeholders. • Relevant specific objectives for stakeholder engagement were identified. STEP FOUR: EXECUTION • We thoroughly revised and documented existing engagement activities Group wide. • Made sure we understood key expectations and grievances of our stakeholders. • Whenever it was possible, we reached out to our stakeholders to verify our understanding of their expectations and grievances. • Whenever we came across data discrepancies or gaps, we made a significant effort to ensure we collected missing data. • Whenever we were not able to collect missing information, we updated our stakeholder engagement plan for upcoming reporting periods. STEP FIVE: ANALYSIS • A dedicated team analysed information on stakeholder engagement at the company level. • All stakeholders were subdivided into major groups. • Expectations and grievances were consolidated on the Group level. • The key points on stakeholder groups, communication channels and expectations are reported in the following section. State Tax Inspectorate The State Social Insurance Fund Board The Environmental Protection Agency Environmental Protection Department under the Ministry of Environment National Public Health Centre State Labour Inspection of the Republic of Lithuania Employment Services Klaipėda City Municipality Vilnius City Municipality Grigeo Group administration Management Production associates Labour unions Local communities Society in general Potential employees Media Politicians and public figures Support beneficiaries Banks Insurance companies Stock exchange Shareholders Competitors (product market) Universities Professional education Schools NGO's Business associations B2C Tissue Retailers B2B Cellulose suppliers Paper and containerboard suppliers Waste-paper suppliers Water Production materials Electricity Natural gas supplier Waste management providers Machinery Spare parts and service providers Packaging suppliers Third party transportation Scientific advisory Certification agencies Consulting, Legal, Audit, Marketing, PR services Other suppliers (IT, post, Communications) GRI: 2-12 2-29 3-1 3-2 3-3 39 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Dialogue Communication channels Their expectations What we strive to achieve Clients • Sales relationships. • Regular business meetings. • Collaboration through the full packaging value chain. • Quality control. • Public meetings. • Media. • Site visits. • Surveys. • Packaging solutions that enable safe delivery of our customers’ products. • Packaging solutions that cut waste and improve recyclability. • Tissue paper quality. • Operational efficiency. • Water stewardship. • Recovered finer content. • Air+GHG emissions. • Good reputation. • Optimal, high quality, sustainable design packaging. • Creating and fostering circular economy through efficient waste-paper collection and recycling process. • Responding to sustainability data requests from customers. • Proactively disclose our social and environmental impacts including GHG emissions. • Setting ambitious yet realistic sustainability agenda. • Reporting consistently on our sustainability efforts. Investors • Regular calls and in-person meetings. • Business strategies. • Financial returns. • Risk mitigation. • Audited annual reports. • Public announcements via stock exchange. • Honest and transparent communication on our sustainability efforts. • Reducing reputational risk. • Streamlining supply chains to reduce CO 2 emissions and minimise waste. • Sustainable packaging innovations delivering an attractive return on investment. • Ensuring we do our part to address environmental and social issues material to our business. • Generate financial return in a most transparent way. • Consistently reporting on our non-financial results • Improving our ESG assessment. Employees • Safety programmes. • Employee training. • Company-wide communication. • Fostering human connection. • Involving employees in sustainability reporting. • Fostering involvement in setting sustainability goals. • Daily face-to-face meetings. • Intranet. • Surveys. • Feeling proud of the company they work for. • Safety. • Personal development. • Fair and transparent compensation. • Consistent career development. • We ensure our employees are fully aware of our role within the circular value chain. • Exchange of talent and ideas across Group operations to share best practice. • Facilitate the sharing of best practices. • Empowering our people to lead the circular economy. • Fostering high employee engagement so that our people would be confident they can make real changes. Suppliers • Supplier relationships. • Request for information. • Supplier sustainability audits. • Quality control. • Negotiations. • Contract terms. • Steady demand. • Business continuity. • Highest compliance standards for our suppliers. • Transparent and fair procurement process. • Promote responsible best practices. • Assess the feasibility social and environmental and social auditing. Communities • Economic and charitable relationships. • Employee-led fundraising. • Plant tours. • Media. • Product donations. • Meetings and presentations. • Air emissions. • Air quality. • Biodiversity. • Fair neighborship. • Economic impact. • Community engagement. • Sustainable and responsible business practices. • Water use and wastewater quality. • Supporting local business ecosystems through short supply chains. • Proactively engaging with community stakeholders to address water-related issues. • Reducing our air emissions. • Addressing odour issues. • Enhancing our transparency. Regulators • Legislative meetings. • Trade association meetings. • Formal hearings. • One-on-one meetings. • Collaboration. • Facility visits. • Reports. • Liaising with municipalities. • Health and safety. • Paper recycling and recovery. • Taxes and environmental policy. • Compliance. • Fines and compensation. • Legal processes. • Biodiversity. • Solving impending issues in the most sustainable manner. • Committing to meet or exceed legal requirements. • Educating policy makers on our commitment to circular economy. • Educating policy makers on the strategic/critical importance of our recycling infrastructure on the national level. GRI: 2-12 2-29 3-1 3-2 3-3 40 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Materiality and impact assessment In 2021 we performed for the first time and in 2022 we revised a non-financial materiality assessment. To make the most of this process, we instructed and engaged our key decision makers. The assessment, co-led internally by the heads of sustainability and finance, was undertaken by an independent third party to ensure complete impartiality. We believe that time and effort invested in the analysis helped us identify the economic, social, and environmental issues that are of the highest importance to our business and our stakeholders. The materiality assessment results also serve as an input for our sustainability targets and action plans approved by the boards of the Group companies, which were followed in 2022. STEP ONE: STAKEHOLDER ASSESSMENT We began our materiality assessment by conducting stakeholder assessment. STEP TWO: IDENTIFICATION To build a solid ground for our first materiality assessment, we considered the following sources to identify a range of potentially material topics: • Concerns, questions, expectations, and grievances raised by stakeholders both directly and indirectly during the year. • Sustainability topics covered in reports released by peers and customers. • External sustainability reporting standard guidelines (GRI). • External sustainability rating systems (e.g., CDP, DJSI, MSCI). • Priority focus areas identified by our partners. • Existing and emerging legislation and policies (both national and EU). • Relevant quality certificates and business practices. • General sustainability context. • Sustainability reporting guidelines and requirements issued by regulators (both local and EU level). STEP THREE: IMPACT MEASUREMENT • Sustainability indicators are often categorised in three ways: • Economic (e.g., capitalisation, revenue, profit, company turnover); • Social (e.g., labour statistics, human capital development, human rights, occupational health and safety, consumer health, community impact); • Environmental (e.g., biodiversity, water stewardship, greenhouse gas emissions, waste management, materials). • Qualitative assessment: what issues might be of critical importance to our business lines. • Quantitative assessment: how much resources (materials, water & energy) we withdraw from the environment in terms of volume, and how much product we deliver to make your life more enjoyable, as well as what kind of residual outputs exit our facilities in the form of emissions, waste, and effluent. • To make our analysis more holistic, we included governance topics as well. STEP FOUR: PRIORITISATION To make sure we are responsive to those with the greatest potential to impact our performance or to be impacted by our actions moving forward, we prioritised thetopics. STEP FIVE: VALIDATION • We reviewed the final list of topics, prioritised as highly material, with our cross-functional team and leadership for feedback and approval. • After the list has been approved, we mapped the highly material topics to the appropriate GRI Standard following the GRI reporting protocol. We identify and report on the indicators within each relevant GRI Standard to ensure the completeness of the report. • We do not limit ourselves to the topics of relevant GRI standards and disclose information on all topics of critical importance. • The report is subsequently reviewed and approved by Group’s executive leadership team before the public release. • Our leadership is reviewing economic, environmental, and social topics and their impacts, risks, and opportunities on an annual basis. GRI: 2-12 2-14 2-29 3-1 41 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Mapping our materiality Our 25 most material areas have been organised under our four categories. Through the materiality assessment, we refine our commitments and identify areas for improvement. We determine where we can have a positive impact across our value chain, from forest managers to environment- conscious consumers trusting us to recycle their used packaging and other paper products. According to GRI, significance in financial statements is generally considered to be a threshold influencing the economic decisions of those who use organisation’s financial statements, particularly investors. A similar concept is also important for sustainability reporting, but it has two dimensions. This table provides a list of the material topics mapped to indicate significance to our business continuity against the importance to our stakeholders. By conducting our materiality assessment, we can identify and respond to the needs of all these stakeholders. Some of these areas are essential for protecting and growing our revenues. Others have significant influence on our cost structure, supply chain, and risk. The most material topics and impacts are analysed and disclosed in the following sections of the report, using GRI standards. Materiality assessment also reflects the key risks for the organisation. Key topics covering major risks for business future and long-term success are prioritised as having critical significance to the Group. In this report, we disclose in detail our impacts on material topics of critical importance, both to us and our stakeholders. Topics of moderate and significant importance are disclosed to support disclosures on material topics of critical importance. Importance to stakeholders Critical E Waste management. G Fair competition. G Biodiversity. S Employee wellbeing. S Health and safety. S Human rights. E Water stewardship. E Circular economy. E GHG emissions. F Shareholder value creation. Significant G Code of ethics. S Partnerships. S Client satisfaction. G Good governance practices. E Packaging. F Tax. E Transport and logistics. S Local communities. E Renewable energy. G Material quality control. Moderate G Data security. F Innovation. E Supply chain control. F Production management. S Human capital development. Moderate Significant Critical Significance to the Group E – Environmental | S – Social | G- Governance | F – Economic/Financial GRI: 2-29 3-1 3-2 207-1 42 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Connections between material topics and UN Sustainable Development Goals The following table presents connections between material topics and the SDGs. These links were identified based on an assessment of the impacts on material topics and the targets associated with relevant SDG: Material topic S Health and safety S Human rights E Water stewardship E Circular economy E GHG emissions F Shareholder value creation E Waste management G Fair competition G Biodiversity S Employee wellbeing E Renewable energy G Material quality control E – Environmental | S – Social | G- Governance | F – Economic/Financial GRI: 3-2 3-3 43 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.7. Our products and processes WASTEPAPER. The processes in Grigeo Recycling UAB and Grigeo Recycling SIA. According to Eurostat, in Europe above 80% of paper packaging is recycled, making it the most recycled packaging material in the world. Grigeo Recycling UAB and Grigeo Recycling SIA collect wastepaper in Lithuania and Latvia respectively. What we do What we collect Wastepaper should be free of • Install press containers and take care of their timely replacement. Our certified, metrologically verified scales determine the exact weight of incoming raw materials. • Sort plastic waste and sell it to plastic recycling companies. • Collected wooden packaging, including their production waste and broken wooden pallets are further recycled by Grigeo Baltwood UAB. • Industrial waste from printing houses. • Office wastepaper. • Documentation after the expiration of mandatory storage period. • Cardboard, corrugated cardboard, and its packaging; cardboard production waste. • Defective paper and paperboard production in rolls and sheets. • Wooden pallets. • Plastic waste originating from polyethylene and polypropylene films and the packaging thereof. Also, we buy packaging (stretch) film, and polyethylene bags. • Non-paper impurities based on EN 643:2014: metal, plastics, glass, textiles, wood, sand, construction, and synthetic materials. • Coated paper and cardboard unsuitable for recycling. • Contaminated paper (chemicals or hazardous substances). • Greaseproof, metallised sandpaper, paper and cardboard bags for food, construction and chemicals, any paper impregnated with glue or varnish. • Book cardboard covers, book spines impregnated with glue, labels, cardboard muzzles. • Rotten, mouldy, burnt paper. • Intensely coloured paper (black, green, red, etc., except white). • Paper egg trays. Collected and sorted wastepaper, in tonnes: Lithuania Latvia Total 2022 2021 2022 2021 2022 2021 White wastepaper 4,618 4,327 385 381 5,003 4,708 Brown wastepaper 36,223 29,564 12,231 1,3088 48,454 42,652 Mixed wastepaper 5,547 4,972 1,028 703 6,575 5,675 Total 46,388 38,863 13,644 14,172 60,032 53,035 In total, the Group’s recycling facilities increased amounts of collected and sorted waste paper by 13% (from 53,035 tonnes to 60,032 tonnes). GRI: 2-6 301-3 44 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated TISSUE PAPER. The processes in Grigeo AB. Responsible sourcing All our products are certified and must meet the highest standards imposed by our clients; in turn, it is our duty to ensure maximum transparency of the supply chain. Grigeo AB has adopted a supplier auditing system based on IFS and ISO9001. Supplier auditing helps our partners improve their processes, management, and product processes. Our people closely cooperate with our partners to ensure that both Grigeo AB and our suppliers can supply sustainable products and materials. How tissue paper is made 1. Pulping: Diluting cellulose or wastepaper in water to release fibre. The interim product has up to 98% of water. 2. Forming: We operate modern tissue machines. Complex machinery sprays liquid pulp on the web and forms base for tissue, presses some water out. 3. Drying: The remaining water is removed from the paper web by heat drying. Steam generated in the boiler plant heats up the so-called Yankee cylinder (the large barrel of the machine) and the hood above it, which acts as a hot air conductor. As a result, prepared generic material for tissue paper is rolled to jumbo rolls (weight: 2t, radius: 2m, height: 2.75m). This raw material is further used in paper conversion lines to make specific products. 4. Rolling and cutting: Jumbo rolls of generic material are re-rolled and cut to the customised properties of final product. Imp act of one paper roll (100 grams): Unit of measure 2022 2021 Water Litres 1.4 1.3 CO 2 (Scope 1+2) Grams 19.6 14.1 Raw materials Grams 144.6 138.3 Energy KWh 0.3 0.3 Waste Grams 62.4 61.9 GRI: 2-6 303-3 44 982t QUALITY ISO 14001 Environmental Management System European Union eco-label – the EU Flower FSC® CoC (Chain-of-Custody) certificate ISO 45001 Occupational Health and Safety Management Standard IFS HPC ISO 9001 Quality Management System Good Manufacturing Practices (GMP) Management Standard SPECIFIC REGULATIONS Environment monitoring Pollution prevention Natural resources stewardship Consumer health and safety Climate change Waste management Packaging management Management of chemical compounds Hazardous waste management Sludge management Composting Nordic Swan Ecolabel 45 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated CONSUMER BRANDS GRITE and GRITE PROFESSIONAL are the main brands of GRIGEO tissue products, counting a long history. GRITE products are for home users and have been valued by our customers for over 25 years. GRITE PROFESSIONAL brand is Away-from-home products line. We offer more than 60 products: folded towels, wiping paper, kitchen towels, toilet paper, handkerchiefs, facial tissue and much more. Household products: Brand name ORCHIDEA WHITE RABBIT BLOSSOM FAMILY ECOLOGICAL CHARISMA Toilet paper Kitchen towels Handkerchiefs Folded towels Facial tissue Raw material Cellulose Cellulose Cellulose Sorted recycled paper Unsorted recycled paper Cellulose Away-from-home products: The product line made from cellulose The product line made from sorted recycled paper The product line made from unsorted recycled paper GRI: 2-6 46 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated RECYCLED PAPER. Processes in Grigeo Klaipeda AB Composition of containerboard Grigeo Klaipėda AB is a major player in recycling industry in the Baltic states. Basically, we divert paper from landfill by returning valuable fibre back to new paper by producing material for corrugated cardboard packaging. In 2022, we recycled 106,958t of waste-paper and packaging scraps. To bring waste-paper back to business, we needed to add 3,837t of native starch. Waste-paper and starch accounts for 99% of total materials used. How recycled paper is made 1. Pulping: waste-paper comminuted and mixes with circulating water in pulper to create fibre and water mass. 2. Screening: impurities are removed during pre-treatment (e.g., scrap metal, plastic, etc. from the binding of waste-paper). Fine cleaning removes fine particles such as polystyrene, inorganic materials such as sand, gravel and the like. 3. Forming: the cleaned waste-paper mass is evenly distributed on the net. 4. Pressing: through application of pressure by rotting press, most of the water is removed and circulated back to the production cycle. 5. Drying: the remaining moisture is removed, and the basic form is dried by applying high pressure and temperature. The combination of the applied heat and starch used results in a very robust containerboard. 6. Rolling: recycled paper is rolled into jumbo rolls according to the specifications of the final product. Honeycomb Grigeo Klaipėda AB converts produced paper into honeycomb for the furniture and automobile industry. By nature, a sustainable product (100% recycled material, light weight and easily transported), honeycomb serves as a filling material ensuring durability and light weight of wooden furniture. GRI: 2-6 301-3 ISO 9001 Quality Management System Good Manufacturing Practices (GMP) Management Standard 102,255t 4,218t Pollution prevention Odour control Climate change Noise prevention Steam production management Management of chemical compounds SPECIFIC REGULATIONS QUALITY ISO 14001 Environmental Management System FSC® CoC (Chain-of-Custody) certificate ISO 45001 Occupational Health and Safety Management Standard Effluence management Natural resources stewardship Consumer health and safety Packaging management Hazardous waste management Waste management Environment monitoring 47 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated CONVERTING RECYCLED PAPER. Processes in Grigeo Packaging UAB and Mena Pak AT Most goods, products, or electronic equipment you bought were safely transported in boxes made of corrugated cardboard as a third or secondary packaging. Many items are sold in individual cardboard boxes as primary packaging. Arguably, corrugated cardboard is the most versatile packaging material: • Provides maximum protection. • Easily customised. • Cost-effective. • Sustainable. • Great for branding. • Lightweight. • Recyclable and reusable. The corrugator A corrugator is a set of machines designed to bring together three or five sheets of paper to form a single, double or triple wall board in a continuous process. Four major steps: 1. Unrolling: three or five sheets of paper (containerboard) are unrolled simultaneously on the corrugator: the inner liner, the outer liner, and in the middle, the medium (also called fluting); 2. Corrugating and gluing: corrugating the flutes (forming waves of middle layer by pressing the sheet under heat through grooved metal rolls) and gluing to a single liner (flat outer layer); 3. Gluing: the second outer layer is glued on to make a rigid board. In the case of 5-layer corrugated cardboard, an additional layer of corrugated and a single liner are glued. 4. Cutting: the board is cut to the desired size. The corrugated board comes out of the equipment as a flat board sheet. Conversion of the corrugated board Unlike other companies in our Group, Grigeo Packaging UAB has an unlimited portfolio of products. All our output is customised to meet specific requirements. The converting of corrugated board includes all processes of transformation, from a flat board to a finished product (mainly packaging). These processes consist of printing, die cutting, folding, and gluing. Different operations are carried out based on a customer’s specification and according to the type of packaging. GRI: 2-6 38 056t SPECIFIC REGULATIONS QUALITY ISO 14001 Environmental Management System FSC® CoC (Chain-of-Custody) certificate ISO 45001 Occupational Health and Safety Management ISO 9001 Quality Management System both in Grigeo Packaging UAB and Mena Pak AT Good Manufacturing Practices (GMP) Management Standard Pollution prevention Waste management Climate change Noise prevention Management of chemical compounds Environment monitoring Natural resources stewardship Consumer health and safety Packaging management Hazardous waste management 48 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated FIBREBOARD. Processes in Grigeo Baltwood UAB Composition of fibreboard For more than 50 years, Grigeo Baltwood UAB operates traditional fibreboard production line. In 2022, we processed 120,656 tonnes of wooden materials (wood chips, wood logs, and used wooden packaging), and only 1,289 tonnes of non-renewable materials, such as resin, varnish, paraffin, and reagents. The technology allows producing durable material made of 99% renewable material. How hardboard is made 1. Wood chipping and blending: wooden materials (wood chips, wood logs, wooden packaging waste) are chipped, heated with steam and blended to derive fibre which is diluted with water. 2. Mat forming and hot processing: the prepared mass is formed into the mat, dewatering takes place. The water pressed out of the mass is recirculated back to blending. 3. Pressing: we use steam-powered pressing machine to apply heat and pressure on fibre mass to “cook” fibreboards. 4. Cutting: the margins of produced sheets are cut and returned to production cycle. 5. Painting: if needed, we cover our products in white water-based paint. Key characteristics • High resistance. • High density. • High flexibility. • Maximum durability. • Suitable for indoor uses. • Made of 99% renewable materials. • Easily recyclable. • Highly versatile. In 2022, we produced 23.2 km 2 of fibreboard (in 2021 – 26.2 km 2 ). GRI: 2-6 301-3 67,755t ISO 14001 Environmental Management System FSC® CoC (Chain-of-Custody) certificate ISO 45001 Occupational Health and Safety Management Standard NFB label from. EFM organisation (European Federation of MDF Manufacturers) ISO 9001 Quality Management System QUALITY Pollution prevention Waste management Climate change Steam productions Noise prevention SPECIFIC REGULATIONS Management of chemical compounds Composting Environment monitoring Natural resources stewardship Packaging management Hazardous waste management Effluents management Sludge management 49 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.8. Social profile 7.8.1. Dialogue and feedback We understand the meaning of a feedback as a very important and significant work for the manager, the employee, and the company. The feedback is given to employees at all levels and is always based on gender equality and other non-discrimination grounds at the Group companies. The feedback providing form is a performance discussion, which aims to discuss employee performance, career perspectives and development expectations, strengthening employee motivation to pursue new goals actively, thus contributing to the good performance of the Group. The performance objectives of the Group companies are set for the year, usually during the strategic session of the top management while using X matrix strategy development tool. Objectives are delegated in departments to employees of all levels. Objectives are measured by setting KPIs (key performance indicators) and performance is periodically reviewed. The periodicity of the discussion is determined by the nature of the objectives at different levels of organisation, in the position groups: for managers, the performance is discussed during the annual performance evaluation, for specialists – quarterly, for workers – daily and monthly during the meetings, while training and instructing. The results of the performance evaluation and feedback interview are completed and confirmed in the goal evaluation forms. Percentage of employees receiving annual performance review: By business segment and total for the entire Group Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Female employees 66% 67% 35% 36% 54% 56% 54% 56% Male employees 30% 28% 24% 24% 27% 26% 27% 26% 7.8.2. Employee survey Our long-term success is built by engaged and motivated people. As an employer, we strive to grow together with our people. We conduct an annual employee engagement survey to determine the current level of our employee engagement, assess how well we use the opportunities for employee’s engagement, according to the opinion of employee, in our organization, highlight the strengths of our employees’ experiences and aspects for improvement, which is a priority while maintaining and strengthening employee’s engagement. The results of annual survey: Engaged Satisfied Not engaged 2022 2021 2022 2021 2022 2021 Tissue paper 52% 45% 80% 76% 2% 2% Fibreboard 44% 50% 74% 63% 1% 6% Paper and packaging 48% 44% 73% 73% 4% 5% Group 49% 46% 76% 73% 3% 4% Average of external organisations 46% 45% 76% 77% 4% 4% In 2022 the Group’s overall employee engagement rate is 49%, i.e., 3% higher in comparison with other organizations, participating in this survey, as well as 3% higher in comparison to the Group’s rate for the year 2021. The results of engagement survey are presented and discussed with employees, which: • Sets a direction of working conditions’ improvement. • Helps prepare/develop training programs. • Provides valuable insights on wage and benefit system modification. • Gives us a better understanding on the competence of a manager. We encourage and strive to create the conditions to our employees to express their observations, complaints, and deal with any work-related issues as soon as they occur. 7.8.3. Improving the employee engagement According to the results of the survey, the most positive employee experiences highlight the strengths of our organisational culture. The survey also identified 3 priority areas for improvement, which are the focus of the Group companies to increase employee engagement. The results of the survey show that both the most positive evaluations and the results of areas for improvement have improved over the year. Group companies continue with a performance improvement plan that helps both maintain and grow employee engagement. GRI: 404-3 50 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Most positive evaluations and areas for improvement: Positive Negative 2022 2021 2022 2021 Most positive evaluations I believe that our organisation will be successful in the future 84% 71% 3% 9% My colleagues are always ready to help with work-related questions when needed 78% 76% 6% 7% I have enough freedom to independently solve issues directly related to the performance of my work. 74% 71% 9% 11% A positive and friendly atmosphere prevails in my department 74% 69% 8% 12% The goals and tasks thar are set for me are realistic 72% 66% 9% 11% Areas for improvement My salary is fair compared to the salary received by specialists in a similar field in our country 37% 30% 34% 45% To achieve organizational goals, departments/groups cooperate effectively 42% 41% 25% 28% The organization has attractive professional growth opportunities for me 44% 30% 30% 31% 7.8.4. Trainings Operating in paper and wood industry means running powerful, complex, and often potentially hazardous equipment. Control and management of machinery should be placed into highly qualified hands. So that we remain capable to deliver to our clients and to ensure our business is operational, we need a robust array of skills, experience, and knowledge. Our employee training and education programme is designed to maximise the potential of all employees and provide them with professional growth opportunities. Considering a wide range of responsibilities and functions, we designed and keep on improving three different frameworks for training and education: • Training programmes for production workers. • Professional growth programmes for specialists. • Need-based professional improvement training for the management. Formal training programmes for employees: Type Duration Particularity Certification Assuming duties Training programmes for production workers Mandatory in-house. On average 172 hours. Introductory, individually designed based on direct functions an employee performs. Mandatory exam (function- specific matters, health & safety, and LEAN) passing grade: 75%. We operate potentially dangerous equipment, so “real life” skills must be acquired strictly under the supervision of senior colleagues, shift manager, etc. Professional growth programmes for specialists and workers Mandatory in-house. On average 2 hours. Introductory OHS training based on informal programs. Attestation, passing grade: 75%. Department-specific. Depending on position, employees are subject to re- examination every 5 years. Certification by third-party agencies . 8-64 hours. Based on formal and informal training programs. Depending on the nature (annually, every 3 or 5 years). All employees operating potentially hazardous equipment must have an update of certification. Voluntary in- house. Varies. Specialist seeking higher positions within the Group. Qualification test. Seeking promotion. Management and specialists training Mandatory in-house. On average 20 hours. Individual introductory. None. Function specific for all new employees. Voluntary by the third party. Varies. Specific need-based training. Varies. Better understanding of the matter, higher motivation, improved professional skills. GRI: 404-1 404-2 51 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated It is in our best interest to encourage employees to seek career development within our Group. Our dedicated training coordinators oversee collecting emerging demand for training, both bottom up and top down. This process ensures: • The number of Qualified Employees required to deliver our products and services. • Employees improve their qualification. • Acting along the company's values in their daily activities. • Seeking development of professional skills. • Fair remuneration for each employee, considering acquired qualifications. Supervision & management of training programmes: • Dedicated personnel consult the leadership and heads of departments to assess the demand and possibilities for training. • Training coordinators monitor the market for third-party trainings and provide suggestions to relevant managers. • Special attention is devoted to professional attestation subject to expiration and re-attestation. • COVID-19 pandemic led us to consider personal wellbeing and emotional support seminars and trainings. Key numbers of the Group: 2022 m. 2021 m. Formal training, in thousand hours 52 35 Formal training budget per employee, in euros 132 61 Formal training per employee including practice at workplace, in hours 67 45 Formal training budget, in EUR thousand 101 48 Provided the complexity of our business, in cooperation with respective management our training coordinators constantly update us on: • Innovations in production or services: new methods of operation, control or management; new technologies. • Updates and explanations of the requirements of LST EN ISO 9001:2015, LST EN ISO 14001:2015, LST EN ISO 45001:2018, FSC standards. • Analysis and explanation of the principles of good manufacturing practice. • Introduction to the new national and international regulations. • Instruction on occupational safety and health. • Integrated management systems. • Hygiene and sanitation. • Environmental impact management. • Procurement and other process improvement. Formal training in numbers: Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 In-house training, in thousand hours 14 14 6 7 17 5 37 26 Average hours of in-house training per employee 51 48 42 49 49 14 48 33 Third-party training, in thousand hours 6 1 2 2 7 6 15 9 Average hours of third-party training per employee 23 3 11 14 19 19 19 12 Composition of training withing the Group: 2022 2021 In-house training Induction program for newly hired employees 67% 72% Occupational safety and health, introductory training, fire safety 5% 2% Third party training Mandatory to obtain qualification certificates 17% 21% Management, training of general professional competences 11% 5% GRI: 403-5 404-1 404-2 52 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.8.5. Occupational safety and health General safety guidelines for every employee: In 2016, our companies, with an exception of Mena PAK AT, implemented the OHSAS 18001:2007 Occupational Health and Safety Management Standard (ISO 45001 from 2021). This standard helps ensure the company's occupational health and safety, reducing the likelihood of accidents at work and occupational morbidity. Group-wide we strive to achieve a zero-accident workplace. Key features of our occupational safety and health (hereafter – OSH) system: • Compliance with legal requirements and the code of Business Ethics. • Fostering high awareness and personal interest. • Encouraging initiative to actively contribute. • Providing workers with safe and healthy working conditions to prevent work-related injuries and illness. • Identifying and eliminating hazards in a timely manner. • Prioritising OSH standards in procurement processes and selecting suppliers. • Constantly analysing, assessing, and implementing the needs of stakeholders; looking for ways to implement their requirements more effectively. • Strict control over any contractor operating within our facilities. • OSH management applies to all employees and contractors, visitors, suppliers, interns. • Constant training and timely certification of people in charge. Work-related accidents and TRI rate Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 High-consequence injuries - - - - - - - - Minor injuries 5 10 6 6 6 11 17 27 Hours worked 505,663 518,908 251,457 262,905 797,741 797,741 1,487,244 1,579,554 TRI rate 9.9 19.3 23.9 22.8 8.2 13.8 11.4 17.1 Number of incidents among our own employees per 1 000 000 hours worked. GRI: 403-2 403-5 403-8 403-9 Fire management instruction Standard management of chemicals Wear protective clothing that has been provided Take your work seriously, always be sober If you are involved in an accident, report it immediately Discuss any concerns you may have with your seniors If you have an illness or condition, inform your supervisor Report any hazards Keep your work area clean and tidy Follow 6S standard Insist on receiving proper training Follow all safety procedures and rules your employer has in place 53 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Hazard identification Key risk factors • In 2022, we operated without a single life-changing accident. No workers (both our employees and those employed by our contractors) suffered a major injury. • We are dedicated to maintaining a safe and reliable workplace for everybody performing their duties within our Group. • Occupational risk assessment is performed by an external company. • The risk assessment of production processes performed internally involves OSH specialists, production management, employees, and the quality department. • Incident investigation – through a register of unsafe situations or in the event of a more serious incident, a team is selected to investigate the incident. • Constantly evaluating risk factors. • Close cooperation with production workers daily. • Rotating parts of equipment. • Moving transport, loading works. • Night work. • Work at height. • Works in wells. • Manual lifting of loads. • Working with chemicals. • Use of potentially dangerous equipment (cranes, pressure vessels, elevators). Avoiding accidents: All employees are required to report potentially dangerous working situations. All reported situations are registered and administered via the registry of unsafe working situations. • A mobile application is designed to log technical problems. Registered problems travel to the Maximo system, where technical staff plans repairs or reacts quickly to the problem: - PM – preventive maintenance identifying potentially risky situations or malfunctions. - SR – service request, a specific task. - WO – work orders directed to the technical crew. • In case an employee is not willing or able to use a mobile app, paper form might be used. • Safety issues are addressed during daily shift meetings. • All employees have access to OSH specialists. • Nobody is allowed to solve technical problems independently. • Employees are represented in occupational health and safety committee. • Employees are involved evaluating risks and hazards. • All personal and group protective gear is tested and approved by production workers. • We promote employees’ responsibility, and it is always emphasised that, although the employer is responsible for the safety and health of workers, all safety remains in the hands of the workers themselves. OSH committees composed of employer and employee representatives have been set up in the companies of the Group. Main responsibilities: • Analysis and assessment of the state of safety and health of employees. • Consideration of preventive measures to prevent accidents at work and occupational diseases. • Analysis of safety training and instruction of employees in every company. • Observation of the established procedure and the provision of employees with collective and personal protective equipment and the supervision of these measures. Mobile app to register technical tasks GRI: 403-1 403-3 403-7 403-8 54 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.8.6. Wages and benefits Payroll system A transparent and clear wage management system, approved in 2020, helps to retain and attract talents, promotes productive and efficient work, and allows fair renumeration for work performed and results achieved. In all our companies of the Group, positions are divided into three main groups: managers (2 levels), specialists (4 levels) and workers (3 levels). Additional monetary incentive systems are applied to all groups of positions or certain individual positions. The social dialogue between the employer and the employees of the Group companies is ensured together with the existing trade unions and/or work councils. The relations of Grigeo AB and Grigeo Klaipėda AB with the employees are defined by the provisions of the collective agreement. We take care of our employees, strive to ensure that the employees of Group companies would feel engaged, motivated, and safe, and provide employees with the access to additional benefits. The list of benefits is reviewed according to the needs of the employees. Benefits are rated very favourably and used actively by employees. The basic wage is determined based on the category and level of position as well as objective criteria relating employee‘s education, experience, competencies, abilities in relation of responsibility degree, the nature and complexity of work performed, and the results obtained. The motivation is strengthened by providing other additional benefits, such as: health promotion initiatives, events and means; team building events; prizes and gifts for employees and their kids; election and awards of the best employee, reflecting the values of the Group companies. Health insurance Fringe benefits for health In 2022 we provided employees with an opportunity to take out an additional health insurance by choosing from two health insurance value propositions EUR 5,255 and EUR 5,210 which include: • Outpatient treatment and diagnosis. • Inpatient treatment in public hospitals. • Medicines, vitamins, food supplements. • Dentistry, optics. • Preventive health checks + vaccination. • Rehabilitation treatment. • Critical illness (lump sum). • Employees are invited to participate in hikes, jogging, cycling marathons, tournaments of basketball, football. • Grigeo Klaipėda AB employees were encouraged and actively participated in „Run of Hope” marathon. • Mental and physical health promotion seminars. • Promoting a healthy lifestyle. • Gym membership compensation. • Influenza, tick-borne encephalitis vaccination. • Health checks are performed regularly every 2 years or as directed by your doctor. • Defibrillators were purchased: most employees are trained to use them in case of emergency so to possibly save lives by providing first aid before the arrival of doctors. • Regular trainings in fire safety. Key remuneration numbers: 2022 2021 Total remuneration budget of the Group, EUR million 23.4 22.1 Annual increase in total remuneration budget, % 6.0% 7.2% President of Grigeo AB (CEO) pay-out ratio to the median annual total compensation for all employees 8.6 8.2 GRI: 2-21 2-30 3-3 201-1 403-6 55 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated The number of employees as at 31 December: Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Women 70 69 40 39 118 114 228 222 Men 210 201 97 98 330 340 637 639 Total 280 270 137 137 448 454 865 861 Ratio of basic salary and remuneration of women to men: Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Under 30 years old Women/Men 1:0.83 1:0.72 0.91:1 0.84:1 0.89:1 0.92:1 0.96:1 1:0.94 30-50 years old Women/Men 1:0.98 1:0.93 0.73:1 0.80:1 0.97:1 0.95;1 0.95:1 0.97:1 Over 50 years old Women/Men 0.79:1 0.80:1 0.85:1 0.83:1 0.90:1 0.93:1 0.83:1 0.85:1 Total 0.95:1 1:1 0.77:1 0.79:1 0.90:1 0.90:1 0.89:1 0.98:1 Ratios of standard entry level wage by gender compared to local minimum wage: Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Women 2.42:1 3.58:1 1.67:1 1.44:1 1.24:1 1.13:1 1.85:1 1.49:1 Men 1.81:1 1.95:1 2.21:1 1.93:1 1.84:1 1.71:1 1.94:1 1.80:1 Total 2.30:1 2.08:1 1.84:1 1.74:1 1.69:1 1.61:1 1.91:1 1.74:1 New employee hires: Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Under 30 years old Women 3 2 3 3 5 9 11 14 Men 19 14 9 13 21 33 49 60 30-50 years old Women 10 11 6 12 7 14 23 37 Men 26 18 10 13 26 33 62 64 Over 50 years old Women 1 - 2 3 1 2 4 5 Men 9 8 11 7 15 13 35 28 Total 68 53 41 51 75 104 184 208 GRI: 2-7 202-1 401-1 405-2 56 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Rate of new employee hires, % Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Under 30 years old Women 4.4% 3.8% 7.3% 5.9% 6.7% 8.7% 6.0% 6.7% Men 27.9% 26.4% 22.0% 25.5% 28.0% 31.7% 26.6% 28.8% 30-50 years old Women 14.7% 20.8% 14.6% 23.5% 9.3% 13.5% 12.5% 17.8% Men 38.2% 34.0% 24.4% 25.5% 34.7% 31.7% 33.7% 30.8% Over 50 years old Women 1.5% 0.0% 4.9% 5.9% 1.3% 1.9% 2.2% 2.4% Men 13.2% 15.1% 26.8% 13.7% 20.0% 12.5% 19.0% 13.5% Total new hires 68 53 41 51 75 104 184 208 Rate of employee turnover and employee retention rate, %: Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Under 30 years old Women 94.7% 0.0% 68.6% 41.4% 34.3% 25.4% 54.4% 19.6% Men 49.5% 37.2% 69.0% 69.2% 47.7% 62.7% 51.4% 52.8% 30-50 years old Women 11.3% 37.2% 31.9% 67.9% 12.3% 28.5% 14.1% 39.2% Men 15.3% 31.0% 26.3% 24.9% 18.8% 21.1% 18.9% 25.4% Over 50 years old Women 10.1% 12.6% 10.4% 42.9% 3.0% 20.6% 7.3% 23.2% Men 17.1% 18.4% 32.2% 42.9% 33.6% 24.3% 27.1% 26.9% Total turnover 20.9% 27.4% 31.0% 41.5% 23.1% 28.5% 23.8% 30.8% Retention rate 87.5% 90.7% 82.5% 77.4% 87.3% 84.3% 87.0% 85.7% The Group takes care of its employees and pays special attention to employee retention and talent acquisition. The factors that led to the positive change in employee retention and employee turnover rates are complex. One of the most important factors to retain existing employees and attract new talent is competitive remuneration. The Group constantly monitors the labour market, salary forecasts, considers the analysis of the available data, reviews the salary system during the year. Other important factors are interesting and meaningful work, the opportunity given to employees to develop competences, the involvement of employees in ongoing projects, the implementation of strategic goals and the appreciation of employees for the results achieved. The Group's important focus is the management of employee experiences, therefore discussing the results of the annual employee engagement survey with employees and the feedback provided by employees helps Group companies to improve action plans for creating positive employee experiences, thus strengthening the organizational culture, physical work environment and technologies. Parental leave: Employees Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Employees entitled to parental leave Women 1 4 1 2 1 3 3 9 Men 12 4 4 4 15 12 31 20 Employees that took parental leave (of those entitled to do so), % Women 100% 100% 100% 100% 100% 100% 100% 100% Men 17% 0% 25% 25% 7% 0% 13% 5% GRI: 2-7 201-1 401-1 401-3 57 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.8.7. Local communities Odours: • Located in the centre of Klaipėda city, we recycle paper waste. We find various microorganisms (molds, fungi, bacteria) in paper raw material – waste paper, which can cause a strong odour under certain conditions. • Paper recycling process provides favourable conditions for microbes to grow and reproduce. Those microbes might cause intense odours. • Based on our research, the intensity of the odour is dependent on the quality of paper being recycled. • In addition, we use raw water from the Curonian Lagoon, which adds contamination to the process and accelerates the reproduction of microbes. Our actions: • Improved working environment: the sewer at the factory cleaned, disinfected. • Portable constant measurement station for ammonia and hydrogen sulphide emissions. • Chemical dosing equipment and an online monitoring and management platform are installed. We monitor all data in real time, online, so we can respond immediately to any incidents of increased pollution, thus preventing more pollution from entering residential areas. Compliance: • In 2022 Grigeo Klaipėda AB received six requests from the National Public Health Center and the Environmental Protection Department (EPD) regarding odours possibly related to the activities of Grigeo Klaipėda AB. • 2022 during the inspections carried out by the AAD and other environmental protection authorities, no violations were found. • According to Grigeo Klaipėda AB’s environmental protection monitoring program, emissions from stationary sources of pollution and the concentration of hydrogen sulphide in the living environment did not exceed the norms established in integrated pollution prevention and control requirements. Further steps: • Analysing potential solutions to collect and ozonate the air flow from the production premises ducts. • Analysing potential solutions to install carbon filters at the production facilities, which will reduce emissions of pollutants, but its odours as well. • We analyse the content of sulphates in water of Curonian lagoon. This water is used in our production cycle and bacteria decompose sulphates to hydrogen sulphide (H 2 S) under anaerobic conditions. • We cooperate and consult with Lithuanian and foreign universities and experts on odour removal solutions. Group’s direct charity contributions to local communities: 2022 2021 City of Vilnius 47 33 City of Klaipėda 149 148 Donations to Ukraine 95 - Total 291 181 Group companies provide financial support for the implementation of environmental and social projects and initiatives of various external organizations. Since the beginning of the war in Ukraine, the Group has been supporting Ukraine by providing humanitarian and financial support to charity and support organizations. In 2022, the implementation of the support agreement of Grigeo Klaipėda AB with the University of Klaipėda was continued, with the aim of creating solutions for reducing environmental pollution in the Klaipėda region (for more details, see Incidents section 7.5). GRI: 3-3 413-1 413-2 58 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.9. Environmental profile 7.9.1. Energy mix in our operations The Group is one of the largest paper and wood industry company groups in the Baltic states. By nature, paper production is resource- and energy-intensive business. Our responsibility is to ensure production efficiency to reduce our negative impacts. In 2022, our energy consumption almost reached 548 GWh per year. The Group is one of the largest wood chip consumers in the market. In 2022, we consumed 29 thousand tonnes of oil equivalent of wood chips, which converts to 334GWh or 61% of total energy mix within the Group. Our consumption of electricity amounted to 117GWh in 2022, making electricity the second-largest energy resource used for our production lines. In 2022 the Group decided to invest itself in renewable energy production capacity, abandoning the purchase of green certificates on the market, the price of which has increased drastically. This led to a significant increase in electricity from non-renewable sources. 78% of total energy needed to maintain our operations was certified as renewable. According to electricity distributor Litgrid AB, final electricity consumption in Lithuania in 2021 was 11TWh, so we estimate that the Group consumed 1% of total electricity in Lithuania. Energy consumption in GWh Tissue paper Sold heat Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Renewable energy Biofuel 64 59 37 35 87 96 146 154 334 344 Electricity 31 43 - - 14 20 48 65 93 128 Non-renewable energy Natural gas 32 48 - - - - 60 71 92 119 Electricity 11 - - - 3 - 10 1 24 1 Diesel for transportation - - - - 1 1 2 2 3 3 Petrol for transportation - - - - - - 1 - 1 - Liquid gals for transportation - - - - - - 1 1 1 1 Energy in total 138 150 37 35 105 117 268 294 548 596 Renewable energy, % 69% 67% 100% 100% 96% 99% 73% 74% 78% 79% Energy efficiency We understand that our product energy impact is managed via energy mix (shifting to renewable energy sources) and improving energy efficiency. Energy efficiency is a key performance indicator both for economic and environmental performance of our manufacturing facilities. In 2022, our total energy consumption did not change significantly; however, increased energy prices inflated our energy costs twice from EUR 26 million in 2021 up to EUR 52 million in 2022. Considering all circumstances, the investments in energy efficiency improvements will remain our key investment direction. Energy consumption KWh/t Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Renewable energy Biofuel 1,419 1,204 1,368 1,414 1,356 1,317 1,546 1,470 Electricity 699 883 223 293 444 552 432 546 Non-renewable energy Natural gas 706 993 4 - 556 608 425 512 Electricity 238 - 42 - 92 8 107 4 Diesel for transportation 1 1 17 17 22 20 16 15 Petrol for transportation 8 7 2 2 5 4 5 4 Liquid gals for transportation 7 8 - - 7 6 5 5 Total 3,078 3,095 1,655 1,727 2,481 2,516 2,536 2,556 The Group managed to reduce the energy consumption per ton of produced production from 2,556 KWh to 2,536 KWh, or 0,8%. GRI: 3-3 302-1 302-2 302-3 302-4 302-5 59 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.9.2. Addressing climate change risks We acknowledge the gravity of scenario analysis in disclosure of climate-related risks and opportunities. For FY2021 reporting, we chose to start with qualitative analysis to help the management explore the potential range of climate change implications. Quantitative approaches are limited to availability of existing external industry- & location-specific scenarios and models, as well as limited internal resources for extensive modelling. We employed TCFD reporting principles to analyse possible climate change to limited capacity. The Group is constantly investing in new equipment, which allows to reduce emissions of Scope 1 per ton of production. The costs of investments and their impact are disclosed in section 7.4 and interim results are disclosed in section 7.2. In 2022 the Group decided to invest itself in renewable energy production capacity, abandoning the purchase of green certificates on the market, the price of which has increased drastically. More than 3 MWh solar power plant should start production in 2024. Climate change related disclosures: • We contract independent assessor to calculate GHG emissions on company as well as Group level. • We report on scope 1, 2 & 3. • Consolidated GHG emissions in 2022 amounted to 99.6 thousand tonnes CO 2 equivalent. • The reliability of scope 1 & 2 results is high, as input data is directly transferred from company invoices; national emission factors are applied. • The reliability of the accounting for scope 3 is average. There are no national emission factors, and therefore DEFRA emission factors have been applied. The use of publicly available coefficients is always associated with a large error, so the calculations of the scope 3 do not have high reliability. Climate change risks and potential impact on our business lines by category: Relevant short- and long-term physical climate impacts Illustrative effects on value chain Approach guidelines Technology and market shifts • Policies and investments to ensure a low carbon emissions economy. • Increased demand for energy-efficient lower-carbon products. • Modern technologies that disrupt markets. • Shift to renewable energy to eliminate GHG scope 2 emissions. • Increase energy consumption efficiency. • Refurbishing of machinery. • Scrutinised performance measurement. Reputation • Raising awareness of climate change. • Growing expectations for responsible manufacturing. • Public attention to deforestation. • Concerns about manufacturing waste. • Concerns about water usage. • Threats to securing social license to operate. • Opportunity to enhance reputation and brand value. • Opportunity to engage with stakeholders consistently. • Improving company transparency. • Our impact assessment and measurement. • Updating our procurement policies. • Active engagement with stakeholders. • Regular reporting. • Increasing contribution to other environmental objectives, such as circular economy. • Improving transparency. Policy and legal • Evolving requirements. • Regulatory changes on the national and EU level. • Threats to securing legal license to operate. • Increased operating costs. • Increased tax. • Emerging concern about liability. • Closely monitoring the development of industry-specific regulations. • Monitoring changes in regulation through supply chain. Physical risks • Increased intensity and duration of extreme weather events, such as heat waves, storms, and floods. • Precipitation extremes and flooding. • Increased evaporation of surface water. • Increased mineral content of surface water. • Rising sea level. • Rising temperatures. • Increased wildfires. • Shifts in seasons. • Increased business interruption. • Damage across operations and supply chains. • Compromised reliability of material supply. • Volatility of input costs and revenues. • Unpredictable asset values and insurance claims. • Increased cost of capital. • Share price volatility. • Increase in CAPEX. • Monitoring. • Climate change adaptation plans. • Continuous engagement with suppliers. • Improving climate change scenario analysis. • Regular review of the climate change scenario. GRI: 3-3 201-2 305-1 305-2 305-3 60 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.9.3. Greenhouse gas (GHG) emissions CO 2 journey in our industry. Source: Resolute Forest Products, Canada: Products derived from timber (such as paper and hardboard) are known to sequester significant amounts of carbon dioxide. Trees sequester carbon dioxide by photosynthesis during their vegetation phase. So as long as the tree and products made from the tree haven’t decomposed or been burnt (at which point the carbon joins with two oxygen, becoming carbon dioxide again), the carbon remains locked in and serves as a carbon sink. To grow up, trees need water and carbon dioxide, breaking it down in photosynthesis to produce energy and releasing oxygen as their emission. The carbon stays within fibre even after trees are cut and processed into cellulose and later to paper Responsibly managed forests avoid decomposing of mature or over-mature forests and help to secure CO 2 trapped in trees. By recycling waste paper, we accumulate and renew the CO 2 accumulations contained in the paper raw material products, for example, in a cardboard packaging box. It is estimated that one ton of cardboard paper "locks in" 1,474 kg of CO 2 . Based on this, our annual production "locked" about 143 thousand tons of CO 2 . Carbon sequestration (the removal of CO 2 from the atmosphere and its preservation) in paper products is significantly prolonged after recycling. Tissue paper usually has a short life, so CO 2 circulation is fast. In addition, biofuels (scraps of timber industry, branches, and other by-products and biomass) account for 58% of total the energy needed for our operations. Burning biofuel emits biogenic CO 2 previously collected and locked in by trees, thus no additional CO 2 is emitted because of burning biomass. Emissions by scopes Scope 1: Direct GHG emissions occur from sources that are owned or controlled by the company, such as emissions from our combustion boilers. Group’s main scope 1 emissions comprise mainly natural gas combustion in our facilities located in Klaipėda and Grigiškės. GHG emissions not covered by the Kyoto Protocol, e.g., CFCs, NO x , etc., are not included in scope 1. Scope 2: Indirect GHG emissions caused by generation of externally produced energy such as electricity. In 2021, virtually all electricity consumed in our Group came from renewable sources, thus GHG emissions were virtually non- existent. In 2022, with the onset of the energy crisis in Europe, the Group decided to buy electricity on the market without certificates, therefore, a significant increase in GHG emissions can be seen in Scope 2. GRI: 2-6 305-1 305-2 305-3 CO 2 61 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Scope 3: an optional reporting category that allows self-evaluation of all other emissions of the Group's activities, which the Group does not manage or control. They are related to the Group's supply chain: from the production of purchased raw materials and goods to their transportation and sale of manufactured products. These GHG emissions include such categories as: purchased raw materials and services and emissions from third-party production (e.g., cellulose, starch), emissions from vehicles (transportation of raw materials, production). Calculations for Scope 3 are less reliable, as it is necessary to properly assess the GHG emissions of suppliers. DEFRA, supplier data and other publicly available factors were used to calculate emissions. in 2022 about 44% of the Scope 3 emissions of the Group are related to the production of purchased raw materials, about 16% – to the transportation of raw materials and finished products. Trucks delivering our products drove about 8.4 million kilometres per year. Production was also transported by sea and rail. Calculating our impact GHG emissions were calculated by an independent third-party provider applying control approach. Under the control approach, a company accounts for 100% of the GHG emissions from operations, over which it has operational control. Base year: 2021. Consolidated GHG emissions in thousand tons: Scope 2022 2021 Total tCO 2 e Biogenic tCO 2 e Total tCO 2 e Biogenic tCO 2 e Scope 1 22.8 156.0 27.6 166.7 Scope 2 (location-based) 25.9 - 28.6 - Scope 2 (market-based) 7.7 - 0.5 - Scope 3 69.0 309.0 74.9 323.4 Total location-based 117.7 465.0 131.2 490.1 Total market-based 99.6 465.0 103.1 490.1 Biogenic carbon dioxide (CO 2 ) is carbon dioxide released during the combustion or decomposition of biomass and other organic material. Only if biomass used for biofuel is cultivated in a sustainable way, biogenic CO 2 is not recognised as a greenhouse gas emission. It is very important to note, that all timber and its products as well as biomass consumed for production and combustion come from sustainably managed sources. Tissue paper produced from virgin cellulose requires the most energy per tonne; therefore, its GHG emissions are substantially higher compared to the emissions of recycled paper production. Scope 3 in tissue category is inflated by two main factors: manufacturing of cellulose and both upstream and downstream transportation. We have accurate GHG estimates for 2020, 2021 and 2022. We have set GHG emission targets for product categories and developed a GHG reduction plan (see section 7.2 for targets). Average GHG emissions, kgCO 2 e per ton of production: Average GHG emissions, kgCO 2 e/t Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Scope 1 133.2 150.8 28.3 49.9 131.5 136.1 101.5 114.1 Scope 2 (location-based) 208.6 195.4 57.8 64.1 121.6 130.9 121.0 125.0 Scope 2 (market-based) 63.1 0.2 16.0 0.0 37.0 5.9 36.3 3.0 Scope 3 618.3 644.1 174.1 191.3 285.7 279.3 322.1 330.0 Total location-based 960.1 990.3 260.2 305.2 538.8 546.2 544.6 569.1 Total market-based 814.7 795.1 218.5 241.1 454.2 421.2 460.0 447.1 Within the Group, heat energy is sold between segments. For example, Grigeo AB sells heat energy to Grigeo Baltwood UAB. The emissions of heat energy purchased by Grigeo Baltwood UAB fall under Scope 2. Meanwhile, from the Group's point of view, these emissions remain in Scope 1. For a clearer representation by segments, this type of emissions in a segment is moved from Scope 2 to Scope 1 to match the representation of Group emissions. The Group is constantly investing in new equipment, which allows to reduce emissions of Scope 1 per ton of production. However, the main factor leading to the reduction of Scope 1 emissions in 2022 was lower consumption of natural gas, when production processes had to be temporarily stopped due to the energy crisis, thus biofuel boilers were used more intensively. The market-based emissions of all scopes increased due to Group's decision to discontinue buying green energy. GRI: 3-3 305-1 305-2 305-3 305-4 62 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Emission categories, tCO 2 e Scope Source of emission 2022 2021 tCO 2 e % tCO 2 e % 3 Purchased raw materials 44,031 44,2% 47,493 46.1% 1 Fuel for energy 21,092 21,2% 26,337 25.5% 3 Product transportation (downstream) 9,898 9,9% 12,501 12.1% 2 Electricity – (market based) 7,719 7,8% 521 0.5% 3 Energy losses and fuel 7,712 7,7% 8,838 8.6% 3 Transportation of raw materials (upstream) 5,833 5,9% 4,551 4.4% 1 Transport 1,436 1,4% 1,291 1.3% 3 Waste 907 0,9% 908 0.9% 3 Water consumption 567 0,6% 633 0.6% 1 Gas leaks/freons 317 0,3% 0 0.0% 3 Business trips 43 0,0% 24 0.0% Total 99,555 100% 103,095 100% Scope 3 emissions in 2022 accounted for 70% of all emissions (73% in 2021). Transport (sale of products, purchase of raw materials, as well as transportation of intermediate products and raw materials between Group companies) accounts for a significant share of emissions (16% in 2022, 18% in 2021). Transport: Scope 1 and Scope 3: GRI: 302-2 305-3 63 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.9.4. Air and water quality Air emissions Grigeo AB and Grigeo Klaipėda AB are key emitters, as these two companies operate boiler houses. Grigeo AB supplies steam to Grigeo Baltwood UAB which does not burn any sort of fuels needed to produce hardboard. Monitoring of all air pollutants emitted from our boilers is performed in accordance with the approved Environmental Monitoring Programme twice a year (in the warm and cold seasons). All measurements are done by an independent third-party supplier. Air emissions in tonnes per year: Source AB “Grigeo” AB “Grigeo Klaipėda“ 2022 2021 Legal limit 2022 Legal limit 2021 Legal limit Nitrogen oxides (NO 2 ) 135.6 138.7 248.2 112.4 185.0 87.4 162.3 Sulphur dioxide ( SO 2) 6.9 7.0 10.9 5.5 8.9 5.9 20.7 Carbon monoxide (CO) 191.0 193.9 322.2 154.9 252.9 296.7 723.5 Particulate matter 25.1 25.3 38.7 1.1 1.4 2.3 11.1 Permitted pollution in tons per year according to the Integrating Pollution Prevention and Control Permit. The nature of water pollution The raw materials used have a significant influence on the quality of the composition of wastewater generated in production processes. As we disclose in the upcoming section 7.9.6, 98% of total materials used come from renewable sources in the form of fibre. Water is used in almost all stages of paper (both tissue and containerboard) production. In addition, hardboard production process also heavily depends on water supply. The quality of industrial wastewater is characterized by biochemical oxygen consumption (BOD 7 ), suspended solids (SS), total nitrogen (N), total phosphorus (P). BOD 7 represents the amount of dissolved oxygen needed (i.e., demanded) by aerobic biological organisms to break down organic material present in each water sample at a certain temperature over a specific time. This is an indicator of organic contamination. A long and strong fibre is required to produce high-quality tissue paper, cardboard, and wood panels. The fibre in paper products going through repetitive recycling cycles deteriorates over time becoming weaker, shorter and becomes unsuitable for papermaking, i.e., during paper web formation, a large part of the fibre enters the wastewater as SM and settles as sludge. In 2022 we recycled 132 thousand tonnes of waste paper which contains various additives and impurities in its composition. All these impurities become our waste and water pollution. Wastewater quality Pollution by operating sites in tonnes: Source Grigiškės Klaipėda 2022 2021 2022 2021 BOD 7 606.8 1,069.0 2,404.8 2,537.7 Nitrogen (N) - - 21.4 33.3 Phosphorus (P) - - 3.0 3.4 Suspended solids (SS) 260.4 342.6 199.0 311.0 Total 867.2 1,411.6 2,628.3 2,885.5 *Grigeo AB, Grigeo Baltwood UAB, Grigeo Packaging UAB, Grigeo Recycling UAB Grigeo Klaipėda AB Total pollution in kilograms per ton of production: Company 2022 2021 Grigeo AB (BDS 7 +SS+P) 8.4 8.9 Grigeo Baltwood UAB (BDS 7 +SS) 7.1 260.5 Grigeo Klaipėda AB (BDS 7 +N+P+SS) 25.5 25.9 A significant decrease in both the absolute amount and the amount of BDS 7 per ton of production is related to Grigeo Baltwood UAB’s investment in a waste water evaporator (more detailed description in section 7.4). GRI: 3-3 302-2 303-4 305-5 305-7 64 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Water withdrawal Paper industry is water intensive, compared to 2021 in 2022 total consumption of water decreased by 7% and amounted to 1.9 million cubic meters. Vokė river and Curonian lagoon are the key sources for our water withdrawal. Tap water from municipal water supply networks makes up only to 2% of total water we take info our product lines. 4% of all water comes in through our gate embedded in materials. Rain water, currently not used in production cycle, accounted for 6% of total water within the Group. Water withdrawal by source, in thousand m 3 : Tissue paper Sold heat Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Vokė river 558 554 20 17 337 466 11 9 926 1,045 Groundwater - - - - - - 1 2 1 2 Tap water 10 12 - - 10 10 17 20 37 42 Celluloses 3 3 - - - - - - 3 3 Timber - - - - 59 56 - - 59 56 Curonian lagoon - - - - - - 731 784 731 784 Waste paper 2 2 - - - - 12 11 14 13 Rain water 38 43 - - 43 43 66 32 147 118 Total 611 614 20 17 448 575 837 859 1,917 2,064 Water discharge Surface water we use needs to be filtered and treated before entering production cycle. In addition, water treatment and discharge to third party treatment facilities is expensive and high regulated. We are instantly improving the circularity of water within production cycle so that we can reuse water multiple times. The reuse rate varies depending on product specifications. Water discharge and consumption, in thousand m 3 : Tissue paper Sold heat Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2022 2021 2022 2021 2022 Evaporation 96 74 12 12 68 66 76 95 252 248 Embedded in products 3 3 - - 2 2 8 8 13 13 Untreated effluent to Klaipėdos vanduo AB treatment plant - - - - - - 672 711 672 711 Treated effluent to Vilniaus vandenys UAB treatment plant 475 494 8 5 324 451 9 7 816 956 Water embedded in sludge and waste - - - - 11 12 6 5 17 17 Rain water discharge 38 43 - - 43 43 66 32 147 118 Total 611 614 20 17 448 575 837 859 1 917 2 064 Effluent, m 3 per ton of production 10,6 10,1 - - 5,1 6,7 6,3 6,1 6,8 7,1 When calculating effluents per ton of production, the effluents for sold heat are excluded. Water is essential Production of tissue paper as well as containerboard and hardboard are highly dependent on water: • Needed for pulping both waste paper and cellulose. • Used for softening timber. • Steam carries heat energy for production. • Water embedded in final product holds fibre together. GRI: 3-3 303-1 303-2 303-3 303-4 303-5 65 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Water circulation Water scheme of the Group: Where is water Water is used in both paper and fiberboard production lines. In the production of wood fiber boards - by extracting fiber from chopped wood in water, and in the production of paper - in the pulping process of pulp and waste paper. Our factories use steam-heated and powered heating cylinders and presses. In order to produce a quality product, it is necessary to maintain the same temperature on the entire surface of the roll. Steam is a gas that fills the entire volume of a cylinder and distributes heat evenly as it condenses. Anybody can monitor our water withdrawal and consumption data on our monitoring platforms: GRIGEO AB MONITORING PLATFORM GRIGEO KLAIPĖDA AB MONITORING PLATFORM GRI: 3-3 303-1 303-2 303-3 303-4 303-5 66 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.9.5. Waste In 2022, we processed 305 thousand tonnes of materials, our activities generated 28 thousand tonnes of waste, 61% of which were diverted from disposal. Our production process is unique in a way that most of the waste generated can be returned to the production cycle. In 2022, 22% of all waste was returned to production in the form of material within our Group. The largest part of diverted to disposal waste consists of paper sorting waste from Grigeo Klaipėda AB (64%), which generates energy during incineration. We see the total volume of waste directed to disposal as one of the strategic challenges. Therefore, in 2022, we set a long-term goal to reduce the amount of waste directed to disposal (target indicators are provided in section 7.2). Waste generated by composition in metric tonnes: 2022 2021 Waste generated Wasted diverted from disposal Waste diverted to disposal Waste generated Wasted diverted from disposal Waste diverted to disposal Wood and paper recycling and its production process waste 16,733 9,103 7,630 18,927 9,608 9,319 Paper scraps and rejects 6,181 6,181 - 6,441 6,441 - Thermal process waste 1,919 1,082 837 1,562 780 782 Demolition and construction waste 1,414 170 1,244 861 197 664 Other mechanical treatment waste 887 6 882 1,155 237 918 Packaging waste 491 466 25 552 522 29 Municipal waste 328 71 257 550 60 491 Paint and varnish waste 95 - 95 163 - 163 Oil products 24 21 2 6 4 2 Other 9 6 3 9 3 8 Total 28,081 17,105 10,976 30,228 17,852 12,376 Ratio, % 100% 61% 39% 100% 59% 41% Kg per ton of production 129.4 79.2 50.8 129.4 76.4 53.0 It was possible to reduce the amount of waste directed to disposal per ton of production (from 53.0 kg/ton in 2021 to 50,8 kg/ton in 2022) thanks to Grigeo Klaipėda AB’s improved work of waste paper handling facilities and raw material control processes. The more sustainable use of waste from the thermal processes of Grigeo Klaipėda AB – the ash produced in the biofuel boiler – also had a significant impact. From November 2022 the ash is not sent to the landfill but is composted by the waste manager and used to make another product (organic fertilizers and compost). Waste diverted from disposal in metric tonnes: On-site Off-site Total 2022 2021 2022 2021 2022 2021 Hazardous waste Preparation for reuse - - 2 - 2 - Recycling - 1 29 4 29 5 Other recover operations - - - - - - Non-hazardous waste Preparation for reuse - - - - - - Recycling 6,947 7,433 1,573 1,508 8,520 8,941 Other recover operations - - 8,823 8,908 8,823 9,808 Total 6,947 7,434 10,158 10,419 17,105 17,852 Waste directed to disposal, in metric tonnes: On-site Off-site Total 2022 2021 2022 2021 2022 2021 Hazardous waste Incineration (with energy recovery) - - 76 81 76 81 Incineration (without energy recovery) - - - - - - Landfilling - - - - - - Other disposal operations - - - - - - Non-hazardous waste Incineration (with energy recovery) - - 7,218 8,650 7,218 8,650 Incineration (without energy recovery) - - - - - - Landfilling - - 3,682 3,638 3,682 3,638 Other disposal operations - - - 6 - 6 Total - - 10,976 12,376 10,976 12,376 GRI: 306-1 306-2 306-3 306-4 306-5 67 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Waste scheme: Key waste sources We return all paper and fibreboard scraps and defective products to the production cycle. Within our production sites, we can return all manufacturing scraps and defected batches back to the production cycle. In case of Grigeo Klaipėda AB, all waste comes in through the gate together with waste paper. To produce new containerboard, we must obtain usable fibre, so we need to sort out lose objects at first and separate embedded non- fibre materials, plastics, such as adhesive labels, polystyrene particles, and inorganic particles such as sand, gravel, etc. The result of these sorting steps is directed to Gren Klaipėda UAB for incineration with energy recovery. We aim to constantly improve waste paper handling equipment and quality control processes of collected raw materials. Also, to improve the quality of collected paper waste, it is important for us to contribute to public education in the field of waste sorting. The high quality of raw materials ensures that what we collect for recycling is actually recyclable. In this way, we waste less resources, reduce waste and pollution and contribute to the circular economy. Sludge treatment Sludge is a naturally occurring organic matter that remains after mechanical and biological wastewater treatment. Like most waste, sludge must be disposed of properly. Following 7 January 2020, all the wastewater generated by Grigeo Klaipėda AB was transferred to Klaipėdos vanduo AB for treatment under the agreement. All sludge formed in the wastewater treatment process is decomposed, dried, etc. by Klaipėdos vanduo AB and handed over to the waste manager. No sludge is generated in our treatment facility in Dumpiai. In Grigiškės, we separate sludge (retired fibre which is too short to form a new product) from tissue production in the mechanic effluent treatment plant. All sludge generated during the wastewater treatment is drained in a decanter. We compost it ourselves at the installed biodegradable waste composting site. In 2022, Grigeo AB generated 8.3 thousand tonnes of sludge (in 2021 – 8.5 thousand tonnes). GRI: 2-6 3-3 306-1 306-2 306-3 306-4 306-5 68 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.9.6. Renewable materials Nature of our materials in thousand metric tonnes: Tissue paper Fibreboard Containerboard and packaging Group 2022 2021 2022 2021 2022 2021 2022 2021 Renewable materials Raw materials - - 112 136 - - 112 136 Process materials 54 57 - - 121 130 175 187 Semi-manufactured goods or parts, - - - - - - - - Packaging and packaging materials 9 8 2 2 3 3 14 13 Total renewable 63 65 114 139 123 132 300 337 Non-renewable materials Raw materials - - - - - - - - Process materials - - - - - - - - Semi-manufactured goods or parts, 1 1 1 1 1 2 4 4 Packaging and packaging materials 1 1 - - - - 1 1 Total non-renewable 2 2 1 2 2 2 5 5 Total materials used 65 67 115 140 125 134 305 342 Recycled materials (total) - - - - 103 111 103 111 Reclaimed products and their packaging materials 25 25 - - 109 117 133 142 % Of renewables 97% 97% 99% 99% 99% 99% 98% 98% % Of recycled materials - - - - 83% 83% 34% 32% % Of reclaimed materials 38% 38% - - 87% 87% 44% 42% Responsible sourcing In 2022, we spent EUR 135.4m on raw materials and energy. Sourcing materials and energy accounts for 69% of total costs for the Group. As such, Sustainable and Responsible Sourcing is an integral part of our sustainability vision and strategy. All fibre produced and purchased is CoC (Chain of custody) certified under FSC®. The Forest Stewardship Council, an independent international certification organisation, promotes environmentally friendly, socially responsible, and economically viable management of the world’s forests. We prioritise the FSC® certification system and encourage all suppliers to work toward certification. 2% of non-renewables On the Group level, only 2% of all raw materials used were non-renewable. All tissue paper and manufactured corrugated paper boxes come in some plastic packaging. This packaging makes a large proportion of non-renewable materials in our Group. We are cooperating closely with our packaging suppliers to reduce the total impact of non-renewable packaging. Now, all packaging used is recyclable. Right mix of materials Both new and recovered fibre are necessary to sustain an efficient supply chain. After several lifecycles of reuse and reprocessing, recovered fibre eventually begins to break down and is no longer suitable for use in paper and paperboard. Although this fibre can no longer be used in our products, it can be beneficially reused in many other ways, such as for energy or fertilizer. The ability to use recovered fibre would cease to exist if responsibly managed new fibres were not introduced to the fibre cycle. With high recovery rates and well-managed forests to source from, fibre-based products are among the most sustainable products in the world. Composition materials used on a Group level: 2022 2021 Waste paper 43% 41% Wood 37% 40% Cellulose 10% 9% Renewable packaging 4% 4% Other renewable materials 4% 4% Non-renewable materials` 2% 2% Total 100% 100% GRI: 2-6 3-3 301-1 301-2 301-3 69 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.10. Summary of key numbers Input and output Input Units of measure 2022 2021 Output Units of measure 2022 2021 Renewable materials Production Wood tonnes 49,528 49,195 Tissue paper tonnes 44,982 47,090 Wood chips tonnes 62,301 87,061 Containerboard tonnes 97,091 102,255 Cellulose tonnes 29,243 31,712 Packaging tonnes 36,056 48,188 Waste paper tonnes 131,557 138,704 Honeycomb thousand m 2 3,452 4,218 Third party paper or containerboard tonnes 8,873 10,184 Fibreboard tonnes 63,491 67,755 Starch all types tonnes 4,675 6,058 Emissions to air Packaging tonnes 13,714 13,082 CO 2 fossil Scope 1 tCO 2 eq 22,845 27,627 Other organic raw materials tonnes 144 580 CO 2 biogenic tCO 2 eq 156,048 166,735 Non-renewable materials SO x from processes tonnes 12.4 12.8 Packaging materials tonnes 1,201 1,187 NO x from processes tonnes 248.0 226.9 Semi-manufactured goods or parts tonnes 3,514 4,213 Energy output Energy Thermal energy to third party MWh 33,046 32,217 Natural gas thousand m 3 8,808 11,037 Waste Wood chips tne 28,720 29,517 Hazardous waste tonnes 114 86 Renewable electricity GWh 93 128 Non-hazardous waste sent to landfill tonnes 3,682 3,638 Non-renewable electricity GWh 24 1 Non-hazardous waste recycled tonnes 8,520 8,941 LPG tonnes 289 297 Non-hazardous waste other recovery operations tonnes 8,553 8,908 Diesel tonnes 88 77 Incineration of non-hazardous waste with energy recovery tonnes 7,218 8,650 Petrol tonnes 136 147 Composition of effluent Water Effluent thousand m 3 1,488 1,667 Surface water (total) thousand m 3 1,657 1,829 BOD 7 tonnes 3,011.7 3,606.7 Drinking water (total) thousand m 3 38 44 Suspended solids tonnes 459.4 653.6 The quality of wood chips used as material in hardboard production is equivalent to chips for energy production. White containerboard and certain types of testliner are sourced by Grigeo Packaging UAB from the third parties based on demand of our clients. Nitrogen tonnes 21.4 33.6 Phosphorus tonnes 3.0 3.4 Employees by company and gender: Company 2022 2021 Female Male Total Female Male Total Grigeo AB 70 210 280 69 201 270 Grigeo Klaipėda AB 41 122 163 43 125 168 Grigeo Baltwood UAB 40 97 137 39 98 137 Grigeo Packaging UAB 38 108 146 36 108 144 Mena Pak AT 18 66 84 17 69 86 Grigeo Recycling UAB 20 24 44 17 26 43 Grigeo Recycling UAB 1 10 11 1 12 13 Total 228 637 865 222 639 861 % 26.4% 73.6% 100% 25.8% 742% 100% GRI: 2-7 301-1 301-2 301-3 302-1 303-3 303-4 305-1 305-7 306-3 306-4 306-5 70 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.11. GRI index Disclosure Page/comment Disclosure Page/comment GRI 2: General Disclosures 2021 GRI 201: Economic Performance 2016 1. The organization and its reporting practices 201-1 Direct economic value generated and distributed 7, 54, 56 2-1 Organizational details 5, 15, 16, 121 201-2 Financial implications and other risks and opportunities due to climate change 34, 37, 59 2-2 Entities included in the organization’s sustainability reporting 15, 16, 27 201-3 Defined benefit plan obligations and other retirement plans 35, 119 2-3 Reporting period, frequency and contact point 27 201-4 Financial assistance received from government 7 2-4 Restatements of information 27 GRI 202: Market Presence 2016 2-5 External assurance 27 202-1 Ratios of standard entry level wage by gender compared to local minimum wage 1 55 2. Activities and workers 202-2 Proportion of senior management hired from the local community Only local management 2-6 Activities, value chain and other business relationships 5, 7, 15, 43, 44, 45, 46, 47, 48, 60, 67, 68, 121 GRI 203: Indirect Economic Impacts 2016 2-7 Employees 7, 12, 55, 56, 69 203-1 Infrastructure investments and services supported 37 2-8 Workers who are not employees 2 No such workers 203-2 Significant indirect economic impacts None 3. Governance GRI 204: Procurement Practices 2016 2-9 Governance structure and composition 19, 21, 22, 31 204-1 Proportion of spending on local suppliers 7 2-10 Nomination and selection of the highest governance body 20 GRI 205: Anti-corruption 2016 2-11 Chair of the highest governance body 21, 22 205-1 Operations assessed for risks related to corruption 31, 32 2-12 Role of the highest governance body in overseeing the management of impacts 31, 38, 39, 40 205-2 Communication and training about anti- corruption policies and procedures 31, 32 2-13 Delegation of responsibility for managing impacts 19, 20, 23, 28, 31 205-3 Confirmed incidents of corruption and actions taken No incidents 2-14 Role of the highest governance body in sustainability reporting 27, 28, 31, 40 GRI 206: Anti-competitive Behaviour 2016 2-15 Conflicts of interest 22, 32 206-1 Legal actions for anti-competitive behaviour, anti- trust, and monopoly practices No incidents 2-16 Communication of critical concerns 32 GRI 207: Tax 2019 2-17 Collective knowledge of the highest governance body 21, 23, 28 207-1 Approach to tax 32, 33, 41 2-18 Evaluation of the performance of the highest governance body Evaluation is not performed 207-2 Tax governance, control, and risk management 32, 33 2-19 Remuneration policies 24, 25, 26 207-3 Stakeholder engagement and management of concerns related to tax 32 2-20 Process to determine remuneration 24, 25, 26 207-4 Country-by-country reporting 33 2-21 Annual total compensation ratio 25, 54 GRI 301: Materials 2016 4. Strategy, policies and practices 301-1 Materials used by weight or volume 7, 68, 69 2-22 Statement on sustainable development strategy 3 301-2 Recycled input materials used 7, 68, 69 2-23 Policy commitments 6, 28, 30, 31, 32 301-3 Reclaimed products and their packaging materials 7, 43, 46, 48, 68, 69 2-24 Embedding policy commitments 28, 29 GRI 302: Energy 2016 2-25 Processes to remediate negative impacts 32, 36, 37 302-1 Energy consumption within the organization 7, 58, 69 2-26 Mechanisms for seeking advice and raising concerns 32 302-2 Energy consumption outside of the organization 34, 58, 62, 63 2-27 Compliance with laws and regulations 36 302-3 Energy intensity 58 2-28 Membership associations 7 302-4 Reduction of energy consumption 58 5. Stakeholder engagement 302-5 Reductions in energy requirements of products and services 58 2-29 Approach to stakeholder engagement 38, 39, 40, 41 GRI 303: Water and Effluents 2018 2-30 Collective bargaining agreements 54 303-1 Interactions with water as a shared resource 7, 64, 65 GRI 3: Material topics 2021 303-2 Management of water discharge-related impacts 5, 35, 36, 37, 64, 65 3-1 Process to determine material topics 28, 38, 39, 40, 41 303-3 Water withdrawal 5, 7, 44, 64, 65, 69 3-2 List of material topics 28, 29, 30, 34, 35, 38, 39, 41, 42 303-4 Water discharge 34, 63, 64, 65, 69 3-3 Management of material topics 3, 29, 30, 36, 37, 38, 39, 42, 54, 57, 58, 59, 61, 63, 64, 65, 67, 68 303-5 Water consumption 64, 65 1 When presenting this indicator, only the most significant activities at the Group level (all activities located in Lithuania) are included. 2 There are no permanent employees of other organizations in the Group who would be under the control of the Group's employees. 71 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Disclosure Page/comment Disclosure Page/comment GRI 304: Biodiversity 2016 403-10 Work-related ill health No incidents 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas 36, 37 GRI 404: Training and Education 2016 304-2 Significant impacts of activities, products and services on biodiversity 36, 37 404-1 Average hours of training per year per employee 50, 51 304-3 Habitats protected or restored 36, 37 404-2 Programs for upgrading employee skills and transition assistance programs 50, 51 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations No such species identified 404-3 Percentage of employees receiving regular performance and career development reviews 49 GRI 305: Emissions 2016 GRI 405: Diversity and Equal Opportunity 2016 305-1 Direct (Scope 1) GHG emissions 59, 60, 61, 69 405-1 Diversity of governance bodies and employees 21 305-2 Energy indirect (Scope 2) GHG emissions 7, 59, 60, 61 405-2 Ratio of basic salary and remuneration of women to men 1 55 305-3 Other indirect (Scope 3) GHG emissions 59, 60, 61, 62 GRI 406: Non-discrimination 2016 305-4 GHG emissions intensity 61 406-1 Incidents of discrimination and corrective actions taken No incidents 305-5 Reduction of GHG emissions 63 GRI 407: Freedom of Association and Collective Bargaining 2016 305-6 Emissions of ozone-depleting substances (ODS) Not used in production 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk 2 Formal evaluation was not performed 2 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions 63, 69 GRI 408: Child Labour 2016 GRI 306: Waste 2020 408-1 Operations and suppliers at significant risk for incidents of child labour 2 Formal evaluation was not performed 2 306-1 Waste generation and significant waste-related impacts 66, 67 GRI 409: Forced or Compulsory Labour 2016 306-2 Management of significant waste-related impacts 66, 67 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour 2 Formal evaluation was not performed 2 306-3 Waste generated 7, 66, 67, 69 GRI 410: Security Practices 2016 306-4 Waste diverted from disposal 66, 67, 69 410-1 Security personnel trained in human rights policies or procedures 31 306-5 Waste directed to disposal 66, 67, 69 GRI 411: Rights of Indigenous Peoples 2016 GRI 308: Supplier Environmental Assessment 2016 411-1 Incidents of violations involving rights of indigenous peoples Not applicable 308-1 New suppliers that were screened using environmental criteria 2 Formal evaluation was not performed 2 GRI 413: Local Communities 2016 308-2 Negative environmental impacts in the supply chain and actions taken 2 Formal evaluation was not performed 2 413-1 Operations with local community engagement, impact assessments, and development programs 57 GRI 401: Employment 2016 413-2 Operations with significant actual and potential negative impacts on local communities 57 401-1 New employee hires and employee turnover 55, 56 GRI 414: Supplier Social Assessment 2016 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees Same benefits to all employees 414-1 New suppliers that were screened using social criteria Formal evaluation was not performed 2 401-3 Parental leave 56 414-2 Negative social impacts in the supply chain and actions taken 2 Formal evaluation was not performed 2 GRI 402: Labour/Management Relations 2016 GRI 415: Public Policy 2016 402-1 Minimum notice periods regarding operational changes Notice periods are not defined. 415-1 Political contributions No political contributions GRI 403: Occupational Health and Safety 2018 GRI 416: Customer Health and Safety 2016 403-1 Occupational health and safety management system 53 416-1 Assessment of the health and safety impacts of product and service categories No direct impacts 403-2 Hazard identification, risk assessment, and incident investigation 52 416-2 Incidents of non-compliance concerning the health and safety impacts of products and services No legal requirements 403-3 Occupational health services 53 GRI 417: Marketing and Labelling 2016 403-4 Worker participation, consultation, and communication on occupational health and safety 417-1 Requirements for product and service information and labelling No legal requirements 403-5 Worker training on occupational health and safety 51, 52 417-2 Incidents of non-compliance concerning product and service information and labelling No legal requirements 403-6 Promotion of worker health 54 417-3 Incidents of non-compliance concerning marketing communications No legal requirements 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships 53 GRI 418: Customer Privacy 2016 403-8 Workers covered by an occupational health and safety management system 52, 53 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data Personal data is not collected 403-9 Work-related injuries 52 1 When presenting this indicator, only the most significant activities at the Group level (all activities located in Lithuania) are included. 2 Formal evaluation has not been carried out in the Group until now. Suppliers of the Group's main raw materials must have an FSC ® production chain certificate, which partially ensures the compliance of these suppliers with the governance, environmental and social sustainability standards. In 2023 the Group plans to introduce the guidelines for supplier environmental and social assessment and expand the scope of supplier evaluation. 72 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated 7.12. Taxonomy disclosures Proportion of turnover from products or services associated with Taxonomy-aligned economic activities: Substantial contribution criteria DNSH criteria Economic activities (1) Codes (2) Absolute turnover (3) Proportion of turnover (4) Climate change mitigation (5) Climate change adaptation (6) Water and marine resources (7) Circular economy (8) Pollution (9) Biodiversity and ecosystems (10) Climate change mitigation (11) Climate change adaptation (12) Water and marine resources (13) Circular economy (14) Pollution (15) Biodiversity and ecosystems (16) Minimum safeguards (17) Taxonomy- aligned proportion of turnover, year 2022 (18) Taxonomy- aligned proportion of turnover, year 2021 (19) Category (enabling activity / transitional activity) (20) EUR % % % % % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N Percent Percent E/T A. ELIGIBLE ACTIVITIES A.1. Eligible Taxonomy-aligned activities None Turnover of eligible Taxonomy- aligned activities (A.1) - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% A.2 Eligible not Taxonomy-aligned activities Production of heat from gas D35.3.0 261 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Y Y Y Y Y Y Y 0.0% 0.0% Production of heat from bioenergy D35.3.0 1,580 0.8% 100% 0.0% 0.0% 0.0% 0.0% 0.0% Y Y Y Y N Y Y 0.0% 0.0% Turnover of eligible not Taxonomy-aligned activities (A.2) 1,841 0.9% 0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total (A.1 + A.2) 1,841 0.9% 0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% B. NON-ELIGIBLE ACTIVITIES Turnover of non-eligible activities (B) 201 368 99,1% Total (A + B) 203 209 100% Specification of disclosures: • The Group uses heat from gas and bioenergy in its production processes. Part of heat is sold externally. Accordingly, external turnover was allocated to the numerator when calculating proportion of turnover. • Production of heat from gas and production of heat from bioenergy are Taxonomy eligible activities as they might significantly contribute to climate change mitigation. • The Group’s production of heat from gas is above 100 g CO 2 e/kWh threshold, and therefore does not meet technical screening criteria of climate change mitigation. However, it still does not significantly harm (DNSH) the environmental objective of climate change mitigation. • Heat from bioenergy does not pass the DNSH criteria for pollution as defined in Directive (EU) 2015/2193 on the limitation of emissions of certain pollutants into the air from medium combustion plants. The actual dust emissions, which are in line with current legislation, do not meet the emission limit values of mentioned Directive. The Group plans additional investments and will meet the requirements of Directive by 31 December 2024. 73 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Proportion of CapEx from products or services associated with Taxonomy-aligned economic activities: Substantial contribution criteria DNSH criteria Economic activities (1) Codes (2) Absolute CapEx (3) Proportion of CapEx (4) Climate change mitigation (5) Climate change adaptation (6) Water and marine resources (7) Circular economy (8) Pollution (9) Biodiversity and ecosystems (10) Climate change mitigation (11) Climate change adaptation (12) Water and marine resources (13) Circular economy (14) Pollution (15) Biodiversity and ecosystems (16) Minimum safeguards (17) Taxonomy- aligned proportion of CapEx, year 2022 (18) Taxonomy- aligned proportion of CapEx, year 2021 (19) Category (enabling activity / transitional activity) (20) EUR % % % % % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N Percent Percent E/T A. ELIGIBLE ACTIVITIES A.1. Eligible Taxonomy-aligned activities None CapEx of eligible Taxonomy- aligned activities (A.1) - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% A.2 Eligible not Taxonomy-aligned activities Production of heat from gas D35.3.0 - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Y Y Y Y Y Y Y 0.0% 0.0% Production of heat from bioenergy D35.3.0 6 0.1% 100% 0.0% 0.0% 0.0% 0.0% 0.0% Y Y Y Y N Y Y 0.0% 0.0% CapEx of eligible not Taxonomy-aligned activities (A.2) 6 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total (A.1 + A.2) 6 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% B. NON-ELIGIBLE ACTIVITIES CapEx of non-eligible activities (B) 8,975 99.9% Total (A + B) 8,981 100% Specification of disclosures: • The Group uses heat from gas and bioenergy in its production processes. All CapEx directly related to heat production facilities was allocated to the numerator when calculating proportion of CapEx. • Production of heat from gas and production of heat from bioenergy are Taxonomy eligible activities as they might significantly contribute to climate change mitigation. • The Group’s production of heat from gas is above 100 g CO 2 e/kWh threshold, and therefore does not meet technical screening criteria of climate change mitigation. However, it still does not significantly harm (DNSH) the environmental objective of climate change mitigation. • Heat from bioenergy does not pass the DNSH criteria for pollution as defined in Directive (EU) 2015/2193 on the limitation of emissions of certain pollutants into the air from medium combustion plants. The actual dust emissions, which are in line with current legislation, do not meet the emission limit values of mentioned Directive. The Group plans additional investments and will meet the requirements of Directive by 31 December 2024. 74 « Table of Contents Grigeo AB, company code 110012450 CONSOLIDATED ANNUAL REPORT for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated Proportion of OpEx from products or services associated with Taxonomy-aligned economic activities: Substantial contribution criteria DNSH criteria Economic activities (1) Codes (2) Absolute OpEx (3) Proportion of OpEx (4) Climate change mitigation (5) Climate change adaptation (6) Water and marine resources (7) Circular economy (8) Pollution (9) Biodiversity and ecosystems (10) Climate change mitigation (11) Climate change adaptation (12) Water and marine resources (13) Circular economy (14) Pollution (15) Biodiversity and ecosystems (16) Minimum safeguards (17) Taxonomy- aligned proportion of OpEx, year 2022 (18) Taxonomy- aligned proportion of OpEx, year 2021 (19) Category (enabling activity / transitional activity) (20) EUR % % % % % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N Percent Percent E/T A. ELIGIBLE ACTIVITIES A.1. Eligible Taxonomy-aligned activities None OpEx of eligible Taxonomy- aligned activities (A.1) - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% A.2 Eligible not Taxonomy-aligned activities Production of heat from gas D35.3.0 - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Y Y Y Y Y Y Y 0.0% 0.0% Production of heat from bioenergy D35.3.0 24 1.0% 100% 0.0% 0.0% 0.0% 0.0% 0.0% Y Y Y Y N Y Y 0.0% 0.0% OpEx of eligible not Taxonomy-aligned activities (A.2) 24 1.0% 1.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total (A.1 + A.2) 24 1.0% 1.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% B. NON-ELIGIBLE ACTIVITIES OpEx of non-eligible activities (B) 2,378 99.0% Total (A + B) 2,402 100% Specification of disclosures: • The Group uses heat from gas and bioenergy in its production processes. All OpEx directly related to the day-to-day servicing of heat production facilities and OpEx that are necessary to ensure the continued and effective functioning of them were allocated to the numerator when calculating proportion of OpEx. • Production of heat from gas and production of heat from bioenergy are Taxonomy eligible activities as they might significantly contribute to climate change mitigation. • The Group’s production of heat from gas is above 100 g CO 2 e/kWh threshold, and therefore does not meet technical screening criteria of climate change mitigation. However, it still does not significantly harm (DNSH) the environmental objective of climate change mitigation. • Heat from bioenergy does not pass the DNSH criteria for pollution as defined in Directive (EU) 2015/2193 on the limitation of emissions of certain pollutants into the air from medium combustion plants. The actual dust emissions, which are in line with current legislation, do not meet the emission limit values of mentioned Directive. The Group plans additional investments and will meet the requirements of Directive by 31 December 2024. CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS 76 « Table of Contents Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, LT-27101, Lithuania CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated STATEMENTS OF FINANCIAL POSITION Notes Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 ASSETS Non-current assets Property, plant and equipment 5 71,194 71,564 27,015 29,020 Right-of-use assets 6 4,277 3,969 1,295 1,534 Intangible assets 7 3,764 3,513 380 374 Investment property 8 4,410 4,417 4,431 4,417 Investments in subsidiaries 1 - - 23,126 23,051 Other amounts receivable 10 3 3 - - Deferred income tax assets 25 - - - 123 Total non-current assets 83,648 83,466 56,247 58,519 Current assets Inventories 9 19,963 14,428 9,985 4,796 Trade and other amounts receivable 10 23,904 22,340 15,609 10,515 Prepaid income tax 97 128 - 159 Other current assets 348 320 169 127 Cash and cash equivalents 11 14,840 12,443 7,544 818 Total current assets 59,152 49,659 33,307 16,415 TOTAL ASSETS 142,800 133,125 89,554 74,934 (Cont'd on the next page) 77 « Table of Contents Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, LT-27101, Lithuania CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated STATEMENTS OF FINANCIAL POSITION (CONTINUED) Notes Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 EQUITY AND LIABILITIES Equity Authorised share capital 12 38,106 38,106 38,106 38,106 Share premium 12 1,119 1,119 1,119 1,119 Legal reserve 12 2,066 1,905 2,066 1,905 Reserve for granting own shares 12 500 - 500 - Foreign currency translation reserve 12 (2,697) (2,161) - - Retained earnings 12 57,950 54,607 24,582 15,259 Equity attributable to shareholders of the Company 97,044 93,576 66,373 56,389 Non-controlling interest 809 713 - - Total equity 97,853 94,289 66,373 56,389 Liabilities Non-current liabilities Borrowings 13 4,644 864 1,868 175 Lease liabilities 14 3,477 3,177 1,017 1,259 Grants 15 783 939 678 811 Deferred income tax liability 25 903 579 442 - Long-term employee benefits 16 248 173 103 71 Other amounts payable 281 282 - - Total non-current liabilities 10,336 6,014 4,108 2,316 Current liabilities Borrowings 13 2,363 2,094 989 1,380 Lease liabilities 14 408 360 331 320 Income tax payable - - 204 - Trade and other amounts payable 17 31,840 30,368 17,549 14,529 Total current liabilities 34,611 32,822 19,073 16,229 Total liabilities 44,947 38,836 23,181 18,545 TOTAL EQUITY AND LIABILITIES 142,800 133,125 89,554 74,934 The accompanying notes are an integral part of these financial statements. The financial statements were prepared by the management on 29 March 2023 and signed with a qualified electronic signature on its behalf by: Gintautas Pangonis President Martynas Nenėnas Finance Director 78 « Table of Contents Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, LT-27101, Lithuania CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated STATEMENTS OF COMPREHENSIVE INCOME Notes Group Company 2022 2021 2022 2021 Revenue 18 203,209 163,215 90,457 67,591 Cost of sales 19 (172,364) (129,657) (79,594) (58,532) Gross profit 30,845 33,558 10,863 9,059 Selling and distribution expenses 20 (14,846) (12,179) (5,497) (4,995) Administrative expenses 21 (9,379) (8,134) (3,813) (3,076) Other income 22 636 423 11,949 1,937 Other gains/(losses) – net 23 4,860 193 3,819 36 Operating profit 12,116 13,861 17,321 2,961 Finance income 24 22 34 3 4 Finance costs 24 (459) (260) (165) (93) Finance income/(costs) – net (437) (226) (162) (89) Profit before income tax 11,679 13,635 17,159 2,872 Income tax 25 (1,058) (1,250) (770) 344 PROFIT FOR THE PERIOD 10,621 12,385 16,389 3,216 Profit for the period is attributable to: Shareholders of the Company 10,525 12,266 16,389 3,216 Non-controlling interest 96 119 - - Other comprehensive income/(expenses) Items that will not be reclassified subsequently to profit or loss - - - - Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations (536) 246 - - Cash flow hedges – effective portion of changes in fair value - (11) - 4 Total items that may be reclassified subsequently to profit or loss (536) 235 - 4 Other comprehensive income/(expenses) for the period (536) 235 - 4 Total comprehensive income for the period 10,085 12,620 16,389 3,220 Total comprehensive income for the period is attributable to: Shareholders of the Company 9,989 12,501 16,389 3,220 Non-controlling interest 96 119 - - Basic earnings per share (in EUR) 26 0.080 0.093 0.125 0.024 Diluted earnings per share (in EUR) 26 0.080 0.093 0.124 0.024 The accompanying notes are an integral part of these financial statements. Gintautas Pangonis President Martynas Nenėnas Finance Director 79 « Table of Contents Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, LT-27101, Lithuania CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated STATEMENTS OF CHANGES IN EQUITY Group Equity attributable to owners of the Company Non- controlling interest Total equity Share capital Share premium Legal reserve Hedging reserve Reserve for granting shares Foreign currency translation reserve Retained earnings Total At 1 January 2021 19,053 1,119 1,905 11 - (2,407) 69,278 88,959 596 89,555 Profit for the period - - - - - - 12,266 12,266 119 12,385 Other comprehensive income/(expenses) - - - (11) - 246 - 235 - 235 Total comprehensive income/(expenses) - - - (11) - 246 12,266 12,501 119 12,620 Allocated dividends - - - - - - (7,884) (7,884) - (7,884) Share capital increase 19,053 - - - - - (19,053) - - - Transactions with the Company’s shareholders 19,053 - - - - - (26,937) (7,884) - (7,884) Change in non-controlling interest - - - - - - - - (2) (2) Transactions with non-controlling interest - - - - - - - - (2) (2) At 31 December 2021 38,106 1,119 1,905 - - (2,161) 54,607 93,576 713 94,289 At 1 January 2022 38,106 1,119 1,905 - - (2,161) 54,607 93,576 713 94,289 Profit for the period - - - - - - 10,525 10,525 96 10,621 Other comprehensive income/(expenses) - - - - - (536) - (536) - (536) Total comprehensive income/(expenses) - - - - - (536) 10,525 9,989 96 10,085 Reserve for granting own shares - - - - 500 - (500) - - - Increase in legal reserve - - 161 - - - (161) - - - Allocated dividends - - - - - - (6,686) (6,686) - (6,686) Share-based remuneration - - - - - - 165 165 - 165 Transactions with the Company’s shareholders - - 161 - 500 - (7,182) (6,521) - (6,521) At 31 December 2022 38,106 1,119 2,066 - 500 (2,697) 57,950 97,044 809 97,853 80 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, LT-27101, Lithuania CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents STATEMENTS OF CHANGES IN EQUITY (CONTINUED) Company Share capital Share premium Legal reserve Reserve for granting shares Hedging reserve Retained earnings Total equity At 1 January 2021 19,053 1,119 1,905 - (4) 38,980 61,053 Profit for the period - - - - - 3,216 3,216 Other comprehensive income - - - - 4 - 4 Total comprehensive income - - - - 4 3,216 3,220 Allocated dividends - - - - - (7,884) (7,884) Share capital increase 19,053 - - - - (19,053) - Transactions with the Company’s shareholders 19,053 - - - - (26,937) (7,884) At 31 December 2021 38,106 1,119 1,905 - - 15,259 56,389 At 1 January 2022 38,106 1,119 1,905 - - 15,259 56,389 Profit for the period - - - - - 16,389 16,389 Total comprehensive income - - - - - 16,389 16,389 Allocated dividends - - - - - (6,570) (6,570) Increase in legal reserve - - 161 - - (161) - Reserve for granting own shares - - - 500 - (500) - Share-based remuneration - - - - - 165 165 Transactions with the Company’s shareholders - - 161 500 - (7,066) (6,405) At 31 December 2022 38,106 1,119 2,066 500 - 24,582 66,373 The accompanying notes are an integral part of these financial statements. Gintautas Pangonis President Martynas Nenėnas Finance Director 81 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, LT-27101, Lithuania CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents STATEMENTS OF CASH FLOWS Notes Group Company 2022 2021 2022 2021 Cash flows from operating activities Profit before income tax 11,679 13,635 17,159 2,872 Adjustments for non-cash items: Depreciation and amortisation 9,241 9,865 4,114 4,480 Dividends received - - (11,300) (1,500) Interest expenses on borrowings and lease 24 244 194 111 91 Other finance (income)/costs – net 24 193 31 51 (2) Gain on disposal of property, plant and equipment (124) (112) (171) (29) Share-based remuneration 90 - 90 - 21,323 23,613 10,054 5,912 Changes in working capital (Increase)/decrease in inventories (5,543) (7,213) (5,197) (3,149) (Increase)/decrease in trade and other amounts receivable (1,906) (5,280) (3,893) (785) (Increase)/decrease in other assets (93) (38) (44) 39 Increase/(decrease) in trade and other amounts payable 759 11,340 3,313 4,276 (6,783) (1,191) (5,821) 381 Interest paid (221) (202) (101) (93) Income tax paid (296) (835) - (334) Net cash inflow from operating activities 14,023 21,385 4,132 5,866 Cash flows from investing activities Acquisition of property, plant and equipment and intangible assets 5, 7 (8,762) (12,438) (2,046) (5,567) Acquisition of investment property 8 (275) (2,122) (274) (2,122) Disposal of property, plant and equipment 232 189 183 29 Acquisition of non-controlling interest 1 - (2) - - Loans granted to subsidiaries - - (1,200) - Dividends received 22 - - 11,300 1,500 Net cash inflow/(outflow) from investing activities (8,805) (14,373) 7,963 (6,160) Cash flows from financing activities Dividends paid (6,436) (7,726) (6,345) (7,723) Repayments of borrowings (2,197) (6,403) (1,298) (2,281) Proceeds from borrowings 6,246 1,731 2,600 1,000 Lease payments (434) (446) (326) (337) Net cash (outflow) from financing activities (2,821) (12,844) (5,369) (9,341) Net increase/(decrease) in cash flows 2,397 (5,832) 6,726 (9,635) Cash and cash equivalents at the beginning of the period 12,443 18,275 818 10,453 Cash and cash equivalents at the end of the period 14,840 12,443 7,544 818 The accompanying notes are an integral part of these financial statements. Gintautas Pangonis President Martynas Nenėnas Finance Director NOTES TO THE FINANCIAL STATEMENTS 83 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 1. General information Grigeo AB (hereinafter the “Company”) is a public limited liability company registered in the Republic of Lithuania on 23 May 1991. The Company is engaged in the production of toilet paper, paper towels and paper napkins. The paper mill in Grigiškės was established in 1923. The address of the Company’s registered office is as follows: Vilniaus g. 10, Grigiškės, Vilniaus sav., Lithuania. The Company’s shares are listed on the Baltic Main List of Nasdaq AB Vilnius Stock Exchange (ISIN code of shares is LT0000102030). The trading code of shares on Nasdaq AB Vilnius stock exchange is GRG1L. Based on the decision of the Ordinary General Meeting of the Shareholders of the Company that was held on 30 April 2021, the Company's authorised share capital was increased on 19 May 2021 out of the Company’s retained earnings from EUR 19,053 thousand to EUR 38,106 thousand by issuing 65,700,000 ordinary registered shares with a nominal value of EUR 0.29. After the authorised share capital increase and as at 31 December 2021 and 31 of December 2022, the Company’s authorised share capital was divided into 131,400,000 ordinary registered shares with a nominal value of EUR 0.29 each. All shares were fully paid. Three major shareholders as at 31 December 2022 and 2021 are listed below: At 31 December 2022 At 31 December 2021 Number of shares % Number of shares % Ginvildos Investicija UAB 60,809,151 46.28 60,809,151 46.28 Mišeikienė Irena Ona 17,578,342 13.38 17,168,342 13.07 Norimantas Stankevičius 5,869,756 4.47 5,807,256 4.42 TOTAL 84,257,249 64.12 83,784,749 63.76 As at 31 December 2022, the number of the Group’s employees was 865 (31 December 2021: 861). As at 31 December 2022, the number of the Company’s employees was 280 (31 December 2021: 270). The shareholders of the Company have a statutory right to approve these financial statements or not to approve them and to require preparation of a new set of the financial statements. Structure of the Group As at 31 December 2022 and 2021, the Grigeo group consisted of Grigeo AB and the following subsidiaries (hereinafter the “Group”): At 31 December 2022 At 31 December 2021 Ownership interest held by the Group Amount (cost) of investment Ownership interest held by the Group Amount (cost) of investment Address Principal activities Date of acquisition (establishment) Subsidiaries directly controlled by the Company: Grigeo Baltwood UAB 100% 2,555 100% 2,555 Vilniaus g. 10, Grigiškės, Vilniaus sav., Lithuania Manufacturing of wood fibreboards. 10 April 2003 Grigeo Recycling UAB 100% 1,066 100% 1,066 Vilniaus g. 10, Grigiškės, Vilniaus sav., Lithuania Collection of secondary raw materials and preparation for recycling. 16 July 2010 Naujieji Verkiai UAB 100% - 100% - Popieriaus g. 15, Vilnius, Lithuania Building and development of real estate. The company was dormant in 2022 and 2021. 6 April 2004 Grigeo Investicijų Valdymas UAB 100% 19,427 100% 19,427 Vilniaus g. 10, Grigiškės, Vilniaus sav., Lithuania Investment activities and corporate governance. 1 March 2010 Grigiškių Energija UAB 100% 3 100% 3 Vilniaus g. 10, Grigiškės, Vilniaus sav., Lithuania Heat production and sale. The company was dormant in 2022 and 2021. 7 October 2011 Share-based option to employees of subsidiaries (Note 12) Share-based option 75 - Total 23,126 23,051 84 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 1. General information (continued) At 31 December 2022 At 31 December 2021 Ownership interest held by the Group Amount (cost) of investment Ownership interest held by the Group Amount (cost) of investment Address Principal activities Date of acquisition (establishment) Subsidiaries indirectly controlled by the Company: Grigeo Klaipėda AB 97.68% - 97.68% - Nemuno g. 2, Klaipėda, Lithuania Production of cardboard and cardboard paper honeycomb. 1 March 2010 Grigeo Packaging UAB 100% - 100% - Vilniaus g. 10, Grigiškės, Vilniaus sav., Lithuania Manufacturing of corrugated cardboard and packaging. 10 April 2009 Меna Pak AT 100% - 100% - Koševovo g. 6, Černigovo raj., Mena, Ukraine Manufacturing of corrugated cardboard and packaging. 1 March 2010 Grigeo Recycling SIA 100% - 100% - Ēdoles iela 5, Riga, Latvia Collection of secondary raw materials and preparation for recycling. 16 June 2016 Controlled by Grigeo Investicijų Valdymas UAB; Controlled by Grigeo Klaipėda AB; Controlled by Grigeo Recycling UAB. The non-controlling interest consists of 2.32% of shares of Grigeo Klaipėda AB, which are not owned by the Company’s shareholders. On 18 November 2021, Grigeo Investicijų Valdymas UAB redeemed 0.01% of shares of subsidiary Grigeo Klaipėda AB from the minority shareholders. There were no significant changes in 2022 and 2021. Climate change-related matters The management of the Group recognises the importance of analysis in disclosing climate-related risks and their significance to the financial statements. In 2021, the management of the Group decided to start with a qualitative analysis to help explore a possible range of effects of climate change. In 2022, the Group continued its analysis and used the reporting principles of the Climate-Related Financial Disclosure Working Group (TCFD) to analyse the potential impacts of climate change. Based on the Group management’s analysis, the direct risk of climate change in the Group's operations is insignificant, but the indirect risk related to the transition to more environmentally friendly technological solutions in the long term may affect the Group's financial performance due to additional investments for the acquisition of new equipment or upgrade of existing one. During the transition period, the management will additionally assess the projected cash flows due to the amount and timing of potential investments, as well as assess the risks of impairment of existing non-current assets and review the useful lives of renewed or newly acquired assets. For the current and previous reporting years, such potential risks and their impact on the significant accounting estimates and assumptions used in the preparation of the financial statements were assessed as not significant. The qualitative analysis is continued by including the climate change risk assessment in the periodic review and updates of the assumptions used by management. 85 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These principles were applied consistently for the reported periods unless stated otherwise (adoption of new and/or amended standards). 2.1 Basis of preparation The financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU) effective at 31 December 2022. All references to IFRS used below are references to IFRS approved by the EU. These financial statements of the Group and the Company have been prepared on a historical cost basis, except of financial instruments used for hedging that are accounted for at fair value. These financial statements of the Group and the Company for the year ended 31 December 2022 have been prepared under the assumption that the Group and the Company will continue as a going concern. All amounts in these financial statements of the Group and the Company are presented in the euros. Amounts are rounded to the nearest thousand (EUR thousands), unless otherwise stated. The preparation of financial statements in conformity with IFRS requires the management to make judgements, assumptions and estimates that are related to the application of the Group’s and the Company’s accounting policies. Estimates and judgements are based on the management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 2.2 Amendments to standards and their interpretations Adoption of new and/or amended IFRS and interpretations of the International Financial Reporting Interpretations Committee (IFRIC). a) The following IFRSs, amendments thereto were adopted by the Company for the first time in the financial year ended 31 December 2022: Covid-19-related rent concessions – Amendments to IFRS 16 The amendments provided lessees (but not lessors) with relief in the form of an optional exemption from assessing whether a rent concession related to COVID-19 is a lease modification. An amendment extended the date of the practical expedient to 30 June 2022. Based on the Company’s estimate, these amendments had no significant impact on the Company’s financial statements. Proceeds before intended use, Onerous contracts – cost of fulfilling a contract, Reference to the Conceptual Framework – narrow scope amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018-2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The proceeds from selling such items, together with the costs of producing them, are now recognised in profit or loss. An entity has to use IAS 2 to measure the cost of those items. The amendment to IAS 37 clarifies the meaning of ‘costs to fulfil a contract’. The amendment explains that the direct cost of fulfilling a contract comprises the incremental costs of fulfilling that contract; and an allocation of other costs that relate directly to fulfilling. The amendment also clarifies that, before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to that contract. IFRS 3 was amended to refer to the 2018 Conceptual Framework for Financial Reporting, in order to determine what constitutes an asset or a liability in a business combination. In addition, a new exception in IFRS 3 was added for liabilities and contingent liabilities. The exception specifies that, for some types of liabilities and contingent liabilities, an entity applying IFRS 3 should instead refer to IAS 37 or IFRIC 21, rather than the 2018 Conceptual Framework. It was also clarified that the acquirer should not recognise contingent assets, as defined in IAS 37, at the acquisition date. The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities. Costs or fees could be paid to either third parties or the lender. Under the amendment, costs or fees paid to third parties will not be included in the 10% test. Illustrative Example 13 that accompanies IFRS 16 was amended to remove the illustration of payments from the lessor relating to leasehold improvements. 86 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) IFRS 1 allows an exemption if a subsidiary adopts IFRS at a later date than its parent. The subsidiary can measure its assets and liabilities at the carrying amounts that would be included in its parent’s consolidated financial statements, based on the parent’s date of transition to IFRS, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. IFRS 1 was amended to allow entities that have taken this IFRS 1 exemption to also measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. The amendment to IFRS 1 extends the above exemption to cumulative translation differences, in order to reduce costs for first-time adopters. The requirement for entities to exclude cash flows for taxation when measuring fair value under IAS 41 was removed. Based on the Company’s estimate, these amendments had no significant impact on the Company’s financial statements. b) Standards, interpretations and amendments thereto that are not yet effective and have not been early adopted by the Company Disclosure of Accounting policies – amendments to IAS 1 and IFRS Practice Statement 2 IAS 1 was amended to require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendment provided the definition of material accounting policy information. The amendment also clarified that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. The amendment to IAS 1 clarified that immaterial accounting policy information need not be disclosed. To support this amendment, IFRS Practice Statement 2, ‘Making Materiality Judgements’ was also amended to provide guidance on how to apply the concept of materiality to accounting policy disclosures. Definition of Accounting Estimates – amendments to IAS 8 The amendment to IAS 8 clarified how companies should distinguish changes in accounting policies from changes in accounting estimates. Deferred tax related to assets and liabilities arising from a single transaction – amendments to IAS 12 The amendments to IAS 12 specify how to account for deferred tax on transactions such as leases and decommissioning obligations. In specified circumstances, entities are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. Based on the Company’s estimate, these amendments will have no significant impact on the Company’s financial statements. c) Standards, interpretations and amendments that have not been adopted by the European Union and that have not been early adopted by the Group and the Company: - IFRS 14 Regulatory deferral accounts - Sale or contribution of assets between an investor and its associate or joint venture – Amendments to IFRS 10 and IAS 28 - Classification of liabilities as current or non-current – Amendments to IAS 1 The Company is currently assessing the impact of these amendments on the Company’s financial statements. There are no other new standards, amendments to the existing standards or interpretations that are not yet effective and that could have a material impact on the Company. 87 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) 2.3 Principles of consolidation The Group’s consolidated financial statements include Grigeo AB and its subsidiaries. Subsidiaries Subsidiaries are all entities controlled by the Company. The Company controls an entity when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The control of an entity is normally evidenced when the Company owns more than 50% of the shares granting voting rights. Subsidiaries are consolidated from the date on which effective control is transferred to the Company or the Group, and they are no longer consolidated from the date on which control is transferred out of the Group. Inter-company transactions The financial statements of the subsidiaries are prepared for the same reporting year using consistent accounting policies. All inter-company transactions, balances and unrealised gains or losses and dividends on transactions between the Group companies are fully eliminated. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance of the non-controlling interest. A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: - Derecognises the assets (including goodwill) and liabilities of the subsidiary; - Derecognises the carrying amount of any non-controlling interest; - Derecognises the cumulative foreign exchange differences, recorded in equity; - Recognises the consideration received at fair value; - Recognises any investment retained at fair value; - Recognises any surplus or deficit in the statement of comprehensive income; - Reclassifies the parent’s share of components previously recognised in other comprehensive income to the statement of comprehensive income or retained earnings, as appropriate. Business combinations and accounting for goodwill Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition-date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. If the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date in the statement of comprehensive income. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IFRS 9 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the statement of comprehensive income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquired entity are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. 88 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Split of companies When a company is split by way of a spin-off or split-off, its assets and liabilities are transferred to newly established or other operating companies, and a decrease in assets, liabilities and equity is registered in the accounting of the split company. The difference in value of assets and liabilities of the spin-off or split-off companies provided in the conditions of the split determines the equity amount of the newly established or operating companies, and in their accounting equity is registered in the account of the authorised share capital and other equity accounts as at the date of reception and transfer according to the conditions of the split. If the conditions of the split do not provide in which equity accounts the difference in value of assets and liabilities should be registered, it is registered in the account of the formed share capital and share premium or the account of retained earnings (loss). 2.4 Presentation currency Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). All amounts in the financial statements are presented in the euros, which is the Group’s and the Company’s functional and presentation currency. The functional currency of the Company and its subsidiaries operating in Lithuania is the euro. The functional currencies of foreign subsidiaries are the respective currencies of the foreign countries in which their registered offices are based. The amounts in the financial statements of these subsidiaries are presented in their functional currencies. Assets and liabilities of the foreign subsidiaries are translated into euros at the reporting date using the exchange rate prevailing at the date of the statement of financial position, whereas the statements of comprehensive income of the foreign subsidiaries are translated using the weighted average exchange rate for the year. Exchange differences arising on translation are recognised in other comprehensive income. On disposal of a foreign subsidiary, the result of foreign currency translation accumulated in other comprehensive income is reclassified to the statement of comprehensive income. Transactions and balances Foreign currency transactions are initially measured using the functional currency at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the date of the statement of financial position using the exchange rate prevailing at the date of the statement of financial position. All non-monetary items that are measured at amortised cost are translated using the exchange rates at the date of the transactions. 2.5 Investments in subsidiaries (the Company) Investments in subsidiaries in the Company’s separate financial statements are carried at cost, less impairment. 2.6 Discontinued operations A discontinued operation is a component of the Group's or the Company’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and the Company and which: - represents a separate major line of business or geographical area of operation; - is part of a single co-ordinated plan to dispose of a separate major line of business or major geographical area of operations; or - is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year. 2.7 Intangible assets (other than goodwill) Intangible assets acquired separately are stated initially at cost. The cost of intangible assets acquired in a business combination is its fair value at acquisition date. Intangible assets are recognised when it is probable that economic benefits will flow to the enterprise in relation to these assets in the future and the value of these assets can be measured reliably. The useful lives of intangible assets are assessed to be either finite or indefinite. 89 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) After initial recognition, intangible assets with finite lives are carried at cost, less accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised using the straight-line method over the estimated useful lives: Licences, patents, etc. 3–6 years Software 3–8 years Other intangible assets 3–6 years Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The useful lives, residual values and amortisation method are reviewed annually to ensure that they are consistent with the expected pattern of economic benefits from intangible assets other than goodwill. The Group and the Company do not have any intangible assets (excluding goodwill) with indefinite useful life. Accounting principles for goodwill are presented in section 2.3. The Group and the Company have no capitalised internally created intangible assets. 2.8 Property, plant, and equipment Property, plant and equipment is stated at cost (or deemed cost – see below) less accumulated depreciation and impairment losses. Before 31 December 2010, buildings were accounted for as follows: - The Company’s buildings, acquired before 1 January 1996, were stated at the indexed value less indexed accumulated depreciation and estimated impairment losses. - The Company’s buildings, acquired after 1 January 1996, were stated at acquisition cost less accumulated depreciation and estimated impairment losses. On 31 December 2010, according to the exception available under IFRS 1, a part of the buildings acquired before 1 January 1996 were measured at fair value which was determined at that date by the independent property valuers, and these values were used as deemed cost from that date. After 31 December 2010, property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The initial value of property, plant and equipment comprises the acquisition cost including not refundable acquisition taxes and all directly attributable costs associated with the preparation for use or transportation to the place of use of assets concerned. Repair and maintenance costs incurred after property, plant and equipment has been made available for intended use are normally charged to the statement of comprehensive income in the period when such costs are incurred. Depreciation is calculated on a straight-line basis over the following estimated useful lives: Buildings and structures of reinforced concrete 40-80 years Lightweight buildings and structures 8-25 years Machinery and equipment 5–68 years Motor vehicles 4–10 years Other fixtures and equipment 2–10 years The useful lives, residual values and the depreciation method are reviewed annually to ensure that they are consistent with the expected pattern of economic benefits from property, plant and equipment. In the reporting and previous financial years, the useful live of the items of property, plant and equipment was reviewed and adjusted accordingly. Property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year in which the asset is derecognised. Construction in progress is stated at cost which comprises the value of building, constructions and facilities and other directly attributable costs. Construction in progress is not depreciated until the completion of construction and until the assets are ready for use. 90 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) 2.9 Investment property Investment property, including part of buildings and structures, is held for earning rentals and/or for capital appreciation rather than for use in the production, provision of services, or for administration purposes or sale. Investment property is stated at historical cost less accumulated depreciation and impairment losses, if any. Depreciation is calculated on a straight-line basis over the following estimated useful lives: buildings – 62-91 years, structures (infrastructure objects) – 9-12 years. Transfers to and from investment property are made only when there is an evidence of change in an asset’s use. When the asset is transferred from investment property to owner-occupied property, plant and equipment, the cost of that asset is deemed to be the carrying amount of investment property at the date of transfer. If property, plant and equipment are transferred to investment property, the Company and the Group account for such assets in accordance with the accounting principles applicable to property, plant and equipment until the date of transfer. The deemed cost of the transferred investment property is considered to be the carrying amount of that asset at the date of transfer. 2.10 Impairment of non-financial assets Non-financial assets, except for goodwill, inventories and deferred income tax, are assessed for impairment when events or circumstances indicate that the value of assets may not be recoverable. If such circumstances exist, the asset’s recoverable amount is estimated. Where the carrying amount of an asset exceeds its recoverable amount, impairment loss is accounted for in the statement of comprehensive income. A reversal of an impairment loss recognised in prior periods is recorded when there is an indication that the impairment loss recognised for the asset no longer exists or has materially decreased. Reversal is accounted for in the statement of comprehensive income under the same item as impairment loss. Impairment of goodwill is recorded in the statement of comprehensive income. The recoverable amount of other assets is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and impairment is recognised for a part of its value in excess of the recoverable amount. 2.11 Assets held for sale Assets held for sale are measured at the lower of their carrying amount and the fair value less expected costs to sell. Assets are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. This condition is regarded as met only when the sale is highly probable, and the asset is available for immediate sale in its present condition. The management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. In the reporting and the previous financial year, the Company and the Group had no assets held for sale. 2.12 Emission allowances Based on Directive 2003/87/EC of the European Union, the greenhouse gas emissions trading (EU ETS) scheme was developed which came into force on 1 January 2005. The first operating phase of this system covered the period of 3 years which started in 2005 and ended in 2007; the second phase covered the period of 5 years which started in 2008 and ended in 2012, thus coinciding with the period detailed in the Kyoto Agreement. The third phase covered the period of 8 years which started in 2013 and ended in 2020. The fourth phase started on 1 January 2021 and it will end in 2030. The system works on the ‘cap and trade’ principle. The governments of the EU Member States are required to set caps for each emission unit in the scheme and for the period of implementation. This cap is established in the National Allocation Plan (NAP), which is issued by the relevant authority in each Member State. The NAP determines the amount of yearly emissions (measured in tonnes of carbon dioxide equivalent) for each emission unit and for each operating phase and allocates allowances on an annual basis. A Member State has an obligation to allocate emission allowances by 28 February of each year in accordance with the NAP (a part of emission allowances is set aside for new units). A Member State is to assure that an operator of each emission unit submits data on actual amount of gas emitted to the environment by the unit during the current calendar year not later than by 30 April of the next year. The Group and the Company apply the net liability approach in accounting for the emission allowances received. Under this method emission allowances are recorded at a nominal (nil) value. When actual emissions exceed 91 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) allocated emission allowances, the obligation of purchasing additional allowances is recognised as a provision measured at the market value of the allowances as at the reporting date. The Group and the Company assess the shortage of emission allowances by comparing the annual quantity of emission allowances obtained with the actual annual emissions. Disposals of emission allowances are recorded at the fair value of the disposal transaction. Any differences between the actual selling price and the carrying amount of emission allowances obtained are recognised as profit or loss, irrespective of whether such transaction results in the actual or possible shortage of emission allowances. Income from emission allowances is presented in the statement of cash flows as cash flows from operating activities. If the disposal of emission allowances results in an actual shortage of emission allowances, an additional provision is recognised in the statement of financial position. 2.13 Borrowing costs Borrowing costs comprise interest and other expenses (currency exchange differences) that the Company and the Group incur when borrowing funds. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as expenses as incurred. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Capitalisation of borrowing costs is ceased when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. 2.14 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Recognition and initial measurement The Group and the Company recognise a financial asset or a financial liability in their statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. Financial instruments are initially recognised at fair value which is equal to the fair value of consideration paid plus transaction costs for all financial assets not carried at fair value in the statement of comprehensive income. Classification and subsequent measurement The Group and the Company classify financial assets into the following categories: - measured at amortised cost; - measured at fair value through other comprehensive income; - measured at fair value through profit or loss; - hedging financial instruments. The Group and the Company classify financial assets into the appropriate category depending on the business model for managing financial assets and on the characteristics of contractual cash flows for a respective financial asset. The Group and the Company classify trade receivables, loans granted, other accounts receivable of financial assets and cash and cash equivalents as assets measured at amortised cost. At the initial recognition the Group and the Company attribute equity instruments, i.e. shares of other entities, to financial instruments measured at fair value through other comprehensive income. The Group and the Company attribute financial derivatives not used for hedge accounting and hedging instruments measured in accordance with the hedge accounting principles to assets measured at fair value in the statement of comprehensive income. The Group and the Company classify financial liabilities into the following categories: - measured at amortised cost; - measured at fair value through profit or loss; - hedging financial instruments. The Group and the Company attribute trade liabilities, other accounts payable and borrowings to financial liabilities measured at amortised cost. 92 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Liabilities of derivative financial instruments not designated for hedge accounting are measured by the Group and the Company at fair value in the statement of comprehensive income. Measurement of financial assets at amortised cost The Group and the Company apply the effective interest rate method to measure financial assets at amortised cost. After initial recognition trade receivables are measured at amortised cost using the effective interest rate method, including impairment losses, while trade receivables with maturities less than 12 months from the date of recognition (i.e., not containing a financing element) and not classified as factoring, are not discounted and are measured at a nominal value. The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expenses over the relevant period. The effective interest rate exactly discounts future cash payments over the expected life of the financial liability, or (where appropriate) a shorter period. Measurement of financial assets at fair value through other comprehensive income Gains and losses on a financial asset constituting an equity instrument classified as at fair value through other comprehensive income are recognised in other comprehensive income, except for income from received dividends. Financial assets measured at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for sale, i.e. acquired for selling it in the near term. Gain or loss from change in the value of these assets is recognised in statement of comprehensive income. Gain or loss on assets classified at fair value through profit or loss also includes interest or dividend income. As at 31 December 2022 and 2021, the Group and the Company had no financial instruments measured at fair value through profit or loss. Derivative financial instruments and hedge accounting The Group and the Company use derivative financial instruments to hedge their interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if certain criteria are met. Derivatives initially are measured at fair value; any directly attributable transaction costs are recognised in the statement of comprehensive income as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in the statement of comprehensive income. Cash flow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the statement of comprehensive income. The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the hedged forecast cash flows affect profit or loss or the hedged item affects profit or loss. If the forecast transaction is no longer expected to occur, the hedge no longer meets the criteria for the hedge accounting, the hedging instrument expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit or loss. Derecognition of a financial instrument in the statement of financial position A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: - the rights to receive cash flows from the asset have expired; - the Group/Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass through” arrangement; or - the Group/Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 93 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Where the Group/Company has transferred its rights to receive cash flows from the asset and has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s/Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group/Company could be required to repay. A financial liability is derecognised when the obligation under the liability is settled, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of comprehensive income. Offsetting financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Impairment of financial assets IFRS 9 contains a new model for calculation of impairment of financial assets measured at amortised cost or at fair value through other comprehensive income (except for investments in equity instruments and contract assets). The impairment model is based on calculated expected losses. In determining impairment losses, the Group and the Company apply the following models: - general model (basic); - simplified model. The Group and the Company apply the general model for financial assets measured at amortised cost, except for trade receivables and assets measured at fair value through other comprehensive income. By applying the general model, the Group and the Company monitor changes in the level of credit risk associated with a respective financial asset and classify financial assets to one of three stages for determining impairment losses based on changes in the credit risk level after the initial recognition of the instrument. Depending on the categorisation to individual stages, impairment is measured at an amount equal to a 12-month period (stage 1) or the lifetime of the instrument (stage 2 and stage 3). On each end day of the reporting period, the Group and the Company analyse indications, based on which financial assets are categorised to individual stages for measuring impairment losses. Indications may include changes in the debtor’s creditworthiness, serious financial problems of the debtor, significant adverse changes in the debtor’s economic, legal or market environment. For the purpose of estimating expected credit losses, the Group and the Company apply default probability levels implicit in market quotes of credit derivatives, for entities with a granted credit rating and from a respective sector. The Group and the Company include forward looking information in the parameters of the expected credit loss estimation model by calculating the probability of insolvency parameters based on current market quotes. The simplified model is applied by the Group and the Company for trade receivables. By applying the simplified model, the Group and the Company do not monitor changes in the credit risk level during the lifetime of the instrument and estimate expected credit losses for the period until the end of the use of the instrument. For the purpose of estimating expected credit losses, the Group and the Company use the provision matrix calculated referring to historical levels of repayment and recovery of amounts receivable from clients. The Group and the Company include information about the future periods in the parameters used in the expected loss estimation model by adjusting the key insolvency probability parameters. For the purpose of calculating expected credit losses, the Group and the Company determine default probability parameters for liabilities of accounts receivable that are calculated based on historical analysis of the number of unpaid invoices, and default probability parameters that are calculated based on historical analysis of the value of unpaid invoices. 94 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Expected credit losses are calculated when the amount receivable is recognised in the statement of financial position and is updated on each subsequent end day of the reporting period depending on the number of overdue days of the amount receivable. Impairment losses (reversal of impairment losses) on financial instruments Impairment losses (reversal of impairment losses) on financial instruments include, in particular, losses (reversal of losses) due to impairment of trade receivables and losses (reversal of losses) due to impairment of loans granted. 2.15 Inventories Inventories are recognised at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion, marketing and distribution. The cost of inventories is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress includes the applicable allocation of fixed and variable overhead costs (cost of raw materials, electricity, heat (steam) energy production, depreciation, salaries and other costs) based on a normal operating capacity. 2.16 Leases – where the Group is a lessee At inception of a contract, the Group assesses whether a contract is, or contains, a lease. The contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset for a period of time, the Group follows IFRS 16 Leases. At the commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand‑alone price. The lease contract, when the right to control the use of an identified asset for a period of time is acquired in exchange for consideration, is recognised by the lessee as right-of-use assets and is measured at a discounted cost at the commencement date. The Group and the Company recognise right-of-use assets and lease liabilities at the lease inception date, i.e. the date when the Group or the Company can start to use the leased assets. The right‑of‑use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, less any lease incentives received. The right-of-use asset is subsequently measured at cost, less accumulated depreciation and impairment losses, and adjusted for any remeasurement of the lease liability. The right‑of‑use asset is depreciated using the straight‑line method from the commencement date until the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right‑of‑use asset reflects that the Group will exercise a purchase option. In that case the right‑of‑use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property, plant and equipment. In addition, the right‑of‑use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. In 2022 (as well as in 2021), the Group applied a discount rate of 4.0% to land and buildings used under the lease rights and the discount rate of 1.3% was applied to machinery and equipment. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of a lease liability include: - fixed payments, including in‑substance fixed payments; - variable lease payments that depend on an index or rate initially measured using an index or a rate as at the commencement date; - amounts expected to be payable under a residual value guarantee; and - the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. 95 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Lease liabilities are subsequently measured at amortised cost using the effective interest rate method. The lease term is a non-cancellable term; the periods covered by an option to extend or terminate the lease (if any) are included in the lease term only if it is reasonably certain that the lease will be extended or terminated. The lease liability is subsequently increased by the amount of interest on the lease liability and reduced by the amount of lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee (there were no guaranteed residual values as at 31 December 2022 and 31 December 2021), if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in‑substance fixed lease payment (no extension options under the lease contracts were accounted for as at 31 December 2022 and 31 December 2021 due to uncertainty). When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right‑of‑use asset, or is recorded in the statement of comprehensive income if the carrying amount of the right‑of‑use asset has been reduced to zero. The cost of right-of-use assets comprises: the amount of the initial measurement of the lease liability; additional lease payments or concessions made before the commencement date of the contract; direct contract costs; additional costs associated with the asset’s preparation for use. As at 31 December 2022 and 31 December 2021, the Group did not recognise any lease incentives, initial direct expenses, renewal expenses or other expenses in respect of the leased assets. The depreciation period of right-of-use assets is normally the shorter of the useful life of the assets or the lease term. Depreciation is calculated using the straight-line method. As at 31 December 2022 and 31 December 2021, the straight-line method was applied to the Company’s leased right-of-use assets. Interest expenses of lease liabilities and depreciation of right-of-use assets are accounted for separately in the statement of comprehensive income. Right-of-use assets and lease liabilities are disclosed separately in the statement of financial position. Payments related to short-term lease of equipment and lease of all low-value assets are recognised as expenses in the statement of comprehensive income using the straight-line method. 2.17 Leases – where the Group is a lessor Classification When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, i.e., the lessor retains substantially all risks and rewards, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. Initial recognition The underlying assets leased under the operating lease contracts are accounted for in the lessor’s balance sheet. Subleases When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. A lease is classified as a finance lease if it transfers substantially all of the risks and rewards incidental to right-of-use assets; otherwise it is classified as an operating lease. The Group’s subleases are classified as an operating lease. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease. The Group and the Company had no sublease contracts in 2022 and 2021. Accounting for non-lease components At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. If an arrangement contains lease and non-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract and to account for a non-lease component. The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the net investment in the lease. 96 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Rental income The Group recognises lease payments received under the operating leases as income on a straight-line basis over the lease term when it is earned as part of ‘other income’. All contracts for the lease of real estate contain a fixed, periodic lease payment. 2.18 Long-term employee benefits Each employee of retirement age who terminates his/her employment with the Group or the Company upon retirement is entitled to receive a one-off payment equal to 2 monthly salaries as stipulated in the Lithuanian Labour Code. The past service costs are recognised as an expense in the statement of comprehensive income immediately after the assessment of such liability. Gain or loss resulting from changes in employee benefits (decrease or increase) is recognised immediately in the statement of comprehensive income. Employee benefit obligation is calculated with reference to actuarial valuations using the projected unit credit method. Liability is recognised in the statement of financial position and it reflects the present value of these benefits at the date of the preparation of the statement of financial position. The present value of employee benefit obligation is determined by discounting the estimated future cash flows using the interest rates set for government bonds denominated in the same currency as the benefits and with a maturity similar to the expected timing of benefits settlement. Actuarial gains and losses are recognised in other comprehensive income 2.19 Rules on granting of shares By the decision of 29 April 2022 of the General Meeting of Shareholders of Grigeo AB the rules on granting of shares of Grigeo AB were approved. The rules establish the conditions and the procedure for the granting of shares for no consideration to employees of the Company and its subsidiaries. According to the list approved by the Board, the option recipients are granted the right to use the possibility to acquire the Company’s shares for no consideration. Share options only vest if the employee fulfils the condition of working at the Group for the period of three years and a respective company of the Group generates profit and the employee achieves the targets set according to a variable remuneration system. If the recipient does not fulfil at least one condition established by the Option Agreement, the option does not vest, and the employee does not have the right to exercise that option. The rights granted to the option recipient employed at the Company to acquire shares are forfeit, if the bankruptcy proceedings are initiated against the Company or a decision on its liquidation is adopted, or the option recipient ceases to be employed by the Company, unless the option recipient and the Company agree otherwise. These share-based payments to employees are made only in equity securities (shares). No amounts of social security contributions or income tax are payable by the Company on the exercise of the option (or at any other time before the exercise date) and accrued in liabilities. The option recipient is responsible for all fees relating to the fulfilment of the conditions stipulated in the Option Agreement. Shares are granted by issuing a new share issue through the increase of the authorised share capital of the Company. For this purpose, the reserve for the granting of shares has already been formed at the Company. Each option transaction will be implemented by converting it to the agreed number of ordinary shares of the Company. Option expenses incurred under the share option programme are reported in the Company’s statement of comprehensive income and are offset against the equity line item in the balance sheet, referring to the number of days between the vest date of the option and the exercise date of the option. Each year the Company reviews the valid agreements on vested options in order to reflect, as far as possible, the most accurate number of equity instruments expected to be transferred to employees. All expenses related to share options are calculated on the basis of the share price at the grant date, the number of shares, the period until the exercise date of the option, the turnover of respective job positions and the probability that the option recipient will fulfil the option conditions. 2.20 Financial guarantees contracts Financial guarantees provided for the liabilities of the Group companies (i.e., companies controlled by the same parent) during the initial recognition are accounted for at fair value as equity contribution and as financial liability in the balance sheet. Subsequent to initial recognition this financial liability is amortised and recognised as income depending on the related amortisation/settlement of the Group company’s financial liability to the bank. If there is a possibility that the Group company may fail to fulfil its obligations to the bank, a financial liability of the Group company is accounted for at the higher of the amortised value and the value estimated according to IAS 9 Financial instruments. 97 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) 2.21 Grants and subsidies Grants and subsidies (hereinafter “grants”) allocated for the purchase, construction or any other acquisition of non- current assets are defined as grants related to assets. Grants related to assets are recognised in the statement of comprehensive income in the proportions in which depreciation expense on those assets is recognised, and a relevant line item of expenses is reduced in the statement of comprehensive income. Grants received as a compensation for expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are defined as grants related to income. Grants related to income are recognised as used in parts to the extent of expenses incurred during the reporting period or unearned income to be compensated by that grant. 2.22 Income tax and deferred income tax The Group companies are taxed individually, irrespective of the overall results of the Group. Income tax charge is based on profit for the year and considers deferred taxation. Corporate income tax is included in these financial statements based on the management’s calculations prepared in accordance with the respective tax legislation applied in the Republic of Lithuania and Ukraine. In 2022 and 2021 a 15% income tax rate was established and applied to the Group companies operating in the Republic of Lithuania. A standard income tax rate applied to the Ukrainian companies for the year 2022 was 18% (2021: 18%). Tax losses can be carried forward for an indefinite period, except for losses incurred as a result of disposal of securities and/or derivative financial instruments and for the losses accumulated in the Ukrainian company (losses can be carried forward for 4 years according to the Ukrainian regulatory legislation). Such carrying forward is disrupted if the Company changes its activities due to which these losses were incurred except when the Company does not continue its activities due to reasons which do not depend on the Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and can only be used to reduce the taxable income earned from the transactions of the same nature. With effect from 2014, according to the Lithuanian regulatory legislation deductible tax losses available for carry forward can be used to reduce taxable income of the current tax year by maximum 70%. Deferred taxes are calculated using the balance sheet liability method. Deferred tax represents a net tax effect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts reported in the financial statements. Deferred tax assets and liabilities are measured using a tax rate that is expected to be used when deferred tax assets are utilised or deferred tax liability is settled taking account of tax rates adopted or actually effective at the date of the statement of financial position. Deferred tax assets are recognised in the statement of financial position to the extent that the management expects to utilise such assets in the near future taking into consideration forecasts of taxable profit. When it is probable that a portion of deferred tax will not be utilised, this portion of deferred tax is not recognised in the financial statements. 2.23 Revenue recognition The Group’s and the Company’s revenue is recognised in accordance with the provisions of IFRS 15, i.e. the Group and the Company recognise revenue at the time and to such an extent so that the transfer of goods or services to customers would show the amount which reflects to the consideration that the Company expects to receive in exchange for the goods or services. When applying this standard, the Company takes into consideration the terms of the contract and all significant facts and circumstances. Revenue is recognised in the Company using the five-step model. Identification requirements for contracts with customers A contract with a costumer meets the definition if all of the following criteria are met: the contract has been approved by the parties to the contract and they committed to perform their obligations; the Group and the Company can identify each party’s rights in relation to the goods and services to be transferred; the Group and the Company can identify the payment terms for the goods and services to be transferred; the contract has commercial substance and it is probable that the Group and the Company will collect the consideration to which they will be entitled to in exchange for the goods or services that will be transferred to the costumer. Contracts with customers can be combined or separated into several contracts by maintaining the criteria of the previous contracts. Such combination or separation is treated as a contract modification. 98 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) Identification of performance obligations At the inception of the contract, the Group and the Company assess the goods and services promised in the contract with the client and identify as an obligation to perform any promise to transfer to the client: a good or service (or bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. Determination of the transaction price In order to determine the transaction price, the Group and the Company take into account the terms of the contract and the customary business practices. The transaction price is the amount of consideration to which the Group and the Company expect to be entitled in exchange for the transfer of promised goods and services to the customer, except for the amounts collected on behalf of third parties. The consideration specified in the contract with the customer may include fixed amounts, variable amounts or both. When calculating variable amounts, the Group and the Company decided to apply the most probable value method for contracts with one threshold or the expected value method for contracts with more value thresholds from which the customer receives a discount. Allocation of the transaction price for each performance obligation The Group and the Company allocate the transaction price to each performance obligation at an amount that reflects the amount of consideration to which the Group and the Company expect to be entitled in exchange for the transfer of the promised goods or services to the customer. Revenue recognition when performance obligations are satisfied The Group and the Company recognise revenue when the Group and the Company satisfy a performance obligation by transferring to the customer a promised good or service (i.e., the customer obtains control of the asset). Revenue is recognised as amounts equal to the transaction price that was allocated to a given performance obligation. The Group and the Company transfer the right to control goods or services over time and thus satisfy the performance obligation and recognise revenue over time, if one of the following criteria is met: − the customer simultaneously receives and consumes the benefits provided by the Group and the Company as they perform; − the Group’s and the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or the Group’s and the Company’s performance does not create an asset with an alternative use to the Group and the Company and the Group and the Company have an enforceable right to payment for performance completed to date. Type of goods sold and services rendered Nature and timing of the fulfilment of performance obligations and payment terms Revenue recognition under IFRS 15 Paper and paper products Wood fibreboards Raw materials for corrugated cardboard (test liner and fluting), corrugated cardboard and its products Other goods The customer takes over the control of goods when goods are delivered. Invoices for goods are issued at the time when goods are delivered to the customer or when goods are removed from the warehouse. Invoices are usually paid within 30-45 calendar days. Turnover discounts are applied to goods sold which are calculated the end of each month, quarter and year for the previous period. Revenue is recognised when goods are delivered to the customer or when goods are removed from the warehouse. Related expenses are recognised in the statement of comprehensive income when incurred. Marketing expenses that are directly related to earning of revenue are accounted for in the statement of comprehensive income as a reduction of revenue. Possible loss for the contract is recognised immediately in the statement of comprehensive income. Sales of heat energy and other utility services Invoices for the serviced rendered during the month are issued on the last day of the month. A standard established payment term is 10-30 calendar days. Revenue is recognised over a period of time when the services are rendered. 99 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 2. Summary of significant accounting policies (continued) 2.24 Recognition of expenses Expenses are recognised on an accrual basis and following the matching principle during the reporting period in which revenue associated with such expenses is earned, regardless of the timing of the cash payments. Expenses incurred during the reporting period, which cannot be attributed directly to specific revenue earned and will not generate any revenue in subsequent reporting periods, are recognised as expenses in the period in which they were incurred. Expenses are usually measured at the amount paid or payable, net of VAT. When a long term of settlement is established and no interest is charged, expenses are determined by discounting the amount of settlement at the market interest rate. 2.25 Fair value measurement Certain accounting policies and disclosures of the Group and the Company require the fair value measurement for financial and non-financial assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Group and the Company have access at that date. The fair value of a liability reflects its non- performance risk. In determining the fair value of assets or liabilities the Group and the Company use as much as possible inputs that are observable in the market. A fair value hierarchy categorises into three levels the inputs to valuation methods used to measure fair value: - quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). The inputs used to measure the fair value of an asset or a liability might be categorised within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group and the Company recognise the amounts transferred within the fair value hierarchy levels at the end of the reporting period in which the change occurred. When applicable, further information on assumptions used in determining fair values is disclosed in the note related to specific assets or liabilities: Note 8 – Investment property Note 3 – Financial risk management – Interest rate risk 2.26 Contingencies Contingent liabilities are not recognised in the financial statements, except for contingent liabilities related to business combinations. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of income or economic benefits is probable. 2.27 Events after the end of the reporting period Events after the reporting period that provide additional information about the Group’s/Company’s position at the date of the statement of financial position (adjusting events) are reflected in the financial statements. Events after the reporting period other than adjusting events are disclosed in explanatory notes to the financial statements when such events are significant. 2.28 Comparative figures New accounting estimates do not affect reliability of information disclosed in the financial statements, therefore they are corrected in the accounting records and presented in the financial statements prospectively. 2.29 Inter-company offsetting For the purpose of the financial statements, assets and liabilities, income and expenses are not offset, unless such offsetting is required by a specific Business Accounting Standard. 100 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 3. Financial risk management The Group and the Company are exposed to financial risks in their operations, i.e., credit risk, liquidity risk and market risk (foreign exchange risk, interest rate risk). In managing these risks, the Group and the Company seek to mitigate the effect of factors which could make a negative effect on the financial performance of the Group and the Company. Credit risk The largest exposure to credit risk is represented by the carrying amount of each financial asset. Consequently, the Company’s management considers that its maximum exposure is reflected by the amount of current and non- current trade and other receivables, net of recognised impairment losses and cash and cash equivalents at the date of the statement of financial position. Credit risk or the risk of counterparties defaulting, is controlled by the application of credit terms and monitoring procedures using services of external credit insurance and debt recovery agencies. The Company’s objective is to maximise the number of insured clients and with regard to the clients who are not insured by a credit insurance company the advance payment basis is usually applied. Maximum exposure to credit risk The table below summarises all credit risk exposures relating to on-balance sheet items of the Group and the Company. Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Trade receivables 22,247 19,071 12,215 8,112 Trade receivables from related parties - - 1,803 1,294 Other amounts receivable 383 1,232 189 558 Cash and cash equivalents 14,840 12,443 7,544 818 Total 37,470 32,746 21,751 10,782 Trade receivables As at 31 December 2022 and 2021, the Company and the Group carried out the assessment of a loss allowance for expected losses according to IFRS 9. For trade receivables, the Company and the Group apply a simplified approach to measure the amount of lifetime expected credit losses. The amount of the allowance for expected losses for trade receivables is calculated on the basis of the profile of payments for sales in 2020-2022. Historical loss rates are adjusted with reference to the present and future-oriented information on the macroeconomic factors affecting the customers’ ability to settle the amounts due. The Company has established that the growth rate of the Lithuanian GDP is the major factor and adjusts historical loss rates accordingly referring to expected changes in these factors. Based on the impairment tests performed with respect to trade receivables, an individually assessed loss allowance of EUR 5 thousand was recognised for the Group in 2022 (in 2021, no individually assessed impairment was recognised for the Group). Movements in the loss allowance for amounts receivable were as follows: Group Company Individually assessed impairment Individually assessed impairment Collectively assessed impairment Collectively assessed impairment Individually assessed impairment Individually assessed impairment Collectively assessed impairment Collectively assessed impairment 2022 2021 2022 2021 2022 2021 2022 2021 At 1 January 146 153 - - 72 72 - - Increase in allowance 5 - - - - - - - Receivables written off (66) (7) - - - - - - At 31 December 85 146 - - 72 72 - - Change in the loss allowance for trade receivables in 2022 and 2021 is included in administrative expenses. 101 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 3. Financial risk management (continued) Expected credit losses: Group Not past due Trade receivables past due Total < 30 days 30–60 days 60–90 days 90–360 days > 360 days Trade receivables – net (2022) 20,789 1,329 19 6 6 99 22,248 Trade receivables – gross 20,789 1,329 19 6 11 179 22,333 Recognised loss allowance - - - - (5) (80) (85) Expected loss coefficient - - - - 45% 45% Trade receivables – net (2021) 17,016 1,797 201 36 21 - 19,071 Trade receivables – gross 17,016 1,797 201 36 21 146 19,217 Recognised loss allowance - - - - - (146) (146) Expected loss coefficient - - - - - 100% Company Not past due Trade receivables past due Total < 30 days 30–60 days 60–90 days 90–360 days > 360 days Trade receivables – net (2022) 11,614 583 17 1 - 1 12,215 Trade receivables – gross 11,614 583 17 1 - 72 12,287 Recognised loss allowance - - - - - (72) (72) Expected loss coefficient - - - - - 100% Trade receivables – net (2021) 7,850 254 8 2 - - 8,112 Trade receivables – gross 7,850 254 8 - - 72 8,184 Recognised loss allowance - - - - - (72) (72) Expected loss coefficient - - - - - 100.0% The concentration of trade partners of the Group and the Company is not high. As at 31 December 2022, the Group’s trade receivables from two major customers accounted for respectively 12.5% and 5.5% of the total trade receivables (31 December 2021: 8.6% and 4.5%, respectively). As at 31 December 2022, the Company’s amounts receivable from two major customers accounted for respectively 22.7% and 10.0% of the total trade receivables (31 December 2021: 20.3% and 11.6%, respectively). Amounts receivable from related parties and other amounts receivable The Group’s other amounts receivable comprise amounts receivables of the recovery of a part of the PSO (services under public service obligation (PSO) scheme) fee and other amounts receivable. The recovery amount of a part of the PSO service fee is the amount receivable from the state authority. Based on the management’s estimate, risk arising from amounts receivable from the state enterprises is minimal and the credit rating of the Republic of Lithuania is applied to them. The Group’s and the Company’s other amounts receivable are not analysed due to their immateriality. The risk of recovery of the Company’s amounts receivable from the related parties is not significant because the operations of the subsidiaries are profitable and amounts receivable from the related parties are not material. Cash and cash equivalents The maximum exposure to credit risk of the Group’s and the Company’s cash and cash equivalents is equal to the fair value of cash and cash equivalents classified as cash and cash equivalents at the date of the preparation of the statements of financial position. The Group’s and the Company’s management considers that the risk arising from cash and cash equivalents held in bank accounts and other short-term financial instruments is not significant as cash is held only in those commercial banks that have high credit ratings. 102 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 3. Financial risk management (continued) The credit quality of cash held in bank accounts is evaluated based on the long-term borrowing ratings assigned by Standard & Poor’s (or an equivalent rating assigned by Moody’s): Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 AA- 227 269 - - A+ 14,596 8,114 7,544 763 BBB+ - 2,056 - 55 BBB - 2,000 - - Other 17 4 - - Total 14,840 12,443 7,544 818 Liquidity risk The table below summarises the maturity profile of the Group’s financial liabilities as at 31 December 2022 and 2021 based on contractual undiscounted payments. Group Less than 3 months 3 to 12 months 1 to 5 years Over 5 years Total Carrying amount Borrowings 833 1,755 4,863 - 7,451 7,007 Lease liabilities 122 359 706 5,349 6,536 3,885 Trade payables 25,979 - - - 25,979 25,979 Other amounts payable 2,208 - - - 2,208 2,208 At 31 December 2022 29,142 2,114 5,569 5,349 42,174 39,079 Borrowings 514 1,529 951 - 2,994 2,958 Lease liabilities 143 363 896 7,545 8,947 3,537 Trade payables 25,270 - - - 25,270 25,270 Other amounts payable 1,687 - - - 1,687 1,687 At 31 December 2021 27,614 1,892 1,847 7,545 38,898 33,452 The table below summarises the maturity profile of the Company’s financial liabilities as at 31 December 2022 and 2021 based on contractual undiscounted payments. Company Less than 3 months 3 to 12 months 1 to 5 years Over 5 years Total Carrying amount Borrowings 364 716 1,938 - 3,018 2,857 Lease liabilities 97 282 175 2,799 3,353 1,348 Amounts payable to related parties 605 - - - 605 605 Trade payables 14,434 - - - 14,434 14,434 Other amounts payable 919 - - - 919 919 At 31 December 2022 16,419 998 2,113 2,799 22,329 20,163 Borrowings 421 972 176 - 1,569 1,555 Lease liabilities 99 292 417 2,806 3,614 1,579 Amounts payable to related parties 601 - - - 601 601 Trade payables 12,013 - - - 12,013 12,013 Other amounts payable 650 - - - 650 650 At 31 December 2021 13,784 1,264 593 2,806 18,447 16,398 Interest payments on borrowings bearing variable interest rates in the table above indicate average market interest rates at the period end, and these amounts may change as market interest rates change. It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. As disclosed in Note 13, the Group and the Company have secured bank borrowings that are subject to loan covenants. In case of breach of covenants, the Group may be required to repay the borrowing earlier than it is indicated in the above table. The finance team regularly monitors compliance with the loan covenants. To ensure the fulfilment of contractual obligations reports on compliance with the terms are regularly provided to management. 103 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 3. Financial risk management (continued) Market risk Interest rate risk A major part of the Group’s and the Company’s borrowings comprises borrowings and lease liabilities that bear a variable interest rate linked with EURIBOR and expose them to the interest rate risk (Note 13). The following table demonstrates the sensitivity of the Group’s and the Company’s profit before tax to possible changes in interest rates with all other variables held constant (through the impact on variable interest rate borrowings): Increase/decrease in basis points Group Company Effect on profit before tax Effect on profit before tax 2022 EUR +100 (70) (29) EUR -100 70 29 2021 EUR +100 (22) (10) EUR -100 - - Foreign exchange risk The Company’s financial assets and liabilities as at 31 December 2022 and 2021 are denominated in the euros. The Group’s financial assets and liabilities as at 31 December 2022 and 2021 are denominated in the euros and the Ukrainian hryvnias. The table below shows the sensitivity of the Group’s profit before tax to possible changes in the exchange rate of the Ukrainian hryvnia: 2022 2021 Reasonably possible change in the EUR/UAH exchange rate, % +/-20% +/-10% Financial assets denominated in the Ukrainian hryvnias 625 879 Financial liabilities denominated in the Ukrainian hryvnias 99 304 Estimated negative effect on profit before tax (88) (95) Estimated positive effect on profit before tax 132 116 Fair value of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Group and the Company have access at that date. The fair value of a liability reflects its non- performance risk. The carrying amount of the Group’s and the Company’s trade and other receivables, cash and cash equivalents, borrowings, lease liabilities, trade and other payables approximates their fair value. The fair value of financial instruments is measured at the Group and the Company using the following hierarchy levels: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. The Group’s and the Company’s financial assets attributed to this level comprise cash and cash equivalents. Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group’s and the Company’s assets and liabilities attributed to this level comprise: • Trade and other amounts receivable, trade and other amounts payable. The average payment term of these financial instruments is less than 3 months (7-90 days for trade receivables, 10-120 days for trade payables), therefore their fair value approximates the carrying amount. Borrowings and lease liabilities. The fair value of these financial instruments approximates the carrying amount as they are stated at the amortised cost and interest rates applicable to them are similar to the market interest rates at the balance sheet date. 104 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 3. Financial risk management (continued) Capital risk management The main objective of the Group’s and the Company’s capital management is to ensure that the Group and the Company comply with externally imposed capital requirements and that the Group and the Company maintain healthy capital ratios in order to support their business and to maximise shareholders’ value (capital in the meaning of IAS 1 corresponds to equity presented in the financial statements and attributable to the Company’s owners). The Group and the Company manage the capital structure and make adjustments to it in the light of changes in economic conditions and the operating risks. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, or issue new shares. No changes were made concerning risk management objectives, policies or processes during the year ended 31 December 2022. Pursuant to the Lithuanian Law on Companies, the Group’s and the Company’s equity must be not less than 50% of their share capital. As at 31 December 2022 and 2021, the Company complied with this requirement. The Group and the Company use the debt-to-equity ratio to evaluate their capital. Capital includes ordinary shares, reserves, retained earnings attributable to the equity holders of the parent. It is aimed that the debt-to-equity ratio should not be higher than 50%-60%. As at 31 December 2022 and 2021, neither the Group nor the Company exceeded the maximum debt-to-equity ratio. Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Non-current liabilities (excluding subsidies, grants and deferred income tax liability) 8,650 4,496 2,988 1,505 Current liabilities 34,611 32,822 19,073 16,229 Total liabilities 43,261 37,318 22,061 17,734 Equity attributable to shareholders of the Company 97,044 93,576 66,373 56,389 Debt-to-equity ratio 45% 40% 33% 31% 4. Significant accounting estimates and assumptions Set out below are the areas significant to the Group’s and the Company’s financial statements that involve complex judgements, assumptions and accounting estimates. Useful lives of property, plant and equipment The estimation of the useful lives of items of property, plant and equipment is a matter of judgment based on the experience with similar assets. The management assesses the remaining useful lives in accordance with the current technical conditions of the assets and estimated period during which the assets are expected to earn benefits for the Group. In assessing the remaining useful life of property, plant and equipment, the management takes into account conclusions presented by the employees responsible for technical maintenance of assets. Impairment of goodwill Goodwill is tested for impairment annually by calculating the recoverable value. The recoverable value of goodwill is calculated by discounting future cash flows to their present value. The management tested goodwill of EUR 3,001 thousand, which was recognised upon the acquisition of subsidiary Grigeo Klaipėda AB, for impairment and did not establish any indications of impairment (Note 7). Legal processes Subsidiary Grigeo Klaipėda AB has received a claim in relation to indemnification for damage to the environment. Based on the management’s estimate, the outcome of the claim involves a high degree of uncertainty (Note 32). 105 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 5. Property, plant and equipment Group Buildings and structures Machinery and equipment Motor vehicles Other assets Construction work in progress and prepayments Total At 1 January 2021 Cost 46,988 112,980 2,378 2,454 7,613 172,413 Accumulated depreciation (19,433) (79,361) (1,479) (1,511) - (101,784) Net book amount 27,555 33,619 899 943 7,613 70,629 Opening net book amount at 1 January 2021 27,555 33,619 899 943 7,613 70,629 Additions 51 490 171 181 9,956 10,849 Disposals and write-offs - (70) (5) (1) - (76) Transfer to inventory - (15) - - - (15) Transfer from construction work in progress to property, plant and equipment 328 7,154 35 49 (7,566) - Reclassification to investment property (618) (9) - 3 - (624) Reclassification between categories - 15 - (15) - - Foreign exchange effect 17 55 - - 15 87 Depreciation charge (2,241) (6,419) (272) (354) - (9,286) Closing net book amount at 31 December 2021 25,092 34,820 828 806 10,018 71,564 At 31 December 2021 Cost 46,700 119,730 2,468 2,514 10,018 181,430 Accumulated depreciation (21,608) (84,910) (1,640) (1,708) - (109,866) Net book amount 25,092 34,820 828 806 10,018 71,564 Opening net book amount at 1 January 2022 25,092 34,820 828 806 10,018 71,564 Additions 71 420 466 163 7,407 8,527 Disposals and write-offs (2) (30) (1) (1) - (34) Transfer from/to inventory - 8 - - - 8 Transfer from construction work in progress to property, plant and equipment 1,061 9,816 65 221 (11,163) - Reclassification to intangible assets - - - - (250) (250) Reclassification from investment property 21 - - - - 21 Foreign exchange effect (34) (99) - (3) (23) (159) Depreciation charge (1,902) (5,964) (268) (349) - (8,483) Closing net book amount at 31 December 2022 24,307 38,971 1,090 837 5,989 71,194 At 31 December 2022 Cost 47,969 127,100 2,803 2,522 5,989 186,383 Accumulated depreciation (23,662) (88,129) (1,713) (1,685) - (115,189) Net book amount 24,307 38,971 1,090 837 5,989 71,194 The Group’s prepayments amounted EUR 348 thousand as at 31 December 2022 (31 December 2021: EUR 1,880 thousand). 106 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 5. Property, plant and equipment (continued) Company Buildings and structures Machinery and equipment Motor vehicles Other assets Construction work in progress and prepayments Total At 1 January 2021 Cost 16,964 54,035 708 1,086 4,799 77,592 Accumulated depreciation (6,265) (41,667) (354) (693) - (48,979) Net book amount 10,699 12,368 354 393 4,799 28,613 Opening net book amount at 1 January 2021 10,699 12,368 354 393 4,799 28,613 Additions 17 27 - 65 4,963 5,072 Transfer from/to inventory - (15) - - - (15) Reclassification between categories - 15 - (15) - - Transfer from construction work in progress to property, plant and equipment 125 4,422 - 9 (4,556) - Reclassification to investment property (618) (9) - 3 - (624) Depreciation charge (864) (2,923) (85) (154) - (4,026) Closing net book amount at 31 December 2021 9,359 13,885 269 301 5,206 29,020 At 31 December 2021 Cost 16,364 57,714 654 1,028 5,206 80,966 Accumulated depreciation (7,005) (43,829) (385) (727) - (51,946) Net book amount 9,359 13,885 269 301 5,206 29,020 Opening net book amount at 1 January 2022 9,359 13,885 269 301 5,206 29,020 Additions - 80 184 65 1,216 1,545 Disposals and write-offs (1) (12) - - - (13) Transfer from/to inventory - 8 - - - 8 Transfer from construction work in progress to property, plant and equipment 249 4,329 - 18 (4,596) - Depreciation charge (692) (2,615) (96) (142) - (3,545) Closing net book amount at 31 December 2022 8,915 15,675 357 242 1,826 27,015 At 31 December 2022 Cost 16,530 61,524 705 901 1,826 81,486 Accumulated depreciation (7,615) (45,849) (348) (659) - (54,471) Net book amount 8,915 15,675 357 242 1,826 27,015 The Company’s prepayments amounted EUR 119 thousand as at 31 December 2022 (31 December 2021: EUR 450 thousand). 107 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 5. Property, plant and equipment (continued) The depreciation charge of the Group’s and the Company’s property, plant and equipment is included in the following line items of the statement of comprehensive income and the statement of financial position: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Cost of sales 8,128 8,897 3,336 3,782 Administrative expenses 254 271 141 170 Selling and distribution expenses 101 118 68 74 Statement of comprehensive income – total 8,483 9,286 3,545 4,026 As at 31 December 2022, the Group’s and the Company’s property, plant and equipment with the carrying amount of respectively EUR 13,288 thousand and EUR 6,565 thousand (31 December 2021: EUR 18,249 thousand and EUR 12,152 thousand, respectively) was pledged to the banks as security for borrowings (Note 13). A part of the Group’s and the Company’s property, plant and equipment was fully depreciated but still in use. Information by category of assets is presented below: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Buildings and structures 821 880 260 332 Machinery and equipment 5,130 5,246 1,372 1,445 Motor vehicles 637 642 44 175 Other assets 405 514 127 248 Total 6,993 7,282 1,803 2,200 The Group’s and the Company’s commitments for the acquisition of property, plant and equipment under the signed agreements amounted to respectively EUR 1,988 thousand and EUR 363 thousand as at 31 December 2022 (31 December 2021: EUR 3,333 thousand and EUR 323 thousand, respectively). 108 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 6. Right-of-use assets Group Land Buildings and structures Machinery and equipment Total At 1 January 2021 Cost 3,945 242 765 4,952 Accumulated depreciation (469) (110) (244) (823) Net book amount 3,476 132 521 4,129 Opening net book amount at 1 January 2021 3,476 132 521 4,129 Change in value-in-use - 175 156 331 Foreign exchange effect 2 - - 2 Disposals and write-offs - - (58) (58) Amortisation charge (63) (113) (259) (435) Closing net book amount at 31 December 2021 3,415 194 360 3,969 At 31 December 2021 Cost 3,948 416 823 5,187 Accumulated depreciation (533) (222) (463) (1,218) Net book amount 3,415 194 360 3,969 Opening net book amount at 1 January 2022 3,415 194 360 3,969 Change in value-in-use 208 376 279 863 Foreign exchange effect (3) - - (3) Disposals and write-offs - - (75) (75) Amortisation charge (67) (122) (288) (477) Closing net book amount at 31 December 2022 3,553 448 276 4,277 At 31 December 2022 Cost 4,148 792 780 5,720 Accumulated depreciation (595) (344) (504) (1,443) Net book amount 3,553 448 276 4,277 109 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 6. Right-of-use assets (continued) Company Land lease rights Buildings and structures Machinery and equipment Total At 1 January 2021 Cost 1,013 1,154 241 2,408 Accumulated depreciation (26) (468) (81) (575) Net book amount 987 686 160 1,833 Opening net book amount at 1 January 2021 987 686 160 1,833 Change in value-in-use - - 57 57 Disposals, write-offs - - (29) (29) Amortisation charge (13) (229) (85) (327) Closing net book amount at 31 December 2021 974 457 103 1,534 At 31 December 2021 Cost 1,014 1,154 243 2,411 Accumulated depreciation (40) (697) (140) (877) Net book amount 974 457 103 1,534 Opening net book amount at 1 January 2022 974 457 103 1,534 Change in value-in-use 17 - 93 110 Disposals, write-offs - - (15) (15) Amortisation charge (14) (228) (92) (334) Closing net book amount at 31 December 2022 977 229 89 1,295 At 31 December 2022 Cost 1,029 1,154 284 2,467 Accumulated depreciation (52) (925) (195) (1,172) Net book amount 977 229 89 1,295 The depreciation charge of the Group’s and the Company’s right-of-use assets is included in the following line items of the statement of comprehensive income: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Cost of sales 352 319 68 65 Administrative expenses 67 64 14 14 Selling and distribution expenses 58 52 252 248 Total 477 435 334 327 As at 31 December 2022, the Group’s and the Company’s land lease rights with the carrying amount of respectively EUR 1,016 thousand and EUR 353 thousand (31 December 2021: EUR 477 thousand and EUR 358 thousand, respectively) were pledged to the banks as security for borrowings (Note 13). 110 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 7. Intangible assets Group Goodwill Licences, patents Software Other assets Total At 1 January 2021 Cost 3,001 158 2,207 531 5,897 Accumulated amortisation - (86) (1,657) (530) (2,273) Net book amount 3,001 72 550 1 3,624 Opening net book amount at 1 January 2021 3,001 72 550 1 3,624 Additions - 11 38 23 72 Foreign exchange effect - 1 - - 1 Amortisation charge - (38) (145) (1) (184) Closing net book amount at 31 December 2021 3,001 46 443 23 3,513 At 31 December 2021 Cost 3,001 169 2,243 553 5,966 Accumulated amortisation - (123) (1,800) (530) (2,453) Net book amount 3,001 46 443 23 3,513 Opening net book amount at 1 January 2022 3,001 46 443 23 3,513 Additions - 6 9 177 192 Transfer from development work in progress to intangible assets - - 18 (18) - Reclassification from property, plant and equipment - - 250 - 250 Foreign exchange effect - - (1) - (1) Amortisation charge - (39) (149) (2) (190) Closing net book amount at 31 December 2022 3,001 13 570 180 3,764 At 31 December 2022 Cost 3,001 61 2,510 691 6,263 Accumulated amortisation - (48) (1,940) (511) (2,499) Net book amount 3,001 13 570 180 3,764 Goodwill On 1 March 2010, the Company acquired the Grigeo Investicijų Valdymas UAB group consisting of Grigeo Investicijų Valdymas UAB, Avesko UAB (in 2010, Avesko UAB was reorganised by merging it with Grigeo Klaipėda AB), Grigeo Klaipėda AB and Mena Pak AT. A goodwill of EUR 3,001 thousand was recognised on the acquisition of these subsidiaries. The goodwill arose on expected synergies of the activities of the Group companies. Goodwill is not amortised but is tested annually for possible impairment. For the purpose of impairment testing as at 31 December 2022 and 2021, goodwill was allocated to the Grigeo Klaipėda AB cash-generating unit. As at 31 December 2022 and 2021, the recoverable amount of the cash-generating unit was determined based on projected future discounted cash inflows according to the five-year financial forecasts approved by the management. 111 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 7. Intangible assets (continued) Forecasts as at 31 December 2022: Revenue Projected annual revenue growth (decrease), % 2022 2023 2024 2025 2026 2027 68,800 (11.0) 5.8 (19.2) 0.5 0.5 Gross profit margin, % 2022 2023 2024 2025 2026 2027 14.1 9.8 5.8 23.9 24.1 23.8 As a result of high rises in prices in 2022 caused by a significant increase in energy prices, decline in revenue in 2023 is projected. Decline in revenue in 2025 is related to a further decrease in the prices of energy resources, when more capacity of electricity generation will appear on the market. Revenue Projected annual revenue growth (decrease), % 2021 2022 2023 2024 2025 2026 54,488 39.3 2.7 0.2 (0.3) 0.1 Gross profit margin, % 2021 2022 2023 2024 2025 2026 18.2 24.4 22.6 22.9 22.8 22.4 Revenue was projected based on the management’s assumptions as at 31 December 2022 and 31 December 2021, respectively, which forecast that future revenue will increase due to investments in the enhancement of operational efficiency of the production facilities and intensification of sales actions. As at 31 December 2022, projected investments for the upcoming period of 5 years amounted to EUR 2,072 thousand on average annually (31 December 2021: EUR 2,202 thousand). Expenses were projected in view of actual expenses taking into consideration the projected level of inflation. In 2022 and 2021, cash flows beyond the five-year period were extrapolated using a 1% annual growth rate that reflects the management’s best estimate in view of the current situation in this industry. The discount rate used by the management for a specific cash-generating unit was calculated as a weighted average cost of capital which is equal to 9.5% after tax for the cash generating units located in Lithuania as at 31 December 2022 (as at 31 December 2021: 6.7%). The calculation of the recoverable amount of the cash-generating unit as at 31 December 2022 and 2021 did not indicate any impairment of goodwill. The assessment was performed without taking into consideration the legal process described in Note 32 of the financial statements. With regard to the assessment of the recoverable amount of the above-mentioned cash-generating unit as at 31 December 2022 and 2021, the management believes that no possible change in any of the above key assumptions would cause the carrying amount of the cash-generating unit to materially exceed its recoverable amount. The sensitivity analysis of the calculation of the recoverable amount of the investment in Grigeo Klaipėda AB shows the impact of change in the assumptions used in the impairment testing on the assessment result: Changes in assumptions Effect as at 31 December 2022 and 2021 Decrease in revenue and cost of sales for each forecast year by 10% - Decrease in gross profit margin by 500 basis points - Increase in discount rate by 100 basis points - Considering the above changes in the assumptions, no additional impairment indicators of goodwill were identified in the sensitivity analysis. 112 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 7. Intangible assets (continued) Company Licences, patents Software Other assets Total At 1 January 2021 Cost 158 998 10 1,166 Accumulated amortisation (86) (641) (9) (736) Net book amount 72 357 1 430 Opening net book amount at 1 January 2021 72 357 1 430 Additions 11 27 23 61 Amortisation charge (37) (79) (1) (117) Closing net book amount at 31 December 2021 46 305 23 374 At 31 December 2021 Cost 169 1,025 33 1,227 Accumulated amortisation (124) (720) (9) (853) Net book amount 46 305 23 374 Opening net book amount at 1 January 2022 46 305 23 374 Additions 6 - 121 127 Transfer from development work in progress to intangible assets - 18 (18) - Amortisation charge (39) (80) (2) (121) Closing net book amount at 31 December 2022 13 243 124 380 At 31 December 2022 Cost 64 1,039 135 1,238 Accumulated amortisation (51) (796) (11) (858) Net book amount 13 243 124 380 Amortisation expenses of intangible assets are included in the following line items of the statement of comprehensive income: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Cost of sales 166 182 97 117 Administrative expenses 18 - 18 - Selling and distribution expenses 6 2 6 - Total 190 184 121 117 113 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 7. Intangible assets (continued) A part of the Group’s and the Company’s intangible assets was fully amortised but still in use. Information by category of assets is presented below: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Licences, patents 7 15 7 15 Software 190 179 78 72 Other assets 520 520 - - Total 717 714 85 87 8. Investment property Group Buildings Other assets Construction work in progress and prepayments Total At 1 January 2021 Cost 2,266 - 516 2,782 Accumulated depreciation (803) - - (803) Net book amount 1,463 - 516 1,979 Opening net book amount at 1 January 2021 1,463 - 516 1,979 Additions - - 1,983 1,983 Reclassification from construction work in progress 2,171 - (2,171) - Reclassification from property, plant and equipment 623 - - 623 Depreciation charge (168) - - (168) Closing net book amount at 31 December 2021 4,089 - 328 4,417 At 31 December 2021 Cost 5,203 - 328 5,531 Accumulated depreciation (1,114) - - (1,114) Net book amount 4,089 - 328 4,417 Opening net book amount at 1 January 2022 4,089 - 328 4,417 Additions - 3 259 262 Reclassification from construction 251 - (251) - Reclassification to property, plant and equipment (21) - - (21) Depreciation charge (247) (1) - (248) Closing net book amount at 31 December 2022 4,072 2 336 4,410 At 31 December 2022 Cost 4,963 2 336 5,301 Accumulated depreciation (891) - - (891) Net book amount 4,072 2 336 4,410 114 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 8. Investment property (continued) Company Buildings Other assets Construction work in progress and prepayments Total At 1 January 2021 Cost 2,266 - 516 2,782 Accumulated depreciation (803) - - (803) Net book amount 1,463 - 516 1,979 Opening net book amount at 1 January 2021 1,463 - 516 1,979 Additions - - 1,983 1,983 Reclassification from construction in progress 2,171 - (2,171) - Reclassification from property, plant and equipment 623 - - 623 Depreciation charge (168) - - (168) Closing net book amount at 31 December 2021 4,089 - 328 4,417 At 31 December 2021 Cost 5,203 - 328 5,531 Accumulated depreciation (1,114) - - (1,114) Net book amount 4,089 - 328 4,417 Opening net book amount at 1 January 2022 4,089 - 328 4,417 Additions - 3 259 262 Reclassification from construction work in progress 251 - (251) - Depreciation charge (247) (1) - (248) Closing net book amount at 31 December 2022 4,093 2 336 4,431 At 31 December 2022 Cost 5,454 2 336 5,792 Accumulated depreciation (1,361) - - (1,361) Net book amount 4,093 2 336 4,431 As at 31 December 2022, the Group’s and the Company’s investment property (buildings) with the acquisition cost of respectively EUR 7 thousand and EUR 7 thousand (31 December 2021: EUR 7 thousand and EUR 7 thousand, respectively) was fully amortised but still in use. There were no prepayments as at 31 December 2022 and 2021. The were no commitments for the acquisition of investment property as at 31 December 2022 and 31 December 2021. Investment property comprises the buildings and structures located at Popieriaus street 15 and Popieriaus street 25 in Naujieji Verkiai and the leased site at Vilniaus street 10 in Grigiškės. A part of the investment property (83% as at 31 December 2022 and 80% as at 31 December 2021 at the carrying amount) is leased to third parties. The lease term under the contracts is between 1 to 10 years. As at 31 December 2022, future annual revenue amounted to EUR 755 thousand (31 December 2021: EUR 492 thousand) in the period from 2023 to 2027. Depreciation expenses are included in administrative expenses. Fair value measurement The fair value of the investment property was measured based on the cash flows from the investment property for a 10-year period with reference to forecast revenue and expenses. Cash flows were calculated using a discount rate of 11% (in 2021 – 10%), a rental yield at the end of the assessed period was equal to 9% (in 2021 – 9%). According to the calculation, the fair value of the investment property is equal to EUR 4,507 thousand (31 December 2021: EUR 4,153 thousand). 115 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 8. Investment property (continued) The fair value measurement of investment property does not include construction work in progress and prepayments. Based on the estimate of the management of the Group, the carrying amount of construction work in progress and prepayments approximates their fair value. The sensitivity of the value measurement considering reasonably possible changes in the discount rate and the rental yield is presented below: At 31 December 2022 At 31 December 2021 Change in the discount rate (+100 basis points) 4,207 3,857 Change in the discount rate (-100 basis points) 4,838 4,480 Change in the rental yield (+100 basis points) 4,157 3,810 Change in the rental yield (-100 basis points) 4,944 4,580 9. Inventories Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Materials 7,476 6,593 2,483 1,690 Work in progress 2,567 1,838 1,826 1,169 Finished products 7,756 5,600 3,807 1,880 Inventories in transit 1,911 289 1,809 38 Prepayments 254 108 61 19 Total 19,963 14,428 9,985 4,796 As at 31 December 2022, the acquisition value (cost) of the Group’s and the Company’s inventories was decreased by respectively EUR 943 thousand and EUR 338 thousand (31 December 2021: EUR 776 thousand and EUR 298 thousand, respectively) to net realisable value. The net realisable value adjustment was accounted for under cost of sales. In 2022, inventories of EUR 135 million (2021: EUR 97 million) for the Group and inventories of EUR 67 million (2021: EUR 46 million) for the Company were included in cost of sales. As described in the Note 13, as at 31 December 2022, the inventories of the Group and the Company were not pledged to secure repayment of bank borrowings. As at 31 December 2021, the Group and the Company had pledged inventories with a carrying amount of respectively EUR 1,158 thousand and EUR 1,158 thousand as security for bank borrowings. 116 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 10. Trade and other amounts receivable Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Trade receivables – gross 22,333 19,217 12,287 8,184 Loss allowance (86) (146) (72) (72) Trade receivables – net 22,247 19,071 12,215 8,112 Amounts receivable from related parties (Note 30) - - 3,005 1,294 Amount receivable of the recovery of a part of the PSO service fee 141 900 49 314 VAT receivable 1,277 2,040 200 551 Other amounts receivable – gross 242 332 140 244 Total trade and other amounts receivable – net 23,907 22,343 15,609 10,515 Of which: Non-current amounts receivable 3 3 - - Current amounts receivable 23,904 22,340 15,609 10,515 PSO – services under public service obligation scheme. As disclosed in Note 13, as at 31 December 2022 and at 31 December 2021, the Company and subsidiaries Grigeo Packaging UAB and Grigeo Baltwood UAB had pledged future inflows to secure the repayment of bank borrowings. 11. Cash and cash equivalents Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Cash at bank 14,840 12,443 7,544 818 Cash on hand - - - - TOTAL 14,840 12,443 7,544 818 As at 31 December 2022, cash held in bank accounts amounting to EUR 8,363 thousand (2021: EUR 1,052 thousand) for the Group and EUR 7,463 thousand (2021: EUR 641 thousand) for the Company was pledged as collateral against borrowings as further described in Note 13. As at 31 December 2022 and 2021, there were no restrictions on the use of cash balances held in the pledged bank accounts. 12. Authorised share capital and reserves Authorised share capital Date Type of shares Securities’ ISIN code Number of shares, units Par value, EUR Total par value, EUR Until 18/05/2021 Ordinary registered shares LT0000102030 65,700,000 0.29 19,053,000 From 19/05/2021 Ordinary registered shares LT0000102030 131,400,000 0.29 38,106,000 Based on the decision of the Ordinary General Meeting of the Shareholders of the Company that was held on 30 April 2021, the Company's authorised share capital was increased on 19 May 2021 out of the Company’s retained earnings from EUR 19,053 thousand to EUR 38,106 thousand by issuing 65,700,000 ordinary registered shares with a nominal value of EUR 0.29 each. All the shares of the Company have been fully paid up. The Company does not have any other categories of shares than ordinary shares mentioned above. The Company’s Articles of Association do not establish any restrictions on rights to shares or special control rights for the shareholders. The Company and its subsidiaries do not hold the Company’s shares. The Company has not issued any convertible securities, exchangeable securities or guarantee securities, neither has unfulfilled acquisition rights or commitments to increase share capital as at 31 December 2022 and 2021. 117 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 12. Authorised share capital and reserves (continued) Share premium The Company’s authorised share capital was increased after the additional issue of shares with the total nominal value of EUR 1,650,834 in accordance with the decisions of the Ordinary General Meeting of the Shareholders of the Company held on 26 April 2013. The nominal value per share is EUR 0.29, while the shares were issued for EUR 0.51 per share. Share premium is the difference between the issue price and the nominal value of shares, less expenses related to the issue of shares. Reserves A legal reserve is a compulsory reserve under the Lithuanian legislation. Annual transfers of at least 5% of profit to be appropriated calculated in accordance with the accounting principles established by laws are required until the reserve reaches 10% of the authorised share capital. In accordance with the procedure prescribed by the laws, the reserve can be used to cover the company’s losses. Following the authorised share capital increase, the Company’s legal reserve represents 5.4% of the authorised share capital as at 31 of December 2022 (31 December 2021: 5%). The foreign currency translation reserve arises from exchange differences that occur on consolidation of the financial statements of the foreign subsidiary (Note 2.4). The hedging reserve comprises the effective portion of the cumulative net change in the fair value of the hedging instruments used in cash flow hedges that will be subsequently recognised in the statement of comprehensive income. On 29 April 2022, the General Meeting of Shareholders adopted the decision on the appropriation of the profit of the Company and the allocation of EUR 500 thousand to the reserve for granting own shares. On17-22 June 2022, the Company concluded the option agreements with the senior management employees of the Group and the Company for the possibility to acquire 1,660,000 units of the Company’s shares for no consideration upon a full implementation of all conditions specified in the agreements on the share option programme. Reserve for granting own shares Number of shares, thousands of units Value At 1 January 2022 - - Share options to employees at 31 December 2022 1,660 481 Unallocated shares at 31 December 2022 64 19 At 31 December 2022 1,724 500 During 2022, the Group and the Company recognised remuneration expenses of EUR 165 thousand and EUR 90 thousand, respectively, as part of the cost of the share option programme.. Dividends During the Ordinary General Meeting of Shareholders of the Company held in 2022, a decision was made to allocate dividends equal to EUR 0.05 per share (Note 27) (in 2021 dividends equal to EUR 0.06 per share were allocated). 13. Borrowings Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Non-current borrowings: Bank borrowings 4,644 864 1,868 175 4,644 864 1,868 175 Current borrowings: Bank borrowings 2,363 2,094 989 1,380 2,363 2,094 989 1,380 TOTAL 7,007 2,958 2,857 1,555 118 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 13. Borrowings (continued) Movements in bank borrowings during the year are presented in the table below: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Opening balance 2,958 7,630 1,555 2,837 Proceeds from borrowings 6,246 1,731 2,600 1,000 Repayments (2,197) (6,403) (1,298) (2,282) Interest charged 93 62 51 25 Interest paid (93) (62) (51) (25) Closing balance 7,007 2,958 2,857 1,555 Borrowings outstanding at the year-end by currency: Group Company 2022 2021 2022 2021 EUR 7,007 2,958 2,857 1,555 TOTAL 7,007 2,958 2,857 1,555 The unwithdrawn balance under the credit agreements amounted to EUR 28 thousand for the Group and EUR 20 thousand for the Company as at 31 December 2022 (31 December 2021: EUR 5,802 thousand and EUR 3,715 thousand, respectively). Compliance with loan covenants The Company’s borrowings Under the loan and overdraft agreements, the Group and the Company must comply with certain financial and non- financial covenants, such as: debt service coverage ratio, the Company’s EBITDA to financial liabilities ratio, equity to the Company’s liability ratio, free cash flow indicator. The Company and its certain subsidiaries are also required to conduct a certain number of settlements through the bank that provided the loan. Indicators of the Company’s borrowings: Indicator Established ratio Indicators of the Group Indicators of the Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Borrowings/EBITDA < 3.0 (0.37) (0.40) (0.46) (0.12) Debt service coverage ratio (DSCR) > 1.2 8.83 3.59 7.24 2.50 As at 31 December 2022 and 31 December 2021, the Company complied with all financial and non-financial requirements established in the bank agreements. Loans received by the subsidiaries As at 31 December 2022, the subsidiaries complied with all financial and non-financial requirements established in the bank agreements. Interest rates As at 31 December 2022 and 31 December 2021, the Company’s and the Group's borrowings were subject to variable interest rates. They are linked with the EURIBOR interest rate base and with the margin agreed with the bank. In 2022 and 2021, the period of re-pricing variable interest rates on borrowings ranged from 3 to 6 months. The weighted average interest rate applicable to the Group’s and the Company’s bank borrowings is presented in the table below: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Weighted average interest rate 3.78% 1.55% 3.72% 1.51% 119 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 13. Borrowings (continued) Pledged assets The Group and the Company have pledged to the banks property, plant and equipment (Note 5), right-of-use assets (Note 6), inventories (Note 9), cash balances in bank accounts (Note 11) and future inflows (Note 10) as security for borrowings. 14. Lease liabilities Group Company 2022 2021 2022 2021 Non-current 3,477 3,177 1,017 1,259 Current 408 360 331 320 TOTAL 3,885 3,537 1,348 1,579 The assets leased by the Group and the Company under lease contracts comprised motor vehicles, equipment, and lease of premises and land. The lease terms of the lease contracts: between 8 and 79 years for the lease of land; between 2 and 3 years for the lease of buildings; and between 1 and 4 years for the lease of machinery and equipment. The lease contracts are denominated in the euros. Movements in liabilities related to lease over the year are provided in the table below: Group Company 2022 2021 2022 2021 Balance at 1 January 3,537 3,674 1,579 1,864 New lease liabilities 863 331 110 56 Interest charged 146 124 56 65 Lease payments (574) (534) (380) (377) Lease terminations (87) (58) (17) (29) Balance at 31 December 3,885 3,537 1,348 1,579 The Group’s and the Company’s lease liabilities are secured by right-of-use assets (Note 6). 15. Grants Group Company Balance at 1 January 2021 1,147 970 Amortisation charge (208) (159) Balance at 31 December 2021 939 811 Amortisation charge (156) (133) Balance at 31 December 2022 783 678 The grants consist of the support received from the EU funds for the construction of structures, acquisition of machinery and equipment (non-current assets). No agreements were signed in 2022 and 2021. Amortisation of grants is recognised in the statement of comprehensive income within the cost of sales and reduces depreciation expenses of the related assets. 16. Long-term employee benefits As at 31 December 2022 and 2021, the Group and the Company accounted for long-term employee benefits for employees leaving the Group or the Company after reaching the retirement age. Expenses related to the accounting for these liabilities are included in the statement of comprehensive income. Group Company At 1 January 2021 191 86 Change during the year 2021 (18) (15) At 31 December 2021 173 71 Change during the year 2022 75 32 At 31 December 2022 248 103 Actuarial gains and losses during 2022 and 2021 were insignificant, therefore they were not separately disclosed in other comprehensive income. GRI: 201-3 120 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 16. Long-term employee benefits (continued) The main assumptions applied in evaluating the Group’s and the Company’s long-term employee benefits are as follows: At 31 December 2022 At 31 December 2021 Discount rate 2.88% 0.16% Expected annual salary growth rate 5% 5% 17. Trade and other amounts payable Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Trade payables 25,979 25,270 15,039 12,614 Wages and salaries and social security contributions 3,328 3,224 1,508 1,236 Advance amounts received 325 187 83 29 Accrued expenses 723 332 92 47 Other amounts payable 1,485 1,355 827 603 TOTAL 31,840 30,368 17,549 14,529 Of which: Attributable to financial liabilities (Note 3) 28,187 26,957 15,958 13,264 Not attributable to financial liabilities 3,653 3,411 1,591 1,265 18. Segment information Segment reporting For decision making purposes, the Group is organised into three operating business units based on its products produced and has three reportable segments: paper and paper products, wood fibreboards and wood products, raw materials for corrugated cardboard and related products. The Group analyses segment information only up to gross profit, as other operating income and finance income and expenses are not attributed to any segment. Assets and liabilities of the Group are not divided into segments for decision-making purposes. However, information about property, plant and equipment and intangible assets, investment property and right-of-use assets is disclosed according to the segments. Segment information about these three business segments is presented below: Group 2022 Paper and paper products Woodfibre boards Raw materials for corrugated cardboard and related products Total reportable segments Unallocated Elimination TOTAL Sales 77,718 27,652 92,953 198,323 4,886 - 203,209 Inter-segment sales (6,743) (1,070) (30,488) (38,301) (10,059) 48,360 - Unconsolidated segment sales 84,462 28,722 123,440 236,624 14,945 (48,360) 203,209 Cost of sales (66,652) (25,347) (76,176) (168,175) (4,189) - (172,364) Gross profit 11,066 2,305 16,777 30,148 697 - 30,845 Depreciation and amortisation 3,400 747 4,417 8,564 834 - 9,398 Property, plant and equipment of the segment 24,505 6,063 37,299 67,867 3,327 - 71,194 Intangible assets of the segment 292 9 370 671 92 - 763 Investment property of the segment - - - - 4,410 - 4,410 Right-of-use assets of the segment 280 872 2,086 3,238 1,039 - 4,277 Goodwill - - 3,001 3,001 - - 3,001 Investments of the segment 1,507 1,868 4,938 8,313 668 - 8,981 GRI: 201-3 121 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 18. Segment information (continued) Group 2021 Paper and paper products Woodfibre boards Raw materials for corrugated cardboard and related products Total reportable segments Unallocated Elimination TOTAL Sales 60,662 20,728 78,727 160,117 3,098 - 163,215 Inter-segment sales (5,471) (836) (26,884) (33,191) (6,064) 39,255 - Unconsolidated segment sales 66,133 21,564 105,610 193,307 9,163 (39,255) 163,215 Cost of sales (51,041) (16,224) (59,588) (126,853) (2,804) - (129,657) Gross profit 9,621 4,504 19,139 33,264 294 - 33,558 Depreciation and amortisation 3,817 742 4,713 9,272 801 - 10,073 Property, plant and equipment of the segment 26,189 4,929 36,965 68,083 3,481 - 71,564 Intangible assets of the segment 276 1 136 413 99 - 512 Investment property of the segment - - - - 4,417 - 4,417 Right-of-use assets of the segment 169 888 1,888 2,945 1,024 - 3,969 Goodwill - - 3,001 3,001 - - 3,001 Investments of the segment 5,060 2,493 3,011 10,564 2,340 - 12,904 1 Unallocated sales comprise sales not attributable to either of the listed segments, mainly, sales of heating energy (steam) (as the Company has its own steam house) and sales of other utilities. 2 Unallocated cost of sales comprises cost related to unallocated sales, mainly, the cost of wood and gas necessary for the energy generation. 3 Unallocated depreciation and amortisation, property, plant and equipment, investment property, intangible assets and capital expenditure are related to sales of thermal energy and other utilities. Breakdown by region The following table shows a breakdown of revenue by region for the year ended 31 December: Group Company 2022 2021 2022 2021 Domestic market (Lithuania) 74,115 55,326 36,647 22,294 European Union 110,003 86,504 50,581 40,339 Other countries 18,055 9,585 2,946 3,335 CIS countries 1,036 11,800 283 1,623 TOTAL 203,209 163,215 90,457 67,591 Breakdown of property, plant and equipment, intangible assets, right-of-use assets and investment property by geographical location: Group Company 2022 2021 2022 2021 Lithuania 82,751 82,297 33,121 35,345 Latvia 379 381 - - Ukraine 515 785 - - TOTAL 83,645 83,463 33,121 35,345 GRI: 2-1 2-6 122 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 19. Cost of sales Group Company 2022 2021 2022 2021 Raw materials and consumables 88,994 72,674 47,288 36,455 Energy 46,313 23,674 19,475 9,496 Wages and salaries and social security contributions 17,259 15,853 6,375 5,547 Other expenses 11,309 8,266 3,088 3,228 Depreciation and amortisation of non-current assets, including grants 8,489 9,190 3,368 3,806 TOTAL 172,364 129,657 79,594 58,532 20. Selling and distribution expenses Group Company 2022 2021 2022 2021 Fuel and transport services 11,096 8,512 3,421 3,006 Wages and salaries and social security contributions 2,588 2,448 1,309 1,137 Other selling expenses 622 516 208 173 Property maintenance and servicing 258 207 125 108 Depreciation and amortisation of non-current assets 167 172 326 322 Intermediation, marketing, advertising and representation 115 324 108 249 TOTAL 14,846 12,179 5,497 4,995 21. Administrative expenses Group Company 2022 2021 2022 2021 Wages and salaries and social security contributions 4,002 3,799 1,683 1,496 Property maintenance and servicing 772 433 523 324 Taxes (other than income tax) 675 596 236 164 Depreciation and amortisation of non-current assets 587 503 421 352 Legal services 553 610 9 39 Social expenses 525 278 198 96 Security services 368 341 44 39 Insurance services 359 211 125 74 Consultation services 330 244 50 90 Support 292 180 64 24 Audit services 163 140 67 55 Advertising and representation 112 236 36 34 Personnel training and recruitment expenses 71 113 34 57 Fuel and transport services 66 40 26 18 Bonuses and other similar payments 48 66 48 66 Expenses for the listing of securities and related expenses 40 39 40 39 Impairment of doubtful amounts receivable/(reversal of impairment) (1) (3) - - Other administrative expenses 417 308 209 109 TOTAL 9,379 8,134 3,813 3,076 During 2022, audit services provided to the Group and the Company by audit firm PricewaterhouseCoopers UAB under the audit agreements amounted to respectively EUR 136 thousand and EUR 47 thousand (2021: EUR 104 thousand and EUR 40 thousand, respectively); non-audit services provided amounted to respectively EUR 11 thousand and EUR 6 thousand (2021: EUR 11 thousand and EUR 6 thousand, respectively). 22. Other income Group Company 2022 2021 2022 2021 Rental income 636 423 649 437 Dividend income - - 11,300 1,500 TOTAL 636 423 11,949 1,937 In 2022, the Company received dividends of EUR 1,000 thousand from Grigeo Baltwood UAB, dividends of EUR 400 thousand from Grigeo Recycling UAB, dividends of EUR 9,900 thousand from Grigeo investicijų valdymas UAB. In 2021, the Company received dividends of EUR 1,500 thousand from Grigeo Baltwood UAB. 123 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 23. Other gains/(losses) – net Group Company 2022 2021 2022 2021 Net gain from turnover of emission allowances 4,662 110 3,602 (52) Result of disposal of assets 188 89 171 28 Other gain/(losses) 10 (6) 46 60 TOTAL 4,860 193 3,819 36 24. Finance income and costs Group Company 2022 2021 2022 2021 Interest income 15 7 3 - Foreign exchange gain – net - - - - Other finance income 7 27 - 4 Total finance income 22 34 3 4 Interest on loans and lease (244) (194) (111) (91) Foreign exchange loss – net (47) (38) (1) - Default charges (168) (28) (53) (2) Total finance costs (459) (260) (165) (93) Net finance costs (437) (226) (162) (89) Capitalisation of interest on loans and lease In 2022, interest of EUR 42 thousand for the Group and interest of EUR 5 thousand for the Company were capitalised. No interest was capitalised in 2021. 25. Income tax and deferred income tax Income tax expense components: Group Company 2022 2021 2022 2021 Current year income tax 800 787 204 - Adjustments to previous year income tax (66) (39) - (34) Deferred income tax (benefit) 324 502 565 (310) Income tax expenses recognised in the statement of comprehensive income 1,058 1,250 770 (344) The amount of income tax expenses attributable to the operating result for the year can be reconciled against the amount of income tax expenses that would result from applying the statutory income tax rate to profit before income tax: Group Company 2022 2021 2022 2021 Profit before income tax 11,679 13,635 17,159 2,872 Income tax expenses calculated at the tax rate of 15% 1,752 2,046 2,574 431 Effect of a higher income tax rate applied in Ukraine 1 22 - - Effect of a tax rate due to taxation in Latvia (20) (28) - - Effect of investment relief (173) (849) (125) (523) Support (24) (10) (19) (7) Adjustments of income tax in respect of prior periods (66) (36) - (31) Non-allowable deductions (398) 113 40 16 Income not subject to tax (14) (8) (1,700) (230) Income tax expenses recognised in the statement of comprehensive income 1,058 1,250 770 (344) 124 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 25. Income tax and deferred income tax (continued) Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Deferred income tax assets Decrease in net realisable value of amounts receivable 12 20 11 11 Investment relief 575 409 - 366 Write-downs of inventories to net realisable value 142 116 51 45 Long-term employee benefits 37 26 15 11 Vacation reserve 210 196 107 95 Right-of-use assets and liabilities 9 9 9 7 Tax losses carried forward - - - - Other accruals 21 - 13 - Grants 71 69 71 69 Deferred income tax assets 1,077 845 277 604 Less: unrecognised part (11) (11) (11) (11) Deferred income tax assets – net 1,066 834 266 593 Deferred income tax liability Property, plant and equipment (1,969) (1,413) (708) (470) Deferred income tax liability (1,969) (1,413) (708) (470) Deferred income tax – net (903) (579) (442) 123 The Group’s deferred income tax assets and liabilities were offset at the amount which is related to the same tax administration authority and the same taxable entity. Movements in the Group’s deferred income tax differences before and after tax were as follows: Group At 31 December 2020 Change At 31 December 2021 Change At 31 December 2022 Non-current assets (1,127) (286) (1,413) (556) (1,969) Investment relief 403 6 409 166 575 Long-term employee benefits 29 (3) 26 11 37 Decrease in net realisable value of amounts receivable 23 (3) 20 (8) 12 Write-downs of inventories to net realisable value 60 56 116 26 142 Vacation reserve 182 14 196 14 210 Right-of-use assets and liabilities 11 (2) 9 - 9 Tax losses carried forward 311 (311) - - - Grants 38 31 69 2 71 Other 4 (4) - 21 21 Total deferred income tax (66) (502) (568) (324) (892) Unrecognised part (11) - (11) - (11) Deferred income tax – net (77) (502) (579) (324) (903) As at 31 December 2022, the amount of the Group’s unrecognised deferred income tax equal to EUR 11 thousand was related to decrease in net realisable value of amounts receivable. As at 31 December 2021 and 31 December 2020, this amount was equal to EUR 11 thousand. 125 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 25. Income tax and deferred income tax (continued) Movements in the Company’s deferred income tax differences before and after tax were as follows: Company At 31 December 2020 Recognised in the statement of comprehen- sive income At 31 December 2021 Recognised in the statement of comprehen- sive income At 31 December 2022 Property, plant and equipment (353) (117) (470) (238) (708) Investment relief - 366 366 (366) - Long-term employee benefits 13 (2) 11 4 15 Decrease in net realisable value of amounts receivable 11 - 11 - 11 Write-downs of inventories to net realisable value 25 20 45 6 51 Vacation reserve 86 9 95 12 107 Grants 38 31 69 2 71 Right-of-use assets and liabilities 4 3 7 2 9 Other - - - 13 13 Total deferred income tax (176) 310 134 (565) (431) Unrecognised part 11 - 11 - 11 Deferred income tax – net (187) 310 123 (565) (442) Deferred income tax assets and liabilities related to the companies operating in Lithuania were accounted for at a rate of 15% in 2022 and 2021. Deferred taxes related to the company operating in Ukraine were calculated at a rate of 18% in 2022 and 2021. Deferred income tax assets arising from the investment relief can be realised by the companies operating in Lithuania over the current and subsequent four years. 26. Basic and diluted earnings per share Earnings per share are calculated by dividing the net profit attributable to the shareholders by the annual number of ordinary shares issued and paid. Diluted earnings per share are calculated by dividing the net profit attributable to the shareholders by the weighted average of ordinary shares and share options. The calculation of the basic and diluted earnings per share is presented below: Group Company 2022 2021 2022 2021 Net profit for the year attributable to the Company’s shareholders 10,525 12,266 16,389 3,216 Number of ordinary shares 131,400,000 131,400,000 131,400,000 131,400,000 Share options 885,425 885,425 885,425 885,425 Weighted average number of ordinary shares 132,285,425 132,285,425 132,285,425 132,285,425 Earnings per share (in EUR) 0.080 0.093 0.125 0.024 Diluted earnings per share (in EUR) 0.080 0.093 0.124 0.024 27. Dividends per share 2022 2021 Allocated dividends 6,570 7,884 Number of shares 131,400,000 131,400,000 Allocated dividends per share (in EUR) 0.05 0.06 28. Adjusted EBITDA The management of the Group and the Company calculate the adjusted EBITDA – they monitor this performance indicator both at the consolidated level and at the individual company level. The management believes that this indicator is important for understanding the Group’s and the Company’s financial performance. The adjusted EBITDA is calculated by adjusting profit from continuing operations to exclude the impact of taxation, net finance costs, depreciation, amortisation, impairment losses/reversals related to goodwill, intangible assets, property plant and equipment. The calculation also includes amortisation of subsidies related to non-current assets which affects the profit for the period. 126 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 28. Adjusted EBITDA (continued) The adjusted EBITDA as a performance indicator is not established by IFRS. The Group’s definition of the adjusted EBITDA may not match with similarly named performance indicators and disclosures of other entities. Group Company 2022 2021 2022 2021 Profit for the period 10,621 12,385 16,389 3,216 Income tax 1,058 1,250 770 (344) Profit before income tax 11,679 13,635 17,159 2,872 Adjustment: Finance costs – net (Note 24) 437 226 162 89 Dividends received (Note 22) - - (11,300) (1,500) Depreciation (Notes 5 and 8) 8,730 9,454 3,792 4,194 Amortisation (Notes 6 and 7) 667 619 455 444 Amortisation of grants (Note 15) (156) (208) (133) (158) Adjusted EBITDA 21,357 23,726 10,135 5,941 Depreciation expenses decreased in 2022 mainly due to revised useful lives of the items of property, plant and equipment. 29. Financial instruments by category Group Notes At 31 December 2022 At 31 December 2021 Financial assets at amortised cost Trade receivables 10 22,247 19,071 Other amounts receivable 10 383 1,232 Cash and cash equivalents 11 14,840 12,443 Total financial assets at amortised cost 37,470 32,746 Financial liabilities at amortised cost Borrowings 13 7,007 2,958 Lease liabilities 14 3,885 3,537 Trade payables 17 25,979 25,270 Other amounts payable 17 2,208 1,687 Total financial liabilities at amortised cost 39,079 33,452 Company Notes At 31 December 2022 At 31 December 2021 Financial assets at amortised cost Trade receivables 10 12,215 8,112 Amounts receivable from related parties 10 3,005 1,294 Other amounts receivable 10 189 558 Cash and cash equivalents 11 7,544 818 Total financial assets at amortised cost 22,953 10,782 Financial liabilities at amortised cost Borrowings 13 2,857 1,555 Lease liabilities 14 1,348 1,579 Trade payables 17 14,434 12,013 Trade payable to related parties 17 605 601 Other amounts payable 17 919 650 Total financial liabilities at amortised cost 20,163 16,398 Risks associated with the financial instruments relevant to the Company and the Group are disclosed in Note 3. 127 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 30. Related-party transactions The Group’s related parties are as follows: − Companies having significant influence – Ginvildos Investicija UAB – the main shareholder of Grigeo AB; − Other related parties – the companies related to the members of the Supervisory Board (transactions were conducted with the following companies: Didma UAB and Statybų Namai UAB, Elnorma UAB). The Company’s related parties are as follows: - Companies having significant influence – Ginvildos Investicija UAB – the main shareholder of the Company; - Subsidiaries – subsidiaries of Grigeo AB (the list of the subsidiaries is presented in Note 1); - Other related parties – the companies related to the members of the Supervisory Board (transactions were conducted with the following companies: Didma UAB and Statybų Namai UAB, Elnorma UAB). Transactions with the related parties comprise regular sales and purchases of goods and services related to the Company's activity. As at 31 December 2022 and 2021, there were no guarantees or pledges given or received in respect of the related- party payables and receivables at the Group. At the date of the issue of these financial statements, the Company had provided the letter to Grigeo Klaipėda AB confirming that it had assumed the obligation to grant financial support to Grigeo Klaipėda AB, if a need arises, for the next 12 months from the date of the letter. Related-party payables and receivables are expected to be settled in cash or by set-off against payables/receivables to/from a respective related party. Related-party payables and receivables are subject to the same terms and conditions that are applicable to payables/receivables to/from the external customers/suppliers. Group (the year 2022) Sales of goods and services Purchases of goods and services Amounts receivable Amounts payable Companies having significant influence - 12 - - Other related parties 3 - - - TOTAL 3 12 - - Group (the year 2021) Sales of goods and services Purchases of goods and services Amounts receivable Amounts payable Companies having significant influence - 14 - 2 Other related parties 2 - - - TOTAL 2 14 - 2 Company (the year 2022) Sales of goods and services Purchases of goods and services Amounts receivable* Amounts payable Companies having significant influence - 8 - - Subsidiaries 10,742 8,473 3,005 605 Other related parties 1 - - - TOTAL 10,743 8,481 3,005 605 Company (the year 2021) Sales of goods and services Purchases of goods and services Amounts receivable Amounts payable Companies having significant influence - 10 - 2 Subsidiaries 6,094 7,654 1,294 601 Other related parties - - - - TOTAL 6,094 7,664 1,294 603 * Amounts receivable comprise prepayments for good, services and loans granted. ** Amounts payable also comprise loans received from the subsidiaries. 128 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 30. Related-party transactions (continued) Key management personnel compensation Compensation calculated to the key management personnel for the year ended 31 December: Group Company 2022 2021 2022 2021 Key management personnel compensation 1,431 1,280 699 654 Average annual number of management personnel 11 11 5 5 In 2022 and 2021, no loans, guarantees or any other benefits were paid or calculated, nor any assets were transferred to the Company’s key management personnel. Bonuses paid by the Company to the Supervisory Board totalled EUR 18 thousand in 2022. In 2021, bonuses of EUR 36 thousand were paid. Shares (directly and indirectly held ownership interest) and job positions held by the Group’s and the Company’s key management personnel at the Company are disclosed below: Full name Job position Percentage of share capital and voting rights held at the Company, % Gintautas Pangonis President 46.28 Vigmantas Kažukauskas Vice-President for Business Development 0.88 Saulius Martinkevičius Vice-President for Purchase and Logistics 0.23 Tomas Jozonis Managing Director - 31. Contingent liabilities Taxes The Tax Authorities have not carried out a full-scope tax audit at the Group companies. The Tax Authorities may inspect accounting, transaction and other documents, accounting records and tax returns for the current and previous 3 calendar years at any time, and in certain cases, for the current and previous 5 or 10 calendar years and impose additional taxes and penalties. The Group’s management is not aware of any circumstances which may give rise to a potential material liability in respect of taxes not paid. Legal processes A claim has been filed against Grigeo Klaipėda AB, subsidiary of Grigeo AB, regarding compensation for damage caused to the environment. In the management’s opinion, numerous uncertainties exist in relation to the outcome of the claim (Note 32). 32. Legal processes Background information In 2021, the pre-trial investigation regarding wastewater management by Grigeo Klaipėda AB, subsidiary of Grigeo AB (hereinafter the “Subsidiary”), was completed by the Klaipėda District Prosecutor’s Office of the Klaipėda Regional Prosecutor’s Office (hereinafter the “Prosecutor’s Office”) and the criminal case was referred to the Šiauliai Regional Court. The Subsidiary is charged in the criminal case under Articles 270(2), 228(2) and 300(3) of the Criminal Code of the Republic of Lithuania. The Subsidiary is suspected of its actions related to improper operation of its wastewater treatment plant (hereinafter the “WWTP”) during the period from 1 January 2012 to 13 February 2020 when partially biologically treated wastewater would be discharged through the treated wastewater collector of municipal company Klaipėdos Vanduo AB to the Curonian Lagoon. The trial of the case has begun in September 2022. According to the Prosecutor’s Office’s indictment act of 31 December 2021 in the criminal case No 04-2-00154-19, (hereinafter the “Indictment Act”), the Subsidiary abused the office, forged documents and violated the legal acts in order to seek material gain (to avoid a pollution tax in the amount of at least EUR 37,863,706) and caused significant damage to the environment. No claim has been brought against the Subsidiary for unpaid related taxes. The Environmental Protection Department filed a civil claim against the Subsidiary regarding the compensation for material damage caused to the environment in the criminal case in the amount of EUR 48,257,676.57. The Subsidiary is not denying its legal liability and it expressed its standpoint in writing to the Prosecutor’s Office that it was and still is prepared to compensate for the objectively calculated damage if such damage is to be determined on the basis of unbiased expert calculations. 129 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 32. Legal processes (continued) In the event of environmental damage, if such proved, the Subsidiary is under an obligation to instantly take all necessary actions to ensure immediate control of pollutants and/or other harmful agents in order to reduce or prevent greater damage to the environment and adverse effects on, or further deterioration of human health. The Subsidiary is ready to implement the plan of environmental remedial measures as soon as possible with the aim of restoring the original condition of the environment and compensating for the damage that it has caused, objectively determined and proceeding from unbiased expert calculations. Scientific research In order to expedite the determination of the fact and scope of damage caused to the environment (the water of the Curonian Lagoon) the Subsidiary has organised on its own initiative a tender process in order to select international experts to assess potential environmental damage caused by the Subsidiary. As a result, a group of the expert organisations of the USA and Italian companies providing consultative expert services in the environmental area (i.e. TIG Environmental (leading expert Dr. Carlo Monti (the Italian scientist and the Executive Director of TIG Environmental Forensic Examination), Veritas Economic Consulting and Hydrodata S.p.A (hereinafter “TIG”)) was engaged in April 2020 to determine and calculate the damage to the water status of the Curonian Lagoon inflicted by the incriminated illicit activities of the Subsidiary. Prior to initiation of procedures for identification and selection of international experts, the Subsidiary approached the Prosecutor’s Office and the Environmental Protection Department with a proposal to cooperate in this respect, however, both of them refused to do so. The TIG’s environmental assessment has been performed according to Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on environmental liability regarding the prevention and remedying of environmental damage (hereinafter “Directive 2004/35/EC”) and according to the guideline published by the European Commission (European Commission, Eftec and Stratus Consulting, 2013) which provides specific guidelines for damage assessment. The guideline is in line with the principles of Directive 2004/35/EC which stipulate that compensatory remediation is carried out by compensating for the temporary loss of natural resources and / or functions until such resources and functions are restored. Such compensation is to consist of additional improvements to protected natural habitats and species or water, either in the damaged area or in an alternative area. Directive 2004/35/EC does not provide for punitive damages. On 28 October 2020, TIG delivered the final report on the environmental damage assessment for the Curonian Lagoon which analysed the composition of the combined wastewaters of Grigeo Klaipėda AB and municipal company Klaipėdos Vanduo AB (because they get mixed before entering the Lagoon), their impact on the local environment, the biodiversity, the ecological condition of the Curonian Lagoon, and the landscape. During the assessment the above-mentioned monitoring data from the Environmental Protection Agency, municipal company Klaipėdos Vanduo AB, the Klaipėda Seaport Authority were used, a survey of the Curonian Lagoon’s condition performed by the University of Klaipėda, analysis results from the State Food and Veterinary Service as well as Grigeo Klaipėda AB’s wastewater test results rendered by the independent laboratories were taken into consideration. TIG did not identify any significant damage to the water status of the Curonian Lagoon by the discharge of biologically partially untreated wastewater. In the worst-case scenario (if only 15% of the wastewaters were treated biologically in the Subsidiary’s WWTP) a very low ecological impact (i.e., not damage) from the releases of untreated wastewater could have been caused. The TIG’s economics expert has developed an estimate of potential ecological service losses for the Curonian Lagoon for the purposes of the environmental damage assessment. As the loss in ecosystem service is related only to the superficial waters in the Klaipėda port area and in an area close to the outlet and is related only to the possible oxygen concentration (and saturation) reduction by maximum 16% at the outlet area, the expected costs of offsetting ecological impacts from the releases of untreated wastewater in the worst-case scenario has been estimated as unsignificant. Under the best-case scenario (if 90% of the wastewaters were treated biologically in the Subsidiary’s WWTP), there are no estimated resource losses or human-use service losses, and the potential costs of offsetting ecological impacts from the releases of untreated wastewater would be equal to EUR 0. The plan of environmental restoration measures On 26 June 2020, the Environmental Protection Department submitted to the Subsidiary the assessment of the ecological status or ecological potential and deterioration of chemical status of the surface water body – the Curonian Lagoon – performed by the Environmental Protection Agency and requested the Subsidiary to submit a plan of environmental restoration measures. The Subsidiary submitted plans of environmental restoration measures several times and, when Environmental Protection Department did not approve them, revised them accordingly. On 6 December 2021, Environmental Protection Department decided to deny approval of the plan of environmental restoration measures submitted by the Subsidiary. The said decision was annulled by the Vilnius Regional Administrative Court on 18 October 2022. According to the court, legal consequences were caused by the disputed decision made by the Environmental Protection Department on 6 December 2021 - the Subsidiary was prevented from fulfilling its obligation to restore the state of the environment. The Environmental Protection Department submitted a complaint to the Supreme Administrative Court of Lithuania regarding the court decision of 18 October 2022. 130 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 32. Legal processes (continued) On 3 February 2023, the Subsidiary has submitted a new version of the environmental restoration plan to the Environmental Protection Department requesting for approval of two environmental restoration/pollution removal measures - modernization of surface wastewater treatment facilities in the city of Klaipėda and cutting of reeds in the natural environment of the Curonian Lagoon. The aim of the said plan is to remove from the Curonian Lagoon the amount of pollutants incriminated in the Civil Claim against the Subsidiary. Civil claim On 3 March 2020, the Environmental Protection Department filed a civil claim against the Subsidiary for compensation of a EUR 3,982,184 damage caused to the environment in the pre-trial investigation case (the civil claim was received by the Subsidiary on 17 July 2020). On 26 January 2021, the Subsidiary received from the Prosecutor’s Office a revised civil claim of the Environmental Protection Department regarding the compensation of a material damage caused to the environment in the criminal case in the amount of EUR 48,257,676.57. The amount of damage caused to the environment specified in the civil claim corresponds to the amount indicated in the Indictment Act delivered against the Subsidiary. The damage caused to the water body (the Curonian Lagoon) was estimated in the civil claim according to the general mathematical formula specified in the Methodology for estimation of the amounts of compensation for damage caused to the environment approved by Order No 471 of the Minister of Environment of the Republic of Lithuania of 9 September 2002 (hereinafter the “Methodology”) using the following information and documentation: - the quantities of sewage discharged to the collector of municipal company Klaipėdos Vanduo AB; - the biochemical composition of sewage discharged to the collector of municipal company Klaipėdos Vanduo AB which is supported by the documents evidencing the data for exceedingly limited period (November 2019 to 7 January 2020), which could not be construed as sufficient and representative time-basis to substantiate findings for the entire incriminated period (from 1 January 2012 to 7 January 2020); - the statement that a substantial amount of wastewater was not treated, whereas the said conclusion casts doubt caused by substantively contradicting findings of experts of both parties (the Prosecutor’s Office and the Company) in relation to technical capabilities of the Company’s waste treatment facilities as regards quantities and composition of pollution (partially untreated wastewater) reportedly released to the environment (the Curonian Lagoon); - the unsupported statement that the damage done to the environment occurs by diminution or loss of certain values without indication which specific environmental element was negatively affected and what values and to what extent were lost due to the Subsidiary's actions. No claim has been brought against the Subsidiary for unpaid related taxes. According to the Subsidiary’s management, such a claim seeking the award of unpaid taxes, in all likelihood, could not be brought against the Subsidiary, as the purpose of legal actions relating to adjudication of environmental pollution tax and to the compensation (remedy) of environmental damage differs. In case of pollution, the environment is polluted in a place agreed with responsible authorities by measuring the pollutants and paying of respective environmental tax, whereas the amount of environmental damage is calculated on the basis that a person in charge made the breach of prohibitions set up by the legal acts. If there is a claim lodged for compensation of environmental damage made, as result of release of the specified pollutants in violation of the requirements of the legal acts, in the view of the Subsidiary’s management, it is not possible at the same time (concurrently) to claim payment of applicable pollution tax for the same pollutants released. Key considerations of the civil claim of the Environmental Protection Department The following was not considered and/or indicated in the civil claim: - the requirements of Article 32 of the Environment Protection Law whose provisions are implemented by the Methodology. Article 32 of the Environment Protection Law indicates that the damage to the environment is assessed and the amount of compensation is calculated in accordance with the methodology approved by the Minister of the Environment, assessing the initial condition of the environment, significance of negative impact on the environment, natural recovery possibilities and time, as well as adopted remediation measures; - identification of specific environmental element(s) which was(were) affected and assessment of the significance of the negative impact of Subsidiary's actions on the environment (Curonian Lagoon); - data on the fact and extent of the damage caused by the Subsidiary's actions; - the causal link between the identified significant negative impact on the environment and the Subsidiary's actions. The Subsidiary’s management considers the above list to remain conclusive notwithstanding the pre-trial investigation files that the Subsidiary became acquainted with in September 2021. Different expert reports within the pre-trial investigation case deliver inconsistent findings and conclusions which further substantiates the fact of numerous uncertainties in relation to the outcome of court proceedings and the amount of expenditure required to settle related outstanding obligations of the Subsidiary. 131 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 32. Legal processes (continued) Summary of uncertainties At the date of approval of these consolidated financial statements the management faces the following uncertainties in relation to the amount of the civil claim or determination of the timing of any possible outcome of the civil claim: - The Subsidiary does not currently possess any objective, complete and comprehensive factual data in relation to the period, extent, frequency and biochemical composition of its sewage discharged to the collector of municipal company Klaipėdos Vanduo AB. - The damage caused to the environment was determined in the civil claim according to the general mathematical formula specified in the Methodology without identifying initial condition of the environment, significance of negative impact on the environment and not taking into account that a plan of measures for the environment restoration is not prepared and applied as required by legal acts. - The fact and scope of damage caused to the environment were not determined in the civil claim by special scientific and other valid studies aimed at individual approach to a particular case in line with methods entrenched in Directive 2004/35/EC and Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy (hereinafter the “Directives”), instead, a general mathematical formula specified in the Methodology was used. - The fact of pollution by the Subsidiary is mistakenly equated with the fact of environmental damage. The fact and extent of the actual environmental damage made by the Subsidiary is not established and determined. - Uncertainties of the damage calculated in the civil claim are also related to the fact that it is not clear why the Environmental Protection Department did not apply the mandatory legal act Description of the procedure for selecting environmental remediation measures and obtaining prior approval (hereinafter the “Legal Act on ERM”) approved by the Minister of Environment by Order No D1-228 of 16 May 2006 to implement the principles and legal requirements of Directive 2004/35/EC. Clause 10 of the Legal Act on ERM states that environmental damage related to water (the Curonian Lagoon) is to be remedied by restoring the baseline condition of environment by choosing the following methods of environmental restoration: primary, supplementary and compensatory. Conclusion The Subsidiary is not denying its legal liability and is prepared to compensate for objectively calculated damage. The Subsidiary’s management, following the scientific research performed by the independent TIG Environmental experts, estimates that the potential costs of offsetting ecological impact from the releases of biologically untreated wastewater are limited. On the upper limit of the range the assessment of the Environmental Protection Department, the claim filed amounts to EUR 48,257,676.57 which is uncertain in the following areas: - The claim amount is based on the mathematical formula specified in the Methodology with the key components of the formula – quantities and biochemical composition of sewage – being uncertain. The management thus far does not possess objective information to reliably estimate quantity of the pollutants (BOD 7 , nitrogen, phosphorus or any other elements) in the biologically partially untreated wastewater released. - The management considers that the claim is not in line with the methods entrenched in the above-mentioned local legal acts and the Directives. International Accounting Standard 37 requires measuring the provision in the amount of the best estimate of the expenditure required to settle the present obligation. As there is a wide range of estimates depending on the source of information and significant uncertainties relating to them, as described above, it is difficult to estimate probability of any outcome as well as to assess the amount of expenditure required to settle this obligation. Having no objective information on the quantities and biochemical composition of the sewage discharged to the collector of municipal company Klaipėdos Vanduo AB, the management could not reliably estimate the amount of provision and the provision was not recognised in the financial statements, but instead is disclosed as a contingent liability. At the date of this report, the trial that started in 2022 did not change the management’s estimations over the general situation and the outcome of the case. The management remains to hold an opinion that any compensation for the potential damage should be scientifically based and estimated following the legal acts and in accordance with the legal framework of the Republic of Lithuania and the European Union. 132 Grigeo AB, company code 110012450, Vilniaus g. 10, Grigiškės, 27101 Vilnius City Municipality NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2022 All amounts are in EUR thousands unless otherwise stated « Table of Contents 33. Material uncertainties Russia’s invasion of Ukraine on 24 February 2022 has a negative impact on the Group’s financial performance for the year 2022. The Group’s subsidiary Grigeo Klaipeda AB has investments in Ukrainian subsidiary Mena Pak AT, which ceased its operations completely after the start of the war. The operations were restored in May 2022. Uncertainties related to the investment in Mena Pak AT The Group’s statement of financial position includes the following consolidated assets and liabilities of Mena Pak AT: Mena Pak AT At 31 December 2022 At 31 December 2021 Non-current assets 609 786 Current assets 1,790 2,308 TOTAL ASSETS 2,399 3,094 Shareholders’ equity 2,168 2,670 Non-current liabilities 12 17 Current liabilities 219 407 TOTAL EQUITY AND LIABILITIES 2,399 3,094 The Group’s statement of comprehensive income for the year 2022 includes the following consolidated results of Mena Pak AT: Mena Pak AT 2022 Revenue 4,857 Profit before tax 29 Net profit 25 EBITDA 247 Mena Pak AT did not incur any damage during the war and has restored operations in May 2022. However, the Group’s management estimates that a high uncertainty exists in relation to Mena Pak AT’s assets of EUR 2.4 million and liabilities of EUR 0.2 million due to the ongoing war and high uncertainty of future events. Although the company Mena Pak AT was profitable in 2022, due to a significant decrease in profitability and future uncertainties, the parent company Grigeo Klaipėda AB had to account for the investment impairment of EUR 1.6 million. The determined value of Mena Pak AT approximates the carrying amount of its assets reported in the balance sheet, therefore the Group's management did not determine an additional impairment for the consolidated assets of Mena Pak AT. Amounts receivable from countries participating in the war Since the beginning of the war, the Group stopped sales to Belarus and Russia. Before the war, in 2022 the Group's sales to Belarus and Russia amounted to EUR 984 thousand (0.5% of all Group’s sales). In 2022 The Group's sales to Ukraine amounted to EUR 8,472 thousand (4.2% of all Group’s sales). Before the war, in 2022, the Company's sales to Belarus and Russia amounted to EUR 231 thousand (0.3% of the Company's total sales). In 2022 The Company's sales to Ukraine amounted to EUR 1,009 thousand (1.1% of the Company's total sales). In 2021, the Group's sales to Belarus and Russia amounted to EUR 5,481 thousand (3.4% of all Group’s sales), sales to Ukraine amounted to EUR 11,869 thousand (7.3% of all Group’s sales). The Company's sales to Belarus and Russia amounted to EUR 1,564 thousand (2.3% of the Company's total sales), sales to Ukraine amounted to EUR 2,081 thousand (3.1% of the Company's total sales). Amounts receivable from customers in Belarus, Russia and Ukraine: Group Company At 31 December 2022 At 31 December 2021 At 31 December 2022 At 31 December 2021 Ukraine 255 1,487 - 510 Russia - 123 - 101 Belarus - 178 - 119 TOTAL 255 1,788 - 730 *In 2022, the total amount receivable consists of the amount receivable of subsidiary Mena Pak AT from Ukrainian customers. 34. Events after the end of the reporting period There were no material or otherwise significant events after the end of the reporting period. S STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE 134 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE Grigeo AB (hereinafter the “Company”), acting in compliance with Article 12(3) of the Republic of Lithuania Law on Securities and paragraph 24.4 of the Listing Rules of Nasdaq Vilnius AB, hereby discloses how it complies with the Corporate Governance Code for the Companies listed on Nasdaq Vilnius as well as its specific provisions or recommendations. In case of non-compliance with this Code or some of its provisions or recommendations, the specific provisions or recommendations that are not complied with are indicated and the reasons for such non-compliance are specified. In addition, other explanatory information indicated in this form is provided. PRINCIPLES/ RECOMMENDATIONS YES /NO /NOT APPLICABLE COMMENTARY Principle 1: General meeting of shareholders, equitable treatment of shareholders, and shareholders’ rights The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders. 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes The Company fully complies with this recommendation and provides the information and/or documents established in the legal acts to the shareholders in accordance with the requirements established by the Republic of Lithuania Law on Securities and other legal acts. 1.2. It is recommended that the company’s capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders. Yes The authorised share capital of the Company consists of 131,400,000 ordinary registered shares, each with a nominal value of EUR 0.29. All shareholders of the Company are granted equal rights. 1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. Yes The Company fully complies with this recommendation. 1.4. Exclusive transactions that are particularly important to the company, such as transfer of all or almost all assets of the company which in principle would mean the transfer of the company, should be subject to approval of the general meeting of shareholders. Yes The Company will comply with this recommendation. 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. Yes The procedures for convening and attending general meetings of shareholders of the Company provide equal opportunities for shareholders to attend a meeting and do not prejudice their rights and interests. The notice of the general meeting of shareholders is published in the central database of regulated information managed by Nasdaq Vilnius AB and on the Company’s website in accordance with the procedure prescribed by the Law on Securities. General meetings of shareholders of the Company are convened at the registered office and business address of the Company at Vilniaus str. 10 Grigiškės, Vilnius city municipality. The chosen location of the general meeting of shareholders does not prevent active participation of the shareholders in the meeting. In the notice of the general meeting of shareholders being convened, the Company specifies that the shareholders may submit the proposed draft resolutions at any time prior to the general meeting. 135 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the general meeting of shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the general meeting of shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the company. Such documents may be published to the extent that their public disclosure is not detrimental to the company or the company’s commercial secrets are not revealed. Yes The Company complies with this recommendation. The Company publishes documents prepared for the general meeting of shareholders in advance in the Lithuanian and English languages. The Company also publicly announces information about the resolutions adopted by the general meeting of shareholders in the Lithuanian and English languages. The Company also announces the aforementioned information on the Company’s website. 1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the general meeting of shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot. Yes The Company complies with this recommendation. The notice of the general meeting of shareholders being convened always indicates the possibility for the shareholders to vote in writing by filling in the attached voting ballot form. 1.8. With a view to increasing the shareholders’ opportunities to participate effectively at general meetings of shareholders, it is recommended that companies should apply modern technologies on a wider scale and thus provide shareholders with the conditions to participate and vote in general meetings of shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured and it must be possible to identify the participating and voting person. No The Company does not comply with this recommendation due to legal uncertainties and obstacles regarding the participation and voting of shareholders in general meetings of shareholders via electronic means of communication. The notice of the general meeting of shareholders being convened always states that the Company does not provide the shareholders with the conditions to participate and vote in the general meeting of shareholders via electronic means of communication. 1.9. It is recommended that the notice on the draft decisions of the general meeting of shareholders being convened should specify new candidatures of members of the collegial body, their proposed remuneration and the proposed audit company if these issues are included into the agenda of the general meeting of shareholders. Where it is proposed to elect a new member of the collegial body, it is recommended that the information about his/her educational background, work experience and other managerial positions held (or proposed) should be provided. Yes The Company complies with this recommendation. The Company discloses information about the candidates for the collegial body of the Company to the shareholders immediately upon the receipt of the proposals for the candidates for the collegial body. The Company has only paid to the members of the collegial body annual bonuses for their work that were granted by the general meeting of shareholders, and therefore, the proposed remuneration was not indicated in the information about the candidates for the collegial body. The Company also provides information on the proposed audit firm and the proposed remuneration for the services when this issue is included in the agenda of the general meeting of shareholders. 1.10. Members of the company’s collegial management body, heads of the administration1 or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes The Company complies with this recommendation. Relevant competent persons who can provide information relating to the agenda of the general meeting of shareholders always attend the general meeting of shareholders. Proposed candidates for the members of the collegial body attend the general meetings of shareholders as far as possible. 1 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. 136 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents f Principle 2: Supervisory board 2.1. Functions and liability of the supervisory board The supervisory board of the company should ensure representation of the interests of the company and its shareholders, accountability of this body to the shareholders and objective monitoring of the company’s operations and its management bodies as well as constantly provide recommendations to the management bodies of the company. The supervisory board should ensure the integrity and transparency of the company’s financial accounting and control system. 2.1.1. Members of the supervisory board should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders and represent their interests, having regard to the interests of employees and public welfare. Yes According to the knowledge of the Company, all members of the supervisory board act in good faith for the benefit of the Company and its shareholders. 2.1.2. Where decisions of the supervisory board may have a different effect on the interests of the company’s shareholders, the supervisory board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the company’s strategy, risk management and control, and resolution of conflicts of interest. Yes The supervisory board treats all shareholders fairly and impartially. 2.1.3. The supervisory board should be impartial in passing decisions that are significant for the company’s operations and strategy. Members of the supervisory board should act and pass decisions without an external influence from the persons who elected them. Yes The supervisory board is independent in passing decisions that are significant for the Company’s operations and strategy. 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent2 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Yes The supervisory board members are impartial in passing decisions and clearly voice their will regarding the decisions passed. 2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks. Yes The supervisory board oversees that the Company’s tax planning strategies are designed and implemented in accordance with the legal acts. 2.1.6. The company should ensure that the supervisory board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the supervisory board and its committees. Yes Meetings of the supervisory board are provided with premises and all necessary information and the supervisory board has the right to seek independent professional advice from external legal, accounting, or other experts on matters falling within their competence. 2 For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania. 137 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 2.2. Formation of the supervisory board The procedure of the formation of the supervisory board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the supervisory board elected by the general meeting of shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Yes The members of the supervisory board elected by the general meeting of shareholders of the Company ensure the diversity of qualifications, professional experience and competences, and the supervisory board has members of both genders. 2.2.2. Members of the supervisory board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience. Yes According to the Articles of Association of the Company, the supervisory board is elected by the general meeting of shareholders for a period of 4 years, i.e. the maximum period permitted by the legislation of the Republic of Lithuania. 2.2.3. Chair of the supervisory board should be a person whose current or past positions constituted no obstacles to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes Chair of the supervisory board is a person whose current or past positions constitute no obstacles to carry out impartial activities. Former managers or management board members of the Company were not appointed as chairs of the supervisory board. 2.2.4. Each member should devote sufficient time and attention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board attend less than a half of the meetings of the supervisory board throughout the financial year of the company, the shareholders of the company should be notified thereof. Yes Each member devotes sufficient time and attention to perform his/her duties as a member of the supervisory board and his/her other professional obligations do not interfere with the proper performance of the duties of a member of the supervisory board. 2.2.5. When it is proposed to appoint a member of the supervisory board, it should be announced which members of the supervisory board are deemed to be independent. The supervisory board may decide that, despite the fact that a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or company-related circumstances. No The Company submits to the shareholders received proposals concerning the candidates for the members of the supervisory board. 2.2.6. The amount of remuneration to members of the supervisory board for their activity and participation in meetings of the supervisory board should be approved by the general meeting of shareholders. Yes The amount of remuneration to members of the supervisory board for their activity and participation in meetings of the supervisory board is approved by the general meeting of shareholders. Guidelines for the determination of remuneration of the members of the supervisory board of the Company and the procedure for payment of remuneration is established by the Company’s remuneration policy approved by the Resolution of the Ordinary General Meeting of Shareholders on 29 April 2022. 2.2.7. Every year the supervisory board should carry out an assessment of its activities. It should include evaluation of the structure of the supervisory board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the supervisory board, and evaluation whether the supervisory board has achieved its objectives. The supervisory board should, at least once a year, make public respective information about its internal structure and working procedures. No The supervisory board has not carried out an assessment of its activities. 138 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents Principle 3: Management board 3.1. Functions and liability of the management board The management board should ensure the implementation of the company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. 3.1.1. The management board should ensure the implementation of the company’s strategy approved by the supervisory board if the latter has been formed at the company. In such cases where the supervisory board is not formed, the management board is also responsible for the approval of the company’s strategy. No The supervisory board has not approved the Company’s strategy. 3.1.2. As a collegial management body of the company, the management board performs the functions assigned to it by the Law and in the Articles of Association of the company, and in such cases where the supervisory board is not formed in the company, it performs inter alia the supervisory functions established in the Law. By performing the functions assigned to it, the management board should take into account the needs of the company’s shareholders, employees and other interest groups by respectively striving to achieve sustainable business development. Yes The management board, as a collegial management body of the Company, performs the functions assigned to it by the Law on Companies and in the Articles of Association of the Company. By performing the functions assigned to it, the management board takes into account the needs of the Company’s shareholders, employees and other interest groups and, respectively, strives to achieve sustainable business development. 3.1.3. The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes The management board, within the limits of its competence and functions assigned to it, aims to ensure the compliance with the provisions of the laws and the internal policy of the Company. 3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance 3 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards. Yes The Company applies a variety of documents ensuring the highest level of internal control, ethics and measures of compliance management. 3.1.5. When appointing the manager of the company, the management board should take into account the appropriate balance between the candidate’s qualifications, experience and competence. Yes When appointing the manager of the Company, the management board considers the appropriate balance between the candidate’s qualifications, experience and competence. 3.2. Formation of the management board 3.2.1. The members of the management board elected by the supervisory board or, if the supervisory board is not formed, by the general meeting of shareholders should collectively ensure the required diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance in terms of the current qualifications possessed by the members of the management board, it should be ensured that the members of the management board would have, as a whole, diverse knowledge, opinions and experience to duly perform their tasks. Yes The management board members elected by the supervisory board of the Company ensure the diversity of qualifications, professional experience and competences. During the election of the members of the management board, the Company aims to ensure gender equality and the management board has had members of both genders for a number of years. 3 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti- bribery/44884389.pdf 139 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 3.2.2. Names and surnames of the candidates to become members of the management board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of personal data at the meeting of the supervisory board in which the management board or individual members of the management board are elected. In the event that the supervisory board is not formed, the information specified in this paragraph should be submitted to the general meeting of shareholders. The management board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the company’s annual report. Yes Names and surnames of the candidates to become members of the management board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and potential conflicts of interest are disclosed at the meeting of the supervisory board in which the management board or individual members of the management board are elected. The data on the members of the management board referred to in this paragraph is also disclosed in the Company’s annual report. 3.2.3. All new members of the management board should be familiarized with their duties and the structure and operations of the company. Yes Members of the management board are familiarised with their duties and the structure and operations of the Company, and the main corporate documents of the Company are shared. 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. Yes Members of the management board are appointed for a term of four years, subject to re-election for a new term in office. The number of terms in office of a member of the management board is unlimited. 3.2.5. Chair of the management board should be a person whose current or past positions constitute no obstacles to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes A person whose current or past positions constitute no obstacles to impartially carry out the functions of the chair of the management board is appointed as the chair of the management board. 3.2.6. Each member should devote sufficient time and attention to perform his duties as a member of the management board. Should a member of the management board attend less than a half of the meetings of the management board throughout the financial year of the company, the supervisory board of the company or, if the supervisory board is not formed at the company, the general meeting of shareholders should be notified thereof. Yes Each member devotes sufficient time and attention to perform their duties as a member of the management board. 3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will be independent 4 , it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company-related circumstances. Not applicable The supervisory board has been formed at the Company. 4 For the purposes of this Code, the criteria of independence of the members of the board are interpreted as the criteria of unrelated persons defined in Article 33(7) of the Law on Companies of the Republic of Lithuania. 140 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 3.2.8. The general meeting of shareholders of the company should approve the amount of remuneration to the members of the management board for their activity and participation in the meetings of the management board. Yes The general meeting of shareholders of the Company approves the amount of remuneration to the members of the management board for their activity and participation in the meetings of the management board. Guidelines for the determination of remuneration of the members of the management board of the Company and the procedure for payment of remuneration is established by the Company’s remuneration policy approved by the Resolution of the Ordinary General Meeting of Shareholders of 29 April 2022. 3.2.9. The members of the management board should act in good faith, with care and responsibility for the benefit and the interests of the company and its shareholders with due regard to other stakeholders. When adopting decisions, they should not act in their personal interest; they should be subject to no-compete agreements and they should not use the business information or opportunities related to the company’s operations in violation of the company’s interests. Yes According to the information available to the Company, all members of the management board act in good faith, with care and responsibility for the benefit and the interests of the Company and its shareholders and put an effort to maintain their independence in decision-making. In accordance with the provisions of the Republic of Lithuania Law on Companies, all members of the management board must protect the Company’s commercial (industrial) secrets and confidential information that they got acquainted with when they were members of the management board. 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work organisation and ability to act as a group, evaluation of the competence and work efficiency of each member of the management board, and evaluation whether the management board has achieved its objectives. The management board should, at least once a year, make public the respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. No The management board has not carried out an assessment of its activities. Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform the supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. Yes The management board and the supervisory board act in close cooperation. 4.2. It is recommended that meetings of the company’s collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. Yes Meetings of the Company’s collegial bodies are convened at such intervals that uninterruptable resolution of essential Company’s management and supervision issues is ensured. 141 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. Yes Members of a collegial body are notified of the meeting being convened and all materials relevant to the issues on the agenda of the meeting are submitted to them in advance, so that members of a collegial body would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and closely cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. Yes In order to coordinate the activities of the Company’s collegial bodies and ensure effective decision-making process, the chairs of the Company’s collegial supervision and management bodies mutually agree on the dates and agendas of the meetings and cooperate closely in resolving other matters related to the Company’s management. Principle 5: Nomination, remuneration and audit committees 5.1. Purpose and formation of committees The committees formed at the company should increase the work efficiency of the supervisory board or, where the supervisory board is not formed, of the management board which performs the supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest. Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body. 5.1.1. Taking due account of the company-related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. The collegial body is recommended to form the nomination, remuneration and audit committees 5 . Yes The Audit Committee has been formed at the Company. 5.1.2. Companies may decide to set up less than three committees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three different committees. Yes The nomination and remuneration committees have not been formed at the Company. Candidates proposed for the members of a collegial body in accordance with the procedure established by the legal acts are submitted for consideration to the electing general meeting of shareholders or collegial body, and candidates to the top-level management positions are considered and approved by the management board of the Company. The remuneration of the employees who hold top-level management positions is determined by the management board of the Company. 5 The legal acts may provide for the obligation to form a respective committee. For example, the Law on the Audit of Financial Statements of the Republic of Lithuania provides that public-interest entities (including but not limited to public limited liability companies whose securities are traded on a regulated market of the Republic of Lithuania and/or of any other Member State) are under the obligation to set up an audit committee (the legal acts provide for the exemptions where the functions of the audit committee may be carried out by the collegial body performing the supervisory functions). 142 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 5.1.3. In the cases established by the legal acts, the functions assigned to the internal committees of the companies may be performed by the collegial body itself. In such case the provisions of this Code pertaining to the committees (particularly those related to their role, operation and transparency) should apply, where relevant, to the collegial body as a whole. Yes Provisions of the Code pertaining to the committees (particularly those related to their role, operation and transparency) apply to the collegial body performing the functions of the committees. 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the management board should not serve as the chair of committees. Yes The Company has formed the Audit Committee consisting of three members of the supervisory board of the Company. The chair of the management board is not a member of the Audit Committee. 5.1.5. The authority of each committee formed should be determined by the collegial body itself. Committees should perform their duties according to the authority delegated to them and regularly inform the collegial body about their activities and performance on a regular basis. The authority of each committee defining its role and specifying its rights and duties should be made public at least once a year (as part of the information disclosed by the company on its governance structure and practice on an annual basis). In compliance with the legal acts regulating the processing of personal data, companies should also include in their annual reports the statements of the existing committees on their composition, the number of meetings and attendance over the year as well as the main directions of their activities and performance. Yes The supervisory board of the Company has established the authority of the Audit Committee in the internal rules of the Audit Committee approved by the supervisory board itself. 5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee. Yes In accordance with the internal rules of the Audit Committee, it has the right to invite the chair of the supervisory board and certain employees of the Company, as well as external auditors, to its meetings. 5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) to assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) to devote the attention necessary to ensure succession planning. No To date, the nomination committee has not been formed at the Company. 143 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the nomination committee. No To date, the nomination committee has not been formed at the Company. 5.3. Remuneration committee The main functions of the remuneration committee should be as follows: 1) to submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) to submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned; 3) to review, on a regular basis, the remuneration policy and its implementation. No To date, the remuneration committee has not been formed at the Company. 5.4. Audit committee 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 6 . 5.4.2. All members of the committee should be provided with detailed information on specific issues of the company’s accounting system, finances and operations. The heads of the company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. 5.4.3. The audit committee should decide whether the participation of the chair of the management board, the manager of the company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the company and its group. 5.4.5. The audit committee should examine whether the company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. 5.4.6. The audit committee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. Yes The Company has the Audit Committee the main functions of which comply with these recommendations. 6 Issues related to the activities of audit committees are regulated by Regulation No. 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, the Law on the Audit of Financial Statements of the Republic of Lithuania, and the Rules Regulating the Activities of Audit Committees approved by the Bank of Lithuania. 144 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. The corporate governance framework should recognize the rights of stakeholders entrenched in the laws and encourage active cooperation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. Yes The Company fully complies with these recommendations. Principle 7: Remuneration policy of the company The remuneration policy and the procedure for review and disclosure of such policy established at the company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the company’s remuneration policy and its long- term strategy. 7.1. The company should approve and post the remuneration policy on the website of the company; such policy should be reviewed on a regular basis and be consistent with the company’s long-term strategy. Yes The Company has approved its remuneration policy and published it on the Company’s website. The remuneration policy is reviewed on a regular basis. 7.2. The remuneration policy should include all forms of remuneration, including the fixed-rate remuneration, performance- based remuneration, financial incentive schemes, pension arrangements and termination payments as well as the conditions specifying the cases where the company can recover the disbursed amounts or suspend the payments. Yes The remuneration policy of the Company includes all forms of remuneration. 7.3. With a view to avoid potential conflicts of interest, the remuneration policy should provide that members of the collegial bodies which perform the supervisory functions should not receive remuneration based on the company’s performance. Yes The remuneration policy of the Company provides that the remuneration of the members of its supervisory board is not based on the Company’s performance. 7.4. The remuneration policy should provide sufficient information on the policy regarding termination payments. Termination payments should not exceed a fixed amount or a fixed number of annual wages and in general should not be higher than the non- variable component of remuneration for two years or the equivalent thereof. Termination payments should not be paid if the contract is terminated due to inadequate performance. Yes The Company fully complies with this recommendation. 7.5. In the event that the financial incentive scheme is applied at the company, the remuneration policy should contain sufficient information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. Yes The Company applies a share award scheme. The remuneration policy states that according to the rules for granting shares, the granting of shares is postponed for a period of 3 years - the Company's shares are granted (the share option can be exercised) no earlier than 3 years after the conclusion of the option agreement. 145 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 7.6. The company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the company’s remuneration policy, compared to the previous financial year. Yes The Company complies with this recommendation. 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the general meeting of shareholders. Yes The Company complies with this recommendation. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. 8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. Yes The Company complies with all statutory requirements ensuring the rights of stakeholders. 8.2. The corporate governance framework should create conditions for stakeholders to participate in corporate governance in the manner prescribed by law. Examples of participation by stakeholders in corporate governance include the participation of employees or their representatives in the adoption of decisions that are important for the company, consultations with employees or their representatives on corporate governance and other important matters, participation of employees in the company’s authorized capital, involvement of creditors in corporate governance in the cases of the company’s insolvency, etc. Yes The Company complies with all statutory requirements ensuring the rights of stakeholders. 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes The Company complies with all statutory requirements ensuring the rights of stakeholders. 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the supervisory function. No Pursuant to the legislation of the Republic of Lithuania, the Company has established an internal whistleblowing channel and individuals have also been informed about this on the Company’s website. Principle 9: Disclosure of information The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the company. 9.1. In accordance with the company’s procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the company should include but not be limited to the following: 9.1.1. operating and financial results of the company; Yes The Company complies with this recommendation. 9.1.2. objectives and non-financial information of the company; Yes The Company complies with this recommendation. 9.1.3. persons holding a stake in the company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; Yes The Company complies with this recommendation. 146 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 9.1.4. members of the company’s supervisory and management bodies who are deemed independent, the manager of the company, the shares or votes held by them at the company, participation in corporate governance of other companies, their competence and remuneration; Yes The Company complies with this recommendation. 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; No To date, the Company has not published this information. 9.1.6. potential key risk factors, the company’s risk management and supervision policy; Yes The Company complies with this recommendation. 9.1.7. the company’s transactions with related parties; Yes The Company complies with this recommendation by disclosing information about transactions with related parties that are not a part of the Company’s normal economic activities and/or exert a significant influence on the Company. 9.1.8. main issues related to employees and other stakeholders (for instance, human resource policy, participation of employees in corporate governance, award of the company’s shares or share options as incentives, relationships with creditors, suppliers, local community, etc.); Yes The Company complies with this recommendation. 9.1.9. structure and strategy of corporate governance; No The Company has not published its structure and strategy of corporate governance. 9.1.10. initiatives and measures of social responsibility policy and anti-corruption fight, significant current or planned investment projects. This list is deemed minimum and companies are encouraged not to restrict themselves to the disclosure of information included into this list. This principle of the Code does not exempt companies from their obligation to disclose information as provided for in the applicable legal acts. Yes The Company complies with this recommendation. 9.2. When disclosing the information specified in paragraph 9.1.1 of recommendation 9.1, it is recommended that the company which is a parent company in respect of other companies should disclose information about the consolidated results of the whole group of companies. Yes The Company complies with this recommendation. 9.3. When disclosing the information specified in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifications of members of the company’s supervisory and management bodies and the manager of the company as well as potential conflicts of interest which could affect their decisions should be provided. It is further recommended that the remuneration or other income of members of the company’s supervisory and management bodies and the manager of the company should be disclosed, as provided for in greater detail in Principle 7. Yes The Company complies with this recommendation. 147 STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE for the year ended 31 December 2022 « Table of Contents 9.4. Information should be disclosed in such manner that no shareholders or investors are discriminated in terms of the method of receipt and scope of information. Information should be disclosed to all parties concerned at the same time. Yes The Company discloses the information in the Lithuanian and English languages simultaneously through the information disclosure system used by Nasdaq Vilnius AB Stock Exchange. The Company usually publishes information before or after the trading session of Nasdaq Vilnius AB Stock Exchange and presents it simultaneously to all markets where the Company’s securities are traded. The Company does not disclose any information that may affect the price of its issued securities in comments, interviews or otherwise until such information is made public through the information disclosure system of the Stock Exchange. This information is also disclosed on the Company’s website www.grigeo.lt. Principle 10: Selection of the company’s audit firm The company’s audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm. 10.1. With a view to obtain an objective opinion on the company’s financial condition and financial results, the company’s annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm. Yes The Company complies with this recommendation. 10.2. It is recommended that the audit firm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company. Yes The Company complies with this recommendation. 10.3. In the event that the audit firm has received remuneration from the company for the non-audit services provided, the company should disclose this publicly. This information should also be available to the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company when considering which audit firm should be proposed to the general meeting of shareholders. Yes When considering which audit firm should be proposed to the general meeting of shareholders, the Company’s supervisory board had information on whether the audit firm has received remuneration from the Company for the non-audit services provided. 148 « Table of Contents CONFIRMATION OF RESPONSIBLE PERSONS CONFIRMATION OF RESPONSIBLE PERSONS In accordance with the Law on Securities of the Republic of Lithuania, and the Rules on the Disclosure of Information of the Bank of Lithuania, we, President of Grigeo AB Gintautas Pangonis and Finance Director of Grigeo AB Martynas Nenėnas, hereby confirm that, to the best of our knowledge, the consolidated financial statements of Grigeo AB for the year ended 31 December 2022, prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the issuer’s and of the consolidated companies’ assets, liabilities, financial position, profit or loss and cash flows, and also that the consolidated annual report includes a fair overview of the business development and operations. President of Grigeo AB Gintautas Pangonis Finance Director of Grigeo AB Martynas Nenėnas INDEPENDENT AUDITOR’S REPORT