Panevezio Statybos Trestas

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Hereby we confirm that, as to our knowledge, the presented consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the Group’s financial position, profit or loss and cash flows, and that the Company’s and the Consolidated Annual Report, the Corporate Governance Report, the Consolidated Social Responsibility Report, and the Remuneration Report fairly states the review of business development and activities, the Group’s position and description of the main risks and uncertainties that are faced. AB Panevėžio Statybos Trestas AB Panevėžio Statybos Trestas Managing Director Chief Financial Officer Egidijus Urbonas Evaldas Pocevičius 4 April 2023 4 April 2023 AB Panevėžio Statybos Trestas Consolidated Financial Statements for the year 2022 prepared in accordance with International Financial Reporting Standards as adopted by the European Union, presented together with the Independent Auditor’s Report and Annual Report AB „Panevėžio statybos trestas“ Consolidated Financial Statements Contents Parent Company’s Details 1 Independent Auditor’s Report 2 Consolidated Statement of Comprehensive Income 9 Consolidated Statement of Financial Position 10 Consolidated Statement of Changes in Equity 12 Consolidated Statement of Cash Flows 13 Notes to the Financial Statements 14 Company’s and Consolidated Annual Report, Corporate Governance Report, Consolidated Social Responsibility Report and Remuneration Report 62 Corporate Governance Report 101 AB „Panevėžio statybos trestas“ Consolidated Financial Statements Parent Company’s Details AB Panevėžio Statybos Trestas Company code: 147732969 Phone: +370 45 505 503 Fax: +370 45 505 520 Address: P. Puzino st. 1, LT-35173 Panevėžys Board Justas Jasiūnas, Chairman Gvidas Drobužas Kristina Mačiulienė Lina Simaškienė Vaidas Grincevičius Management Egidijus Urbonas, Managing Director Auditor Grant Thornton Baltic UAB Banks Luminor Bank AS AB SEB Bankas AB Swedbank AB Šiaulių Bankas OP Corporate Bank Plc Lithuania Branch Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 2 INDEPENDENT AUDITOR’S REPORT To the Shareholders of AB PANEVĖŽIO STATYBOS TRESTAS Report on the Audit of the Consolidated Financial Statements Opinion We have audited the accompanying consolidated financial statements of AB PANEVĖŽIO STATYBOS TRESTAS and its subsidiaries (hereinafter the ‘Group’), which comprise the consolidated statement of financial position as at 31 December 2022, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, of the financial position of the Group as at 31 December 2022, and their consolidated financial performance and consolidated cash flows for the year then ended in accordance with the International Financial Reporting Standards as adopted by the European Union. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the ‘Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements’ section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) together with the requirements of the Law on Audit of the financial statements of the Republic of Lithuania that are relevant to the audit in the Republic of Lithuania, and we have fulfilled our other ethical responsibilities in accordance with the Law on Audit of the financial statements of the Republic of Lithuania and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Below is the description of each key audit matter and our response to it. We have fulfilled the responsibilities described in the ‘Auditor’s Responsibilities for the Audit of the Financial Statements’ section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial statements. 1. Revenue recognition for constructions contracts in progress The Group’s main revenue stream comes from large long-term construction contracts. As disclosed in Notes 2, 3.13 and 18, the Group recognizes revenue from the customer specific construction contracts in progress as of the year-end based on the estimated stage of completion of the projects, which is assessed by reference to the proportion of total costs incurred through the reporting date compared to total costs of the contract estimated by management. This matter was significant to our audit because recognition of revenue for the reporting year is highly dependent on the judgment exercised by the management in assessing the completeness and accuracy of forecast costs to complete the construction contract and changes in these judgments and related estimates throughout a contract life can result in material adjustments to revenue and margin recognized on contracts, which can be either positive or negative. Our audit procedures, among others, included the following: - Updating our understanding of the Group’s revenue recognition process, including the model used for the revenue recognition in relation to the contracts in progress, and controls in relation to long- Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 3 term construction contracts. We also assessed how the management makes the accounting estimate (determines the stage of completion of the projects) and the accuracy, completeness and relevance of the data on which it is based as further described below. - Testing the Group’s key controls over allocation of revenues and costs to a specific contract. - Consideration of the accuracy of management’s forecasts for potential management bias by comparing the historical financial performance of selected contracts completed in 2022 with the total cost estimates and forecasted margins for those contracts used for revenue recognition as of 31 December 2021. - Considering whether all material loss making contracts were properly identified and accounted for; - Selecting a sample of contracts with the greatest potential impact on the Company’s financial statements for the year ended 31 December 2022, considering both quantitative and qualitative criteria, such as significant margin changes, loss-making contracts or projects which are unique in their nature, for additional testing as outlined below. How the Matter Was Addressed in the Audit For the sample of contracts selected, we have considered the adequacy of the management’s estimate on the amount of revenue to be recognized in the financial statements by performing the following procedures, among others: - comparing the contracts signed with customers against the total contract value estimates included in the management’s calculations; - considering the management’s estimated costs required to complete the contracts by reference to our understanding of the contract scope and the management’s contracts’ cost budgets and our inquiries of contract managers; - tracing costs incurred up to date as per management’s estimation of the stage of completion to the costs included in the statement of comprehensive income, considering also whether they are reflective of the actual progress of the work and are eligible items; - considering the reasonableness of the margins recognised by the Group for the projects in progress taking into account our understanding of the contract scope and the historical performance of the Group; - and tracing actual contract revenues accounted for in the statement of comprehensive income to the estimation of the management of the amounts of revenue to be recognized for the contracts in progress based on the assessment of their stage of completion. Finally, we considered the adequacy of the disclosures about the matter in Notes 2, 3.13 ir 18 of the financial statements. 2. Fair value assessment of the investment property The Group accounts for investment properties in the financial statements at fair value (IAS 40). The increase under Investment property caption as of 31 December 2022 is related to the change in the fair value of the business centre project developed UAB Šeškinės projektai. Gain arising from changes in fair value is recognised the statement of comprehensive income. The fair value of the Group’s investment property is based on the valuations performed by independent appraisers. The valuations are dependent on certain key assumptions which requires significant judgements. Details of the valuation methodology and key inputs used in the valuations are disclosed in Notes 2 and 16. This matter was important to our audit due to significance of the amounts involved and high degree of related management estimation. How the Matter Was Addressed in the Audit - We gained an understanding of how the management estimates the fair value of the investment property (including methods and assumptions). Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 4 We considered the following: - Considerations about the independent external appraiser’s competence, capabilities and objectivity; - Understanding the methods used by the external appraiser to estimate market values; - Consideration of the accuracy and relevance of the input data provided by management to the external appraiser where discounted cash flows method was used. We considered the key assumptions used by the management in the discounted cash flows, including discount rates, owner related expenses, and market rent price level, vacancy rates and other; - Consideration of the level of market prices used where comparable market prices method was used. Finally, we considered the adequacy of the Group’s disclosures on the matter in Notes 2 and 16 of the financial statements. 3. Impairment of trade accounts receivable and contract assets As at 31 December 2022, the Group had non-current and current trade accounts receivable and contract assets balance amounting to EUR 0.20 million and EUR 20.96 million respectively, reported in the statement of financial position, as disclosed in Note 18 of the consolidated financial statements. The estimation of the expected credit losses (ECL) as required by IFRS 9 Financial instruments involves significant management judgement. As disclosed in Note 2, specific factors management considers include analysis of the historical credit losses, consideration of economic developments and other subjective risk factors related to the specific debtor or debtors’ group. This matter is significant to our audit due to materiality of the amounts as these receivables constitute over 24.0 % of the total assets of the Group in the statement of financial position as at 31 December 2022 and high level of management judgement involved in the assessment of their impairment. How the Matter Was Addressed in the Audit Our audit procedures, among others, included the following: - We gained an understanding of the management’s process of estimation of impairment of trade receivables and contract assets. This included the consideration whether the model used to develop the estimate is appropriate and assessment whether the impairment accounting policy applied by the Company is in line with the requirements of IFRS 9 Financial instruments. We also assessed how the management made the accounting estimate and the accuracy, completeness and relevance of the data on which it is based as follows: - For receivables and contract assets assessed by the management for impairment individually, we have discussed with the management selected individual balances, including management’s analysis of expected recoverability of these balances, and also considered independently the indications of potential understatement of ECL by assessing the ageing of the receivables and amounts collected after the date of the statement of financial position. - For receivables assessed by the management using the expected credit loss rate matrix, we have assessed the key estimates made by the management in developing the ECL matrix, including historical default rate information and forward-looking information as of 31 December 2022. We tested the correctness of aging of the receivables by agreeing the date to the invoices issued for selected items and verified the arithmetical accuracy of the management’s calculation of impairment. Furthermore, we have assessed the adequacy of the disclosure in the financial statements on this matter (Notes 2 and 18). Other Information The other information comprises the information included in the Group’s annual report, including Corporate Governance Statement, Remuneration Report and Corporate Social Responsibility Report, but does not include the consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information presentation. Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 5 Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except as specified below. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. In addition, our responsibility is to consider whether information included in the Group’s Annual Report, including Corporate Governance Statement and Remuneration Report, for the financial year for which the consolidated financial statements are prepared is consistent with the consolidated financial statements and whether the Group’s Annual Report, including Corporate Governance Statement and Remuneration Report, has been prepared in compliance with applicable legal requirements. In our opinion, based on the work performed in the course of the audit of the consolidated financial statements, in all material respects: • The information given in the Group’s annual report, including Corporate Governance Statement and Remuneration Report, for the financial year for which the financial statements are prepared is consistent with the consolidated financial statements; and • The Group’s annual report, including Corporate Governance Statement and Remuneration Report, has been prepared in accordance with the requirements of the Law of the Republic of Lithuania on Consolidated Financial Reporting by Groups of Undertakings. It is also our responsibility check whether the Consolidated Corporate Social Responsibility Report has been provided. If we identify that the Consolidated Corporate Social Responsibility Report has not been provided, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s consolidated financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or taken together, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 6 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements In accordance with the decision made by the General Meeting of Shareholders on 29 July 2021, we have been chosen to carry out the audit of the Group’s consolidated financial statements for the first time. Our appointment to carry out the audit of the Group’s consolidated financial statements in accordance with the decision made by the General Meeting of Shareholders is renewed every two years and the period of total uninterrupted engagement is two years. We confirm that our opinion in the section ‘Opinion’ is consistent with the additional Audit report which we have submitted to the Group and to the Audit Committee. We confirm that in light of our knowledge and belief, services provided to the Group are consistent with the requirements of the law and regulations and do not comprise non-audit services referred to in Article 5(1) of the Regulation (EU) No 537/2014 of the European Parliament and of the Council. Throughout our audit engagement period, we have not provided any other services except for the audit of consolidated financial statements and translation services. Report on the Compliance of the Format of Consolidated Financial Statements with the Requirements of the European Single Electronic Format We have been engaged as part of our audit engagement letter by the Management of the Company to conduct a reasonable assurance engagement for the verification of compliance with the applicable requirements of the single electronic reporting format of the consolidated financial statements for the year Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 7 ended 31 December 2022, including the consolidated annual report, in a single electronic reporting format (hereinafter the “single electronic reporting format of the consolidated financial statements”). Description of a subject matter and applicable criteria The single electronic reporting format of the consolidated financial statements has been applied by the Company to comply with the requirements of Articles 3 and 4 of the Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format (hereinafter the “ESEF Regulation”). The applicable requirements regarding the single electronic reporting format of the consolidated financial statements are laid down in the ESEF Regulation. The requirements referred to in the preceding sentence determine the basis for application of the Electronic reporting format of the consolidated financial statements and, in our opinion, constitute appropriate criteria to form a reasonable assurance conclusion. Responsibilities of Management and Those Charged with Governance The Company’s management is responsible for the application of the single electronic reporting format of the consolidated financial statements that complies with the requirements of the ESEF Regulation. This responsibility includes the selection and application of appropriate iXBRL tags using ESEF taxonomy, the design, implementation and maintenance of internal control relevant to the preparation of the consolidated financial statements in a single electronic reporting format and material departures from the requirements set out in the ESEF Regulation. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our responsibility is to express a reasonable assurance opinion about whether the singe electronic reporting format of the consolidated financial statements complies with the ESEF Regulation. We conducted our reasonable assurance engagement in accordance with the International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements other than Audits or Reviews of Historical Financial Information (hereinafter ‘ISAE 3000 (R)’). This Standard requires that we comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the singe electronic reporting format of the consolidated financial statements was prepared, in all material aspects, in accordance with the applicable requirements. Reasonable assurance is a high level of assurance, but is not a guarantee that an assurance engagement conducted in accordance with ISAE 3000 (R) will always detect a material misstatement when it exists. Summary of the work performed Our planned and performed procedures were aimed at obtaining reasonable assurance that the single electronic reporting format of the consolidated financial statements was applied, in all material aspects, in accordance with the applicable requirements and such application is free from material errors or omissions. Our procedures included, in particular: • obtaining an understanding of the internal control system and processes relevant to the application of the single electronic reporting format of the consolidated financial statements, including the preparation of the XHTML format and marking up the consolidated financial statements; • verification that the XHTML format was applied properly; • evaluating the completeness of marking up the consolidated financial statements using the XBRL markup language according to the requirements of the implementation of electronic format as described in the ESEF Regulation; • evaluating the appropriateness of the Company’s use of XBRL tags selected from the ESEF taxonomy and the creation of extension tags where no suitable element in the ESEF taxonomy has been identified; and Grant Thornton Baltic UAB Vilnius | Upės st. 21 | 08128 Vilnius | Lithuania | T +370 52 127 856 | E [email protected] Kaunas | Jonavos st. 60C | 44192 Kaunas | Lithuania | T +370 37 422 500 | E [email protected] Klaipėda | Taikos ave. 52c / Agluonos st. 1-1403 | 91184 Klaipėda | Lithuania | T +370 46 411 248 | E [email protected] Member of Grant Thornton International Ltd. 8 • evaluating the appropriateness of anchoring of the extension elements to the ESEF taxonomy We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the single electronic reporting format of the consolidated financial statements for the year ended 31 December 2022 complies, in all material aspects, with the ESEF Regulation. The partner in charge of the audit resulting in this independent auditor’s report is Arvydas Ziziliauskas. Arvydas Ziziliauskas Lithuanian Certified Auditor License No 000467 4 April, 2023 Jonavos st. 60C, Kaunas Grant Thornton Baltic UAB Audit company’s licence No 001513 Company code: 14773296 Address: P. Puzino st. 1, LT-35173 Panevėžys AB „Panevėžio statybos trestas“ Consolidated Financial Statements 9 Consolidated Statement of Comprehensive Income For the year ended December 31 EUR thousand Note 2022 2021 Revenue from contracts with customers 5, 6 115,840 98,451 Cost of sales 7 (106,310) (86,283) Gross profit 9,530 12,168 Change in fair value of investment property 11 573 2,260 Other revenue 11 1,883 1,710 Selling expenses 8 (496) (516) Administrative expenses, total: 9 (10,101) (9,238) Impairment loss on trade debts, contract assets and other receivables 4 5 Other administrative expenses (10,105) (9,243) Other expenses 11 (1,800) (1,612) Operating profit (loss) (411) 4,772 Finance income, total 12 1,622 79 Other finance income 489 79 Reverse of interest charged by the Competition Council 12 1,133 - Finance expense, total: 12 (802) (646) Interest expenses (689) (484) Other finance expenses (113) (162) Profit (loss) before tax 409 4,205 Income tax expense 13 116 (706) Net profit (loss) 525 3,499 Other comprehensive income Items that will never be transferred to profit/(loss) 1,482 - Non-current asset revaluation impact 1,744 - Deferred income tax on revaluation of non-current assets (262) - Items that can or will be transferred to profit/(loss) (476) (95) Currency translation effect (476) (95) Other comprehensive income (loss), total 1,006 (95) Total comprehensive income (loss) 1,531 3,404 Net profit/(loss) attributable to: To the equity holders of the Parent 488 3,049 Non-controlling interest 37 450 525 3,499 Comprehensive income (loss) attributable to: To the equity holders of the Parent 1388 2,998 Non-controlling interest 143 406 1,531 3,404 Basic and diluted earnings/(loss) per share (EUR) 26 0.03 0.20 The notes on pages 14–61 are an integral part of these consolidated financial statements. Managing director Egidijus Urbonas 04/04/2023 Chief Accountant Danguolė Širvinskienė 04/04/2023 Company code: 14773296 Address: P. Puzino st. 1, LT-35173 Panevėžys AB „Panevėžio statybos trestas“ Consolidated Financial Statements 10 Consolidated Statement of Financial Position As at 31 December EUR thousand Note 2022 2021 ASSETS Non-current assets Property, plant and equipment 14 10,668 9,846 Intangible Assets 15 235 267 Investment Property 16 32,565 31,400 Right of use assets 123 198 Non-current trade receivables 18 200 29 Other non-current financial assets 742 505 Deferred tax assets 13 609 390 Total non-current assets 45,142 42,635 Current assets Inventories 17 9,674 10,129 Trade receivables 18 16,759 15,069 Contract assets 18 4,199 3,414 Prepayments 846 1,766 Other assets 19 2,558 1,243 Prepaid income tax 13 24 60 Cash and cash equivalents 20 8,955 11,888 Total current assets 43,015 43,569 TOTAL ASSETS 88,157 86,204 The notes on pages 14–61 are an integral part of these consolidated financial statements. Managing director Egidijus Urbonas 04/04/2023 Chief Accountant Danguolė Širvinskienė 04/04/2023 Company code: 14773296 Address: P. Puzino st. 1, LT-35173 Panevėžys AB „Panevėžio statybos trestas“ Consolidated Financial Statements 11 Consolidated Statement of Financial Position (continued) As at 31 December EUR thousand Note 2022 2021 EQUITY AND LIABILITIES Equity Issued capital 21 4,742 4,742 Reserves 21 7,771 6,869 Retained earnings 18,200 17,713 Total equity attributable to equity holders of the Parent 30,713 29,324 Non-controlling interest 1,373 1,230 Total equity 32,086 30,554 Loans and borrowings 23 18,862 19,441 Provisions 24 765 965 Deferred tax liability 13 1,088 875 Non-current lease liabilities 33 107 Other liabilities 263 677 Total non-current liabilities 21,011 22,065 Current liabilities Loans and borrowings 23 696 816 Current lease liabilities 88 87 Trade payables 22 17,083 15,660 Contract liabilities 25 5,927 3,771 Provisions 18, 25 208 148 Income tax payable 13 132 120 Other liabilities 25 10,926 12,983 Total current liabilities 35,060 33,585 Total liabilities 56,071 55,650 TOTAL EQUITY AND LIABILITIES 88,157 86,204 The notes on pages 14–61 are an integral part of these consolidated financial statements. Managing director Egidijus Urbonas 04/04/2023 Chief Accountant Danguolė Širvinskienė 04/04/2023 Company code: 147732969 Address: P. Puzino st. 1, LT-35173 Panevėžys AB „Panevėžio statybos trestas“ Consolidated Financial Statements 12 Consolidated Statement of Changes in Equity EUR thousand Note Foreign Attributable to currency the equity Non- Issued Revaluation translation Retained holders of the controlling capital Legal reserve reserve reserve earnings Parent interest Total equity Equity as at 31 December 2021 4,742 600 2,008 4,261 17,713 29,324 1,230 30,554 Total comprehensive income for the year Net profit (loss) - - - - 488 488 37 525 Revaluation reserve - - 1,479 - - 1,479 3 1,482 Currency translation effect - - - (579) - (579) 103 (476) Total other comprehensive income - - 1,479 (579) - 900 106 1,006 Total comprehensive income for the year - - 1,479 (579) 488 1 388 143 1,531 Increase in legal reserve - 134 - - (134) - - - Depreciation transfer for buildings - - (132) - 133 1 - 1 Equity as at 31 December 2022 4,742 734 3,355 3,682 18,200 30,713 1,373 32,086 Equity as at 31 December 2020 4,742 600 2,173 4,312 14,498 26,325 824 27,149 Total comprehensive income for the year Net profit (loss) - - - - 3,049 3,049 450 3,499 Currency translation effect - - - (51) - (51) (44) (95) Total other comprehensive income - - - (51) - (51) (44) (95) Total comprehensive income for the year - - - (51) 3,049 2,998 406 3,404 Depreciation transfer for buildings - - (165) - 166 1 - 1 Equity as at 31 December 2021 4,742 600 2,008 4,261 17,713 29,324 1,230 30,554 The notes on pages 15–63 are an integral part of these consolidated financial statements. Managing director Egidijus Urbonas 04/04/2023 Chief Accountant Danguolė Širvinskienė 04/04/2023 Company code: 147732969 Address: P. Puzino st. 1, LT-35173 Panevėžys AB „Panevėžio statybos trestas“ Consolidated Financial Statements 13 Consolidated Statement of Cash Flows For the year ended December 31 EUR thousand Note 2022 2021 Cash flows from operating activities Net profit (loss) 525 3,499 Adjustments to: Depreciation and amortisation (including impairment) 14, 15 1,333 1,063 Proceeds from disposal of property, plant and equipment (1) (191) Income tax expense 13 (116) 706 Elimination of results from financing activities (75) 394 Change in fair value of investment property 11 (573) (2,260) Other non-cash items (110) 579 Net cash flows from operating activities before changes in working capital 983 3,790 Changes in working capital: Changes in inventories 17 23 (3,168) Changes in trade receivables and contract assets 18 (2,649) (6,306) Changes in prepayments 920 (1,379) Changes in other assets 19 (1,446) 1,020 Changes in trade payables 22 1,486 5,710 Changes in prepayments received (188) 895 Changes in other liabilities (264) (1,083) Income tax paid (66) (717) Net cash flows from operating activities (1,201) (1,238) Cash flows used in investing activities Acquisition of intangible assets and property, plant and equipment 14, 15 (485) (796) Disposal of property, plant and equipment 12 377 Acquisition of investments - - Loans granted - - Collection of loans granted 5 5 Interest and dividends received 2 2 Net cash flows used in investing activities (466) (412) Cash flows from/used in financing activities Dividends paid 31 (1) - Repayment of borrowings 31 (13,465) (317) Loans and borrowings received 31 12,961 5,000 Payment of finance lease liabilities 31 (85) (71) Interest paid (676) (484) Net cash flows from/used in financing activities (1,266) 4,128 Net increase/(decrease) in cash and cash equivalents (2,933) 2,478 Effect of foreign exchange on cash - - Cash and cash equivalents at the beginning of the period 11,888 9,410 Cash and cash equivalents at the end of the period 8,955 11,888 The notes on pages 14–61 are an integral part of these consolidated financial statements. Managing director Egidijus Urbonas 04/04/2023 Chief Accountant Danguolė Širvinskienė 04/04/2023 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 14 Notes to the Financial Statements 1. General information AB Panevėžio Statybos Trestas (hereinafter the “Company”) is a public limited liability company was established in 1957. The company code is 147732969 and it is registered at P. Puzino st. 1, LT- 35173 Panevėžys . As from 13 July 2006, the Company’s ordinary shares are listed on the Official trading list of the Vilnius Stock Exchange (VSE). These consolidated financial statements comprise the financial statements of the Parent and its subsidiaries (hereinafter “the Group”). The Group is primarily involved in the construction of buildings, structures, other facilities and networks, as well as real estate development in Lithuania and abroad. As at 31 December 2022, the Group had 805 employees (as at 31 December 2021: 840). As at 31 December 2022 and 2021, the principal shareholders of the Company were as follows: • AB Panevėžio Keliai, S. Kerbedžio st. 7, Panevėžys, company code 147710353, (49.78%) – the ultimate controlling parent; • Clairmont Holdings LTD, Grigori Afxentiou, 27 P.O.6021, CY (5.73%); • The freely traded shares, owned by natural and legal persons (44.49 %). No one owns more than 5%. AB Panevėžio Keliai is the ultimate controlling parent which prepares separate and consolidated financial statements based on Lithuanian Financial Reporting Standards (LFRS). Majority of shareholders of AB Panevėžio Keliai is natural persons, none of them holds more than 50% of shares. The shareholders of the Company have a statutory right to either approve these financial statements or not approve them and require a new set of financial statements to be prepared. The Company’s management authorised these financial statements on 4 April 2023. Financial information of the subsidiaries is as follows: Net Net profit/(lo profit/(lo ss) for ss) for Country Equity as at the year Equity as at the year (EUR thousand) of operation Type of activity 31/12/2022 2022 31/12/2021 2021 UAB PST Investicijos Lithuania Real estate (subgroup consolidated) development 4808 33 4,848 1,341 Construction: UAB Vekada Lithuania electrical installation 988 (63) 1,013 (286) Hustal UAB Wholesale of steel (after business combination) Lithuania structures 2,095 690 0 0 UAB Metalo Meistrai Lithuania Construction: steel (before business combination) structures 1,485 455 1,030 272 UAB Hustal Wholesale of steel (before business combination) Lithuania structures 376 216 360 133 Construction: wooden UAB Skydmedis Lithuania panel houses 1,507 837 1,170 570 Construction: conditioning UAB Alinita Lithuania equipment (265) (241) (24) 163 Real estate OOO Teritorija Russia development 0 (1,059) 307 Kingsbud Sp.z.o.o. Poland Intermediary services 441 183 456 125 SIA PS Trests Latvia Construction (193) (51) (142) 21 Real estate UAB Šeškinės Projektai Lithuania development 7,615 1,337 6,242 2,084 Real estate UAB Ateities Projektai Lithuania development 403 204 199 (95) Production of aluminium profile UAB Aliuminio Fasadai Lithuania systems (191) (120) (71) (173) Real estate UAB Tauro Apartamentai Lithuania development 3 0 3 0 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 15 1. General information (continued) Ownership of subsidiaries: Registration address 2022 2021 UAB PST Investicijos (group) Verkių st. 25C, Vilnius 68.3 % 68.3 % UAB Vekada Marijonų st.36, Panevėžys 95.6 % 95.6 % UAB HUSTAL Tinklų st. 7, Panevėžys 100 % 100 % (former UAB Metalo Meistrai) UAB Hustal (removed from the register) Tinklų st. 7, Panevėžys - 100 % UAB Skydmedis Pramonės st. 5, Panevėžys 100 % 100 % UAB Alinita Tinklų st. 7, Panevėžys 100 % 100 % UAB Šeškinės Projektai Verkių st. 25C, Vilnius 100 % 100 % OOO Teritorija (removed from the Lunačiarsko ave. 43/27, Cherepovec, - 87.5 % register) Vologda, Russian Federation Kingsbud Sp. z. o. o. A. Patli st. 12, 16-400 Suwalki, Poland 100 % 100 % Skultes st. 28, Skulte, Marupes mun., 100 % 100 % SIA PS Trests Latvia UAB Tauro Apartamentai Verkių st. 25C-1, Vilnius 100 % 100 % UAB Ateities Projektai Verkių st. 25C-1, Vilnius 100 % 100 % UAB Aliuminio Fasadai Pramonės st. 5, Panevėžys 100 % 100 % The Group’s subsidiary UAB PST Investicijos has the following subsidiary: Type of activity 2022 2021 ZAO ISK Baltevromarket Development of real estate projects in Kaliningrad 100 % 100 % Joint operations In 2016 the Group made and agreement with limited liability Group SIA ARMS GROUP, Gobu st. 1-129, Baloži, Kekavas municipality, Latvia, regarding joint operations and joint liability for newly established general partnership enterprise PST Un Arms. Under the agreement, 50% of operating expenses and income, assets and liabilities of the joint operations of PST Un Arms belongs to the Group. General partnership enterprise PST Un Arms is established for a certain project developed in Latvia. In 2021, the project was completed. Summarised information of PST Un Arms (EUR thousand) 2022 2021 Total assets 14 19 Total liabilities 3 3 Equity 11 16 Revenue 0 (33) Net result (5) (24) 2. Basis of Preparation Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (hereinafter “IFRSs”). Basis of preparation of the Consolidated Financial Statements The consolidated financial statements have been prepared on the historical cost basis except for land and buildings measured using the revaluation model and investment property measured at fair value. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 16 2. Basis of preparation (continued) Functional and presentation currency The consolidated financial statements are presented in the national currency of the Republic of Lithuania, euro (EUR), which is the Parent company’s functional currency as well as of subsidiaries operating in Lithuania and Latvia. The functional currencies of foreign subsidiaries are the respective foreign currencies of the country of residence. Items included in the financial statements of these subsidiaries are measured using their functional currency. The principles of functional currency translation into the currency of the Group’s financial statements are disclosed in Note 3.1. Due to rounding of certain amounts to thousand, figures in the tables may differ. Such rounding bias is immaterial in these financial statements. Judgements and estimates The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty in applying accounting policies that have a significant effect on the amounts recognized in the financial statements and have a significant risk of causing material adjustments to the financial statements in the next financial year is included in the following notes: • Note 4. Classification of the fine imposed by the Competition Council. As described in Note 4, the management determined that the liability must be classified in the Group’s financial statements as current. • Note 13: deferred taxes recognition. Deferred tax asset is recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences could be utilised. • Note 14: Fair value of land and buildings which are measured using the revaluation model, useful lives of property, plant and equipment. The Group verifies economic useful lives of property, plant and equipment and intangible assets at least once a year – (Note 3.3). Revaluations are carried out regularly ensuring that the carrying amount of land and buildings do not significantly differ from their fair values as at reporting date. The revaluation was carried out on 31 December 2022. • Note 16: Fair value of investment property. The Group engaged external appraisers to estimate the fair values of these assets. • Note 17: Measurement of net realizable value of inventories. A key factor in estimating the net realizable value of inventories is the recoverability of ongoing construction projects. Therefore, the Group engaged external appraisers to estimate the fair values of these projects based on discounted cash flow or comparable value approach, the Company also relied on the Purchase and Sale Agreement signed with a third party after the reporting date and related information. • Note 18: Impairment of trade receivables and measurement of revenue from contracts with customers as well as contract assets and contract liabilities based on the stage of completion of the construction contracts. The accurate recognition of revenue on contracts in progress is highly dependent on judgement exercised by the management in assessing the completeness and accuracy of the overall costs of the project (estimates) as it is the key assumption in the assessment of the stage of completion of the contracts in progress. Estimating the recoverable amounts of receivables is a process, which requires significant management judgement and AB „Panevėžio statybos trestas“ Consolidated Financial Statements 17 2. Basis of preparation (continued) • estimates, particularly those that are related to expected credit losses assessment based on the analysis of the historical credit losses, considerations of future factors and other subjective risk factors related to the specific debtor or debtors’ group. Estimates were applied in assessing the amounts to be collected and their timing. • Note 24: Warranty provision is calculated by the Group on a monthly basis based on monthly revenue. Warranty provision is being calculated by taking into account revenue, actual warranty expenses incurred in previous periods, its proportion against actual sales, legal term of warranty and historical information. • Note 27: The management judgements are to predict the outcome of litigations. Provisions are not recognised in the financial statements as based on the management judgement it is more likely than not, that the Group will win the legal disputes mentioned in the Note 27, or it is not possible to assess reliably the possible outcome of the contingency at the moment. 3. Summary of Significant Accounting Policies Basis of consolidation The financial statements of the subsidiaries are prepared for the same reporting year, using consistent accounting policies. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: - The power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); - The right to variable returns from its involvement with the investee; - The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights result in control. Subsidiaries are consolidated from the date from which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. All intergroup transactions, balances and unrealised gains and losses on transactions among the Group companies have been eliminated. The equity and net income attributable to non-controlling interests, are shown separately in the statement of financial position and the statement of comprehensive income. The losses of subsidiaries are attributable to the non-controlling interest even if that results in a deficit balance on the non-controlling interest. Acquisitions and disposals of non-controlling interest by the Group are accounted as equity transaction: the difference between the carrying value of the net assets acquired from/disposed to the non-controlling interests in the Group’s financial statements and the share purchase/sale prices are accounted directly in equity. Change of ownership share in the subsidiary when control is retained, is accounted for as equity transaction. If the Group loses control of the subsidiary, the Group takes the following actions: • Derecognises the assets (including goodwill) and liabilities of the subsidiary; • Derecognises the carrying amount of non-controlling interest, if any; • Derecognises accumulated currency exchange differences accounted for in equity; • Accounts for consideration received at fair value; • Accounts for retained investment at fair value; • Accounts for arising surplus or deficit in the profit or loss; AB „Panevėžio statybos trestas“ Consolidated Financial Statements 18 3. Summary of Significant Accounting Policies (continued) Basis for consolidation (continued) Reclassifies the components previously recognized in other comprehensive income and attributable to the parent company to the statement of comprehensive income or retained earnings respectively. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the acquisition-date fair value of the consideration transferred 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. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration that is classified as an asset or liability is measured at fair value in accordance with IFRS 9: in either in profit/loss or as a change in other comprehensive income. If contingent consideration is classified as equity, it is not remeasured and its subsequent settlement is accounted for within equity. Acquisition costs incurred are expensed and included in administrative expenses. If the business combination is achieved in stages, the acquirer’s equity interest previously held in the acquiree is measured at fair value at the acquisition date through statement of comprehensive income. 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 statement of comprehensive income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Impairment is assessed annually. Accounted impairment is not restated. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, assigned to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree 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. A joint arrangement is an arrangement of which two or more parties have joint control. These arrangement has the following characteristics: • The parties are bound by a contractual arrangement. • The contractual arrangement gives two or more of those parties joint control of the arrangement. The Group has a joint arrangement that is a joint operation. As a joint operator the Group recognises in relation to its interest in a joint operation: • its assets, including its share of any assets held jointly; • its liabilities, including its share of any liabilities incurred jointly; • its revenue from the sale of its share of the output arising from the joint operation; • its share of the revenue from the sale of the output by the joint operation; and • its expenses, including its share of any expenses incurred jointly. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 19 3. Summary of Significant Accounting Policies (continued) Basis for consolidation (continued) (A) Application of new and/or changed IFRS and interpretations issued by International Accounting Standards Board (IASB) During the reporting period, the Group adopted new standards and amendments to existing standards and their interpretations, which are relevant to the activities and effective for annual periods beginning on or after 1 January 2022. (a) Standards, their amendments and interpretations effective for annual periods beginning on or after 1 January 2022. IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets as well as Annual Improvements 2018-2020 (Amendments) (all issued on 14 May 2020 with effective date of 1 January 2022) The IASB has issued narrow-scope amendments to the IFRS Standards as follows: • IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. • IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, the Group will recognise such sales proceeds and related cost in profit or loss of the statement of profit or loss and other comprehensive income. • IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous. • Annual Improvements 2018-2020 make minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases These amendments are effective in European Union for annual reporting periods beginning on or after 1 January 2022. The management assessed that these amendments has no material impact on the financial statements. (b) Standards issued but not yet effective and not early adopted and their amendments New standards, amendments and interpretations that are not mandatory for reporting period beginning on 1 January 2022 and have not been early adopted when preparing these financial statements are presented below: IFRS 17 and IFRS 4: the Deferral of Effective Dates of IFRS 17 and IFRS 9 for Insurers (Amendments) (issued on 25 June 2020 with effective date of 1 January 2023). The amendments to IFRS 17 are effective, retrospectively, for annual periods beginning on or after 1 January 2023, with earlier application permitted. The amendments aim at helping companies implement the Standard. Overall, the amendments are designed to reduce costs by simplifying some requirements in the standard; make it easier to explain financial performance; and ease transition by deferring the effective date of the standard to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for the first time. The amendments to IFRS 4 change the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, AB „Panevėžio statybos trestas“ Consolidated Financial Statements 20 3. Summary of Significant Accounting Policies (continued) Basis for consolidation (continued) so that the Company would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023. The management has assessed that these amendments will not have any impact on the Group’s financial statements. IFRS 17 Insurance Contracts (issued on 18 May 2017 with effective date of 1 January 2023). The standard is effective for annual periods beginning on or after 1 January 2021 with earlier application permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have also been applied. In its meeting in March 2020, IASB decided to defer the effective date of the standard to 2023. IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity. This Standard will not have any impact on the financial position or performance of the Group as insurance services are not provided. IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments) (issued on 7 May 2021 with effective date of 1 January 2023). Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendments become effective for annual reporting periods beginning on or after 1 January 2023 with earlier application permitted. The management has not yet evaluated the impact of the implementation of these amendments. IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (Amendments) (issued on 12 February 2021 with effective date of 1 January 2023). The amendments effective for reporting periods beginning on or after 1 January 2023. Earlier application is permitted. The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. The management has not yet evaluated the impact of the implementation of these amendments. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (Amendments) (issued on 12 February 2021 with effective date of 1 January 2023). The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors. The amendments become effective for annual reporting periods beginning on or after 1 January 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. The management has not yet evaluated the impact of the implementation of these amendments. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 21 3. Summary of Significant Accounting Policies (continued) Basis for consolidation (continued) Amendments to IAS 1 – Classification of Liabilities as Current or Non-Current (issued on 23 January 2020 with effective date of 1 January 2024, but not before it is adopted by the EU). The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments. The amendments have not yet been endorsed by the EU. The management has not yet evaluated the impact of the implementation of these amendments. Amendments to IAS 1 “Non-current Liabilities with Covenants” (issued on 31 October 2022 with effective date of 1 January 2024, but not before it is adopted by the EU): Modify the requirements introduced by Classification of Liabilities as Current or Non-current on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances: Only covenants with which an entity is required to comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with covenants could become repayable within twelve months. The amendments are effective for reporting periods beginning on or after 1 January 2024. The amendments are applied retrospectively in accordance with IAS 8 and earlier application is permitted. The amendments have not yet been endorsed by the EU. The management has not yet evaluated the impact of the implementation of these amendments. Amendments to IFRS 16 “Lease Liability in a Sale and Leaseback” with amendments that clarify how a seller-lessee subsequently measures sale and leaseback transactions that satisfy the requirements in IFRS 15 to be accounted for as a sale (issued on 22 September 2022 with effective date of 1 January 2024, but not before it is adopted by the EU). Amendments to IFRS 16 “Lease Liability in a Sale and Leaseback” require a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognise any amount of the gain or loss that relates to the right of use it retains. The new requirements do not prevent a seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full termination of a lease. The amendments become effective for annual reporting periods beginning on or after 1 January 2024 with earlier application permitted. A seller-lessee applies the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to sale and leaseback transactions entered into after the date of initial application. The amendments have not yet been endorsed by the EU. The management has not yet evaluated the impact of the implementation of these amendments. 3.1 Foreign currency Transactions in foreign currencies are translated to the functional currency at exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate by the European Central Bank ruling at that date. The foreign currency gain or loss on monetary items is recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities denominated in foreign currencies that are measured at cost are translated to the functional currency at the exchange rate at the date that the asset or liability is recognised in statement of financial position. Foreign currency differences arising on translation are recognised in profit or loss. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 22 3. Summary of Significant Accounting Policies (continued) 3.1 Foreign currency (continued) The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to the presentation currency at exchange rates at the dates of the transactions. The effect of translation is recognized directly in other comprehensive income. When a foreign operation is disposed of, the relevant amount in the foreign currency translation reserve is reclassified to profit or loss. 3.2 Financial instruments Financial instrument: a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement At initial recognition, financial asset is classified as either measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables and contract assets that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not have a significant financing component are measured at the transaction price identified under IFRS 15. Financial asset is classified and measured at amortised cost or fair value through other comprehensive income, where cash flows arising from financial asset are solely payments of principal and interest (SPPI) on the principal amount outstanding. This assessment is known as the SPPI test and is performed for each financial instrument. The Group’s business model for managing financial assets refers to how the Group manages its financial assets in order to generate cash flows. The business model determines whether cash flows will be generated by collecting contractual cash flows, by selling this financial asset or by using both options. A regular way purchases or sales of financial assets are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement After initial recognition, the Group measures a financial asset at: (a) At amortised cost (debt instruments). (b) At fair value through other comprehensive income with recycling of cumulative gains and losses upon derecognition (debt instruments). The Group did not have such items as at 31 December 2022 and 2021; (c) At fair value through other comprehensive income with no recycling of cumulative gains and losses upon derecognition (equity instruments). The Group did not have such items as at 31 December 2022 and 2021; (d) At fair value through profit or loss. The Group did not have such items as at 31 December 2022 and 2021. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 23 3. Summary of Significant Accounting Policies (continued) 3.2 Financial Instruments (continued) Financial asset at amortised cost (debt instruments) The Group measures financial assets at amortised cost if both of the following conditions are met: (i) The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and (ii) Contractual terms and conditions of financial asset allow for obtaining cash flows, on certain dates, which are solely the payments of the principal or the interest on the outstanding principal. Financial assets measured at amortised cost are subsequently accounted for by applying the effective interest method (EIR) less impairment losses. Gain or loss is recognised in the statement of comprehensive income when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost includes trade, other current and non-current receivables and loans granted. Impairment of financial assets Following IFRS 9, in common case scenario, the Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. (a) Assessment of impairment of trade receivables and contract assets Based on the Group’s management assessment, trade receivables and contract assets do not include a significant financing component and are accordingly measured for impairment using the simplified method, i.e. management makes an individual assessment of expected credit losses for each important customer taking into account its credit history, future factors and subjective risk factors related to the borrower. For all other receivables the Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. (b) Estimation of the impairment of loans granted The Group is granting loans under the agreements with defined repayment terms. For assessment of impairment of loans granted the expected 12-months credit losses are assessed and accounted upon issue of the loan. In subsequent periods, given the absence of significant increase in the credit risk associated with the debtor, the Group re-assesses the 12-months ECL balance based on the loan amount still outstanding as of the date of the re-assessment. If it is determined that the financial position of the debtor has significantly deteriorated in comparison with the position when the loan was issued, the Group accounts for ECL over the remaining life of the loan. Loans subject to assessment of lifetime ECLs are considered to be credit-impaired financial assets. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 24 3. Summary of Significant Accounting Policies (continued) 3.2 Financial Instruments (continued) The Group considers that the debtor has defaulted on the obligations associated with the financial assets, if the contractual payments are overdue more than 90 days or when there are indications that the debtor, or the group of debtors, are facing significant financial difficulties, default on the payments of principal amount or interest, and there is a probability that bankruptcy or reorganization procedures will be initiated, as well as when observable data indicates that the decrease of expected future cash flows is likely, e.g. change in the overdue days or change in the economic factors that correlate with the defaults on the obligations. ECLs for loans and trade receivables is accounted for through profit/loss using allowance for doubtful debts. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Financial liabilities Initial recognition and measurement: Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans received and payables. All financial liabilities are recognised initially at fair value and, in the case of loans received and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans received, including bank overdrafts and finance lease liabilities. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below. Loans received and other payables After initial recognition, loans and other payables are carried at amortised cost using the effective interest method (EIR). Gains and losses are recognised in the statement of comprehensive income, when the liabilities are written off or amortised. Amortised cost is calculated by reference to the discount or premium on acquisition, as well as taxes or costs that are an integral part of the EIR. EIR amortization is included in financial expenses in the statement of comprehensive income. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, i.e. to realise the assets and settle the liabilities simultaneously. Derecognition of Financial Assets and Liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s statement of financial position) when: (i) the contractual rights to receive cash flows from the financial asset have expired; or (ii) The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the financial asset. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 25 3. Summary of Significant Accounting Policies (continued) 3.2 Financial Instruments (continued) When the Group has transferred its rights to receive cash flows from a financial asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of ownership of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. The Group involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay (amount of the guarantee). Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. When a present financial liability is swapped with other liability to the same lessor, although, upon other conditions or when the present liability terms are substantially changed, this change is recognized as initial derecognition and establishment of a new liability. The difference between respective balance values is recognised in the statement of comprehensive income. 3.3 Property, Plant and Equipment Items of property, plant and equipment except for land and buildings are measured at cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Land and buildings are carried at revalued amount which is their fair value as at the revaluation date less subsequently accumulated depreciation and impairment. Revaluations are carried out regularly ensuring that the carrying amount of land and buildings do not significantly differ from their fair values as at reporting date. The fair value of land and buildings is established by certified independent real estate appraisers. The revaluation reserve of land and buildings is reduced by an amount equal to the difference between the depreciation based on the revalued carrying amount and the depreciation based on the original cost of the land and buildings each year and is transferred directly to retained earnings or loss. In case of revaluation, when the estimated fair value of the assets exceeds their residual value, the residual value is increased to the fair value and the amount of increase is included into revaluation reserve of property, plant and equipment as other comprehensive income in equity. However, such increase in revaluation is recognised as income to the extent it does not exceed the decrease of previous revaluation recognised in profit or loss. Depreciation is calculated from the depreciable amount which is equal to acquisition cost or revaluated amount less residual value of an asset. The accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal or recognising regular depreciation charge, any revaluation surplus relating to the particular asset being depreciation or sold is transferred to retained earnings. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of the Group’s self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Borrowing costs related to qualifying assets are capitalised. When components of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 26 3. Summary of Significant Accounting Policies (continued) 3.3 Property, plant and equipment (continued) The cost of replacing component of property, plant and equipment is capitalised only if it is probable that the future economic benefits embodied within the component will flow to the Group and its cost can be measured reliably. The residual value of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. The estimated useful lives of the assets are the following: • Buildings and structures 8–40 years • Plant and equipment 5–10 years • Vehicles 5–10 years • Fixtures and fittings 3–6 years Depreciation methods, residual values and useful lives are reviewed at each reporting date. Gains and losses on disposal are determined by comparing the proceeds from disposal with the residual value of property, plant and equipment and are recognised net within other income or expenses. When revalued assets are sold or reclassified, the amounts included in the revaluation surplus reserve are transferred to retained earnings. 3.4 Intangible assets (other than goodwill) Software and other intangible assets, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful life is 3 years. The Group does not have any intangible assets with infinite useful life. 3.5 Investment Property Investment property of the Group consists of buildings that are held to earn rentals or for capital appreciation, rather than for use in the production, or supply of goods, or services or for administration purposes, or sale in the ordinary course of business. Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment property are included in the profit or loss in the period in which they arise. Acquisition cost includes expenditure that is directly attributable to the acquisition of the assets. The cost of self-constructed assets includes the cost of raw materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, as well as the costs of dismantling and removing the items and restoring the site on which they are located. Borrowing costs related to qualifying assets are capitalised. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the profit or loss in the period of derecognition. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 27 3. Summary of Significant Accounting Policies (continued) 3.5 Investment Property (continued) Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, plant and equipment, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. 3.6 Leased assets and lease liabilities A. Group as a lessee At inception of a contract, the Group assesses whether the contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group (as a lessee) applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. The Group had only few assets (cars) lease contracts that are insignificant at the beginning of 2020, however, a long-term lease agreement for 21 car was effective at the end of 2021. Right of use assets The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of the initial measurement of the lease liability, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: • Cars – 3 years If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 28 3. Summary of Significant Accounting Policies (continued) 3.6 Leased Assets and Lease Liabilities (continued) After the commencement date, the amount of lease liabilities is increased to reflect the estimates of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. Short-term leases and leases of low-value assets The Group apply the short-term lease recognition exemption to its non-current-asset (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). Lease payments on short term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. B. The Group is a lessor The Group’s buildings that are leased under operating lease agreements are accounted in the statement of financial position as investment property. Lease income is recognised on a straight line basis over the lease period. 3.7 Inventories Capitalised costs related to the real estate development projects for sale in the usual activities of the Group, are classified as inventories and carried at lower of the cost or net realisable value (NRV). Capitalised costs include land, construction, sub-contracting and other project development costs. Other inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out (FIFO) principle, and includes expenditure incurred in acquiring the inventories, production and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Unrealisable inventory is fully written-off. 3.8 Cash and Cash Equivalents Cash includes cash on hand and cash at banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of 3 months or less and that are subject to an insignificant risk of change in value. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and in current bank accounts, as well as deposits in bank with original term equal to or less than 3 months. 3.9 Impairment of Non-Financial Assets The carrying amounts of non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount is the greater of the asset’s value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash flows from continuing use that are largely independent of the cash flows of other assets or groups of assets. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 29 3. Summary of Significant Accounting Policies (continued) 3.9 Impairment of Non-Financial Assets (continued) An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. An impairment loss on a non-revalued asset is recognised in profit or loss. However, an impairment loss on a revalued asset is recognised in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that same asset. Such an impairment loss on a revalued asset reduces the revaluation surplus for that asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognised. 3.10 Dividends Dividends are recognised as a liability in the period in which they are declared. 3.11 Provisions A provision is recognised in the statement of financial position if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows to their present value at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. A provision for warranties is recognized when the underlying construction services are sold (assurance type warranty), as the Group does not provide additional warranties to customers. The provision is based on historical warranty costs data and probabilities. 3.12 Employee benefits The Group does not have any defined contribution and benefit plans and has no share based payment schemes. Post-employment obligations to employees retired on pension are borne by the State. Based on the requirements of the Labour Code of the Republic of Lithuania, each employee leaving the Group at the age of retirement is entitled to a one-off payment in the amount of 2-month salary. The past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested. Any gains or losses appearing as a result of changes in terms of benefits (curtailment or settlement) are recognised in the statement of comprehensive income as incurred. Current year cost of employee benefits is recognised as incurred in the statement of comprehensive income. The above mentioned employee benefit obligation is calculated based on actuarial assumptions, using the projected unit credit method. Obligation is recognised in the statement of financial position and reflects the present value of these benefits on the preparation date of the statement of financial position. Present value of the non-current obligation to employees is determined by discounting estimated future cash flows using the discount rate which reflects the interest rate of the Government bonds of the same currency and similar maturity as the employment benefits. Actuarial gains and losses are recognised in other comprehensive income as incurred. Short-term employee benefits are recognised as a current expense in the period when employees render the services. These include salaries and wages, social security contributions, bonuses, paid holidays and other benefits. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 30 3. Summary of Significant Accounting Policies (continued) 3.13 Revenue Revenue from contracts with customers The majority of the Group’s revenue comes from the construction of buildings, structures, equipment and networks, and the production and assembly of wooden panel houses. In addition, as described in Note 5, the Group earns revenue from the design and manufacturing of metal structures. Revenue from contracts with customers is recognised when control of the services or goods are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Generally, the Group has no material variable price components in its contracts with customers. The Group has concluded that generally it is the principal in its construction services contracts even when the subcontractors are used in the implementation of the projects, because: - controls the goods and services before transferring them to the customer; - is responsible for the overall performance of the contract with the customer and is exposed to the risk of default; - the entity has discretion in establishing the price. Performance obligations arising from the construction contracts with customers’, contracts for the assembly of wooden panel houses and the design and production of metal structures are fulfilled over time and respectively revenue from these contracts and installation services are recognized over time if any of the following criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; (b) the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the Group’s performance does not create an asset with an alternative use and the Group has an enforceable right to payment for performance completed to date. When the Group can reasonably measure its progress towards complete satisfaction of the performance obligation, for each contract, the Group recognizes revenue and expenses based on the stage of completion. The stage of completion is assessed based on the proportion of the costs incurred in fulfilling the contract up to date over to the total estimated costs of the contract. When the outcome of a contract cannot be estimated reliably (for example, in the early stages of a contract), only the portion of the contract costs incurred that is expected to be recovered is recognised as revenue. Contract modification (scope or price or both) are accounted for as a separate contract if the scope of the contract increases because of the addition of promised goods or services that are distinct and the price of the contract increases by an amount of consideration that reflects the Group’s stand-alone selling prices of the additional promised goods or services in the circumstances of the particular contract. Otherwise the contract modification is accounted as (a) termination of the existing contract and the creation of a new contract, if the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification, or (b) part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. The effect that the contract modification has on the transaction price, and on the Group’s measure of progress towards complete satisfaction of the performance obligation, is recognised as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification. Provisions for loss making contracts are recognized when the Group has a present obligation (legal or constructive) to complete the construction contract for the third party for the price that is lower than the total estimated cost to perform the contract as of the date of the financial statements. The difference between the contract price and the total estimated cost of delivery under the contract is recognised in the statement of comprehensive income at the reporting date. When contract costs are likely to exceed contract revenue, a loss is recognized immediately in profit or loss. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 31 3. Summary of Significant Accounting Policies (continued) 3.13 Revenue (continued) When fulfilling the contracts, the Group can receive short term prepayments from its customers. Applying the practical expedient, the Group is not adjusting the price allocation by the financing component, if at the inception of the contract it is expected that the time period from the customer payment for goods/services till the delivery of these goods/services will not exceed one year. Contract balances Contract assets Contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before the Group’s right to amount of consideration is unconditional, a contract asset is recognised for the earned consideration, except any amounts that are recognized as receivables. Receivables Receivables represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Receivables are accounted for in accordance with IFRS 9 (Note 3.2). Contract liability A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Contract liabilities are recognised as revenue when the Group performs under the contract. Income from other services or sales of goods is recognised when the control over service/goods is transferred to the customer, although such transactions are relatively not material. 3.14 Finance Income and Expense Finance income comprises mainly interest income and other similar income. Interest income is recognised as it accrues, using the effective interest method. Financial costs comprise interest expense and other financial expenses. Interest expenses 3.14 Finance Income and Expense (continued) are recognized using the effective interest method. Foreign currency gains and losses are reported on a net basis in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. Other borrowing costs are expensed as incurred. 3.15 Income Tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date. Each company of the Group is taxed individually, irrespective the consolidated Group’s results. Most of the Group’s activities are carried out in Lithuania, where income tax rate of 15% applies. Deferred taxes are calculated using the liability method. The deferred tax reflects temporary difference between the accounting value of assets and liabilities, and net tax influence of their tax base. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the date of the statement of financial position. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 32 3. Summary of Significant Accounting Policies (continued) 3.15 Income Tax (continued) A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Starting from 1 January 2014, the tax loss carried forward cannot exceed 70% of the taxable profit of current financial year in Lithuania. Tax losses can be carried forward for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the company changes its activities due to which these losses were incurred except when the entity 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. 3.16 Earnings per Share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, such as convertible notes and share options granted to employees. The Group has no dilutive potential ordinary shares. The diluted earnings per share are the same as the basic earnings per share. 3.17 Segment Reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. An operating segment’s operating results are reviewed regularly by the chief operating decision maker of the Group to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to management include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 3.18 Determination of Fair Values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both 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 has access at that date. The fair value of a liability reflects its non-performance risk. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). AB „Panevėžio statybos trestas“ Consolidated Financial Statements 33 3. Summary of Significant Accounting Policies (continued) 3.18 Determination of Fair Values (continued) If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, 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 recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Fair values have been determined for measurement and/or disclosure purposes based on the methods and assumptions described Note 14, 16 and 29. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. 3.19 Off-setting When preparing the financial statements, assets and liabilities as well as revenues and expenses are not set off except for the cases where the International Financial Reporting Standards specifically require such off-setting. 4. Financial Risk Management Overview The Group has exposure to the following financial risks: credit risk, liquidity risk and market risk. This note presents information about the Group’s exposure to each of these risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these financial statements. The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contract liabilities. This risk arises principally from the Group’s trade receivables, contract assets and the balance of cash and cash equivalents. The Group controls credit risk by credit policies and procedures. The Group has established a credit policy under which each new customer is analysed for creditworthiness before the standard payment terms and conditions are offered. Customers that fail to meet the benchmark creditworthiness may transact with the Group only on a prepayment basis. The measure of credit risk is the maximum credit risk for each class of financial instruments, which is equal to their carrying amount. The maximum amount of exposure to credit risk in relation to particular classes corresponds to their carrying amount. The maximum exposure to credit risk is set out below: (EUR thousand) 2022 2021 Trade receivables and contract assets 21,158 18,512 Loans granted 1 6 Cash and cash equivalents 8,955 11,888 Total 30,114 30,406 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 34 4. Financial Risk Management (continued) Trade receivables and contract assets: (EUR thousand) 2022 2021 Municipalities and state institutions 6,266 3,305 Legal persons 14,892 15,207 Total trade receivables and contract assets 21,158 18,512 In the statement of financial position, trade receivables and contract assets (i.e. accrued income on the stage of completion) are accounted for under the caption “Non-current and current trade receivables and contract assets”, as disclosed in Note 18. Trade receivables from major customers: (EUR thousand) 2022 % 2021 % Client 1 3,635 17.2 2,099 11.3 Customer No 2 2,028 9.6 1,692 9.1 Customer No 3 1,848 8.7 925 5.0 Customer No 4 1,685 8.0 826 4.5 Customer No 5 644 3.0 763 4.1 Customer No 6 620 2.9 468 2.5 Customer No 7 534 2.5 467 2.5 Other customers 10,531 49.8 11,644 62.9 Impairment (367) (1.7) (372) (1.9) Total 21,158 100 18,512 100 Trade receivables by geographic regions: (EUR thousand) 2022 2021 Local market (Lithuania) 20 046 16 078 Euro zone countries 782 2 097 Other countries 330 337 Total 21,158 18,512 Ageing of gross trade receivables as at the reporting date can be specified as follows: (EUR thousand) 2022 Impairment 2021 Impairment Not overdue 18,395 15,122 Overdue 0-30 days 1,262 2,269 Overdue 30-90 days 1,338 1,079 More than 90 days 531 368 414 372 Total 21,526 368 18,884 372 The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The main components of this allowance are specific losses that relate to individually significant accounts receivable and expected credit losses recognised using ELCs method. Methodology used for establishing the allowance is reviewed regularly to reduce any differences between loss estimate and actual loss experienced. Cash and cash equivalents comprise cash on hand and at bank (only reliable banks are selected); therefore, the related credit risk is relatively low. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 35 4. Financial Risk Management (continued) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial liabilities as they fall due. The Group’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically, the Company ensures that it has sufficient cash on demand to meet expected operating expenses, including the servicing of borrowings. Payment maturities of financial liabilities as at 31 December 2022 (undiscounted) as to the agreements, are presented below: (EUR thousand) Contractual undiscounted Up to 6 More than 6 Liabilities Carrying amount cash flows months months Loans and lease liabilities 19,559 22,103 793 21,310 Trade payables 17,083 17,083 17,083 Liabilities related to the fine imposed by the Competition Council 5,775 5,775 5,775 Total 42,417 44,961 23,651 21,310 * The full amount of the fine is presented as payable within six months because, as described above, when preparing these financial statements, the management was guided by the judgement that the Company does not yet have a court settlement with the Tax Authority, but the Company currently paying the said fine in equal parts for a period of four years (with additional interest). Payment maturities of financial liabilities as at 31 December 2021 (undiscounted) as to the agreements, are presented below: (EUR thousand) Contractual undiscounted Up to 6 More than 6 Liabilities Carrying amount cash flows months months Loans and lease liabilities 2,0257 22,220 417 21,803 Trade payables 15,660 15,660 15,660 0 Liabilities related to the fine imposed by the Competition Council 8,542 8,542 8,542 0 Total 44,459 46,422 24,619 21,803 * The full amount of the fine is presented as payable within six months because, as described above, when preparing the financial statements for the year 2021, the management was guided by the judgement that the Company does not yet have an irrevocable contractual right to defer the payment until the settlement agreement is signed with the Tax Authority, but the Company currently paying the said fine in equal parts for a period of eight years (without additional interest). Interest rate applied for calculation of contractual net cash flows: 2022 2021 Loans and lease liabilities 3.135–3.625% 1.95–2.7% On 14 December 2017, an overdraft agreement was signed with bank with the limit of EUR 15 million. Overdraft with the repayment term of 14 June 2021 was used for the development of real estate project of Šeškinės Projektai UAB on 31 December 2020. To refinance the loan, UAB Šeškinės projektai signed a credit agreement with OP Corporate Bank PLC and AB Citadele for EUR 20,000 thousand in 2021. The contractual maturity date is 1 July 2026. On 17 June 2021, an overdraft agreement was signed with bank with the limit of EUR 5 million. As at 31 December 2022, the overdraft limit was not used (Note 23). AB „Panevėžio statybos trestas“ Consolidated Financial Statements 36 4. Financial Risk Management (continued) Market risk Market risk is the risk that changes in market prices, such as changes in foreign currency rates and interest rates will affect the results of the Group. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. As at 31 December 2022 and 2021, the Group did not use any derivatives. Currency risk. The Group is exposed to the risk of changes in foreign currency rates on sales and receivables, purchases payables and borrowings that are denominated in a currency other than the functional currency. During the year, currency exchange rates in respect of the euro were as follows: As at 31 Average As at 31 Average December 2022 2022 December 2021 2021 1 SEK = 0.0899 0.0841 0.0976 0.0984 1 RUB = 0.0087 0.0114 0.0118 0.0115 1 NOK = 0.0951 0.0990 0.1003 0.0984 The Group’s analysis of monetary balance sheet items by currency can be specified as follows: As at 31 December 2022 (EUR thousand) EUR NOK PLN Deferred tax assets 273 Trade receivables and contract assets 21,089 69 Excess VAT, prepaid income tax 827 40 Cash and cash equivalents 8,898 30 27 Deferred tax liability (1,088) Loans and borrowings (19,558) Trade payables (16,998) (2) (83) Provisions (973) Income tax (24) (98) (10) Other liabilities (71) Total exposure (7,625) (70) 43 A s at 31 December 2021 (EUR thousand) EUR NOK SEK RUB Deferred tax assets 390 Trade receivables and contract assets 18,487 1 24 Excess VAT 726 14 38 Cash and cash equivalents 11741 59 74 14 Deferred tax liability (875) Loans and borrowings (20,319) Trade payables (15,491) (40) (43) (24) Provisions (1,113) Income tax (82) (37) (1) Other liabilities (17,192) (231) (185) (17) ,,,,,,,,,,,(17,192) (231) (185) (17) Total exposure (23,728) (249) (140) 35 The following table presents the Group’s income before tax sensitivity to expected currency rate fluctuations, considering all other variables as constants (in accordance with changes in fair value of financial assets and liabilities). AB „Panevėžio statybos trestas“ Consolidated Financial Statements 37 4. Financial Risk Management (continued) The effect of Euro on Russian subsidiary: Increase/(decrease) Impact on profit 2022 in currency rate before tax EUR +15.00% (6) EUR -15.00 % 6 Increase/(decrease) Impact on profit 2021 in currency rate before tax EUR +15.00% (2,012) EUR -15.00 % 2,012 Interest rate risk. All the Group’s loans received and granted, and other borrowings are subject to variable interest rates linked to EURIBOR. No financial instruments are used to manage the risk. With an increase in the interest rate by 0.5% as at 31 December 2022, the Group’s net profit would decrease by approximately EUR 98 thousand due to loans received (as at 31 December 2021: net profit would decrease by EUR 102 thousand). Capital management The Boards policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the return on capital and proposes the level of dividends based on the Group’s financial results and strategic plans. The Board also aims to keep balance between higher return, which could be available if there was higher level of borrowed “funds” and security, which is provided by higher level of equity. The Group adheres to the requirement set in the Law on Companies of the Republic of Lithuania under which the equity of the entity must not be less than ½ of the issued capital. As at 31 December 2022 and 2021, the Group was in line with this requirement. The Group’s capital management policy did not change during the year. For capital management purpose, capital consists of share capital, retained earnings, revaluation reserve and legal reserve. 5. Segments For management purposes, the Group is organized into business units based on type of activities and has four reportable segments: • Construction; • Steel structures; • Wooden panel houses; • Other activity. The segment of construction includes operations of AB Panevėžio Statybos Trestas, UAB Vekada, UAB Alinita and PS Trests SIA. The main field of activity is the construction, design and installation of various buildings, constructions, facilities and communications or construction of other objects (electrical installation works, renovation of buildings, installation of plumbing, sewage and fire protection systems, video surveillance systems, security and fire alarm systems) in Lithuania and outside the country. The segment of Steel Structures includes operations of UAB Hustal. The main field of activity is designing and fabrication of steel structures for construction purposes. This company also supplies steel structures for other companies where steel items are required. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 38 5. Segments (continued) The segment of wooden panel houses includes operation of UAB Skydmedis. The main field of activity is production, construction and outfit of wooden panel houses. Wooden panel houses are the main product of the Group with approximately 89 % of products successfully exported to Norway, Sweden, the Netherlands, Iceland and other countries. Other activity includes operations of UAB Šeškinės Projektai, UAB Ateities Projektai, UAB PST Investicijos, whose main activity is real estate development, and Kingsbud Sp.z.o.o., which the main activity is the wholesale trading of building materials, as well as other activities of AB Panevėžio Statybos Trestas (production of aluminium constructions, concrete floor installation, and the like). Operating segments related to construction activity have been aggregated in order to form one construction segment as these separate segments are to various operations performed at different phases of construction. No other operating segments have been aggregated to form the above reportable segments. Segment performance is evaluated based on operating profit or loss and is measured consistently with profit from operations in the consolidated financial statements. Transfer prices between operating segments are based on the prices set by the management, which management considers being similar to transactions with third parties. Operating Segments The following tables present revenue, expenses, profit and certain asset and liability information regarding the accountable operating segments: AB „Panevėžio statybos trestas“ Consolidated Financial Statements 39 5. Segments (continued) Segment assets and liabilities are presented after elimination of intercompany assets and liabilities within the segment, which are eliminated on consolidation. Other disclosures Capital expenditure 294 33 122 36 485 0 485 Capital expenditure consists of additions of property, plant and equipment, intangible assets and investment properties. Wooden (EUR thousand) Steel panel Other Total Intersegment Total As at 31 December 2022 or during 2022 Construction structures houses activity segments eliminations Group Revenue Third parties 83,793 10,332 9,133 12,582 115,840 0 115,840 Intersegment 5,679 1 0 1,525 7,205 7,205 0 Total revenue 89,472 10,333 9,133 14,107 123,045 7,205 115,840 Other revenue 855 3 105 1,493 2,456 0 2,456 Expenses (118,106) Depreciation and amortisation (940) (89) (137) (167) (1,333) 0 (1,333) Other administrative and selling expenses (87,887) (9,133) (8,107) (10,447) (115,574) 0 (115,574) Interest expenses 1,031 (2) 0 (585) 444 0 444 Interest income 0 0 0 0 0 0 0 Financial activity (other than interest), net 298 1 (22) 99 376 0 376 Other expenses (591) (7) (33) (1,169) (1,800) 0 (1,800) Income tax expense 78 3 (41) (259) (219) 0 (219) Segment result 2 316 1,109 898 3,072 7,395 7,205 190 Segment assets 62,015 3,540 2,940 45,157 113,652 (25,311) 88,341 Segment liabilities 34,857 1,445 2,233 31,010 69,545 (12,954) 56,591 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 40 5. Segments (continued) Segment assets and liabilities are presented after elimination of intercompany assets and liabilities within the segment, which are eliminated on consolidation. Other disclosures Capital expenditure 274 222 283 17 796 0 796 Capital expenditure consists of additions of property, plant and equipment, intangible assets and investment properties. (EUR thousand) As at 31 December 2021 or during 2021 Construction Steel structures Wooden panel houses Other activity Total segments Intersegment eliminations Total Group Revenue Third parties 7,0801 5,887 7,004 14,759 98,451 0 98,451 Intersegment 4,992 4,916 0 781 10,689 10,689 0 Total revenue 75,793 10,803 7,004 15,540 109,140 10,689 98,451 Other revenue 634 0 116 3,393 4,143 0 4,143 Expenses Depreciation and amortisation (923) (60) (93) 13 (1,063) 0 (1,063) Other administrative and selling expenses (71,105) (5,173) (6,421) (12,275) (94,974) 0 (94,974) Interest expenses (276) (1) 0 (207) (484) 0 (484) Interest income 0, 0 0 0 0 0 0 Financial activity (other than interest), net (24) 0 (6) (53) (83) 0 (83) Other expenses (650) 0 0 (962) (1,612) 0 (1,612) Income tax expense (164) 38 (2) (578) (706) 0 (706) Segment result 3 285 5,607 598 4,871 14,361 10,689 3,672 Segment assets 58,710 3,701 3,150 44,369 109,930 (23,726) 86,204 Segment liabilities 29,250 1,932 2,312 33,689 67,183 (11,533) 55,650 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 41 5. Segments (continued) Reconciliation of liabilities 2022 2021 Segment operating liabilities 69,545 6,7183 Intersegment liabilities (12,954) (11,533) Total liabilities 56,591 55,650 Geographical information The following table presents the Group’s geographical information on revenue based on the location of the customers: 2022 2021 Lithuania 96,842 77,654 Russia 0 6,777 Scandinavian countries 17,665 12,051 Other countries 1,333 1,969 115,840 98,451 The major part of the Group’s non-current assets is located in Lithuania. Non-current assets consist of property, plant and equipment, investment property, intangible assets, non-current financial and other assets. 6. Revenue from contracts with customers (EUR thousand) 2022 2021 Construction 83,793 70,801 Other revenue from contracts with customers 32,047 27,650 Total sales income 115,840 98,451 In 2022, the Group recognised EUR 694 thousand of revenue from contracts with customers that were included in the balance of contract liabilities at the beginning of the period (in 2021: EUR 1,800 thousand). Information on contracts outstanding at the end of the financial year is disclosed in Note 18. 7. Cost of sales (EUR thousand) 2022 2021 Construction sub-contractors 40,888 32,432 Raw materials and consumables 37,767 2,7847 Wages and salaries (Note 10) 14,104 12,998 Sale of land plots 0 4,826 Depreciation and amortisation 566 670 Other 12,985 7,510 Total cost of sales 106,310 86,283 8. Selling expenses (EUR thousand) Reconciliation of assets 2022 2021 Segment operating assets 113,652 109,930 Intersegment assets (25,311) (23,726) Total assets 2022 2021 Advertising and similar expenses 58 78 Wages and salaries (Note 10) 420 395 Other expenses 18 43 Total selling expenses 496 516 88,341 86,204 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 42 9. Administrative expenses (EUR thousand) 2022 2021 Wages and salaries (Note 10) 7,127 6,078 Purchased services for administrative use 2,322 2,080 Operating taxes other than income tax 262 168 Depreciation charge 454 327 Total impairment loss of trade debts, contract assets and other receivables: (4) 7 Impairment (reversal of impairment) of receivables (Note 18) (4) 7 Amortisation charge 33 33 Write-down (reversal) of inventories to net realizable value (Note 17) 17 (8) Rent expenses 323 406 Subsidiary liquidation-related adjustments (976) 0 Other expenses 543 147 Total administrative expenses 10,101 9,238 10. Payroll expenses (EUR thousand) 2022 2021 Wages and salaries 18,475 16,606 Social security contributions 402 347 Daily allowances and incapacity benefits 1,605 1,468 Change in accrued vacation reserve and bonuses 1,326 1,172 Total salary related expenses 21,808 19,593 Recognised in: Cost of sales 14,104 12,998 Administrative expenses 7,127 6,078 Selling expenses 420 395 Other operating expenses 157 122 Total salary related expenses 21,808 19,593 11. Other Income and Expenses (EUR thousand) 2022 2021 Change in fair value of investment property 573 2,260 Rental and other income 324 309 Gain from sale of property, plant and equipment and other 1,559 1,401 Total other income 2,456 3,970 Depreciation of rented premises (277) (32) Other expenses (1,523) (1,580) Total other expenses (1,800) (1,612) Total other income and expenses, net 656 2,358 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 43 12. Finance Income and Expense (EUR thousand) 2022 2021 Interest income 0 0 Interest expenses, related to penalty imposed by the Competition Council (Note 27) 1,133 0 Foreign currency exchange gain 65 75 Liquidation of subsidiary 421 0 Other finance income 3 4 Total finance income 1,622 79 Loan interest expenses 689 484 Foreign currency exchange loss 90 39 Other expenses 23 123 Total finance expense (802) (646) Total finance income and expense, net 820 (567) 13. Income Tax Income tax expense: (EUR thousand) 2022 2021 Current income tax expense 98 245 Change in deferred tax (214) 461 Total income tax expense (116) 706 In 2022 and 2021, the Group applied a standard rate of 15% in Lithuania, a 23% rate in Norway, a 22% rate in the Kingdom of Sweden, a 20% rate in Russia and 0% in Latvia. Reconciliation of effective tax rate: (EUR thousand) 2022 2021 Profit (loss) before tax 409 4,205 Income tax expense (benefit) applying the Group’s tax rate in Lithuania 15.0 % 61 15.0 % 631 Impact of different tax rates in other countries 31 16 Non-deductible expenses 130 498 Non-taxable income (422) (322) Utilized tax losses (38) (186) Adjustment of income tax of prior periods 0 0 Change in deferred tax asset’s realisation allowance (122) 69 (28.4) % (116) 16.8 % 706 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 44 13. Income Tax (continued) Deferred tax: (EUR thousand) 2022 2021 Temporary Temporary differences Deferred tax differences Deferred tax Impairment of receivables 333 50 2,558 384 Write-down of inventories to net realisable value 76 11 58 9 Accrued vacation reserve 525 79 424 64 Accrued bonuses 244 37 428 64 Warranty provisions and other 964 145 1,104 166 Tax losses carry forward 8,333 1,250 5,698 855 Onerous contracts 515 77 0 0 Total deferred tax assets 1,649 1,542 Unrecognised deferred tax asset (9) (342) Deferred tax asset recognised 1,640 1,200 Revaluation of land and buildings (2,633) (395) (1,492) (224) Difference in investment property value (11,496) (1724) (9,740) (1,461) Deferred tax liabilities (2,119) (1,685) Total deferred tax, net (479) (485) Reported in the statement of financial position as: Deferred tax assets 609 390 Deferred tax liability (1,088) (875) A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the tax benefit can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax asset of impairment of a part of accounts receivable and tax differences in foreign jurisdictions has not been recognized due to uncertainty of realisation. Unused tax loss carry forward as at 31 December 2022 amounted to EUR 8,333 thousand (as at 31 December 2021 – EUR 5,986 thousand). Tax loss carry forward can be utilised indefinitely. Group’s deferred income tax assets and liabilities have been netted-off to the extent to which they are related to the same tax authority and the same taxable entity. Change of deferred tax: (EUR thousand) 2022 2021 Net deferred tax as at 1 January (485) (24) Amounts recognised in other comprehensive income (262) 0 Recognised in profit or loss 268 (461) Net deferred tax as at 31 December (479) (485) AB „Panevėžio statybos trestas“ Consolidated Financial Statements 45 13. Income Tax (continued) Change of income tax payable: (EUR thousand) 2022 2021 Prepaid income tax as at 1 January 60 13 Income tax payable as at 1 January (120) (83) Prepaid (payable) income tax as at 1 January (60) (70) Income tax calculated over the reporting period (158) (587) Paid/set off with overpayment of other taxes 242 717 Prepaid income tax as at 31 December 24 60 Income tax payable as at 31 December (132) (120) Prepaid (payable) income tax as at 31 December (108) (60) AB „Panevėžio statybos trestas“ Consolidated Financial Statements 46 14. Property, Plant and Equipment (EUR thousand) Machinery Land and and Fixtures and Construction- buildings equipment Vehicles fittings in-progress Total Cost (revalued carrying amount of land and buildings) Balance as at 1 January 2022 8,081 4,287 2,611 1,262 0 16,241 Additions 108 98 74 194 474 Revaluation 1,822 1,822 Reclassification (162) (162) Disposals and asset written off (65) (35) (207) (307) Balance as at 31 December 2022 ,9849 4,320 2,650 1,249 0 18,068 Balance as at 1 January 2021 7,844 3,905 2,765 1,535 0 16,049 Additions 26 468 96 176 766 Reclassification 327 81 (173) 235 Disposals and asset written off (116) (167) (250) (276) (809) Balance as at 31 December 2021 8,081 4,287 2,611 1,262 0 16,241 Depreciation and impairment Balance as at 1 January 2022 583 3,042 1,977 793 0 6,395 Depreciation for the year 412 426 249 205 1,292 Disposals and asset written off (61) (33) (193) (287) Balance as at 31 December 2022 995 3,407 2,193 805 7,400 Balance as at 1 January 2021 597 2,718 1,774 861 0 5,950 Depreciation for the year 68 426 316 207 1,017 Disposals and asset written off (82) (102) (113) (275) (572) Balance as at 31 December 2021 583 3,042 1,977 793 0 6,395 Residual value As at 1 January 2021 7,247 1,187 991 674 0 10,099 As at 1 January 2022 7,498 1,245 634 469 0 9,846 As at 31 December 2022 8,854 913 457 444 0 10,668 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 47 14. Property, Plant and Equipment (continued) (EUR thousand) 2022 2021 Depreciation recognised in: Cost of sales 558 657 Administrative expenses 454 327 Other expenses 280 33 Total depreciation 1,292 1,017 Land and buildings are stated at revalued amount. The last external revaluation was performed as at 31 December 2022 based on the consultations on possible market prices of the Group’s land and buildings provided by independent appraisers, having appropriate recognized professional qualifications and necessary experience in valuation of property at certain location and of certain category. The valuation was performed using the comparable value approach. Significant unobservable data was used in fair value measurement, i.e. price per square meter/are. The fair value would increase with an increase in price per square meter/are and decrease with a decrease in price per square meter/are. If the buildings and land were stated at cost model, their net book value as at 31 December 2022 would be equal to EUR 1,767 thousand (as at 31 December 2021: EUR 1,670 thousand). As at 31 December 2022, the acquisition cost of fully depreciated but still in use assets amounted to EUR 3,479 thousand, (as at 31 December 2021: EUR 2,660 thousand). As at 31 December 2022, land and buildings, including investment property, with the carrying amount of EUR 37,772 thousand were pledged to the banks (as at 31 December 2021: EUR 31,400 thousand). At 31 December 2022, the net book value of right-of-use assets (machinery, equipment and vehicles) was EUR 126 thousand (in 2021: EUR 147 thousand). 15. Intangible Assets (EUR thousand) Goodwill Software Other assets Total Cost Balance as at 1 January 2022 323 367 58 748 Additions 11 11 Asset written-off (24) (2) (26) Balance as at 31 December 2022 323 354 56 733 Balance as at 1 January 2021 323 408 67 798 Additions 30 30 Asset written-off (71) (9) (80) Balance as at 31 December 2021 323 367 58 748 Amortisation/impairment losses Balance as at 1 January 2022 292 137 52 481 Calculated during the year 40 1 41 Amortisation of asset written-off (24) (24) Balance as at 31 December 2022 292 153 53 498 Balance as at 1 January 2021 292 156 60 508 Calculated during the year 0 45 1 46 Amortisation of assets written-off 0 (64) (9) (73) Balance as at 31 December 2021 292 137 52 481 Residual value As at 1 January 2022 31 230 6 267 31 252 7 290 As at 31 December 2022 31 201 3 235 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 48 15. Intangible Assets (continued) Amortisation was accounted for in the following way: EUR 8 thousand was recorded under cost of sales, EUR 33 thousand – administrative expenses (in 2021: EUR 13 thousand – under cost of sales, EUR 33 thousand – administrative expenses). The goodwill is related to the subsidiary UAB Alinita (construction: conditioning work CGU). The management has estimated that value in use is higher than the carrying amount; therefore; no impairment was recognized for the goodwill. As at 31 December 2022, the acquisition cost of fully amortised intangible assets (but still in use) amounted to EUR 108 thousand, (as at 31 December 2021: EUR 90 thousand). 16. Investment Property (EUR thousand) 2022 2021 Balance as at 1 January 31,400 28,335 Reclassification from (to) property, plant and equipment 165 (404) Reclassified of project in progress from inventories 427 1,209 Change in fair value 573 2,260 Balance as at 31 December 32,565 31,400 In 2015, the Company acquired a 14-floor hotel Panevėžys located in Panevėžys, 16.74% of which is rented out to third parties, and the rest of the hotel is not used. The Company has no detailed plans regarding the use of the remaining part of the building yet; however, the building is not planned to be further used in the Company’s activities; therefore, the whole building is classified as an investment property. The fair value measurement has been determined by valuation of the building carried out by the independent property appraisers UAB Ober-Haus, having appropriate professional qualification and relevant valuation experience. The discounted cash flow method was used in the valuation (discount rate – 9%, exit yield – 7%, occupation rate 80–90%; the same assumptions were used in 2022 and 2021). If the discount rate would increase by 1% (remaining assumptions would not be changed), then investment property fair value would decrease by approx. EUR 105 thousand, and if exit yield would increase by 1% (remaining assumptions would not be changed), the fair value of investment property would decrease by EUR 102 thousand. The identified fair value of the above investment property of EUR 1,550 thousand (in 2021: EUR 1,420 thousand) was attributed to Level 3 in the fair value hierarchy. At the end of the financial year, future minimum lease payments receivable under non-cancellable lease agreements were the following: EUR 171 thousand in less than one year, EUR 112 thousand between one and five years (as at 31 December 2021: EUR 123 thousand in less than one year, EUR 165 thousand between one and five years). Revenue from the hotel premises rent in 2022 amounted to EUR 123 thousand (in 2021: EUR 102 thousand) and was accounted for under other income (see Note 10). The Group reclassified the operational buildings, storages and other premises to investment property that are rented for third parties. Estimated fair value of these buildings as at 31 December 2022 amounted to EUR 351 thousand, which was evaluated in accordance with the reports of independent real estate appraisers and a percentage of rented space. The assessment of assets was carried out by UAB corporation Matininkai. Assets were evaluated using comparable and income methods, with regard to the larger value. An average discount rate of 11.91% was applied to income method in accordance with weighted average cost of capital. Expected rental receivables of this investment property under non-cancellable contracts as at 31 December 2022 amounted to: EUR 88 thousand in less than one year, EUR 114 thousand – between one and five years (as at 31 December 2021: EUR 62 thousand in less than one year, EUR 120 thousand – between one and five years). AB „Panevėžio statybos trestas“ Consolidated Financial Statements 49 16. Investment Property (continued) Revenue from lease in 2022 amounted to EUR 69 thousand (in 2021: EUR 60 thousand) and was accounted under other income. During 2021 and 2020, the Company reclassified the real estate project under development (office building) UAB Šeškinės projektai from inventories to investment property to achieve the management’s current objectives to earn rentals. Following reclassification of certain assets, accounted for as assets used in Group of companies, the fair value of remaining investment property as at 31 December 2022 was estimated at EUR 30,664 thousand (as at 31 December 2021: EUR 29,895 thousand). In 2022, these assets were measured at fair value in accordance with the Group’s accounting policy on investment property, and an increase in value of EUR 573 thousand (in 2021: EUR 2,433 thousand) was accounted for under other income (Note 11). The management considered the consultation of the independent appraiser (Ober-Haus Nekilnojamas Turtas) on the fair value of the project as of 30 November 2022, and the management’s estimation of the changes in the fair value during December when determining the fair value of this project. Key assumptions used by the management in the estimation of the recoverable value of investment as of 31 December 2022 were as follows: discount rate – 8.25% (pre-tax), leased area – 93%, with the cost of 11.0–24.41 EUR/sq. m. per month for lease of premises. At the end of the financial year, future minimum lease payments receivable under non-cancellable lease agreements for office premises were as follows: EUR 3,038 thousand in less than one year, EUR 6,128 thousand between one and five years (in 2021: EUR 1,676 thousand in less than one year, EUR 4,801 thousand between one and five years). In 2022, lease income comprised EUR 2,195 thousand and was accounted under sales revenue (in 2021: EUR 1,093 thousand). As at 31 December 2022, the total fair value of the investment property was estimated at EUR 32,514 thousand (in 2021: EUR 31,400 thousand) and was attributed to Level 3 in fair value hierarchy. 17. Inventories (EUR thousand) 2022 2021 Capitalized costs related to real estate development 3,882 4,973 Other inventories 5,792 5,156 Total inventories 9,674 10,129 Capitalised costs related to real estate development are as follows: (EUR thousand) 2022 2021 Cost: Costs of acquired land and real estate 2,666 3,325 Real estate development project costs 1,697 2,151 Total cost 4,363 5,476 Write-down: Write-down to net realisable value of projects in progress (481) (503) Total write-down (481) (503) Total capitalised costs 3,882 4,973 Change in write-down of capitalised costs: 2022 2021 Write-down to net realisable value of capitalised costs at the beginning of the period 503 583 Additional write-down (reversal) recognized under administrative expenses (22) (80) Write-down to net realizable value of capitalized costs at the end of the period 481 503 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 50 17. Inventories (continued) Write-down of capitalised costs in relation to real estate development projects is measured taking into consideration the expected realisation amounts of these projects, which are based on the assessment of market prices of real estate projects performed by independent appraisers. For each construction project under development a special purpose entity has been established. As at 31 December 2022 and 2021, the Group had the following special purpose entities: Total capitalized costs as of Total capitalized costs as of 31 December 2022, 31 December 2021, carrying amount carrying amount AB Panevėžio Statybos Trestas 2,477 2,414 UAB PST Investicijos 194 72 UAB Ateities Projektai 1,211 2,487 Total 3,882 4,973 The net realisable value of project developed by UAB Ateities Projektai was assessed based on independent real estate appraiser’s Ober-Haus Nekilnojamas Turtas consultation on possible market price as of 30 November 2022. Income and comparable value approach was applied. In 2022, following the completion of the project implementation stage I, the construction of cottages commenced. The net realisable value of project developed by AB Panevėžio Statybos Trestas in Vilnius (Kudirkos st.) was assessed based on independent real estate appraiser’s Ober-Haus Nekilnojamas Turtas consultation on possible market price as of 30 November 2022. Residual value approach was applied. The decision on the start of the project construction is expected in 2023. Other inventories can be specified as follows: (EUR thousand) 2022 2021 Raw materials and consumables 4,551 3,988 Work in progress and finished goods 1,035 1,074 Goods for resale 281 152 Write-down to net realizable value at the beginning of the year (58) (66) Write-off 21 8 Additional write-down to net realisable value during the period (38) 0 Write-down to net realisable value (75) (58) Total other inventories 5,792 5,156 Change in write-down of other inventory to the net realisable value was included under administrative expenses. 18. Trade Receivables and Contract Assets (EUR thousand) 2022 2021 Trade receivables 17,327 14,904 Contract assets (accrued income based on the stage of completion) 4199 3,414 Receivables from related parties 0 566 Impairment at the beginning of the year (372) (365) Write-off of doubtful trade receivables (10) 9 Repayment of doubtful trade receivables 1 0 Additional impairment/(reversal) during the period 13 (16) Impairment at the end of the year (368) (372) Total trade receivables and contract assets 21,158 18,512 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 51 18. Trade Receivables and Contract Assets (continued) The part of trade receivables due from customers is accounted for as non-current trade receivables: EUR 114 thousand as at 31 December 2022, EUR 29 thousand as at 31 December 2021. These amounts are related with non-current retentions as described below. As at 31 December 2022, trade receivables include retentions (retention – a fixed percentage of the total contract price which is paid by the customer when the construction is completed and the bank guarantee in the amount of the retained payment is provided or warranty document of the insurance is provided by the Group) of EUR 4,059 thousand (in 2021: EUR 3,775 thousand) relating to construction contracts in progress. For impairment of trade receivables refer to Note 4. As at 31 December 2022, the total contract amount attributed to performance obligations under the construction contracts with customers that were outstanding (or partly outstanding) amounted to EUR 84,906 thousand (as at 31 December 2021: EUR 82,730 thousand). Most of these construction projects are expected to be completed and revenue recognised within one year. Information about customer specific contracts in progress as of 31 December 2022 and 2021: (EUR thousand) 2022 2021 Sales by specific customers’ projects in progress, recognised in the statement of comprehensive income during the year 70,225 43,188 Sales by specific customers’ projects in progress, recognised over the contract period 106,675 53,649 Expenses incurred for completing specific customers’ projects in progress, recognised in the statement comprehensive income during the year 66,197 39,769 Expenses incurred for completing specific customers’ projects in progress, recognised in the statement comprehensive income over the contract period 102,528 50,295 Contract assets (accrued income) 4,199 3,332 Contract liability (deferred income) under outstanding contracts at the year-end (Note 25) 2,718 891 Contract liability (payments from customers for purchase of inventories and etc.) 2,692 2,880 Provisions for onerous contracts (Note 25) 518 0 Trade receivables (under the caption of trade receivables and receivables from related parties) 14,999 9,071 19. Other current assets (EUR thousand) 2022 2021 Financial assets Receivables from the former subsidiary OOO Baltlitstroj related to prepayment paid to the supplier on behalf of this subsidiary 0 1,240 Impairment of receivables from OOO Baltlitstroj 0 (1,240) Loan granted to OOO Baltlitstroj 0 174 Impairment of loans granted to OOO Baltlitstroj 0 (174) Non-financial assets Excess VAT 843 718 Receivable from related parties 1,266 0 Other current assets 449 525 Other current assets, total 2,558 1,243 Former subsidiary OOO Baltlitstroj, removed from the register on 25 November 2022 The Group did not have any term deposits. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 52 20. Cash and cash equivalents (EUR thousand) 2022 2021 Cash at bank 8,955 11,886 Cash on hand 0 2 Cash and cash equivalents, total 8,955 11,888 21. Capital and Reserves The Group’s issued capital consists of 16,350,000 ordinary shares with a nominal value of EUR 0.29 each. The Group’s share capital is fully paid. The holders of the ordinary shares are entitled to one vote per share in shareholder meetings of the Group and are entitled to receive dividends as declared from time to time and to capital repayment in case of decrease of the capital. There were no changes in the issued capital in 2021. The Group did not hold its own shares in 2022 and 2021. The reserves were as follows: (EUR thousand) 2022 2021 Revaluation reserve 3,355 2,008 Legal reserve 734 600 Foreign currency translation reserve 3,682 4,261 Total reserves 7,771 6,869 The revaluation reserve relates to the revaluation of land and buildings and is equal to the residual value of revaluation less the related deferred tax liability. Dynamics in revaluation reserve: 2022 2021 Revaluation reserve as at 1 January 2,008 2,173 Revaluation (Note 14) 1,479 0 Depreciation of revaluation (132) (165) Deferred tax on depreciation of revaluation 0 0 Revaluation reserve as at 31 December 3,355 2,008 Legal reserve is a compulsory reserve allocated in accordance with Lithuanian legislation. An annual allocation of at least 5% of the net profit is required until the reserve is not less than 10% of the authorized share capital. The reserve cannot be paid out in dividends. Legal reserve at 31 December 2022 and 2021 was estimated at 10% of the issued capital and was fully formed. The foreign currency translation reserve results from translation differences arising on consolidation of subsidiaries with functional currency which differs from Group’s functional currency. 22. Trade payables (EUR thousand) 2022 2021 Lithuania 16,327 14,629 Latvia 445 591 Poland 130 359 Other 181 81 Total trade payables 17,083 15,660 Trade payables are non-interest bearing and normally settled on 30–90 day term. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 53 23. Loans and borrowings (EUR thousand) 2022 2021 Loans 19,496 20,172, Lease liabilities 63 85 Total loans and borrowings 19,559 20,257 Non-current liabilities 18,863 19,441 Current liabilities 696 816 Total loans and borrowings 19,559 20,257 Loans can be specified as follows: (EUR thousand) Interest rate Maturity 2022 2021 OP Corporate Bank plc. 3-month Lithuanian branch (loan) EURIBOR+2.44% 07/2026 9,746 10,000 6-month AS Citadele Banka (loan) EURIBOR+2.7% 07/2026 9,750 10,000 Fixed at 12%, as from 30 November 2017 – 6%, until 31/12/2020 – Natural persons 0% 12/2022 0 ,172 Total loans 19,496 20,172 Under the contract with bank for using the loan on 31 December 2022 the Group has pledged a right to rent a land plot together with a non-residential building at Ukmergės st. 219, Vilnius owned by its subsidiary UAB Šeškinės Projektai, as a collateral. Other financial liabilities include lease liabilities with the residual value of EUR 63 thousand as at 31 December 2022 (as at 31 December 2021: EUR 85 thousand). AB „Panevėžio statybos trestas“ Consolidated Financial Statements 54 24. Non-Current and Current Provisions (EUR thousand) 2022 2021 Warranty provisions 580 816 Other 393 297 Total provisions 973 1,113 Change in provisions: 2022 2022 2022 2021 2021 2021 Warranty Pensions Other Warranty Pensions Other Warranty provision at the beginning of the period 816 288 9 837 293 46 Used during the period (555) (110) (259) (24) (37) Accrued during the year 319 206 238 19 0 Warranty provision at the end of the period 580 384 9 816 288 9 * Represents current and non-current part of provision. Warranty provisions are related to constructions. Based on the legislation of the Republic of Lithuania, the Company has a warranty liability for construction works, the term of which varies from 5 to 10 years after delivery of construction works. Provision for warranties is based on estimates made from historical data of actually incurred costs of warranty repairs. 25. Contract and Other Liabilities (EUR thousand) 2022 2021 Non-financial liabilities: Contract liability (deferred income) under contracts in progress (Note 18) 2,718 891 Contract liability (payments from customers for purchase of inventories and etc.) (Note 18) 2,692 2,880 Accrued vacation reserve 2166 1,775 Salaries and related taxes payable 1,835 1,595 Bonus accrual for employees 244 428 Payable VAT 443 307 Accrued expenses 360 223 Provisions for onerous contracts (Note 18) 518 0 Financial liabilities: Liabilities related to the fine imposed by the Competition Council (Note 27) 5,775 8,542 Operating lease liabilities 122 87 Other liabilities 364 897 Total contract and other liabilities 17,237 17,625 Whereof: Non-current portion 296 784 Current portion 16,941 16,841 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 55 26. Earnings and Dividends per Share (EUR) 2022 2021 Net result for the year attributable to equity holders of the Group 525,437 3,049,262 Dividends declared 0 0 Average number of shares 16,350,000 16,350,000 Basic and diluted earnings per share 0.03 0.19 Dividends declared per share 0 0 The Group has no potential shares. Hence the diluted earnings (loss) per share are the same as the basic earnings per share. 27. Contingent Liabilities Guarantees As at 31 December 2022, the bank guarantees of EUR 10,603 thousand issued to third parties on behalf of the Group in connection with the liabilities under the construction contracts performed by the Group (in 2021: EUR 8,365 thousand). The guarantees expire in the period from 16 January 2023 to 2 March 2025. In addition, the Group has guarantees of EUR 15,840 thousand issued by insurance companies, which are also related to liabilities in the construction contracts (in 2021: EUR 13,417). The guarantees expire in the period from 1 January 2023 to 16 December 2025. No additional liabilities are recorded in respect of these guarantees in the financial statements other than estimated warranty reserve (Note 24). Property with a carrying amount of EUR 37,772 thousand as at 31 December 2022 (EUR 35,975 thousand as at 31 December 2021) has been pledged to banks for the guarantee limit issued and guarantees issued by bank. As at 31 December 2022, the guarantee limit amounted to EUR 15,000 thousand, the used amount was EUR 10,456 thousand. The guarantee limit agreement is effective until 30 June 2023 with the possibility to issue guarantees until 30 June 2023 that would be valid for 3 years following their date of issue. Guarantees are valid for 5 years following their date of issue if the amount does not exceed EUR 1,500 thousand. As at 31 December 2021, the guarantee limit amounted to EUR 15,000 thousand, the used amount was EUR 8,013 thousand. Legal contingencies The Group is involved in below described material legal cases: (1) The Competition Council has made a decision as of 20 December 2017 „UAB Regarding Irdaiva and AB PST actions in joint participation in public tenders of buildings renovation and modernization works meeting the requirements of 5th article of the Competition law of the Republic of Lithuania”. Based on the Competition Council decision, joint activity agreement signed between the Group and UAB Irdaiva for providing joint offers in 24 public tenders organized by UAB Vilniaus Vystymo Kompanija intended to limit competition and violated the requirements of Article 5(1) of the Competition Law of Republic of Lithuania. A fine was set to the Group in total amount of EUR 8,514 thousand. On 3 June 2020, the Supreme Administrative Court of Lithuania announced a non-appealable ruling on the dispute of the Group against the decision of the Competition Council. As a consequence, the Group recognised in the financial statements for the year ended 31 December 2020 the fine amounting to EUR 8,514 thousand and related interest charge amounting to EUR 1,385 thousand, and the bailiff enforcement fee amounting to EUR 396 thousand. The Group recognised the full amounts of fine, interest and enforcement fees in its financial statements for the year ended 31 December 2020, however the management took additional legal actions to reduce the interest and the enforcement fee amounts, as further described below. The Tax Authority informed the participants involved in the enforcement process by the letter No 21915 (individual administrative act) of 12 August 2020 on the decision to set the payment of fine and interest imposed on the Group in equal parts for a period of eight years. The Tax Authority also stated that the bailiff's enforcement fees should not be included in the payment schedule. On 20 February 2023, the Settlement Agreement was signed with the Tax Authority, with the fine payable in equal instalments over four years period. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 56 27. Contingent Liabilities (continued) Also, the Group’s assets with the net book value of EUR 3,394 thousand as at 31 December 2022 (in 2021: EUR 3,057 thousand) was arrested as a guarantee for fulfilment of the obligations. The Chamber of Panevėžys of the Panevėžys District Court investigated the appeal of AB PANEVĖŽIO STATYBOS TRESTAS in a civil case No 2YT-238-1105/2021 regarding the bailiff’s orders by which the enforcement fees were calculated. By the ruling of 8 February 2022, the Court overturned the order No S-20-102-25277 of S. Ramanauskas, a bailiff, dated 7 September 2020, regarding the recovery of enforcement fees in the enforcement proceedings No 0102/20/00638. The parties to the proceedings did not appeal, and thus bailiff's enforcement fees decreased from EUR 396 thousand to EUR 45 thousand. The Chamber of Panevėžys of the Panevėžys District Court investigated the appeal of AB PANEVĖŽIO STATYBOS TRESTAS in a civil case No 2YT-8648-452/2020 [2YT-230-452/2021] regarding the bailiff’s orders by which the interest payable and the enforcement fees were calculated under the Decision No 2S-11(2017) of 20 December 2017 of the Competition Council of the Republic of Lithuania. The Chamber of Panevėžys of the Panevėžys District Court dismissed the appeal by an order of 13 January 2021. This order was appealed by bringing a separate appeal on 20 January 2021. By order of 20 April 2021, the Panevėžys Regional Court upheld the decision of the Chamber of Panevėžys of the Panevėžys District Court unchanged. This decision was appealed in cassation. On 14 April 2022, the Supreme Court of Lithuania overturned the ruling of the Panevėžys Regional Court dated 20 April 2021 and remitted the case to the appeal court for reconsideration. On 14 June 2022, the Panevėžys Regional Court overturned the ruling of the Chamber of Panevėžys of the Panevėžys District Court dated 13 January 2021, and decided this question on the merits: upheld the appeal against the actions of bailiff Saulius Ramanauskas in enforcement proceedings No OI 02/20/00638; repealed the bailiff's order No S-20- 17054 dated 11 June 2020, order No S-20-102-17225 dated 12 June 2020, order No 20-102-17214 dated 12 June 2020, order No S-20-102-17969 dated 18 June 2020 and order No S-20-102-18809 dated 30 June 2020 concerning the calculation of interest and enforcement fees (bailiff fees), and ordered the bailiff Saulius Ramanauskas to carry out a recalculation of the interest and enforcement fees specified in these orders. On this basis, the interest charged decreased from EUR 1,385 thousand to EUR 252 thousand. At the Tax Authority (Plaintiff) request, enforcement proceedings No 0102/20/00638 were stayed by the bailiff's order of 14 July 2022. On 21 February 2023, the Tax Authority submitted the letter to Saulius Ramanauskas No RNA- 5192 “Regarding Approval of the Settlement Agreement in the Enforcement Proceedings” dated 20 February 2023 and “Settlement Agreement in the Enforcement Proceedings” dated 17 February 2023. The letter contains requests to submit the Settlement Agreement to the court for approval and to inform the Competition Council of the Republic of Lithuania thereof. On 13 March 2023, the Panevėžys Regional Court passed the ruling on approval of the settlement agreement in the enforcement proceedings. The court ruling is not final and subject to appeal. On 17 March 2023, AB PANEVĖŽIO STATYBOS TRESTAS submitted a separate complaint regarding the ruling of the Chamber of Panevėžys of the Panevėžys District Court dated 13 March 2023 in the proceedings No 2VP-2582-837/2023, by which it requested to set aside the order of the Chamber of Panevėžys of the Panevėžys District Court dated 13 March 2023 in the proceedings No 2VP-2582-837/2023, and to pass new ruling to satisfy the statement submitted by the bailiff Saulius Ramanauskas and to approve the Settlement Agreement. On 21 March 2023, a separate complaint of the Tax Authority was filed before the Panevėžys District Court regarding the ruling of the Chamber of Panevėžys of the Panevėžys District Court dated 13 January 2021, by which it is requested to set aside the order of the Chamber of Panevėžys of the Panevėžys District Court dated 13 March 2023 in the proceedings No 2VP-2582-837/2023, and to pass new ruling to satisfy the statement submitted by the bailiff Saulius Ramanauskas and to approve the Settlement Agreement. On 20 February 2023, the agreement was signed with the Tax Authority on the payment of the fine imposed in equal instalments over period of four years. The liabilities are classified as current until the agreement is approved by the court AB „Panevėžio statybos trestas“ Consolidated Financial Statements 57 28. Related-Party Transactions Related parties are defined as shareholders, employees, members of the Management Board, their close relatives and companies that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with the Group, provided the listed relationship empowers one of the parties to exercise the control or significant influence over the other party in making financial and operating decisions. The Group had sales and purchase transactions in 2022–2021 with the parent of the AB Group Panevėžio Keliai and with subsidiaries of AB Panevėžio Keliai. Transactions with related parties during 2022 and 2021 were as follows: (EUR thousand) Type of transaction 2022 2021 Sales: Shareholder AB Panevėžio Keliai Goods and services 185 105 Subsidiaries of shareholder UAB Ukmergės Keliai Goods and services 0 9 UAB Panevėžio Ryšių Statyba Goods and services 1 2 UAB Keltecha Goods and services 0 3 Purchases: Shareholder AB Panevėžio Keliai Goods and services 593 944 Subsidiaries of shareholder UAB Ukmergės Keliai Goods and services 0 18 UAB Keltecha Goods and services 0 20 UAB Aukštaitijos Traktas Goods and services 3 Other companies related to the shareholder UAB Panevėžio Ryšių Statyba Goods and services 1 0 UAB IOCO Packaging Services 29 2 UAB IOCO Services 8 1 UAB Scard Services 120 90 UAB Specializuota Komplektavimo Valdyba Goods and services 0 19 UAB Betono Apsaugos Sistemos Goods and services 0 10 (EUR thousand) 2022 2021 Receivables: Shareholder AB Panevėžio Keliai (trade receivable) 0 0 Payables: Shareholder AB Panevėžio Keliai 269 210 Subsidiaries of shareholder Other Other companies related to the shareholder 0 0 Other 13 0 Receivables and payables payment terms between the related parties are up to 30–90 days. Balances at the year-end have no collaterals and all transactions are carried out in cash unless otherwise agreed. There have been no guarantees provided or received for any related party receivable or payable and no allowance has been made for the receivables from related parties by the Group. The balances outstanding with related parties of the Group were not overdue as at 31 December 2022 and 2021. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 58 28. Related-Party Transactions (continued) Management remuneration In 2022, wages, salaries and social insurance contributions, payable to the Group`s management and the Board members amounted to EUR 1,518 thousand (in 2021: EUR 1,943 thousand). For the Group’s management and the Board members, there were no guarantees issued, any other paid or accrued amounts or assets transferred. 29. 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 under current market conditions in the main (or the most favourable) market independent on whether this price is directly observable or established using valuation techniques. As at 31 December 2022 Carrying Fair value amount Financial assets Total Level 1 Level 2 Level 3 Trade receivables 21,158 21,158 Cash and cash equivalents 8,955 8,955 Financial assets, total 30,113 8,955 21,158 Financial liabilities Interest bearing loans and borrowings (19,496) (19,496) Lease obligations (63) (63) Trade payables (17,083) (17,083) Fine payable under the decision of the Competition Council (Note 27) (5,775) (5,775) Total financial liabilities (42,417) (42,417) As at 31 December 2021 Carrying Fair value amount Financial assets Total Level 1 Level 2 Level 3 Trade receivables 18,512 18,512 Cash and cash equivalents 11,888 11,888 Financial assets, total 30,400 11,888 18,512 Financial liabilities Interest bearing loans and borrowings (20,172) (20,172) Lease obligations (85) (85) Trade payables (15,660) (15,660) Fine payable under the decision of the Competition Council (Note 27) (8,542) (8,542) Total financial liabilities (44,459) (44,459) There were no transfers between levels of the fair value hierarchy in 2022 and 2021 at the Group. The following methods and assumptions are used by the Group to estimate the fair value of the financial instruments not carried at fair value: Cash Cash represents cash at banks and on hand stated at value equal to the fair value. AB „Panevėžio statybos trestas“ Consolidated Financial Statements 59 29. Fair Value of Financial Instruments (continued) Receivables The fair value of trade and other receivables and loans granted is estimated at the present value of future cash flows, discounted at the market rate of interest at the reporting date. Fair value of short- term trade and other receivables with no stated interest rate is deemed to approximate their face value on initial recognition and carrying value on any subsequent date as the effect of discounting is immaterial. 29. Fair Value of Financial Instruments (continued) The fair value of non-current trade receivables was estimated to approximate carrying value as discounting effect was determined to be not material. The fair value of loans granted was estimated to approximate carrying value as majority of the loans are subject of market level variable interest. Payables, loans and borrowings, and lease liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Fair value of current trade payables with no stated interest rate is deemed to approximate their face value on initial recognition and carrying value on any subsequent date as the effect of discounting is immaterial. The fair value of other current payables including fine imposed by the Competition Council is considered to approximate to their carrying value due to short contractual maturity term. The fair value of borrowings (overdraft) was estimated to approximate carrying value as it is subject to variable market interest rates. 30. Investments in Subsidiaries, Non-Controlling Interests As at 31 December 2022 and 2021, AB Panevėžio Statybos Trestas held 95.6% and 68.3% of ordinary registered shares in subsidiaries UAB Vekada and UAB PST Investicijos, respectively, and is considered a controlling shareholder of the subsidiaries. As at 31 December 2021, AB Panevėžio Statybos Trestas also held 87.5% of ordinary registered shares in subsidiary OOO Teritorija, which was liquidated on 21 December 2022. The main financial indicators of the subsidiary that has non-controlling interests (thousand EUR): UAB PST Investicijos 2022 2021 Non-controlling interest,% 31.7 % 31.7 % Non-current assets 1 0 Current assets 4,926 4,865 Total assets 4,927 4,865 Non-current liabilities 9 9 Current liabilities 40 7 Total liabilities 49 16 Net assets 4,878 4,849 Net assets attributable to non-controlling interest 1,546 1,537 Revenue 372 6,787 Expenses (339) (5,446) Net profit (loss) 33 1,341 Other comprehensive income 0 0 Net profit/(loss) attributable to non-controlling interest 10 425 Other comprehensive income attributable to non-controlling interest 0 0 Cash flows from operating activities (3,767) 919 Cash flows used in investing activities 0 0 Cash flows from/used in financing activities 0 0 Net increase/(decrease) in cash and cash equivalents (3,767) 919 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 60 30. Investments in Subsidiaries, Non-Controlling Interests (continued) UAB Vekada 2022 2021 Non-controlling interest,% 4.4 % 4.4 % Non-current assets 310 245 Current assets 1,280 1,203 Total assets 1,590 1,448 Non-current liabilities 0 0 Current liabilities 491 380 Total liabilities 491 380 Net assets 1,099 1,068 Net assets attributable to non-controlling interest 48 47 Revenue 3,085 2,909 Expenses (3,148) (3,195) Net profit (loss) (63) (286) Other comprehensive income 0 Net profit/(loss) attributable to non-controlling interest (3) (13) Other comprehensive income attributable to non-controlling interest 0 0 Cash flows from operating activities 60 (218) Cash flows used in investing activities (4) 76 Cash flows from/used in financing activities 0 0 Net increase/(decrease) in cash and cash equivalents (56) (142) 2022 OOO Teritorija 2021 Non-controlling interest,% - 12.5 % Non-current assets - 0 Current assets - 14 Total assets - 14 Non-current liabilities - 0 Current liabilities - 1,073 Total liabilities - 1,073 Net assets - (1,059) Net assets attributable to non-controlling interest - (132) Revenue - 335 Expenses - (28) Net profit (loss) - 307 Other comprehensive income - 0 Net profit/(loss) attributable to non-controlling interest - 38 Other comprehensive income attributable to non-controlling interest - 0 Cash flows from operating activities - 7 Cash flows used in investing activities - 0 Cash flows from/used in financing activities - 0 Net increase/(decrease) in cash and cash equivalents - 7 AB „Panevėžio statybos trestas“ Consolidated Financial Statements 31. Change in Liabilities Arising from Financing Activities As at 31 As at 31 December Dividends Accrued Cash Currency December (EUR thousand) 2021 declared flow out exchange 2022 Dividends payable 28 0 0 1 0 27 Loans received and interests payable 20,172 (172) 504 0 19,496 (Finance) lease liabilities 85 22 0 63 Total 20,285 0 (172) 527 0 19,586 32. Events after the End of the Reporting Period After the end of the financial year and up until the date these financial statements were approved, no other significant subsequent events occurred. Geopolitical developments led to a very significant change in the prices of raw and construction materials in Q1 and Q2 of 2022. The Group had fixed-price contracts for work, thus the majority of the costs of raw and construction materials substantially increased the cost of sales. The increased costs were partially offset by indexation of sales prices to customers, as well as part of the costs was shared by suppliers and subcontractors. Geopolitical events in 2022 also affected supply chains, resulting in delays in some materials, and affected the time-limits for the implementation of contract projects, as well as the Group’s sales volume. In 2023, the geopolitical uncertainty remains, but no significant negative impact on the Group’s plans for 2023 is expected. To mitigate uncertainty and manage risks, the Group takes a proactive approach in cost management, in particular, in reducing of costs, purchasing of materials, etc. Managing director Egidijus Urbonas 04/04/2023 Chief Accountant Danguolė Širvinskienė 04/04/2023 61 Company’s and Consolidated Annual Report, Governance Report, Consolidated Report of Social Responsibility, and Remuneration Report of Panevezio statybos trestas AB for 2022 63 I. Consolidated Annual Report 1. Accounting period covered by the Annual Report This Company’s and Consolidated Annual Report for the year 2022 covers the period from 1 January 2022 until 31 December 2022. 2. References and additional clarifications on the data included in the Annual Report The auditor of the company is Grant Thornton Baltic UAB. In this report, Panevezio statybos trestas AB can also be referred to as ‘the Company’, and the Company together with its subsidiary companies can be referred to as ‘the Group’. 3. The main data about the Company (the issuer) Name of issuer Public limited liability company Panevezio statybos trestas Authorised capital 4,741,500 Euros Address of registered office P. Puzino Str. 1, LT-35173 Panevezio, Lithuania Telephone (+370 45) 505 503 Fax (+370 45) 505 520 Legal-organisational form Public limited liability company Date and place of registration 30 October 1993, Panevezys City Board Registration No. AB 9376 Register code 147732969 VAT code LT477329610 LEI code 529900O0VPCGEWIDCX35 Administrator of Legal Entity Register State Enterprise Centre of Registers E-mail [email protected] Website www.pst.lt 4. Nature of the main activities of the issuer The main area of activities of the Company and its subsidiaries (the Group) is design and construction of buildings, structures, equipment and communications and other objects for various applications in and outside Lithuania, sale of building materials, production and real estate development. In addition to the listed activities, the Company is engaged in rent of premises and machinery. 64 5. The companies included in the Group of Panevezio statybos trestas AB As of 31 December 2022, the Group of Panevezio statybos trestas AB included the following companies: Subsidiary company Registration date, register administrator Company code Registered address Telephone, fax, e-mail, website Portion of shares held (per cents) Skydmedis UAB 17 June 1999 State Enterprise Centre of Registers 148284718 Pramones Str. 5, Panevezys Tel. (+370 45) 467626 Fax (+370 45) 460259 [email protected] www.skydmedis.lt 100 Vekada UAB 16 May 1994 State Enterprise Centre of Registers 147815824 Marijonu Str. 36, Panevezys Tel. (+370 45) 461311 Fax (+370 45) 461311 [email protected] www.vekada.lt 95.6 Alinita UAB 8 December 1997 State Enterprise Centre of Registers 141619046 Tinklu Str. 7, Panevezys Tel. (+370 45) 467630 Fax (+370 45) 467630 [email protected] www.alinita.lt 100 Kingsbud Sp.z o.o. 11 August 2010 District Court in Bialystok, XII Economic Department of National Court 200380717 A. Patli Str. 12, 16-400 Suwalki, Poland Tel. (+48 875) 655 021 Fax (+48 875) 655 021 [email protected] www.kingsbud.lt 100 PS Trests SIA 22 May 2000 Centre of Registers, Republic of Latvia 40003495365 Skultes Str. 28, Skulte, Marupes Parish, Riga Region, Latvia Tel. +371 29525066 100 Seskines projektai UAB 9 November 2010 State Enterprise Centre of Registers 302561768 Ukmerges Str. 219, Vilnius Tel. (+370 5) 2102130 [email protected] [email protected] 100 Ateities projektai UAB 25 April 2006 State Enterprise Centre of Registers 300560621 Ukmerges Str. 219, Vilnius Tel. (+370 5) 2102130 Fax (+370 5) 2102131 [email protected] [email protected] 100 PST investicijos UAB 23 December 1998 State Enterprise Centre of Registers 124665689 Ukmerges Str. 219, Vilnius Tel. (+370 5) 2102130 [email protected] [email protected] 68 Tauro apartamentai UAB 23 October 2018 State Enterprise Centre of Registers 304937621 Ukmerges Str. 219, Vilnius Tel.(+370 610) 09222 [email protected] 100 Hustal UAB 11 December 2018 State Enterprise Centre of Registers 304968047 Tinklu Str. 7, Panevezys Tel.(+370 45) 585087 [email protected] www.hustal.eu 100 Aliuminio fasadai UAB 2 January 2020 State Enterprise Centre of Registers 305412441 Pramones Str. 5, Panevezys Tel. +370 686 32727 [email protected] www.alfasadai.lt 100 65 Subsidiary companies of PST investicijos UAB: Subsidiary company Registration date, register administrator Company code Registered address Telephone, fax, e-mail, website Portion of shares held (per cents) Baltevromarket ZAO ISK 13 July 2001 Independent Registration Company AB – Administrator of Shareholders’ Register 3906214631 Rostovskaja Str. 5-7, Kaliningrad, Kaliningrad Obl., Russian Federation Tel.+79097772202 baltevromarketao@ mail.ru 100 6. Nature of principle activities of the companies included in the Group Skydmedis UAB – production, construction and outfit of pre-fabricated timber panel houses. Panel houses are the main product of the company. Products are successfully exported to Norway, Sweden, Switzerland, Iceland and other countries. Hustal UAB – design, fabrication and erection of steel structures. The company also supplies steel structures for other industries where steel items are required. Activity and sale of the company are focused on the Scandinavian market. Vekada UAB – installation of electrical systems. Alongside with the usual electrical engineering activities, works in the low current fields are carried out: video surveillance systems, security and fire alarm systems, utility system control. Alinita UAB – installation of heating, ventilation and air-conditioning systems in buildings, indoor water supply, waste water and fire-fighting systems, design, start-up and commissioning of indoor utility systems. Kingsbud Sp. z o.o. – wholesale of construction materials. Kingsbud Sp. z o.o. has a branch established in Lithuania, which focuses on wholesale of stoneware and glazed tiles for indoor and outdoor application. PS Trests SIA – construction activities. The company was established for searching of new markets and carrying out construction activities in Latvia. Seskines projektai UAB – real estate development and sale. Ateities projektai UAB – real estate preparation and sale. PST investicijos UAB – real estate preparation and sale. PST investicijos UAB has the subsidiary company, Baltevromarket ZAO ISK, established for development of real estate projects in the Kaliningrad Oblast, Russian Federation. Tauro apartamentai UAB – development of real estate projects. – sale, erection and design of steel structures. Activity and sale of the company are focused on the Scandinavian market. Aliuminio fasadai UAB – production of aluminium profile systems, aluminium framed windows and doors. Baltevromarket ZAO ISK – the subsidiary company of PST investicijos UAB carries no activities, the liquidation procedure has been initiated. 7. Contracts with the intermediary of public trading in securities In 2013, the Company signed the contract with the Financial Brokerage Company Finasta AB for accounting of securities and provision of services related to securities accounting. On 21 December 2015, the Financial Brokerage Company Finasta AB had been rearranged by way of merge with Siauliu bankas AB, which took over all assets, rights and liabilities of the Financial Brokerage Company Finasta AB from the mentioned date. 66 8. Data on trading in securities of the issuer in regulated markets The ordinary registered shares of Panevezio statybos trestas AB have been on the Official Trading List of Nasdaq Vilnius AB since 13 July 2006 (company symbol PTR1L). Share type Number of shares, pcs. Par value, Euros Total par value, Euros Emission code ISIN Ordinary registered shares (ORS) 16,350,000 0.29 4,741,500 LT0000101446 Comparison of PTR1L Panevezio statybos trestas and OMX Vilnius Benchmark GI indexes in 2022 Company share price variation at Stock Exchange Market Nasdaq Vilnius for the period 2018 through 2022 (Euros) 67 Company share price variation at Stock Exchange Market Nasdaq Vilnius in 2022 (Euros) Table 1. Information on the Company share price at Stock Exchange Market Nasdaq Vilnius for the period 2018 through 2022: Indicator 2022 2021 2020 2019 2018 Highest price, Euros 0.694 0.838 0.85 0.878 0.99 Lowest price, Euros 0.50 0.53 0.52 0.71 0.75 Average price, Euros 0.564 0.677 0.629 0,78 0,881 Share price as of the end of reporting period, Euros 0.518 0.66 0.57 0.75 0.752 Traded volume 991,215 2,935,832 1,980,134 986,685 1,596,044 Turnover, mln. Euros 0.56 1.99 1.25 0.77 1.41 Capitalisation, mln. Euros 8.47 10.79 9.32 12.26 12.3 9. Fair review of position, performance and development of the Company and the Group, description of the principal risks and uncertainties the company faces Key events of the reporting period The key events that occurred during 2022 and were published through the GlobeNewswire information system are listed below. 5 January 2022. The company had appealed in cassation against the mentioned court judgement (the judgement by the Chamber of Panevezys at the Panevezys District Court on the interest accrued by the Competition Council for the whole period of legal proceeding when the Company was in dispute regarding the fine imposed by the Competition Council was left unchanged) to the Supreme Court of Lithuania. On 5 January 2022, the Supreme Court of Lithuania upheld the judgement of 17 February 2021 by the Panevezys Regional Court. 7 January 2022. On 6 January 2022, the Supreme Court of Lithuania delivered the judgement on the decision by the State Enterprise Ignalina Nuclear Power Plant to reject the submitted bid in the tender for Procurement of Works for Construction of INPP Near Surface Repository for Low and Intermediate-Level Short-Lived Radioactive Waste (Construction Stages I/A, II/A) and Design, Construction and Connection of External Rainwater Drainage Networks to INPP Infrastructure thereby dismissing the cassation appeal of Panevezio statybos trestas AB and hearing the case in cassation proceedings. The court motivated their decision mainly by the fact that the case is of little significance to the practice of the Lithuanian courts and public procurement. The court judgement and the outcome of the dispute will not affect the future operations of the company as its possibilities for participation in public procurement are no longer restricted. 68 8 March 2022. Panevezio statybos trestas AB notified that it ceases to operate its companies located in the region of the Russian Federation: - Operation of Baltevromarket ZAO ISK, with 100 per cents of the authorized capital hold by PST Investicijos UAB, is ceased though there have been no assets owned by the company since mid of 2021; - Teritorija OOO has been out of active operation for the period of three years (de-registered on 21 December 2022) ; - Baltlitstroj OOO is declared bankrupt and is in the process of the relevant proceedings (de- registered on 25 November 2022). For several years now, taking into account the risks involved, Panevezio statybos trestas AB has been putting tendentious efforts to withdraw from the market of the Russian Federation. 15 April 2022. The Supreme Court of Lithuania annulled the decisions of the courts of first and appeal instance and remitted the case to the Appeal Court. The Supreme Court interpreting the provisions of the Competition Law regarding the calculation of interest stated that the Appeal Court misapplied the provisions of the Competition Law governing the procedure for calculating the interest due for non-payment of fines for competition law infringements and ruled that the maximum interest period of 180 days shall be applied. According to the PST the bailiff's order under appeal calculated interest for the entire period of the court proceedings and for an additional 180 days which amounts to EUR 1,385,178.76, the recalculated amount of interest for 180 days should amount to EUR 251,906.30. As of 1 August 2022, Panevezio statybos trestas AB has already paid EUR 2,245,985 in execution of the decision by the Competition Council, despite the dispute in the courts. 28 April 2022. The Ordinary General Meeting of Shareholders of Panevezio statybos trestas AB took place. The Ordinary General Meeting of Shareholders did not come to the decision to pay dividends. 24 May 2022. Panevezio statybos trestas AB has signed the construction contract with the Visaginas Municipality Administration for Reconstruction of Visaginas Sedulina Alley and Fountain. The total contract value is over EUR 4 million (incl. VAT). The works are expected to be completed within the period of 12 months but no later than September 2023. 30 May 2022. The State Tax Inspectorate under the Ministry of Finance informed Panevezio statybos trestas AB (the Company) that the European Commission had closed the procedure for notifying the state aid to the Company started as a result of distribution of the fine imposed by the Competition Council. The European Commission had given an explanation that if for payment in instalments by the Company of the imposed fine (economic sanction) together with the procedural interest rate established by law is subject to the additional annual interest rate corresponding to market conditions, such aid shall not be considered to be the state aid. 15 June 2022. By the court judgement dated 14 June 2022, the Panevezys Regional Court satisfied the complaint by the Company against the actions of the bailiff in the enforcement case and revoked the bailiff's orders regarding calculation of interest and enforcement costs - the bailiff's remuneration - and placed the bailiff under the obligation to recalculate the interest and enforcement costs indicated in the mentioned orders. It should be recalled that in its judgement the Supreme Court of Lithuania had vacated the ruling and the judgement byre the courts of the first and appeal instances and referred the case back to the appeal instance. In interpreting the provisions of the Law on Competition in relation to interest calculation, the Supreme Court of Lithuania found that the appeal court had misapplied the rules of the Law on Competition governing the procedure for calculation of interest due for the fine unpaid for infringement of the competition rights and stated that in all cases the maximum period of 180 days for calculation of interest should be applied. Based on the orders under complaint, the calculated interest amounted to 1,385,178.76 Euros, whereas considering interpretation by the Supreme Court of Lithuania, interest due for the period of 180 days amounts to 251,906.30 Euros. 2 August 2022. Two subsidiary companies of Panevezio statybos trestas AB, Hustal UAB (hereinafter ‘Hustal’) and Metalo meistrai UAB (hereinafter ‘Metalo meistrai’), are in the process of merging. The activities of both companies overlap to a considerable extent – both of them carry out the works related to engineering, production and sales of steel structures for various industries, therefore merger is aimed for optimizing processes and making them more efficient. Hustal is merged with Metalo meistrai, the company with more than two decades of experience. When merger is completed, Hustal will cease its operation and Metalo meistrai will continue operating after taking over the name, assets, rights and liabilities of Hustal. 69 3 August 2022. Panevezio statybos trestas AB has signed the 10 million Euro provisional sum contract with the General Contractor, Petrofac International UAE LLC, for building construction works in Factory Modernization Project at Orlean Lietuva UAB in Mazeikiai. Panevezio statybos trestas AB plans to complete the building construction works by February 2024. 19 September 2022. Panevezio statybos trestas AB has signed the construction contract with the Administration of the Panevezys City Municipality for Reconstruction of Sports Palace Aukstaitija – Construction of Swimming Pool. The total value of the contract exceeds 27 mln. Euros. The floor area before reconstruction was 6,761.42 square meters, it is subject to extension to ~12,247.74 square meters after reconstruction. The works are planned to be completed within 35 months from the date of the contract entry into force. 6 December 2022. The Company has signed the 21.7 million Euro provisional sum contract with the General Contractor, Petrofac International UAE LLC, for the civil works in Oil Refinery Modernization Project at Orlean Lietuva UAB in Mazeikiai. The scope of the main works includes installation of pavements, roads and foundation. The works are scheduled to be completed by September 2024. In 2022 the Company successfully completed several major construction projects, such as Reconstruction of Kedainiai City Wastewater Treatment Facilities, Reconstruction of Laisves Square in Panevezys. Furthermore, a few apartment building renovation projects were completed in Panevezys, Utena and Vilnius. In February 2023, construction of Vilnius Lazdynai swimming-pool was completed and the swimming-pool was opened to the public. At the beginning of 2023, Construction of Laboratory Block for Faculties of Electronics, Mechanics and Transport Engineering at Vilnius Gediminas Technical University at Plytines Str. 25 was completed and construction of Educational Block for Faculties of Mechanics, Electronics and Transport Engineering of the University is in progress. In addition to that, activities are continued in such projects as Reconstruction of Wroblewski Library of Academy of Sciences, modernisation of apartment buildings in Klaipeda, Vilnius, Construction of New Head Office of Lietuvos draudimas at J. Basanaviciaus Str. 10, Vilnius, Construction of Apartment Building Complex reVINGIS. In 2022, the contracts were signed and work was started in several sites of wind farms where Konstrukcija branch will carry out installation of foundations for wind turbines. More than once the Company has been awarded for successfully implemented projects, their complexity, high quality and organization of complicated activities. In December 2022, the awards of the Lithuanian Product of the Year were arranged by Lithuanian Confederation of Industrialists for the 26th time where our Business Centre U219 was awarded the gold medal in the category of construction and building materials. U219 is a multifunctional building located in one of the main arteries of Vilnius – in Ukmerges Street. Among the various benefits of this business centre is the BREAM New Construction Certificate, which guarantees long-term returns, acknowledges efficiency of the building and responsible approach of developers to the environment and human health. In 2022, the following branches continued their operation in the structure of the Company: Gerbusta, focusing on construction of utility networks and landscaping, Pastatu apdaila, carrying out indoor and outdoor finishing works, Konstrukcija, where production capacities are concentrated, this branch carries out civil and special construction works, Vilnius branch Genranga, performing general contracting activities and project management in the Vilnius Region, and Klaipstata, performing general contracting activities and project management in the Klaipeda Region. The Company has permanent establishments in the Republic of Latvia and Kingdom of Sweden. In 2022, the companies of the Group successfully continued their activity both inside and outside Lithuania. In 2022, two subsidiary companies of Panevezio statybos trestas AB, Hustal UAB and Metalo meistrai UAB, were merged. The activities of both companies overlap to a considerable extent – both of them carry out the works related to engineering, production and sales of steel structures for various industries, therefore merger is aimed for optimizing processes and making them more efficient. After merger Hustal UAB ceases its operation and Metalo meistrai UAB continues operating having taken over the name, assets, rights and liabilities of Hustal UAB. The main direction for selling the steel structures is the Scandinavian countries. 70 Skydmedis UAB, which is producing pre-fabricated timber panel houses, sells nearly all of their products in the foreign market. 84 per cents of the company’s revenue were for the products sold in the Scandinavian countries. Vekada UAB, Alinita UAB‚ which specialize in installation of indoor heating, ventilation and conditioning, water supply and waste water systems, and in installation of electric systems, renewable energy and low current fields, implemented the projects in Lithuania. The most advanced aluminium profile systems, aluminium windows and doors, façades are produced at Aliuminio fasadai UAB. PST investicijos UAB, Ateities projektai UAB and Seskines projektai UAB are the real estate development companies. Ateities projektai UAB develops the project of residential houses in Kunigiskes. PS Trests SIA operating in Latvia is continuing the started construction and is looking for new orders. In 2022, the wholesale of building materials is further developed. Kingsbud Sp.z o.o, the company operating in Poland, is engaged in this. Key events after the reporting period (in the year 2023) 2 February 2023. The General Extraordinary Meeting of Shareholders was reconvened to take the resolution on approval of the agreed material conditions for the settlement agreement with the State Tax Inspectorate. For several years now, taking into account the risks involved, the Company has been putting tendentious efforts to withdraw from the market of the Russian Federation. Risk factors related to the Company’s activities: In their operation, both the Company and the Group face various types of risks, such as legal regulation, severe competition, shortage of qualified labour, cyclical nature of economy, consistency of orders, volatile material prices in the global market, macroeconomic factors, damping. However, only a few of them may have significant impact on the performance results of the Group and the Company. The main factors that create business risk for the Company and the Group are competition in the construction market and changes in the demand for construction services. The demand for construction services also depends heavily on the volume of investments and financing received from the EU structural funds. Increase and variation of material and service prices make the process of the project budgeting and possibility to complete the already started projects based on the planned costs more difficult. This results in extra risk for performance of fixed price construction contracts and reduces profitability of projects. Furthermore, activity of the Company and the Group is influenced by the economic situation (economic cycles), geopolitical changes in Lithuania and the countries where the Group companies operate, Russia's military invasion of Ukraine, and remaining risks related to COVID-19. Although there is still some uncertainty about the trends in global economic development as well as regional and global crisis in future. Information on the types of financial risks and risk management is provided in the Notes to the Separate Financial Statements (Note 4) and Consolidated Financial Statements (Note 4). Legal uncertainties are provided in the Notes to the Separate Financial Statements (Note 28) and Consolidated Financial Statements (Note 27). 10. Analysis of financial and non-financial performance, information related to environmental and employee matters Some recent years are a big challenge for the global and Lithuanian economy. At the end of pandemic, the Russian military invasion of Ukraine, which began at the beginning of the year, caused a major geopolitical crisis. Therefore, the large increase in prices of energy resources resulted in further rise of already high inflation. The war in Ukraine has greatly influenced activities of the Company as well as the entire construction sector. Since the beginning of the war, the considerable increase in material prices, shortage of raw materials and supply disturbances have had a significant impact on performance results. 71 Over the twelve months of 2022, the turnover of Panevezio statybos trestas AB amounted to 79.222 mln. Euros, whereas the revenue of the Company for the twelve months of 2021 amounted to 65.721 mln. Euros. The revenue of the Company increased by 20 per cents compared to that in 2021. However, due to increase in raw material prices, disturbances in the supply chain and labour shortages, the Company has suffered the net loss in the amount of 1.720 mln. Euros in 2022. In 2021, the Company had the profit in the amount of 0.304 million Euros. Over the same period, the total consolidated revenue of Panevezio statybos trestas AB Group was 115.84 mln. Euros, i.e. by 18 per cents higher than the revenue for the year 2021. In 2021, the revenue of the Group amounted to 98.451 mln. Euros. The net profit of the Group was 0.525 mln. Euros in 2022, in 2021 the Group had the profit in the amount of 3.499 mln. Euros. Revenue and net profitability variation for the Company: Revenue and net profitability variation for the Group: Table 2. Performance (thousands Euros) of the Company and the Group of Panevezio statybos trestas AB for the period 2020 through 2022: Group Items Company 2020 2021 2022 2020 2021 2022 74,912 98,451 115,840 Revenue 59,712 65,721 79,22 68,167 68,283 106,310 Cost of sales 58,531 59,888 77,066 6,745 12,168 9,530 Gross profit 1,181 5,833 2,156 9.00 12.36 8.23 Gross profit margin (per cents) (API) 1.98 8.88 2.72 -9,360 2,414 -1,067 Typical operating result -12,595 -589 -4,978 94,797 108,464 59,712 65,721 79,222 -5.1% 0.5% -20.8% 0.5% -2.2% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 0 20,000 40,000 60,000 80,000 100,000 120,000 2018 2019 2020 2021 2022 Revenue thousand Euros Net profitability 104,861 110,466 74,912 98,451 115,840 -4.1% 0.7% -13.9% 3.6% 0.5% -16.0% -14.0% -12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% -20,000 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 2018 2019 2020 2021 2022 Revenue thousand Euros Net profitability 72 Group Items Company 2020 2021 2022 2020 2021 2022 -12.49 2.45 -0.92 Typical operating result from turnover (per cent) -21.09 -0.90 -6.28 -7,925 3,477 266 EBITDA 1 (API) -11,362 259 -4,192 -10.58 3.53 0.23 EBITDA margin (per cents) (API) -19.03 0.39 -5.29 -10,431 3.499 525 Net profit (API) -12,418 304 -1,720 -13.92 3.55 0.45 Nets profit (loss) margin (per cents) -20.80 0.46 -2.17 -0.638 0.214 0.032 Earnings per share (Euros) (EPS) 2 (API) -0.76 0.019 -0.105 -34,40 12.58 1.75 Return on equity (per cents) (ROE) 3 (API) -43.89 1.38 -7.89 -13.99 4.41 0.60 Return on assets or asset profitability (ROA) 4 (API) -18.59 0.55 -3.40 -35.97 6.65 0.99 Return on investments (ROI) 5 (API) -52.81 1.29 -7.67 0.75 1.30 1.23 Current liquidity ratio 6 (API) 0.88 1.12 1.02 0.53 1.00 0.95 Critical liquidity ratio 7 (API) 0.81 0.94 0.85 0.36 0.34 0.35 Equity ratio 8 (API) 0.35 0.46 0.41 0.62 0.65 0.64 Debt ratio 9 (API) 0.65 0.54 0.59 1.72 1.90 1.82 Debt to equity ratio 10 (API) 1.85 1.19 1.46 1.61 1.79 1.88 Book value per share 11 (API) 1.34 1.35 1.31 0.35 0.37 0.28 Price-to-book ratio (P/B ratio) 12 (API) 0.43 0.49 0.39 -0.89 3.08 16.13 Price-to-earnings ratio (P/E) 13 (API) -0.75 35.50 -4.92 1 EBITDA = profit before taxes, interest, depreciation and amortization. The essence of EBITDA indicator is to determine the most objective profit (loss) of the company, which is least dependable on circumstances (least variable). 2 Earnings per share (Euros) = net profit (loss) / number of issued shares. 3 Return on equity (per cents) (ROE) = net profit / equity capital (a portion equity capital belonging to the shareholders). 4 Return on assets (ROA) or asset profitability = net profit / assets. 5 Return on investments (ROI) = net profit / (assets-current debt). 7 Critical liquidity ratio = (current assets – inventories) / current liabilities. 8 Equity ratio = equity capital / assets. 9 Debt ratio = liabilities / assets. 10 Debt to equity ratio = liabilities / equity. 11 Book value per share = equity capital / number of shares. 12 Price-to-book ratio (P/B ratio) = share price as of the end of reporting period / share book value. 13 Price-to-earnings ratio (P/E) = share price as of the end of reporting period / net profit allocated for one share. Panevezio statybos trestas AB uses Alternative Performance Indicators to better disclose the financial performance of the Group and the Company. The description of these indicators and methodology for their calculation are available on the Company's website https://www.pst.lt/en/finansines-ataskaitos The main revenue of the Company by activity types is from construction and erection activities. In 2022, the revenue of the Group from construction and erection activities totalled 75.5 per cents, the revenue from real estate development and rent was 1.6 per cents, the revenue from finished products and other revenue amounted to 22.9 per cents, whereas in 2021, the revenue of the Group from construction and erection activities totalled 71.9 per cents, the revenue from real estate development and rent was 8 per cents, the revenue from finished products and other revenue amounted to 20.1 per cents. 73 Revenue distribution by activity types for the Company (mln. Euros): Revenue distribution by activity types for the Group (mln. Euros): The main activities of the Company were performed in Lithuania and made 99.02 per cents of all works carried out by the Company in 2022 and 97.2 per cents in 2021. The revenue of the Group from the works performed inside the country made 83.6 per cents of the revenue, whereas in 2021 it was 78.9 per cents. In 2022 and 2021, the revenue of the Group in the Scandinavian countries was respectively 15,25 and 12.24 per cents of the all revenue. Operating revenue distribution by countries for the Company (mln. Euros): 59.71 65.72 79.22 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 2020 2021 2022 Construction and erection activities 70.42 70.80 87.42 1.24 7.87 1.86 3.26 19.78 26.56 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 2020 2021 2022 Revenue of the Group Construction works Real estate Products produced and other income 58.40 63.86 78.443 1.31 1.86 0.779 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 2020 2021 2022 Revenue of the Company Lithuania Latvia 74 Operating revenue distribution by countries for the Group (mln. Euros): Environment protection Quality, sustainability, environment protection, occupational health and safety play a very important role in activities of Panevezio statybos trestas AB. Quality Management (ISO 9001), Environmental Management (ISO 14001) and Occupational Health and Safety Management (OHSAS 18001) Systems introduced and available at the Company allow taking proper care of these significant factors. Assessment of occupational risk is carried out, analyses are performed and measures for risk reduction or elimination are taken on each site. For the purposes of environment and resource protection and sustainability, ensuring pollution prevention, in the beginning of each project the environmental plan including specific measures for control of significant aspects of environment protection and activities performed is prepared. In 2020, the Lithuanian National Accreditation Bureau accredited the Construction Laboratory of the Company in accordance with LST EN ISO/IEC 17025:2018 for the period of 5 years, thus granting the right to perform tests of building materials. The companies of the Group also have Quality, Environmental and Occupational Health and Safety Management Systems in accordance with the requirements of LST EN ISO 9001:2015, LST EN ISO 14001:2015 and LST ISO 45001:2018 introduced and successfully functioning. Employees Professional, competent and responsible employees are the biggest asset of the Company. Therefore, much attention is paid to motivation of employees: environment favourable for generation and implementation of new ideas is being created and sharing of information is being promoted. In modern environment, competence of employees is one of the key factors describing competitiveness of the company. Taking this factor into account, the company encourages employees in all organizational levels to learn and improve their skills. The employees are motivated not only by material incentives – competitive salaries, progressive bonus system but also by exceptional quality of working environment. As of 31 December 2022, the number of employees in the Group was 805, in the Company – 536. As of 31 December 2021, the number of employees in the Group was 833, in the Company – 560. Table 3. Average number of employees in 2021 and 2022: Average number of employees 2021 2022 Group Company Group Company Managers 23 11 22 11 Specialists 316 234 304 224 Workers 523 347 486 310 Total 862 592 813 544 60.86 77.65 96.84 6.78 12.02 12.05 17.67 2.04 1.97 1.33 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 2020 2021 2022 Income of the Group (mln. Euros) Lithuania Russian Federation Scandinavian countries Other countries 75 Table 4. Education level of the Group employees as of the end of the period: PST Group employees Payroll number Higher university level education Higher non- university education Junior college education Secondary education Incomplete secondary education Managers 22 21 0 1 0 0 Specialists 309 235 34 27 13 0 Workers 474 22 15 68 327 42 Total 805 278 49 96 340 42 Employment contracts do not include any special rights and obligations of employees or some part of them. In 2022, the Company also paid much attention to qualification improvement, safety (zero fatalities), welfare, diversity, equality and involvement of employees. Training in the Company is done in two directions using: 1. Services of training institutions (external training); 2. Services of higher education institutions (employee studies). 11. Important events having occurred since the end of the preceding financial year Information on key events having occurred after the end of the financial year is provided in the Notes to the Separate Financial Statements (Note 32) and Consolidated Financial Statements (Note 32), also refer to Section 13 of this Annual Report. 12. Information on research and development activities performed by the Company and the Group The Company and companies of the Group continually pay much attention to increase of operational management efficiency, improvement of construction work quality and introduction of modern technologies. We are looking for the ways to make activities more efficient, apply innovative and resource-saving process management methods, improve working conditions of employees, improve quality of construction works and services. Realizing that construction activities leave a fairly significant footprint for nature and environment, we make emphasis on the sustainability issue in our operation. We strive to analyse the impact of our operation in order to consistently reduce the negative influence on the health of employees, surrounding communities and nature, amount of CO 2 . By optimizing production processes, we aim to reduce the amount of energy used in our activities. We invest the processes allowing to generate and use green energy. To maintain the highest competence in the construction sector, the Company introduces and uses advanced processes and technologies. In cooperation with our partners, we strive for a wider application of the digital model (BIM) principles in development project management. The up-to-date design software is used to prepare building designs. We continually follow innovations and complement the software used with actual applications. 13. Operation plans and forecasts of the Company and the Group Due to the various geopolitical events or even climatic factors, currently having a significant impact on the construction sector it is difficult to give any forecasts for the year 2023. Increasing uncertainty about demand or funding can encourage construction customers and real estate developers to postpone new construction plans until demand becomes more predictable. Although a difficult year is waiting for the construction sector, the Company will seek to implement the operational strategy and business goals approved by the Board – to remain competitive and maintain the position of the construction market leader. Panevezio statybos trestas AB and the 76 companies of the Group will search for solutions to absorb the negative effects of the war in Ukraine on the operation of the Group, seek to ensure that the costs of the projects in progress as well as investments and operating activities are optimal. In 2022, the Company and the Group will make every effort to assess and manage the risks that have arisen, find new markets and increase the cost-effectiveness of new projects. The Company and the Group will continue developing real estate in order to achieve a return on investments. 14. Authorised capital of the issuer and its structure As of 31 December 2022, the authorised capital of the company amounted to 4,741,500 Euros divided into 16,350,000 ordinary registered shares (ORS) the nominal value of each share being 0.29 Euros. All shares are fully paid. The proof of ownership is the record in the securities accounts. The Company has not acquired any shares of the Company. On 31 December 2022, the total number of the shareholders was 1,756. Table 5. Distribution of shareholders by residence country and legal form: Investors Number of shares, pcs. Portion of authorized capital, per cents Foreign investors Legal entities 2,232,296 13.7% Natural persons 1,426,839 8.7% Local investors Legal entities 8,981,770 54.9% Natural persons 3,709,095 22.7% Table 6. Shareholders holding or controlling more than 5 per cents of the authorised capital of the Company: Full name of a shareholder (company name, type, headquarter address, company code) Number of ordinary registered shares held by a shareholder under ownership right (pcs.) Portion of the authorized capital held (%) Portion of votes granted by the shares held under ownership right (%) HISK AB S. Kerbedzio Str. 7, Panevezys Company code: 147710353 8,138,932 49.78 49.78 CLAIRMONT HOLDINGS LTD Company number 85573 GRIGORI AFXENTIOU, 27 P.O. 6021, CYPRUS 936,052 5.72 5.72 Freely floating shares 7,275,016 44.50 44.50 None of the shareholders of the issuer has any special control rights. All shareholders have equal rights prescribed by Section 4 of the Law on Companies of the Republic of Lithuania. The number of shares carrying votes at the General Meeting of Shareholders of Panevezio statybos trestas AB is 16,350,000, one ordinary registered share of the Company carries one vote at the General Meeting of Shareholders. 15. Dividends The decision to pay dividends is taken and the amount to be paid as dividends is set by the General Meeting of Shareholders. The company pays the allocated dividends within 1 month from the date when decision on profit appropriation has been taken. The persons who were the shareholders of the Company at the end of the tenth business day from the General Meeting of Shareholders that adopted the relevant decision are entitled to the dividends. Dividends are taxable in accordance with the Law on Income Tax of Individuals and the Law on Corporate Income Tax of the Republic of Lithuania. 77 The Ordinary General Meeting of Shareholders of Panevezio statybos trestas AB that took place on 28 April 2022 did not come to the decision to pay dividends. Table 7. History of dividends paid over the previous years: Profit of financial year allocated for dividends 2015 2016 2017 2018 2019 Total amount allocated for dividends, Euros 261,977 1,062,750 981,000 0 490,500 Dividends per share 0.016 0.065 0.060 0 0.030 Ratio of dividends to the Company's net profit, per cent 79.80 59.33 504.50 0 83.09 Dividend profitability (dividends per share / share price as of the end of the period), per cents 1.7 6.9 6.6 0 5.3 16. Information on significant transactions between the related parties All transactions with related parties are provided in the Notes to the Separate Financial Statements (Note 29) and Consolidated Financial Statements (Note 28). 17. Published information In accordance with the procedure established by the laws of the Republic of Lithuania, all material events related to operation of the Company and information on the time and place of the General Meeting of Shareholders are published on the website of the Company https://www.pst.lt/investuotojams and on the stock exchange NASDAQ Vilnius AB (www.nasdaqomxbaltic.com). 78 Corporate Governance Report Information on compliance with the Corporate Governance Code The information on compliance with the Corporate Governance Code is provided in Appendix 1 to the Annual Report. Panevezio statybos trestas AB in principle complies with the recommendatory Governance Code for the companies listed at NASDAQ OMX Vilnius. Referring to the Articles of Association of the Company, the governance bodies of the Company include the General Meeting of Shareholders, the Board and the Managing Director. According to the Law on Companies of the Republic of Lithuania, either two (supervisory and management) or one collegial management body may be set up in the Company at the discretion of the Company. As no Supervisory Board is set up in the Company, the Board is elected, which performs the supervision functions pursuant to the Law on Companies of the Republic of Lithuania. Following the Articles of Association of the Company, the Board is set up of 5 members, which are elected for the period of four years. The members of the Board represent the shareholders and perform the supervisory and control functions. Only the Audit Committee, which is elected for the period of one year, is formed in the Company. The functions of the Nomination and Remuneration Committees are performed by the Board. The system of the corporate governance ensures fair treatment of all shareholders, including minority and foreign shareholders, and protects the rights of the shareholders. The management system of the Company ensures that any information on all essential issues, including financial situation, operation and Company management, is disclosed in a timely and accurate manner. The Audit Committee of the Company gives recommendations to the Board on nomination of an auditing company/auditor. The Board selects the candidate for the auditing company/auditor and submits it to the General Meeting of Shareholders for approval. This ensures independence of the conclusions and opinion provided by the auditing company. Information on extent of risk and risk management Risk management is a part of strategic management and integral to the day-to-day operations of the Group. In managing risks, the main objective of the Group is to identify higher and significant risks and manage them in the optimal way. The following financial risks are faced within the Group: credit, liquidity, market, business and operational. The Board is responsible for setting up and maintaining the risk management structure. The risk management policy of the Group is aimed at identifying and analysing the risks faced by the Group, introduction and maintenance of appropriate limits and controls. The risk management policy and risk management systems are reviewed at regular intervals to reflect changes in market conditions and operation of the Group. The Group seeks to create a disciplined and constructive environment for risk management where all employees know their roles and responsibilities. Based on the credit risk policy established by the Group, standard payments and terms are only offered after credit standing of each new client has been assessed. The potential credit risk for the clients of the Group and the Company is managed through continuous monitoring of outstanding balances. The aim to ensure that the services are provided to reliable clients and do not exceed the permissible credit risk limit is continuously maintained. The clients failing to meet the established limit may only make purchases with the Group after paying prepayments. The Group manages liquidity risk to ensure, as far as possible, sufficient liquidity, which allows fulfilling its obligations under both normal and complex conditions without incurring unacceptable losses and without facing the risk to lose reputation of the Group. The Company and the Group strives to maintain sufficient amount of cash and cash equivalents or secure of appropriate credit instruments so as to fulfil their obligations. The market risk is the risk that changes in market prices, for example, changes in exchange rates and interest rates will affect the result of the Group or the value of available financial instruments. The purpose of the market risk management is to manage open positions of risk in order to optimize returns. 79 Business risk is related to the Group's entry into new markets, segments, management of available inventories and investments, and execution of construction contracts. One of the peculiarities related to construction activities is that the fulfilment of concluded construction contracts is a long-term process, which makes the sector inert to changes in the economic environment. For this reason, both positive and negative changes reach the economic environment in the construction sector with considerable delay. In order to manage business risk, the Company and the Group seek to diversify their sources of revenue. To this end, orders are being sought and contracts are being concluded in both private and public sectors, and markets are being searched not only in Lithuania but in other countries as well. The companies of the Group operate in different sectors, such as construction, real estate development, production and engineering network installation. The construction sector is not limited to the construction of single-purpose buildings. The Company implements construction projects for industrial, engineering, environmental and residential buildings. Before starting new projects, the Company and the companies of the Group make a thorough analysis of the project specifics and only after are confident that the environment is sufficiently stable and a competent team is collected, final decisions are made. The accounts of the Company are kept and financial statements are prepared in accordance with International Financial Reporting Standards adopted for application in the EU. The annual financial statements are audited by the independent auditors selected by the General Meeting of Shareholders. This procedure ensures relevance and transparency of the data provided in the financial statements. Operational risk constitutes the risk of probability to incur losses due to people, systems, inadequate internal processes or their failure, effects of external events, including legal risks. For the purposes of operational risk management, the Group implements appropriate measures to ensure functioning of the internal control system and appropriate co-operation with relevant third parties. The main elements of internal control applied in the Group are control of operations and accounting, limits of decision-making powers and their control, separation of business decision-making and control functions, etc. The aim is to minimize the risk of legal compliance and ensure that the activities carried out comply with the applicable legislation. To this end, the advice of professional lawyers and their participation are used in the processes of drafting internal instruments and contracts. Information on significant directly or indirectly held share portfolios The Company has no information available on directly or indirectly held share portfolios. Information on any transactions with related parties as prescribed by Paragraph 2, Article 37 of the Law on Companies. There were no such transactions concluded. Information on shareholders with special control rights There are no shareholders with special control rights in the Company. The ordinary dematerialised shares of the Company grant equal voting rights to all shareholders of the Company. Information on all existing limitations on voting rights The Company has no information available on limitations on voting rights. Information on rules regulating election and replacement of the Board members, and amendment of Articles of Association The Board of the Company consisting of five members is elected by the General Meeting of Shareholders for a period not longer than 4 years. At present there are five members in the Board. The procedure of electing and dismissing the members of the Board is not different from that prescribed by the Law on Companies. The Articles of Association may be amended only by the General Meeting of Shareholders by the qualified majority of at least 2/3 of the total votes of the shareholders attending the meeting. The resolution amending the Articles of Association is adopted following the procedure set forth in the Law on Companies of the Republic of Lithuania. 80 Information on powers of members of the Board The powers of the members of the Board are set forth in the Law on Companies of the Republic of Lithuania and the Articles of Association. The Articles of Association of Panevezio statybos trestas AB are published on the website at http://www.pst.lt/en/investuotojams. Information on powers of General Meeting of Shareholders, rights of shareholders and their exercising The powers of the General Meeting of Shareholders and the rights of shareholders are set forth in the Articles of Association and are not different from that prescribed by the Law on Companies. Information on composition of management, supervisory bodies and their committees, their activities and field of activities of the Chief Executive Officer Referring to the Articles of Association of Panevezio statybos trestas AB, the management bodies of the Company are the General Meeting of Shareholders, the Board and the Managing Director. The Supervisory Council is not formed in the Company. The General Meeting of Shareholders is the highest governing body of the Company, resolving the issues assigned to its competence by the Law on Companies and the Articles of Association of the Company. The competence of the General Meeting of Shareholders does not differ from that of the competence prescribed by the Law on Companies. According to the Law on Companies of the Republic of Lithuania, one collegial management body may be formed in the Company. The Board consists of 5 (five) members, who are elected by the General Meeting of Shareholders for the period of 4 (four) years. They represent the shareholders and perform supervisory and control functions. The activities of the Board are managed by the Chairman. The Board elects the Chairman from the members of the Board. The Chief Executive officer of the Company is the Managing Director. The Managing Director is the sole governing body of the Company. The Managing Director is the main person managing and representing the Company. The Board elects and dismisses the Chief Executive Officer of the Company – the Managing Director, fixes his salary, sets other terms and conditions in the employment contract with him, approves his job description, gives incentives and imposes penalties. The Managing Director shall organize the activities of the Company. The Board: The Board members of Panevezio statybos trestas AB were elected for a new 4 (four) year term at the General Meeting of Shareholders on 9 April 2021, 2 (two) members of the Board are independent. The term of office of all members of the Board will end on 9 April 2025. JUSTAS JASIUNAS, Chairman Educational background: Mykolas Romeris University, Master in Law. Place and position of employment: Consultant at Panevezio statybos trestas AB (company code 147732969, P. Puzino Str. 1, Panevezys). Participation in activities of other companies: Board Member at HISK AB (company code 147710353, S. Kerbedzio Str. 7, Panevezys); Chairman at Aliuminio fasadai UAB (company code 305412441, Pramones Str. 7, Panevezys); Chairman at Vekada UAB (company code 147815824, Marijonu Str. 36, Panevezys); Board Member at Skydmedis UAB (company code 148284718, Pramones Str. 5, Panevezys); Board Member at PST investicijos UAB (company code124665689, Ukmerges Str. 219, Vilnius). As of 31 December 2022, held no shares of the Company. 81 GVIDAS DROBUŽAS, Board Member Educational background: Panevezys Polytechnic School, higher non-university. Place and position of employment: General Director, Board Member at IOCO Packaging UAB (company code 110564826, Pusaloto Str. 212, Panevezys). Participation in activities of other companies: Chairman at HISK AB (company code 147710353, S. Kerbedzio Str. 7, Panevezys); Consultant at Panevezio statybos trestas AB (company code 147732969, P. Puzino Str. 1, Panevezys); Board Member at PST investicijos UAB (company code 124665689, Ukmerges Str. 219, Vilnius); Director at Pokstas UAB (company code 168424572, Gustonys Vlg., Naujamiestis Eldership, Panevezys District Municipality); Director at IOCO UAB (company code 302547850, Verkiu Str. 25C-1, Vilnius); Director at Stenrosus UAB (company code 300007108, B. Sruogos Str. 6-14, Vilnius). As of 31 December 2025, held 5 (five) shares of the Company, a shareholder of HISK AB. VAIDAS GRINCEVICIUS, independent Board Member Educational background: Vilnius University, Master in Management and Business Administration. Participation in activities of other companies: Venture Capital Investor, Member of LitBAN (Lithuanian Business Angel Network) Association (company code 304811409, L. Stuokos-Guceviciaus Str. 9-10, Vilnius); Chairman at SIQOR industries UAB (company code 304755864, Konstitucijos Ave. 21A, Vilnius). As of 31 December 2022, held no shares of the Company. KRISTINA MACIULIENE, Board Member Educational background: Kaunas University of Technology, Bachelor in Business Administration, Lithuanian University of Law, Master in Law. Place and position of employment: Expert-Consultant at HISK AB (company code 147710353, S. Kerbedzio Str. 7, Panevezys). Participation in activities of other companies: Board Member at HISK AB (company code 147710353, S. Kerbedzio Str. 7, Panevezys); Chairman at Skydmedis UAB (company code 148284718, Pramones Str. 5, Panevezys); Chairman at Hustal UAB (company code 148284860, Tinklu Str. 7, Panevezys); Board Member at Vekada UAB (company code 147815824, Marijonu Str. 36, Panevezys); Board Member at Aliuminio fasadai UAB (company code 305412441 Pramones Str. 5, Panevezys); Chairman at Lauktuves Jums UAB (company code 147797155, Laisves Sq. 26, Panevezys); Chairman at Gustoniu zemes ukio technika UAB (company code 168581940, S. Kerbedzio Str. 7F, Panevezys). As of 31 December 2022, held 10 (ten) shares of the Company. LINA SIMASKIENE, independent Board Member Educational background: Kaunas University of Technology, Engineer-Economist. Place and position of employment: Chief Financial Officer at IOCO Packaging UAB (company code 110564826, Pusaloto Str. 212, Panevezys), Board Member. Participation in activities of other companies: Chief Accountant at IOCO UAB (company code 302547850, Verkiu Str. 25C-1, Vilnius); Chief Accountant at Pokstas UAB (company code 168424572, Gustonys Vlg., Naujamiestis Eldership, Panevezys District Municipality); Chief Accountant at Stenrosus UAB (company code 300007108, B. Sruogos Str. 6-14, Vilnius); Chief Accountant at New Miracle UAB (company code 304552981, J. Zikaro Str. 33A, Panevezys); As of 31 December 2022, held no shares of the company. 82 Administration: EGIDIJUS URBONAS – Head of the Company Administration, Managing Director. Holds no shares of the Company. University education, Construction Engineering, Kaunas Technology University. Master Degree in Construction Engineering, Vilnius Gediminas Technical University, postgraduate program in Construction Management. Participation in activities of other companies: Chairman at PST investicijos UAB (company code 124665689, Ukmerges Str. 219, Vilnius) As of 31 December 2022, held no shares of the Company DANGUOLE SIRVINSKIENE – Chief Accountant of the Company. Holds no shares of the Company. University education (LZUA, 1983), Accounting - Economics. In 2022, no loans, guarantees, sureties were granted and no property was transferred to any Board Members or top managers of Panevezio statybos trestas AB. Audit Committee Following Article 52 of the Law on Audit of the Republic of Lithuania, the General Meeting of Shareholders of Panevezio statybos trestas AB elects the Audit Committee. The Audit Committee consists of three members, two of them being independent. The term of office of the Audit Committee is one year. The continuous term of office of a committee member cannot exceed 12 years. The functions of the Audit Committee are as follows: 1) to monitor the financial reporting process; 2) to monitor effectiveness of the company's internal control, risk management and internal audit, if applicable, systems; 3) to monitor the process of the audit; 4) to monitor independence and objectivity of the auditor or audit company. The following members were elected to the Audit Committee at the Annual General Meeting of Shareholders of Panevezio statybos trestas AB on 28 April 2022: Drasutis Liatukas – an independent auditor, Head of Finansu auditorius UAB, auditor. Holds no shares of the Company; Irena Kriauciuniene – an independent auditor. Holds no shares of the Company; Lina Rageliene – Deputy Chief Accountant of the Company. Holds no shares of the Company. Diversity policies applied to election of the CEO and members of the supervisory bodies of the company The Company has no diversity policy for election of the CEO and members of the supervisory bodies of the Company. The main criterion for election of a candidate to CEO and members of the supervisory or management bodies is competence of the candidate. Information on all agreements between the shareholders The Company has no information on any agreements between the shareholders available. Consolidated Report of Social Responsibility We believe that corporate social responsibility is effective only when integrated into everyday work and, if managed like any other business activity, it leads to a sustainable and responsible economy. Constant and continuous improvement of business and project management, quality, customer satisfaction, supply and subcontracting chain management, environmental and public relations at PST is not only openness to the surrounding environment, but also the goal of operating ethically, fairly and transparently in respect of the market, environmental protection, society and employees. In their activities both, the Company and the companies of the Group, follow the highest standards of business ethics and principles of social ethics. Social responsibility is based on its values and defines the approach of the Company to its activities, integration of social, environmental and transparent business principles in the internal processes of the Company and the Group as well as in relations with its clients. Short Description of Activity Model Panevezio statybos trestas AB is one of the largest local construction companies, which has been operating in the construction sector for more than 60 years and has the highest competence for creation of exceptional quality. Honesty, responsibility, professionalism, quality workmanship and efficient solutions are the values that have allowed us to achieve our goals – today we are one of the largest construction companies in Lithuania. The Company has implemented many especially important and complex projects that have contributed to the economic growth of Lithuania and have a significant impact on development of infrastructure and improvement of environment protection in the country. In 2022, the Company made structural changes in order to optimize costs, concentrate services and strengthen production capacity. One of them, merge of the branches Konstrukcija and Betonas, Genranga and Stogas, took place at the beginning of the year. This merge resulted in reduction of branch administration costs and faster decision-making processes. The Company comprises the following branches: - Gerbusta, focusing on construction of utility networks and landscaping. - Pastatu apdaila, carrying out indoor and outdoor finishing works, - Konstrukcija where production capacities are concentrated, this branch carries out civil and special construction works, - Vilnius branch Genranga, performing general contracting activities and project management in the Vilnius Region, - Klaipstata, performing general contracting activities and project management. The business model of Panevezio statybos trestas AB Group has hardly changed from last year. In 2022, two subsidiary companies of Panevezio statybos trestas AB, Hustal UAB and Metalo meistrai UAB, were merged. The activities of both companies overlap to a considerable extent – both of them carry out the works related to engineering, production and sales of steel structures for various industries, therefore merger is aimed for optimizing processes and making them more efficient. After merger Hustal UAB ceases its operation and Metalo meistrai UAB continues operating having taken over the name, assets, rights and liabilities of Hustal UAB. In view of the increased geopolitical tension in the region, new sanctions and restrictive measures imposed on the Russian Federation and Republic of Belarus by the European Union and its allies, Panevezio statybos trestas AB ceases to operate its companies located in the region of the Russian Federation. In 2023, Teritorija OOO, a subsidiary operating in the Russian Federation was de- registered. The Group consists of the parent company, Panevezio statybos trestas AB, and 11 subsidiaries in Lithuania, Latvia and Poland. Information on the portion of the capital held by Panevezio statybos trestas AB in the subsidiaries is provided in Section 5 of the Consolidated Annual Report. Panevezio statybos trestas AB and the companies of Panevezio statybos trestas AB Group belong to various associations. Panevezio statybos trestas AB is the member of the Lithuanian Construction Association, Association of Testing Laboratories for Construction Products, Panevezys Chamber of Commerce, Industry and Crafts. Hustal UAB is the member of the Lithuanian Association of 84 Welders and PST investicijos UAB is the member of the Lithuanian Real Estate Development Association. For management purposes, the Group is divided into business units based on the nature of their activity and has the following accountable segments: • Construction; • Steel structures; • Timber panel houses; • Concrete floor installation; • Aluminium structure production; • Real estate development; • Other activity. The segment of construction includes activity of Panevezio statybos trestas AB, Vekada UAB, Alinita UAB and PS Trests SIA. The main area of activity is construction, design and erection of various buildings, structures, equipment and communications, construction/installation of other objects (electrical installation, building renovation, installation of plumbing, waste water systems, fire protection systems, video surveillance, security and fire alarm) in Lithuania and other countries. The segment of steel structures includes activity of Hustal UAB. The main area of their activity is design and fabrication of steel structures for construction. The company also delivers steel structures to other companies based on their demand. The segment of timber panel houses includes activities of Skydmedis UAB. The area of activity is design, production, construction and outfitting of prefabricated timber panel houses, production of timber structures and millwork. In the segment of concrete floor installation, concrete floor installation in industrial and public buildings is carried out by Pastatu apdaila, the branch of Panevezio statybos trestas AB. The aluminium structure production (the production of aluminium profile systems, aluminium framed windows and doors) was started by Aliuminio fasadai UAB in the beginning of 2020. The segment of real estate development includes Seskines projektai UAB, Ateities projektai UAB, Tauro apartamentai UAB and PST investicijos UAB. The segment of other activity includes Kingsbud Sp.z o.o., which is engaged in wholesale of construction materials. Due to insignificance of volumes, the segments of concrete floor installation and production of aluminium structures are not distinguished and are presented in the segment of Other activity in the consolidated financial statements. Strategy, vision, mission and objectives of the Company In its activity, Panevezio statybos trestas AB follows the strategy approved by the Board. The strategy of the Company is based on growth in operation, enhancement in corporate value, management of client relations, ensuring of safe working environment and development of employees. Vision – To become a reputed construction company in Europe, the first choice for clients in terms of construction companies, which uses advanced technologies, ensures quality and agreed work completions terms. Mission - While honestly fulfilling our obligations, promoting long-term cooperation and proposing mature solutions in construction, we ensure profitable and sustainable business development, thus creating the value to our clients, shareholders and employees. Objective - To retain the leading position in the construction market by activity volumes, improve by applying innovative company management methods, look for new business areas, investment partners, participate in business development processes, strengthen the position of a builder in the industrial, infrastructural and public construction sectors, promote training and development of employees at all levels. 85 Principles of social responsibility: Accountability (for impact on society, economy, environment); Transparency (of decisions and activity, which have impact on society and environment); Ethical (proper) behaviour; Respect (listening attentively and responding) for stakeholders’ interest; Respect for the rule of law; Respect for international norms of behaviour; Respect for human rights. Environment Protection Panevezio statybos trestas AB and the companies of the Group (Skydmedis UAB, Hustal UAB, Alinita UAB, Vekada UAB) have the Environmental Management System (EMS) consistent with the requirements of ISO 14001:2015/LST EN ISO 14001:2015, legal and other environmental regulations established, documented and constantly reviewed to ensure its suitability, adequacy and effectiveness. In the process of implementation related to the established Environmental Policy, the Company seeks to preserve a healthy environment to any employee, biological and landscape diversity as well as optimal use of natural resources. The Environmental Policy is published in all branches, subsidiary companies and sites of Panevezio statybos trestas AB, available for public and all interested parties on the website at www.pst.lt. When making plans of the environmental system, external and internal issues with regard to the objectives and strategic direction of the Company as well as needs and requirements of interested parties are taken into account resulting in defining risks and opportunities to make sure that the integrated management system is able to achieve the intended outcome, strengthen the desired impact, prevent or reduce undesired effects and achieve continual improvement. The Company plans actions to eliminate risks, how actions should be integrated and implemented in the EMS processes, assessment criteria and effectiveness of these actions. Panevezio statybos trestas AB has the Risk and Opportunity Register prepared. The significant environmental aspects are determined in all branches, subsidiary companies and sites of the Company after significance of activity impact on environment is taken into account and legal requirements are identified. The environmental aspects are identified by analysing past, current and potential beneficial and adverse environmental impact of activities, services and products of the subdivisions. The review of these aspects is performed at least once per year and in case the nature of activities or any other conditions, such as a process, materials used, technologies, etc., changes, provided they condition occurrence of new environmental aspects. The site aspects are identified individually for each project. The significant environmental aspects can cause one or more significant environmental impacts and therefore can result in risks and opportunities to be assessed in order to ensure the Company is able to achieve the intended outcomes of the EMS. When determining environmental aspects, a life cycle perspective is taken into account. The following key life cycle stages of a product/service are thought over and evaluated: raw material acquisition, design, production of construction products, transportation, construction of a building, use of a building, end-of-life treatment and final disposal (waste recycling and management). For each aspect possible legal and other requirements, which can affect activities of the Company and the Group, are identified. As every year, in 2022 the Company monitored the EMS indicators and performed measurements: amount of waste, amount of hazardous chemicals used, incidents related to soil pollution with oil products, rainwater pollution, emissions from internal combustion engines, air pollution with particulate matter, noise, indoor dust, street pollution with dirt/dust, consumption of electricity, water, fuel, etc. The use of hazardous chemicals in construction sites is being reduced by replacing them with less hazardous ones. In its operation the company uses only green electricity produced from renewable energy sources. Panevezio statybos trestas AB has a responsible approach on the issues of climate change and is not only a consumer of electricity, but also a producer. 86 In its activities, the Company uses only green electricity generated from renewable electricity sources. Panevezio statybos trestas AB takes a responsible approach to the issue of climate change and is not only a consumer of electricity, but also a producer. Panevezio statybos trestas AB operates a 200 kW solar power plant, which annually generates approximately 200 thousand kWh of electric power, this makes about 30 per cents of all electric power consumed by the production facilities. In 2023, expansion of this power plant is planned so that the amount of electric power generated by the plant covers up to 60 percent of all electric power consumed by the production facilities. In addition to that, the Company operates three power plants 30 kW each, which together generate about 80,000 kWh of renewable electric power supplied to the power grid. In 2022, the company of the Group, Skydmedis UAB, started operating a 50 kW solar power plant. During the first year of operation, the investments met the expectations, which allowed the company of the Group company to generate up to 97 per-cents of required electric power. During 2022, Panevezio statybos trestas AB produced 443.932 thousand kWh of electric power from its own renewable power generation sources and this allowed to avoid 174,021 kg of CO 2 greenhouse gas emissions, which would be equivalent to 5194 planted trees. The company of Panevezio statybos trestas AB Group, Skydmedis UAB, started using a bioboiler for heating of premises. 30 per cents of the biofuel required for operation of this boiler is obtained from production timber waste, which does not need to be disposed of. The MobyDick ConLine KIT Flex400 MC Wheel Washing System has been successfully in use. The closed-cycle wheel washing system not only reduces street pollution with dirt, prevents contaminated water from entering urban sewage networks, but also does not interfere with other road users when cleaning roads and is an alternative to sweeping brooms that cause dust and particulate matter spread in the city. The accounting of generated waste is performed in the GPAIS module: https://www.gpais.eu. The Group sorted out the following quantities of waste for recycling and reuse, as well as secondary raw materials: 2022 2021 Group incl. Company Group incl. Company Timber waste, t 104.93 98.67 71.03 68.89 Paper, cardboard waste, t 7.445 7.365 12.83 12.83 Polyethylene waste, t 0.875 0.065 7.69 7.69 To reduce air pollution Gerbusta branch performs control of emissions from vehicles and machinery with internal combustion engines, Skydmedis UAB monitors air cleaning equipment, Hustal UAB makes efficiency measurements of air cleaning equipment in painting chambers. Renewable car fleet. We reject old polluting cars by adding new, less polluting cars to the fleet. 30 per cents of the vehicles owned by the Group comply with the requirements of the Euro 6 emission standard. In 2022 the pollution charges paid amounted to 209,829 Euros (132,955 Euros in 2021) for the Group and 193,502 Euros (123,071 Euros in 2021) for the Company, including: 2022 2021 Euros Group incl. Company Group incl. Company Pollution with packaging waste 2,468 1,173 2,797 1,383 Pollution from mobile pollution sources 7,738 6,747 6,556 5,844 Environment protection (waste management) 199,623 185,582 123,642 115,844 The construction sector is a significant contributor to global CO 2 emissions due to its huge workload. The companies of Panevezio statybos trestas AB Group are looking for ways to reduce them. This 87 is done by prioritizing optimization of resources, search for and implementation of sustainable solutions and innovations. Modern engineering systems creating a healthy working environment are applied in the buildings under construction. The use of hazardous chemicals in construction sites is reduced by replacing them with less hazardous ones. As an example, in one of our projects we used Ecocrete concrete of a special formula developed for us and with lower CO 2 emissions, which has the same standard and early strength indicators as common concrete, but guarantees a fairly significant reduction in CO 2 emissions. The changed climatic conditions are taken into account in the construction process of the new buildings. As the temperature conditions change, the needs for indoor ventilation, heating and cooling also change. Therefore, new technological and architectural solutions are being implemented. The new buildings construction of which is currently started by the Company are of the A++ energy efficiency class. The buildings of the A ++ energy efficiency class use almost no thermal energy, which contributes to the climate change mitigation. The construction sector uses very unsustainable CO 2 -neutral materials: steel, cement, glass, etc., therefore solutions are being sought to make the construction process more environmentally friendly, i. e. use of organic materials. For construction of new buildings, sustainable materials are used more often. After the life cycle of the building these materials could be reused for a new life cycle or be environmentally friendly and do not result in pollutions by means of recycling. One such material is timber. Skydmedis UAB, the company of the Group, uses timber panels for the construction of houses. Designers apply the highest standards for design and construction of a building, contributing to environmental sustainability and healthy work environment. In the design process much attention is paid to ensuring indoor air quality, intelligent lighting in accordance with good international practices, sound resistance that retains external noise. The B2EAM New Construction Very Good certificate confirming the above measures has been awarded to the Business Centre U219. This certificate also acknowledges the responsible approach of developers to the environment and human health, and guarantees long-term returns. The report was prepared taking into account the Communication from the European Commission Guidelines on Non-Financial Reporting (017/C 215/01). Relationship with Employees The main asset of the Company is employees, who are the most important link in achieving the objectives. Therefore, much attention is paid to motivation of employees: environment favourable for development of new ideas and their implementation is being created, continuous exchange of information is taking place. In the present-day environment, competence of employees is one of the key factors describing competitiveness of the Company. Considering this factor, the Company encourages employees in all organizational levels to learn and develop. Employees are given the opportunity to study, improve their qualifications, and participate in various seminars and trainings. In 2021, the training cycles on emotional intelligence were organized, and a course on improvement of performance appraisal skills was provided for managers. The lawyers together with the staff of the Personnel Department attended the Annual Labour Law Conference, and training was provided to the lawyers on the continuously changing regulation of public procurement. In 2021 considerable attention was also paid to improving the practical skills of internal communication, for that purpose professional lecturers were invited. We constantly strive to become the leader in the construction market, guaranteeing safe and non- hazardous work places for the employees of Panevezio statybos trestas AB and all employees working on behalf of the Company. The Occupational Health and Safety Management System (ISO 45001) implemented in 2008 ensures continuous identification and assessment of OHS risk factors, identification of risk management measures and control of their implementation for the Company. The work and personal protective equipment is selected for the employees following the most advanced technologies. The professional competence of employees and perception of employees in the field of occupational safety and health is continuously improved. Much attention is paid to prevention of accidents and occupational diseases, and reduction of accident likelihood. Partners, suppliers and others working 88 on behalf of the Company are involved in the processes of the occupational health and safety system. The human and financial resources are provided to maintain and continuously improve the occupational health and safety system. The Company continuously invests in employee training and development courses to improve their competencies and understanding in the field of occupational health and safety. In 2022 trainings were organized both at the Company and educational institutions. Total number of trained employees and managers was 243 in 2022. The employees participated in the following trainings: - workers performing activities at height, - load handler, - locksmiths – fitters of lifting equipment, - operators of lifting platforms and their equipment, - OHS specialists, - site OHS coordinators, - first aid. Employees are motivated not only by material incentives, such as competitive wages and salaries, progressive bonus system, but also by exceptional quality of working environment. The Company and the Group provides social guarantees: the allowance is paid in the event of the death of a family member or immediate family of the employee, in case of an employee’s death, a gift to an employee when a baby is born, on the employee’s anniversary birthday. On 6 August 2021, the Works Council for representation of the employees consisting of 9 members was elected at the Company. The Works Council submits proposals to the employer on economic, social and work issues, which are topical to the employees, employer’s decisions, laws and other regulations governing work relations. The Council is elected for the period of three years, which starts from the beginning of their term of office. Human Rights The Group advocates equal opportunities for all employees, regardless of the employee's gender. The majority of the Group's employees, 85% (83% of the Company), are men. This is greatly influenced by specifics of the activity performed, i. e. women are less likely to choose the technological work performed in construction as well as specialties in construction and technical engineering directly related to such work and outdoor conditions. The Company and the Group adhere to the principles for the protection of human rights and do not tolerate any violations of human rights in their activities. They are for the fair and transparent wage and salary policy, comply with the laws regulating overtime and working hours, respect the right of employees to rest and do not tolerate harassment and violence of any nature. The Company opposes any discrimination and forced labour. Employees of the Company have equal rights and possibilities regardless their gender, nationality, social or family status, membership in public or political organisations or personal qualities. In 2020, there were no violations of human rights or relevant claims recorded. Social Initiatives Panevezio statybos trestas AB keeps on implementing its objective to be a reliable and socially responsible company. In its activity, the Company follows the principles of sustainable business development, which also include social responsibility. Panevezio statybos trestas AB invests in various extra activities, supports different social, sports, cultural and health promotion projects. In 2022, Panevezio statybos trestas AB Group supported 17 various organizations, public institutions in the fields of education, sports, culture, health. One of such supports is support to Panevezys Lower Secondary School for Deaf and Hard Hearing Children for acquisition of a new vehicle for transportation of schoolchildren. We contribute to support actions for Ukraine in their fight for freedom. Among the social initiatives implemented by the Group, the following activities were initiated by the Company: 89 - Periodical blood donation campaigns in the Business Centre U219 in cooperation with the National Blood Centre; - Tree planting in Pasiliai Forest, Krekenava Eldership, Panevezys District; - Collecting employee support for animal sanctuaries. Fight against Corruption and Bribery The Company and its subsidiaries do not tolerate corruption or its manifestations of any nature and pursue open competition, ethical business conditions and proper ensuring of transparency and publicity in their activities. The Group does not tolerate fraud, extortion, unofficial accounting, unofficial and inadequately executed transactions, accounting for fictitious expenses, use of forged documents and other forms of corruption. Provisions of corruption intolerance apply to all employees of the Group, members of the management and supervisory bodies, any third parties acting on behalf of the Group. The risk is mitigated by existing integrated internal controls for identifying potential risk factors for corruption. The Company and the Group constantly control their activities by improving the processes. Panevezio statybos trestas AB and its subsidiary companies refrain from any form of influence on politicians and does not fund election campaigns of political parties, their representatives or their candidates. The Group always co-operates with the institutions and is ready to provide all the necessary information. The Company and its subsidiary companies ensure that its procurement is carried out in compliance with the principles of equality, non-discrimination, transparency, mutual recognition, proportionality and requirements of confidentiality as well as impartiality at the same time using the Company’s funds in a rational manner. Suppliers are selected on the basis of the most economically advantageous proposal or the lowest price under equal and non-discriminatory conditions. In performing selection of subcontractors, the Company carries out assessment of subcontractors’ qualification. Compliance with environmental, occupational health and safety requirements as well as honesty are the fundamental requirements for subcontractors. Overview of the alignment with the EU Taxonomy Regulation The Taxonomy (Taxonomy regulation, 2020/852) of the European Union (EU) is a classification system for sustainable economic activities designed to direct private investment to environmentally sustainable activities that contribute to the environmental objectives of the European Green Deal. The Taxonomy regulation sets out scientific evidence-based criteria for assessing the sustainability of an activity. The activities of those enterprises that fall under the Taxonomy list and meet the criteria provided can be classified as sustainable and attract green investments. Taxonomy-eligible economic activity is defined as the activity described in the relevant delegated acts of the Taxonomy regulation, in other words, included in the Taxonomy. Companies that have determined that their revenue (turnover), capital expenditure (CapEx) and / or operating costs (OpEx) are related to activities described in the delegated acts must analyse and disclose to what extent their activities meet Taxonomy criteria on these indicators. In this report, in accordance with the provisions of the Taxonomy regulation and related delegated acts, we provide the main performance indicators and information on the alignment of Taxonomy-eligible activities with the criteria. For information comparison, we provide data for both 2022 and 2021. Assessment of revenue in accordance with Taxonomy After the analysis, we found that Panevezio statybos trestas AB receives part of its revenue from Taxonomy-eligible economic activities. The Company's main economic activity - construction - is also Taxonomy-eligible; in Taxonomy corresponding to 7.1. Construction of new buildings. Construction economic activity accounts for the largest share of the Company's revenue, which amounted to 74.71% in 2022, and 70.89% in 2021. Other activities of the Company that are considered Taxonomy-eligible are listed under Taxonomy as 7.7. Acquisition and ownership of buildings and 7.2. Renovation of existing buildings. The share of revenue generated from these additional activities totaled 2.36% in 2022 and 10.57% in 2021. The following tables show detailed results of assessing Taxonomy-eligible activities according to technical screening criteria. Technical screening criteria assess whether an activity meets Taxonomy requirements and can be designated as sustainable regarding environmental impact. Activities are primarily assessed based on criteria for substantial contribution to climate change mitigation and adaptation. In addition, it is assessed whether they do no significant harm (DNSH) for other environmental goals. During the technical screening, we found that the Company's current activities only meet some Taxonomy criteria. For example, the main activity of the Company 7.1. Construction of new buildings is subject to quite challenging climate change mitigation criteria: new buildings must meet even higher requirements than are currently applied to buildings of the highest energy performance class A++, which are almost energy-free. Nevertheless, we plan to look for ways to meet the Taxonomy criteria as much as possible. 91 Revenue according to Taxonomy in 2022 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute revenue 2022 Proportion of revenue 2022 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy -aligned proportion of revenue 2022 Taxonomy -aligned proportion of revenue 2021 Category (enabling) Category (transi tional) thousa nd Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % % E T A. Taxonomy-eligible activity: A.1. Environmentally sustainable activities (Taxonomy-aligned) Revenue of environmentally sustainable activities (Taxonomy- aligned) (A.1) 0 0% 0% 0% A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 7.1. Construction of new buildings F41.1, F41.2, F43 86,542 74.71% 0% 0% Y N N N Y Y Y 0% 0% 7.7. Acquisition and ownership of buildings L68 1,856 1.6% 100% 0% Y N n/a Y 0% 0% 7.2. Renovation of existing buildings F41, F43 876 0.76% 100% 0% Y N N N Y n/a Y 0% 0% - Revenue of Taxonomy-eligible but not environmentally sustainable activities (not 89,274 77.07% 92 Taxonomy-aligned activities) (A.2) Total: A.1 + A.2 89,274 77.07% B. Taxonomy-non-eligible activities Revenue of Taxonomy-non-eligible activities (B) 26,566 22.93% TOTAL: A + B 115,840 100% . Revenue according to Taxonomy in 2021 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute revenue 2021 Proportion of revenue 2021 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy -aligned proportion of revenue 2021 Category (enabling) Category (transitional) thous and Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T A. Taxonomy-eligible activity: 93 A.1. Environmentally sustainable activities (Taxonomy-aligned) Revenue of environmentally sustainable activities (Taxonomy-aligned) (A.1) 0 0% 0% A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 7.1. Construction of new buildings F41.1, F41.2, F43 69,793 70.89% 0% 0% Y N N N Y Y Y 0% 7.7. Acquisition and ownership of buildings L68 7,870 7.99% 100% 0% Y N n/a Y 0% 7.2. Renovation of existing buildings F41, F43 2,536 2.58% 100% 0% Y N N N Y n/a Y 0% - Revenue of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 80,199 81.46% Total: A.1 + A.2 80,199 81.46% B. Taxonomy-non-eligible activities Revenue of Taxonomy-non-eligible activities (B) 18,252 18.54% TOTAL: A + B 98,451 100% 94 Assessment of capital expenditure (CapEx) in accordance with Taxonomy The EU taxonomy defines capital expenditure as all additions to tangible and intangible assets during the financial year considered before depreciation, amortisation and any re-measurements, including those resulting from revaluations and impairments, for the relevant financial year and excluding fair value changes. Also included are additions to tangible and intangible assets resulting from business combinations. In 2022, the Company incurred capital expenditures to improve the investment property (building) and purchase vehicles related to Taxonomy-eligible activities: 7.7. Acquisition and ownership of buildings; 6.5. Transportation by motorcycles, passenger cars and light commercial vehicles. In 2021, in addition to the same mentioned activities, a new 150 kW solar power plant was acquired and put into operation in the group company Skydmedis UAB, which is related to one of the individual measures described in the Taxonomy: 7.6. Installation, maintenance and repair of renewable energy technologies. In the following tables, we provide detailed results of the analysis of the capital expenditure (Taxonomy CapEx) to Taxonomy-eligible activities according to the technical screening criteria. In 2021 and 2022, Taxonomy-eligible investments only met some Taxonomy criteria. Capital expenditure (CapEx) according to Taxonomy in 2022 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute Taxonomy CapEx in 2022 Proportion of taxonomy capex 2022 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy -aligned proportion of Taxonomy CapEx 2022 Taxon omy-aligned proportion of Taxonomy CapEx 2021 Category (enabling) Category (transitional) Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % % E T A. Taxonomy-eligible activity: 95 A.1. Environmentally sustainable activities (Taxonomy-aligned) Taxonomy CapEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) 0 0% 0% 0% A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 7.7. Acquisition and ownership of buildings L68 422,741 48.55% 100% 0% Y Y Y 0% 0% 6.5. Transport by motorbikes, passenger cars and light commercial vehicles H49.32, H49.39, N77.11 41,862 4.81% 50.13% 0% N N N N Y 0% 0% - Taxonomy CapEx of Taxonomy- eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 464,604 53.35% Total: A.1 + A.2 464,604 53.35% B. Taxonomy-non-eligible activities Taxonomy CapEx of Taxonomy- non-eligible activities (B) 406,212 46.65% TOTAL: A + B 870,816 100% 96 Capital expenditure (CapEx) according to Taxonomy in 2021 Substantial contribution criteria Do no significant harm criteria Economic activity NACE code(s) Absolute Taxonomy CapEx 2021 Proportion of taxonomy capex 2021 Climate change mitigation Climate change adaptation Climate change mitigation Climate change adaptation Water and marine resources Circular economy Pollution Biodiversity and ecosystems Minimum safeguards Taxonomy -aligned proportion of Taxonomy CapEx 2021 Category (enabling) Category (transitional) Eur % % % Y/N Y/N Y/N Y/N Y/N Y/N Y/N % E T A. Taxonomy-eligible activity: A.1. Environmentally sustainable activities (Taxonomy-aligned) Taxonomy CapEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) 0 0% 0% A.2. Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 7.7. Acquisition and ownership of buildings L68 1,062,507 54.92% 97.46% 0% Y N Y 0% 7.6. Installation, maintenance and repair of renewable energy technologies F42, F43, M71, C16, C17, C22, C23, C25, C27, C28 118,000 6.1% 0% 0% Y Y Y 0% - 97 6.5. Transport by motorbikes, passenger cars and light commercial vehicles H49.32, H49.39, N77.11 73,149 3.78% 0% 0% N N N Y Y 0% - Taxonomy CapEx of Taxonomy- eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 1,253,656 64.8% Total: A.1 + A.2 1,253,656 64.8% B. Taxonomy-non-eligible activities Taxonomy CapEx of Taxonomy- non-eligible activities (B) 680,852 35.2% TOTAL: A + B 1,934,508 100% Assessment of operating costs (OpEx) in accordance with Taxonomy Operating costs (OpEx) are defined in the Taxonomy regulation as direct non-capitalised costs that relate to research and development, building renovation measures, short-term lease, maintenance and repair, and any other direct expenditures relating to the day-to-day servicing of assets of property, plant and equipment by the undertaking or third party to whom activities are outsourced that are necessary to ensure the continued and effective functioning of such assets. The accounting system currently used by the Company is not adapted to exclude data according to the definition of Taxonomy OpEx, so collecting and disclosing the information required under the regulation in this report would have been complicated. In 2023, we plan to better prepare and provide at least the most significant data for this indicator in next year's report. 98 Minimum safeguards In its activities, Panevezio statybos trestas AB ensures compliance with the Guidelines for Multinational Enterprises of the Organization for Economic Co-operation and Development (OECD) and the United Nations' Guiding Principles on Business and Human Rights. The Company protects and respects human rights and has a Code of conduct for employees, suppliers and company's representatives. Being one of the largest construction companies in Lithuania, Panevezio statybos trestas AB recognizes, understands, and feels responsible for the impact of the corporate activities on the social, economic, and natural environment. The Company is committed to complying with the laws, regulations and agreements applicable to its operation. The sustainable business responsibility report prepared according to the model of the international standard Global Reporting Initiative is provided separately. Consolidated Remuneration Report The Remuneration Report of Panevezio statybos trestas AB has been prepared for the reporting financial period of the year 2022. The report has been prepared in accordance with the Law on Financial Reporting of Enterprises of the Republic of Lithuania, the Ordinary General Meeting of Shareholders held on 29 April 2020 approved the Remuneration Policy for Top and Middle Management Staff of Panevezio statybos trestas AB and the Extraordinary General Meeting of Shareholders held on 9 April 2021 approved the Procedure for Awarding and Paying Remuneration of Independent Board Members of Panevezio statybos trestas AB. The Consolidated Remuneration Report for 2021 was approved at the General Meeting of Shareholders on 28 April 2022 together with the Set of Financial Statements for 2021. Remuneration of Board Members As the Law on Companies of the Republic of Lithuania provides for the possibility to elect only one either collegial supervision or management body, the collegial management body, the Board performing the supervision function, and one-person management body, the Managing Director, are set up at the Company. Following the Law on Companies and Articles of Association of the parent Company, the Board Members are appointed for the four-year term of office. On 9 April 2021 the Extraordinary General Meeting of Shareholders approved the procedure for awarding and paying remuneration of the independent members of the Board for their activities in the Board. Remuneration (bonuses) is paid to the members of the Board, except for the independent members of the Board, for their work by the decision of the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania. Remuneration Paid to Board Members On 9 April 2021 the Extraordinary General Meeting of Shareholders elected the new Board of Panevezio statybos trestas AB. The information on payments made to the members of the newly elected Board over the year 2022 is presented below. The Extraordinary General Meeting of Shareholders held on 28 April 2022 did not come to the decision to pay bonuses to the members of the Board. The amounts in the table are in Euros, before taxes. Table 8. Information on remuneration of supervisory body members of the issuer in 2021: Full name Position Monthly remuneration of independent member of the Board (Euros) Remuneration of independent member of the Board total for 2022 (Euros) Total income from the company for 2022 (Euros) Justas Jasiunas Chairman - - 77707 Gvidas Drobuzas Board Member - - 146400 Kristina Maciuliene Board Member - - - Vaidas Grincevicius Board Member 3 300 39600 - Lina Simaskiene* Board Member 3 300 39600 - Total 6600 79200 146400 * independent member of the Board The Company is not aware that the Board Members of the Board have received any remuneration from other companies of Panevezio statybos trestas AB Group. After the term of office for the Board expires, the Board Members are not entitled to any severance pays. 100 Remuneration of Company’s Employees The purpose of the remuneration policy is to increase the operation efficiency at the Company and promote achievement of strategic objectives. The objective of the Company goal is to maximize the efficiency of the reward programs in order to attract and motivate highly skilled employees who are necessary for success in business. Over the year 2022 the salary fund attributed to the Company's employees amounted to 14.520 mln. Euros compared to 13.405 mln. Euros in 2021. To attract high-level professionals to management positions, we aim to keep the remuneration close to the market median of the country in which any company of the Group operates. In general, the remuneration structure at the Company consists of two parts: Fixed Remuneration Component (FRC) and Variable Remuneration Component (VRC). The FRC range limits are set taking into account the remuneration trends in the market, research data and comparative market, i.e. the market of the companies operating in Lithuania. The VRC is a tool for getting the Top and Middle Management Staff directly interested in seeking for high performance of the Company, an instrument to for creating policy and culture of the Company, clearly and accurately indicating what achievements and contributions are valued/rewarded. The Variable Remuneration Component to the Top and Middle Management Staff is paid once a year at the end of the financial year and is linked to performance of the employee, team and/or company. The full text of Renumeration Policy is provided at www.pst.lt/pst-istatai-ir-audito-nuostatai . The Company does not provide for the possibility to restore variable remuneration. The average monthly salary of employees (FRC and VRC) for the period 2018 through 2022 is provided in the tables below. Table 9. Average monthly salary for employees of the Group, Euros (before taxes) Position category 2022 2021 2020 2019 2018 Average salary Average salary Average salary Average salary ** Average salary Managing Director 9281 8863 7626 Top Management Staff 5528 5107 5323 4524 3887 Middle Management Staff 4428 4297 3478 3216 2630 Specialists 2380 2192 1806 1753 1244 Workers 1646 1380 1319 1322 980 Total 2020 1800 1583 1569 1170 ** Salary adjustment due to changes in taxation in effect since beginning of 2019. Table 10. Average monthly salary for employees of the Group, Euros (before taxes) Position category 2022 2021 2020 2019 2018 Average salary Average salary Average salary Average salary ** Average salary Top Management Staff 5019 4482 3957 4083 3040 Specialists 2436 2167 1871 1752 1343 Workers 1649 1407 1363 1322 956 Total 2048 1787 1622 1569 1148 ** Salary adjustment due to changes in taxation in effect since beginning of 2019. Remuneration Structure for Managing Director and Top Management Staff The Fixed Remuneration Component is determined considering the impact on general operation of the Company, management scope, decision making, complexity of activities, knowledge and experience. Remuneration determined in the Employment Contract, taking into account the level of position and competence of the employee (conformity with the requirements for the position). The 101 Fixed Remuneration Component is paid on a monthly basis. The Fixed Remuneration Component of the Top and Middle Management Staff is reviewed minimum every 12 months. The new size of the FRC is determined/revised based on performance assessment of the Top and Middle Management Staff. The PAD of the Top and Middle Management Staff may be changed by the decision of the Board. The Variable Remuneration Component is designed to promote achievement of the annual objectives. The size of the VRC amounts to a fixed percentage of the annual result, which is determined and approved by the Board. The Chief Executive Officer and directors of the Company are assigned the percentage of the profit accepted for calculating motivation. For the Directors of the branches the percentage is determined from the profit accepted for calculating motivation for the branch managed by him. Annual Changes in Remuneration Changes in performance of the Company and average salary of the employees of the Company who are not members of the management and supervisory bodies during the last five years. Table 11. Company performance and average monthly gloss salary for the period 2018 through 2022 Company performance 2022 2021 2020 2019 ** 2018 Net profit (loss) (thousands Euros) -1,720 304 -12,418 590 -4,852 Profit (loss) per share (Euros) -0.105 0,019 -0.76 0.036 -0.297 Assets (thousands Euros) 52,762 48,478 62,290 71,337 58,986 Average monthly salary 2,040 1,800 1,583 1,569 1,170 ** Salary adjustment due to changes in taxation in effect since beginning of 2019. Long-Term Motivation by Shares The Company applies neither schemes under which the members of management bodies, managers and employees receive remuneration in shares, share options or other rights to share acquisition, nor supplementary pension or early retirement schemes. 102 Annex 1 Corporate Governance Reporting Form Panevezio statybos trestas AB (hereinafter referred to as “the Company”), acting in compliance with Article 22 (3) of the Law on Securities of the Republic of Lithuania and paragraph 24.5 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 must be indicated and the reasons for such non-compliance must be specified. In addition, other explanatory information indicated in this form must be provided. 1. Summary of the Corporate Governance Report: Panevezio statybos trestas AB in principle complies with the recommendatory Governance Code for the companies listed at NASDAQ Vilnius. Referring to the Articles of Association of the Company, the governance bodies of the Company include the General Shareholders’ Meeting, the Management Board and the Managing Director. According to the Law on Companies of the Republic of Lithuania, either two (supervisory and management) or one collegial management body may be set up in the Company at the discretion of the Company. No Supervisory Board is set up in the Company. Following the Articles of Association of the Company, the Management Board is set up of 5 members, which are elected for the period of for years. The members of the Management Board represent the shareholders and perform the supervisory and control functions. Only the Audit Committee, which is elected for the period of one year, is formed in the Company. The functions of the Nomination and Remuneration Committees are performed by the Management Board. The system of the corporate governance ensures fair treatment of all shareholders, including minority and foreign shareholders, and protects the rights of the shareholders. In its Annual Report, in accordance with the requirements of the legal acts, the Company provides information on the total amounts of money calculated during the reporting period to the members of the Management Board of the Company, the Chief Executive Officer. The management system of the Company ensures that any information on all essential issues, including financial situation, operation and company management, is disclosed in a timely and accurate manner. The audit company is proposed by the Management Board and elected by the Meeting of Shareholders, thus ensuring independence of the conclusions and opinion provided by the audit company. 2. Structured table for disclosure: 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. 103 1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed. Yes All information that shall be made public in accordance with legal acts is published in Lithuanian and English via informational system of stock-exchange Nasdaq Vilnius and on the website of the Company. The venue, date and time of the Meeting of Shareholders convened by the Company are chosen in such a way as to ensure participation of all shareholders in the decision-making process of the Company. 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 Company’s authorized share capital consists of 16,350,000 ordinary shares, the nominal value of 0.29 EUR each, which provide their holders equal voting, property, dividend and other 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 rights attached to the shares are indicated in the Articles of Association of the Company, which are published on the website of the Company. 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. No The Articles of Association of the Company do not provide that the mentioned transactions are subject to approval of the General Meeting of Shareholders. The shareholders of the Company approve the transactions for approval of which they have the right prescribed by the Law on Companies of the Republic of Lithuania and the Articles of Association of the Company. 1.5. Procedures for convening and conducting a general meeting of shareholders should provide shareholders with equal opportunities to participate in the general meeting of shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the general meeting of shareholders should not prevent active participation of shareholders at the general meeting. In the notice of the general meeting of shareholders being convened, the company should specify the last day on which the proposed draft decisions should be submitted at the latest. Yes The Company convenes a General Meeting of Shareholders in accordance with the procedure established by the Law on Companies of the Republic of Lithuania. 104 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 All information for shareholders, notices on convocation of General Meetings of Shareholders, drafts of resolutions and documents proposed for the Meeting of shareholders by the Management Board and adopted resolutions and approved documents are made public in Lithuanian and English languages through the information system of NASDAQ Vilnius Stock Exchange and published on the website of the Company. 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 Each shareholder can participate at the meeting in person or delegate the participation to some other person. The Company allows the shareholders voting by filling the general voting ballot in as prescribed by the law. 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 the provisions of this recommendation, as it is not possible to ensure text protection and identify the signature of a voting person. Furthermore, in the opinion of the Company, so far there was no need for any modern technologies at the General Meeting of Shareholders for the purposes of participation and voting via electronic means of communication. 105 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 Information on the candidates to the members of the Management Board of the Company is provided to the shareholders at the General Meeting of Shareholders with the item related to the election of the members of the Management Board on the agenda in accordance with the procedure established by the Law on Companies of the Republic of Lithuania. Information on the audit company to be elected is made public together with the notice on the draft resolutions of the General Meeting of Shareholders to be convened in accordance with the procedure prescribed by the legal acts. 1.10. Members of the company’s collegial management body, heads of the administration 1 or other competent persons related to the company who can provide information related to the agenda of the general meeting of shareholders should take part in the general meeting of shareholders. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders. Yes The Managing Director, Chief Accountant, Chairman and other competent persons who can provide information on the agenda of the General Meeting of Shareholders always participate at the General Meeting of Shareholders. The proposed candidates to the members of the Management Board, however not all, participated at the General Meeting of Shareholders. 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. Not applicable As the Law on Companies of the Republic of Lithuania provides for the possibility to elect only one either collegial supervision or management body, the collegial management body, the Management Board performing the supervision function, and one-person management body, the Managing Director, are set up in the Company. The collegial supervising – the Supervisory Board is not formed. 1 For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions. 106 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. Not applicable See item 2.1.1. 2.1.3. The supervisory board should be impartial in passing decisions that are significant for the company’s operations and strategy. Members of the supervisory board should act and pass decisions without an external influence from the persons who elected them. Not applicable See item 2.1.1. 2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent 2 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence. Not applicable See item 2.1.1. 2.1.5. The supervisory board should oversee that the company’s tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the long-term interests of the company and its shareholders, which may give rise to reputational, legal or other risks. Not applicable See item 2.1.1. 2.1.6. The company should ensure that the supervisory board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the supervisory board and its committees. Not applicable See item 2.1.1. 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. 107 2.2. Formation of the Supervisory Board The procedure of the formation of the supervisory board should ensure proper resolution of conflicts of interest and effective and fair corporate governance. 2.2.1. The members of the supervisory board elected by the general meeting of shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the supervisory board, it should be ensured that members of the supervisory board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks. Not applicable See item 2.1.1. 2.2.2. Members of the supervisory board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience. Not applicable See item 2.1.1. 2.2.3. Chair of the supervisory board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or management board member of the company should not be immediately appointed as chair of the supervisory board either. Where the company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision. Not applicable See item 2.1.1. 2.2.4. Each member should devote sufficient time and attention to perform his duties as a member of the supervisory board. Each member of the supervisory board should undertake to limit his other professional obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the supervisory board. Should a member of the supervisory board attend less than a half of the meetings of the supervisory board throughout the financial year of the company, the shareholders of the company should be notified thereof. Not applicable See item 2.1.1. 108 2.2.5. When t is proposed to appoint a member of the supervisory board, it should be announced which members of the supervisory board are deemed to be independent. The supervisory board may decide that, despite the fact that a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or company-related circumstances. Not applicable See item 2.1.1. 2.2.6. The amount of remuneration to members of the supervisory board for their activity and participation in meetings of the supervisory board should be approved by the general meeting of shareholders. Not applicable See item 2.1.1. 2.2.7. Every year the supervisory board should carry out an assessment of its activities. It should include evaluation of the structure of the supervisory board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the supervisory board, and evaluation whether the supervisory board has achieved its objectives. The supervisory board should, at least once a year, make public respective information about its internal structure and working procedures. Not applicable See item 2.1.1. Principle 3: Management Board 3.1. Functions and liability of the management board The management board should ensure the implementation of the company’s strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups. 3.1.1. The management board should ensure the implementation of the company’s strategy approved by the supervisory board if the latter has been formed at the company. In such cases where the supervisory board is not formed, the management board is also responsible for the approval of the company’s strategy. Yes As there is no Supervisory Board formed at the Company, the Management Board performs supervisory functions, discusses and approves the strategy of the Company, analyses and evaluates information on implementation of the strategy of the Company. 109 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 Company follows the strategic plan of the Company based on which the mission of the management bodies of the Company is to create and maintain a strong, competitive, financially capable and technically advanced Company that creates and maximizes the value for the shareholders. 3.1.3. The management board should ensure compliance with the laws and the internal policy of the company applicable to the company or a group of companies to which this company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers. Yes The Management Board ensures compliance with the laws and internal policy of the Company applicable to the Company or the Group. 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 Management Board complies with this guidance. 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 Chief Executive Officer, the Board takes into account 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 members of the Management Board of the Company are elected by the General Meeting of Shareholders. The members of the Management Board of the Company are qualified and competent to perform their functions, have a long experience in management. At present the Management Board fails to maintain gender equality. All members of the Management Board are male. At present females make 40 per cents of the members of the Management Board, i. e. two females and three males. 110 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 Information on the positions taken by the members of the Management Board or their participation in operation of other companies is continuously collected and compiled, and at the end of every year it is revised and presented in the reports prepared by the Company. 3.2.3. All new members of the management board should be familiarized with their duties and the structure and operations of the company. Yes The new members of the Management Board have been familiarised with their duties, the structure, operations and strategy of the Company. 3.2.4. Members of the management board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status. Yes The Management Board of the Company is elected by the General Meeting of Shareholders for the maximal four-year term in office prescribed by the Law on Companies of the Republic of Lithuania. Individual members of the Management Board or the entire Management Board may be recalled by the General Meeting of Shareholders before the end of their term of office. 3.2.5. Chair of the management board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the supervisory board is not formed, the former manager of the company should not be immediately appointed as chair of the management board. When a company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision. Yes The Chairman of the Management Board represents the main shareholder and has never been the Chief Executive Officer of the Company. 3 Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/anti- bribery/44884389.pdf 111 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 The members of the Management Board fulfil their functions properly: actively participate at the meetings of collegial body and devote sufficient time to perform their duties as a member of the collegial body. In 2022 there were 12 (twelve) meetings of the Management Board where three members participated in all the meetings, two members participated in eleven meetings. 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 independent4, it should be announced which members of the management board are deemed as independent. The management board may decide that, despite the fact that a particular member meets all the criteria of independence established by the Law, he/she cannot be considered independent due to special personal or company- related circumstances. No Two independent Board Members are Vaidas Grincevicius and Lina Simaskiene. Prior to the Meeting of Shareholders, it was published that these two candidates for Board Membership would be considered as independent Board Members. 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 On 9 April 2021 the Extraordinary General Meeting of Shareholders approved the Procedure for Awarding and Paying Remuneration to Independent Board Members of Panevezio statybos trestas AB for their Activities in the Board. The members of the Management Board, except for the independent members of the Management Board, are paid remuneration (bonuses) by the decision of the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania. 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 Based on the data available to the Company, all members of the Management Board act in good will for the interests of the Company and its shareholders, they are guided by the interests of the Company and not those of their own or any third parties, seek to maintain their independence in decision-making. 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. 112 3.2.10. Every year the management board should carry out an assessment of its activities. It should include evaluation of the structure of the management board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the management board, and evaluation whether the management board has achieved its objectives. The management board should, at least once a year, make public respective information about its internal structure and working procedures in observance of the legal acts regulating the processing of personal data. Yes/No The internal documents of the Company do not directly provide for an activity assessment of the collegial bodies exercising individual supervisory functions. However, the collegial body ensures that its members are competent and have a variety of knowledge, opinions and experience to perform their tasks properly. Principle 4: Rules of procedure of the supervisory board and the management board of the company The rules of procedure of the supervisory board, if it is formed at the company, and of the management board should ensure efficient operation and decision-making of these bodies and promote active cooperation between the company’s management bodies. 4.1. The management board and the supervisory board, if the latter is formed at the company, should act in close cooperation in order to attain benefit for the company and its shareholders. Good corporate governance requires an open discussion between the management board and the supervisory board. The management board should regularly and, where necessary, immediately inform the supervisory board about any matters significant for the company that are related to planning, business development, risk management and control, and compliance with the obligations at the company. The management board should inform he supervisory board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this. Not applicable There is no Supervisory Board formed at the Company. 4.2. It is recommended that meetings of the company’s collegial bodies should be held at the respective intervals, according to the pre-approved schedule. Each company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the company’s collegial bodies should be convened at least once per quarter. Yes The meetings of the Management Board of the Company are held at least once a month in accordance with the Rules of Procedures of the Management Board. The date of the next meeting of the Management Board is agreed at each meeting of the Management Board. If required, the meetings of the Management Board are held at shorter intervals. 113 4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have sufficient time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the company require immediate resolution. Yes The members of the Management Board are notified of the meeting being convened and its agenda in advance. All members of the Management Board get all materials relevant to the issues on the agenda in advance and have an opportunity to get familiarised with them and ask questions before and during the meeting, have the right to request to supplement or clarify the materials relevant to the issue to be discussed. 4.4. In order to coordinate the activities of the company’s collegial bodies and ensure effective decision-making process, the chairs of the company’s collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of the company’s supervisory board should be open to members of the management board, particularly in such cases where issues concerning the removal of the management board members, their responsibility or remuneration are discussed. Not applicable The Company does not have a Supervisory Board. 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. 114 5.1.1. Taking due account of the company-related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees 5 . No The collegial body of the Company’s management is the Management Board performing the functions of Nomination Committee and the Remuneration Committees. The Management Board selects and approves the candidacy of the Chief Executive Officer of the Company – Managing Director and agrees with the candidacies of Directors of the Company proposed by the Managing Director. The Management Board continuously evaluates their experience, professional capabilities and implementation of the Company’s strategic goals, hears out their reports. The Board selects the candidate for the external auditor and provides proposals to the General Meeting of Shareholders for approval. On 28 April 2022, the Audit Committee was elected at the Annual General Meeting of Shareholders. 5.1.2. Companies may decide to set up less than three committees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three different committees. Yes 5.1.3. In the cases established by the legal acts the functions assigned to the committees formed at companies may be performed by the collegial body itself. In such case the provisions of this Code pertaining to the committees (particularly those related to their role, operation and transparency) should apply, where relevant, to the collegial body as a whole. No See the commentary on the recommendation provided in item 5.1.1. The recommendation is implemented to the extent it is related to the activities of the Audit Committee in the Company. 5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the management board should not serve as the chair of committees. Yes/No See the commentary on the recommendation provided in 5.1.1. The recommendation is implemented to the extent it is related to the activities of the Audit Committee in the Company. The Audit Committee is composed of three members. Two members conform to the requirements for independence. The Audit Committee is elected for the period of one year. 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). 115 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/No See the commentary on the recommendation provided in item 5.1.1. The Audit Committee follows the Rules of the Audit Committee prepared by the committee and approved by the General Meeting of Shareholders. These rules define the regulations specifying the rights and duties of the Audit Committee, size of the Audit Committee, term of office in the Audit Committee, requirements for education, professional experience and principles iof independence. The approved Rules of the Audit Committee are published on the website of the Company. In 2022, there were 2 meetings of the Audit Committee held where all members of the Audit Committee were present. 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/No See the commentary on the recommendation provided in item 5.1.1. The recommendation is implemented to the extent it is related to the activities of the Audit Committee in the Company. 116 5.2. Nomination Committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. Not applicable There is no Nomination Committee formed at the Company. The functions of the collegial body – the Management Bord performs the functions of the Nomination Committee. (See the commentary on the recommendation provided in item 5.1.1.). 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the company and the heads of the administration, the manager of the company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. Not applicable 5.3. Remuneration Committee The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed-rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the company’s remuneration policy and the evaluation of the performance of the persons concerned; Not applicable There is no Remuneration Committee formed at the Company. (See the commentary on the recommendation provided in 5.1.1). 117 3) review, on a regular basis, the remuneration policy and its implementation. 5.4. Audit Committee 5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee 6 . Yes The Company implements this recommendation. On 28 April 2022, the Audit Committee was elected at the Annual General Meeting of Shareholders. The Audit Committee is composed of three members, two of which conform to the requirements for independence. The Audit Committee organizes its activities in accordance with the Rules of the Audit Committee approved at the Meeting of Shareholders. 5.4.2. All members of the committee should be provided with detailed information on specific issues of the company’s accounting system, finances and operations. The heads of the company’s administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches. Yes The Audit Committee organizes its activities in accordance with the Rules of the Audit Committee approved at the Meeting of Shareholders. All members of the Committee are provided with detailed information on specific issues of the accounting system, finances and operations of the Company. 5.4.3. The audit committee should decide whether the participation of the chair of the management board, the manager of the company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present. Yes The Audit Committee organizes its activities in accordance with the Rules of the Audit Committee approved at the Meeting of Shareholders. 5.4.4. The audit committee should be informed about the internal auditor’s work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the company and its group. Yes The Audit Committee organizes its activities in accordance with the Rules of the Audit Committee approved at the Meeting of Shareholders. The Audit Committee is provided with the information mentioned listed herein from independent audit firm. No internal audit function exists at the Company/Group. 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. 118 5.4.5. The audit committee should examine whether the company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions. Yes The Audit Committee organizes its activities in accordance with the Rules of the Audit Committee approved at the Meeting of Shareholders. 5.4.6. The audit committee should submit to the supervisory board or, where the supervisory board is not formed, to the management board its activity report at least once in every six months, at the time that annual and half-yearly reports are approved. Yes The Audit Committee makes analysis of ang gives evaluation to the financial statements of the Company, gives recommendations on their approval to the Management Board together with the reports on their activity over the period. Principle 6: Prevention and disclosure of conflicts of interest The corporate governance framework should encourage members of the company’s supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies. The Corporate Governance Framework should recognize the rights of stakeholders as established by law and encourage active co-operation between companies and stakeholders in creating the company value, jobs and financial sustainability. In the context of this principle the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the company concerned. Any member of the company’s supervisory and management body should avoid a situation where his/her personal interests are or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory or management body should, within a reasonable period of time, notify other members of the same body or the body of the company which elected him/her or the company’s shareholders of such situation of a conflict of interest, indicate the nature of interests and, where possible, their value. Yes Members of the management bodies of the Company behave in such a way that there is no conflict of interest with the Company. During the reporting period, there have been no known conflict of interest between the Company and the member of its management body. Principle 7: Remuneration policy of the company The remuneration policy and the procedure for review and disclosure of such policy established at the company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the company’s remuneration policy and its long-term strategy. 119 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 prepared the draft of revised Remuneration Policy, which is subject to the approval at the coming General Meeting of Shareholders. 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 defines the renumeration components and established the principles of its award and payment. 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 Remuneration policy is intended to establish only the principles of remuneration of top and middle management staff. See item 3.2.8. 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 complies with this recommendation in accordance with the provisions of the Labour Code of the Republic of Lithuania within the limits established therein. 7.5. In the event that the financial incentive scheme is applied at the company, the remuneration policy should contain sufficient information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares. Not applicable There is no scheme anticipating remuneration of the directors in shares, share options or any other right to purchase shares. 120 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 publishes information about the implementation of the remuneration policy in the Annual Report. 7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the general meeting of shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the general meeting of shareholders. No The Company does not apply any schemes under which members and employees of a collegial body receive remuneration in shares or share options. 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 protects all rights of the stakeholders, allows the stakeholders to participate in corporate governance in the manner prescribed by law. 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 this recommendation. For example, the Company has a Co-operation Agreement signed with the Works Council. According to the signed agreement, the Company informs the representatives of the Council about the financial position of the Company, employer’s status, expected changes, etc. 121 8.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. Yes Detailed information on scheduled events of the shareholders is made public following the procedure prescribed by law, the investors (shareholders) have sufficient opportunities to familiarize themselves with the relevant information and vote in adopting decisions. 8.4. Stakeholders should be provided with the possibility of reporting confidentially any illegal or unethical practices to the collegial body performing the supervisory function. Yes The stakeholders may submit anonymous reports to the collegial body. 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 operating and financial results of the Company are made public in the Intermediate Semi-annual and Annual Reports of the Company on the website of the Company and on the website of stock-exchange Nasdaq Vilnius. 9.1.2. objectives and non-financial information of the company; Yes Information is published in the Intermediate Semi-annual and Annual Reports of the Company. 9.1.3. persons holding a stake in the company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; Yes All information available to the Company is published in the Intermediate Semi-annual and Annual Reports of the Company. 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 Information is published in the Intermediate Semi-annual and Annual Reports of the Company. 9.1.5. reports of the existing committees on their composition, number of meetings and attendance of members during the last year as well as the main directions and results of their activities; Yes Information on composition, number of meeting and attendance of members of the existing committees is published in the Intermediate Semi-annual and Annual Reports of the Company. 122 9.1.6. potential key risk factors, the company’s risk management and supervision policy; Yes Information is published in the Intermediate Semi-annual and Annual Reports of the Company. 9.1.7. the company’s transactions with related parties; Yes Information is published in the Intermediate Semi-annual and Annual Reports of 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.); No The Company does not apply any schemes under which employees receive remuneration in shares, share options or other rights to share acquisition. 9.1.9. structure and strategy of corporate governance; Yes/No Information is published in the Intermediate Semi-annual and Annual Reports of the Company. 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 Information is published in the Intermediate Semi-annual and Annual Reports of the Company. 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 the recommendation and discloses information about the results of the Company and the Group of its subsidiaries. The information is published in the Intermediate Semi-annual and Annual Reports of the Company. 9.3. When disclosing the information specified in paragraph 9.1.4 of recommendation 9.1, it is recommended that the information on the professional experience and qualifications of members of the company’s supervisory and management bodies and the manager of the company as well as potential conflicts of interest which could affect their decisions should be provided. It is further recommended that the remuneration or other income of members of the company’s supervisory and management bodies and the manager of the company should be disclosed, as provided for in greater detail in Principle 7. Yes The information specified in the recommendation in provided in the Annual and Semi-annual Reports of the Company. 123 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 via the information disclosure system used by the Vilnius Stock Exchange in the Lithuanian and English languages simultaneously. The Company does not disclose the information likely to impact the price of the issued by it securities in its comments, interviews or otherwise by the time such information is announced via the information system of the Stock Exchange. 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 independent audit company performs auditing of the individual and consolidated (the Group) annual financial statements of the Company and its subsidiaries in accordance with the International Accounting Standards applicable in the European Union. The independent audit company evaluates conformity of the Annual Report to the audited Financial Statements. 10.2. It is recommended that the audit firm would be proposed to the general meeting of shareholders by the supervisory board or, if the supervisory board is not formed at the company, by the management board of the company. Yes The Management Board proposes an audit firm to the General Meeting of Shareholders. 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 In 2022, the firm of auditors provided no services other than auditing.

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